What are liquidated damages in a Michigan construction contract?

Liquidated damages are a contractually agreed-upon dollar amount, typically assessed on a daily basis, that a contractor owes the owner if the project is not substantially complete by a specified deadline. They are not a penalty; they are supposed to represent the parties’ best estimate, at the time of signing, of what a delay would actually cost the owner. Michigan courts may likely enforce them when they meet that standard.

Key Takeaways

• Liquidated damages clauses have been seen, and can be enforceable, in Michigan construction contracts.
• Michigan courts will not enforce an LD clause that functions as a penalty rather than a genuine pre-estimate of damages.
• The dollar amount, the deadline, and the definition of “substantial completion” all matter enormously.
• Contractors have specific defenses available, including owner-caused delays, concurrent delays, and waiver.
• You can negotiate LD clauses before signing. Many contractors do not try.

Why This Matters for Michigan Contractors

Michigan construction projects often run on tight margins. On a $2 million project with a 10% projected profit, the entire margin is $200,000. A liquidated-damages clause of $3,000 per day would consume that projected profit in about 67 days. On larger commercial projects, daily liquidated-damages rates of $5,000, $10,000, or more can appear, depending on the project and the owner’s estimated cost of delay

What makes this worse is that delays on construction projects are almost never entirely one party’s fault. Owners change orders. Design professionals issue late drawings. Material deliveries slip. Subcontractors fall behind. When delay happens, the owner looks to the LD clause first. Whether you can fight back depends entirely on what your contract says and what you documented along the way.

What Michigan Courts Require Before Enforcing an LD Clause

Michigan courts apply a two-part test before enforcing a liquidated damages clause. The clause must satisfy both elements.

First: Damages Must Be Difficult to Estimate at the Time of Contracting

If the owner could easily calculate the precise financial harm a one-day delay would cause, the LD clause loses much of its justification. But on most commercial projects, construction delays produce losses that are genuinely hard to pin down precisely: lost rental income, carrying costs, business interruption, financing costs, reputational harm. Michigan courts recognize this difficulty and generally find it satisfied on most commercial construction projects.

Second: The Amount Must Be a Reasonable Pre-Estimate of Actual Damages, Not a Penalty

This is where LD clauses get challenged. If the agreed daily amount bears no reasonable relationship to the actual losses the owner could expect from a delay, a Michigan court may refuse to enforce it as a penalty clause. The key word is “reasonable.” Courts look at what the parties knew or should have known at the time they signed, not what actually happened.

Are liquidated damages clauses enforceable in Michigan?

Yes, liquidated damages clauses are enforceable in Michigan if two conditions are met: (1) actual damages from a breach were difficult to estimate when the contract was signed, and (2) the agreed amount represents a reasonable pre-estimate of those damages rather than a punishment. A clause that functions as a penalty, bearing no reasonable relationship to anticipated harm, may be unenforceable.

The Clauses That Create the Most Risk

Not all LD clauses are created equal. These are the contract provisions that create the most exposure for Michigan contractors.

Vague or Missing Milestone Definitions

If the contract says LDs run until “completion” but never defines what completion means, you have a problem. Does completion mean substantial completion? Final completion? Certificate of occupancy? Each definition produces a different outcome. A contract that is silent on this point may give the owner the ability to run LDs for weeks after the project is functionally done.

No-Excuse Provisions

Some contracts include language that purports to hold the contractor liable for LDs regardless of the cause of delay, including owner-caused delays. Michigan courts do not look favorably on provisions that eliminate all contractor defenses, but the language still creates a fight you would rather not have.

Missing Float Allocation Language

On a project with a CPM schedule, float is a resource that belongs to someone. If the contract does not address who owns schedule float, the owner may claim it. That means any delay eats into the contractor’s schedule buffer before it even becomes an excusable delay event.

Asymmetric Provisions

Watch for contracts that impose LDs on the contractor for late completion but give the owner no corresponding obligation for late design deliverables, slow RFI responses, or restricted site access. Asymmetry in a contract can run against the contractor.

What is the difference between liquidated damages and a penalty in Michigan?

