There are several causes that justify the frequent disputes arising during construction projects, but experience points to four main pillars, inherently interconnected by their nature: contractual deadlines, project modifications, additional works, and execution errors.
The greatest challenge in managing these conflict situations lies in the standstill of the works while the dispute remains unresolved – a situation clearly incompatible with the timeframes and costs agreed upon by the parties. These quickly “multiply,” triggering reactive and rigid attitudes that only exacerbate the conflict, wearing down the contractual relationship and the trust necessary for the continuation of the works, until maintaining the relationship becomes unfeasible.
When that occurs, the courts become the ultimate “managers” of such disputes. It was in this context that the Supreme Court of Justice issued its judgment of 17 June 2025, concluding that “a situation of culpable delay in performance by both parties does not preclude one of them from opting for contractual termination.”
This case concerned the legal assessment of the contractor’s refusal to return to the construction site to complete the works and, simultaneously, the non-payment by the project owner of invoices related to contractual and “extra-budgetary” works already executed. Following this, the contractor was urged to complete the project, and the project owner proceeded to terminate the construction contract. The contractor brought an action claiming payment of the outstanding invoices, while the project owner, in a counterclaim, sought the amounts incurred due to the abandonment of the works and the contractual penalty applied for breach of the agreed deadlines (commencement and completion of the works).
The Court upheld the project owner’s declaration of termination of the construction contract, deeming the contract extinguished upon the expiry of the period granted for the contractor to return to the site.
The Court effectively found that the contractual relationship had reached an impasse, given that the contractor suspended the works following the owner’s failure to pay two invoices for works already performed. Although the contractor had not expressly terminated the contractual relationship, the project owner had issued a formal notice requiring completion of the works and correction of existing defects within 30 days, and re-entry to the site within 5 working days. When the contractor failed to do so, the project owner was entitled to terminate the contract, as it did.
The Supreme Court considered that, in such circumstances, the specific regime applicable to defective performance of a construction contract does not apply. Once definitive non-performance has occurred, the rationale underlying that special regime ceases to be relevant. Therefore, the general legal framework governing performance and non-performance of obligations must be observed in cases where the construction contract is terminated before completion.
In cases where the debtor is in default, the creditor may set a reasonable deadline for performance, stipulating that failure to comply within that period will result in the contract being considered terminated through a declaration duly communicated to the other party.
Nevertheless, the Court noted that “the grounds of the valid termination effected by the defendant do not neutralise or annul the conduct that the same party adopted throughout the contractual relationship and which, to an equal extent, contributed to the contractual extinction.” Such conduct must necessarily be taken into account in calculating any damages claimed.
Accordingly, the Court admitted the exclusion or reduction of damages arising from the costs borne by the project owner to complete the contractual works left unfinished by the contractor, since the owner also contributed to the contractual breach.
This case thus concerns the allocation of fault in the definitive non-performance of a construction contract and its impact on the damages claimed – in this instance, by the project owner.
Where both parties are found to have contributed to the definitive non-performance of the contract, compensation cannot be awarded on the assumption that the losses resulted solely from the other party’s culpable conduct.
In situations of concurrent fault, it is necessary to assess the degree of responsibility of each party and determine compensation accordingly.
In conclusion, although both parties may be in culpable breach of a construction contract, this does not prevent one of them from terminating it. However, that party cannot benefit from the other’s fault, particularly when asserting a claim for damages.
Belzuz Abogados, S.L.P. has advised in numerous disputes involving construction contracts, giving its professionals extensive experience in this area – one that continues to “generate much ink” in our courts.