In Michigan, a liquidated damages clause is a binding agreement on a pre-estimated amount of harm. A penalty clause imposes an amount designed to punish or coerce, without regard to actual loss. Michigan courts will enforce the former and may refuse to enforce the latter. The distinction turns on whether the agreed amount was a reasonable estimate of anticipated damages at the time of contracting, not on what it is called in the contract.

Defenses Available to Michigan Contractors

If an owner asserts a liquidated damages claim, these are your most important defenses:

Owner-Caused Delay

If the owner contributed to the delay through late approvals, slow responses to RFIs, design changes, or restricted site access, you have grounds to seek a time extension and to argue that the LD clock should not run for owner-caused periods. This defense requires documentation. A paper trail of unanswered RFIs, change order requests, and schedule notices can be your best evidence.

Concurrent Delay

Where both parties contribute to a delay at the same time, Michigan courts may not award LDs to the owner for the concurrent period. The theory is that the owner cannot prove its own conduct was not responsible for the overrun. Establishing concurrent delay requires a detailed schedule analysis.

Waiver and Course of Conduct

If the owner knew about the contractor’s delayed schedule, accepted progress payments without objection, and never formally invoked the LD clause during the project, the owner may have waived the right to enforce it. Courts look at the parties’ conduct throughout the project, not just the language in the contract.

Penalty Clause Challenge

If the daily LD rate is grossly disproportionate to any harm the owner could reasonably have anticipated, challenge it. The burden is on the party seeking to avoid enforcement, but a clause set at an absurdly high amount gives you a legitimate argument.

Can a Michigan contractor fight a liquidated damages claim?

Yes. Common defenses include owner-caused delay, concurrent delay, waiver, and a challenge to the clause as an unenforceable penalty. Prevailing on any of these defenses typically requires contemporaneous documentation: RFI logs, change order requests, schedule updates, written notices, and meeting minutes. Contractors who document delays as they happen are in a far stronger position than those who try to reconstruct the record after the dispute begins.

How to Negotiate Liquidated Damages Clauses Before You Sign

Many contractors accept LD clauses without negotiating them. That is a mistake. Here is what you should address before you sign.

Ask for a cap.

Many sophisticated contractors negotiate a cap on total LD exposure, often expressed as a percentage of the contract price. A cap of 5% or 10% of the contract price significantly limits your worst-case outcome.

Define substantial completion clearly.

The contract should specify exactly what events constitute substantial completion and when the LD clock stops. Tie it to a specific, objective milestone, not a judgment call by the owner or architect.

Add an owner delay credit.

If the owner can assess LDs for contractor delays, the contractor should have the right to a time extension and, ideally, a day-for-day credit against LDs for any period of delay attributable to the owner.

Push for mutual delay provisions.

If the owner demands bonus or penalty provisions, make them mutual. If you finish early, you get a bonus. If the owner causes delay, the LD clock stops.

Identify excusable delay events explicitly.

Force majeure, supply chain disruptions, labor shortages, and government-ordered work stoppages should all be listed as events that extend the contract time without triggering LDs.

How should a Michigan contractor negotiate a liquidated damages clause?

Before signing, a contractor should seek a cap on total LD exposure (typically 5 to 10 percent of the contract price), a clear definition of substantial completion, explicit excusable delay provisions, and a day-for-day credit for owner-caused delays. At minimum, the contractor should understand the maximum financial exposure the clause creates before accepting the project at the proposed margin.

Contractor Takeaway: The Bottom Line

Liquidated damages clauses are not going away. They can often be found in many commercial construction projects in Michigan and are especially common on public projects in Wayne County, Oakland County, Macomb County, and Washtenaw County, where owners often want a defined daily remedy for delay. The question is not whether you will encounter them. It is whether you are prepared.

Three things give you the best protection. First, read and negotiate the clause before you sign. Know your maximum exposure going in. Second, document every delay event, every RFI, every change, and every notice as it happens. Third, if an owner asserts an LD claim that does not match the facts, get a Michigan construction attorney involved early. The sooner you engage counsel, the more options you have.

Frequently Asked Questions

Before you sign your next construction contract, make sure you understand your maximum LD exposure. A contract review now costs far less than a damages dispute later. Contact Szura & Delonis, PLC to schedule a consultation.

This article is provided for general educational and informational purposes only. It does not constitute legal advice and does not create an attorney-client relationship between the reader and Szura & Delonis, PLC. Michigan construction law involves complex statutory requirements and fact-specific analysis. Do not rely on this content as legal advice for your specific situation. If you have a time-sensitive construction law matter, consult a qualified Michigan construction attorney immediately.

About the Author

Richard M. Delonis is a Michigan construction, business, and real estate attorney at Szura & Delonis, PLC (Southfield/Metro Detroit). He advises construction managers, general contractors, subcontractors, and property owners on lien rights, collections strategy, contract disputes, and project-risk issues.

Understanding how Michigan law treats change orders, what notice is required before you perform extra work, and what remedies exist when a GC or owner refuses to pay is essential knowledge for every contractor, subcontractor, and supplier working in Metro Detroit and throughout Michigan.

This guide covers Michigan change order law in practical terms, including what happens when there is no signed change order and your legal options when verbal directives go unpaid.

For immediate assistance with a Michigan construction change order dispute, contact the Michigan construction attorneys at Szura & Delonis, PLC. We represent contractors, subcontractors, and suppliers throughout Oakland, Wayne, Macomb, and Washtenaw Counties.

What Is a Construction Change Order in Michigan?

Direct Answer: A constructive change order arises when an owner, GC, or design professional causes a contractor to perform work outside the original contract scope — without issuing a formal change order. Common examples include defective design requiring corrective work, owner-directed acceleration, changed site conditions, and over-inspection that exceeds contract requirements. The contractor is entitled to additional compensation even without a signed change order.

A change order is a written agreement that modifies the scope, price, or schedule of a construction contract. It documents that both parties have agreed to work that is different from — or additional to — the original contract scope.

Michigan construction contracts typically provide a defined change order process: the owner or GC issues a directive, the contractor prices the change, and both parties sign the change order before work begins. Simple in theory. In practice, construction moves faster than paperwork, and work gets done on verbal directives, site superintendent instructions, and implied approvals — all before anyone thinks about a written change order.

That gap between how change orders are supposed to work and how they actually work in the field is where disputes are born.

Formal Change Orders vs. Constructive Changes

A formal change order is a written modification signed by both parties. A constructive change is different: it arises when a contractor is required to perform extra or changed work without a formal change order being issued — typically because of owner conduct, design errors, changed conditions, or directives from the architect or project manager.

Constructive changes may be compensable under Michigan law even without a signed change order. The contractor must still prove the change occurred and what it cost — but the absence of a written change order does not necessarily automatically end the claim.

The Legal Difference Between a Change Order and Extra Work

Extra work refers to work that is genuinely outside the original contract scope. Changed work is work within the scope that must be done differently than specified. Both can give rise to additional compensation claims in Michigan. Courts look to the contract documents — drawings, specifications, scope of work definitions — to determine whether challenged work was truly ‘extra’ or was already included in the original contract price.

Are Verbal Change Orders Enforceable in Michigan?

Direct Answer: Yes, Michigan courts will sometimes enforce verbal change orders despite written-notice requirements in the contract, particularly when the evidence shows that the owner or GC directed the work, accepted the benefit of the work, and the contractor can prove the directive through contemporaneous documentation. Written change orders are always better, but oral directives supported by solid documentation are not automatically unenforceable.

This is the question every subcontractor with an outstanding extra work invoice wants answered. The honest answer: it depends on the facts, the contract language, and the evidence you have.

Michigan courts apply general contract law principles to change order disputes. Where a written change order requirement exists in the contract, courts will look first at whether the requirement was a strict condition precedent to any recovery, or whether it was something the parties agreed to do but whose breach does not automatically eliminate the claim.

When Michigan Courts Have Enforced Oral Directives

Michigan appellate courts have, in appropriate circumstances, enforced oral change orders despite written-notice provisions in the contract when the evidence established that: (1) the GC or owner clearly directed the extra work; (2) the contractor reasonably relied on the directive; (3) the owner or GC accepted the benefit of the completed work; and (4) enforcing the written requirement would result in unjust enrichment.

EXAMPLE SCENARIO: A Livonia mechanical subcontractor receives a verbal directive from the site superintendent to relocate $40,000 worth of ductwork because the architect’s drawings contained a coordination error. The GC later denies authorization and refuses to issue a change order. The subcontractor has emails from the superintendent confirming the relocation, daily logs showing when the work was performed and by whose direction, and photos of the pre-existing conflict and completed relocation. With this documentation, the subcontractor has a strong claim to recover, either through a constructive change order claim or quantum meruit, even without a signed change order.

Waiver of Written Change Order Requirements in Michigan

Michigan contract law recognizes that a party can waive a written notice or change order requirement through conduct. Waiver requires proof that the party entitled to written change orders accepted verbal directives and paid for them — or accepted the work without objection — such that enforcing the written requirement would be inequitable. Courts will require clear and convincing evidence to demonstrate the waiver of a written change order, and the presence of restrictive clauses in the contract, such as anti-waiver provisions, may increase the evidentiary burden to establish waiver.

A GC who has paid three prior verbal change orders without requiring written documentation has a difficult argument that the fourth identical directive required a written change order. Courts look at the parties’ course of dealing — how they actually behaved on this project — not just what the contract says in the abstract.

Why Relying on Verbal Directives Is Always Dangerous

Even if you can ultimately win a verbal change order claim, the litigation is far more expensive, uncertain, and time-consuming than it would have been with a signed written change order. The default rule is that verbal change orders are not enforceable. You are fighting against the contract language every step of the way. Winning requires strong contemporaneous documentation on your side. Start from a position of strength: get it in writing before you start the work.

Written Notice Requirements: What Your Contract Probably Says

Most Michigan construction contracts, including AIA A201-2017, standard subcontract forms used by major GCs in Metro Detroit, and custom owner-drafted agreements — include provisions requiring written notice as a condition of recovering for change order work. These provisions can vary significantly in their language and legal effect.
 

Condition Precedent vs. Covenant — The Critical Distinction

If the written notice requirement is a ‘condition precedent,’ failure to serve it on time eliminates the claim entirely, and the contractor’s right to recover never materializes. Courts strictly enforce conditions precedent when the language is unambiguous.

If the requirement is a ‘covenant’ — a promise to provide notice, breach of which entitles the other party to damages — the analysis is different. The contractor has breached the contract by failing to give notice, but the claim for extra work itself may survive. The other party may be required to show actual prejudice from the lack of notice to reduce or eliminate the contractor’s recovery.

This distinction is frequently litigated in construction disputes. Contract language like ‘as a condition precedent to any recovery’ signals strict enforcement. Language like ‘contractor shall give written notice’ without that qualifier may be interpreted as a covenant. Every contract requires individual analysis.

AIA A201 Change Order Procedures in Michigan

AIA A201-2017, the most widely used general conditions document on Michigan commercial projects, provides a detailed change order and claim procedure. Under AIA A201:

• The Owner may direct changes to the Work through Change Orders (Article 7).
• A Claim — including for additional compensation for changed work — must be made within 21 days of the occurrence of the event giving rise to the claim.
• Construction Change Directives allow owners to direct change work before agreement on price.
• Contractors who fail to submit a timely Claim may waive the right to additional compensation.

Michigan contractors and subcontractors working under AIA contracts should assume the 21-day notice requirement will be enforced. Give notice early, in writing, even if you are not certain a claim will develop. You can always withdraw a claim; you cannot revive one that expired because you waited too long.

Subcontract Flow-Down Provisions and Notice Requirements

Many GC subcontracts flow down the notice requirements from the prime contract — meaning a subcontractor may be bound by AIA A201’s 21-day notice requirement even if the subcontract does not explicitly state a deadline. Read your subcontract carefully for flow-down language and always give notice upstream consistent with the prime contract timeline.
 

Constructive Change Orders: Getting Paid Without a Signed Change Order

Direct Answer: A constructive change order arises when an owner, GC, or design professional causes a contractor to perform work outside the original contract scope — without issuing a formal change order. Common examples include defective design requiring corrective work, owner-directed acceleration, changed site conditions, and over-inspection that exceeds contract requirements. The contractor is entitled to additional compensation even without a signed change order.

What Makes a Change Order ‘Constructive’ in Michigan?

A constructive change arises when the contractor is required to do more than the original contract requires, but without the formal change order process. The contractor is entitled to compensation as if a formal change order had been issued. Common constructive change triggers on Michigan construction projects can include:

• Defective or conflicting design documents requiring corrective work beyond the original scope
• Owner-furnished materials or equipment that are defective or late, requiring contractor workarounds
• Differing site conditions — concealed conditions materially different from those the contract represented
• Owner-directed acceleration of the schedule without additional compensation
• Rejection of conforming work by the owner or architect without legitimate basis
• Excessive or unreasonable inspection requirements that exceed contract specifications

Cardinal Change: When the Scope Change Is So Large the Contract Is Abandoned

A cardinal change occurs when the cumulative scope modifications are so significant that the project being constructed is fundamentally different from what was bargained for. At that point, the contractor may be entitled to abandon the original contract and pursue recovery in quantum meruit for the full reasonable value of all work performed — not just the specific changes.

Cardinal change is a high threshold and requires careful analysis of the total deviation from the original scope. It is more commonly argued on large commercial and public projects than residential work. If you believe you are facing a cardinal change situation, consult a Michigan construction attorney before making any decisions about contract abandonment. The doctrine of cardinal change is well-established in federal courts, but Michigan courts have not adopted it. Instead, Michigan courts rely on the terms of the contract and statutory provisions governing modifications to address disputes over significant changes in construction projects.

How to Document Extra Work to Maximize Recovery

Whether you end up negotiating a change order, filing a lien, or litigating, your recovery depends almost entirely on your documentation. The contractor with organized, contemporaneous records wins. The contractor relying on memory loses.

The Real-Time Documentation Checklist

When a verbal change order or extra work directive is given, immediately create a record:

1. Send a same-day email to the GC’s project manager or superintendent confirming the directive: ‘Per your direction at the site meeting this morning, we will proceed with [specific work]. Please confirm this is authorized as additional work beyond the original scope.’
2. Record the directive in your daily field report, identifying who gave the instruction, what was directed, the date, and the time.
3. Photograph pre-existing conditions before beginning extra work, and the completed extra work.
4. Segregate labor and material costs for the extra work the moment it begins — do not commingle with base contract costs.
5. Submit a formal written change order request with pricing as soon as the scope is defined. Even if not signed, a submitted and unrejected change order request establishes the claim.
6. Track all communications — texts, voicemails, emails — about the extra work in a single project file.

Pricing Change Order Work: T&M vs. Lump Sum vs. Unit Price

How you price a change order affects how easily it is approved and how well-protected you are if the price is disputed. Time-and-material (T&M) pricing is straightforward but requires rigorous contemporaneous cost records. Lump sum pricing is cleaner and faster to approve but requires careful scope definition. Unit price changes work best for measurable, repetitive work. Whatever method you use, document your cost basis in real time. Reconstructing costs from memory months later is unreliable and less persuasive in litigation.

RFIs as Change Order Triggers — How to Use Them Strategically

A Request for Information (RFI) is one of the most underused tools in change order documentation. When a drawing conflict, design gap, or ambiguous specification requires clarification, submit an RFI immediately. The architect’s or engineer’s response to an RFI — directing a specific approach, confirming a method, or defining work beyond the original specification — is powerful evidence that changed or additional work was required and directed. Date-stamp everything. An RFI log that shows a directive, followed by additional cost, followed by an unpaid invoice can be a strong change order claim.

When the GC Refuses to Sign — Your Legal Remedies in Michigan

When a GC refuses to sign a change order for work you have already completed, you have several legal options. The right strategy depends on the documentation available, the contract language, the dollar amount, and the current status of the project relationship. Szura & Delonis, PLC provides Michigan construction law representation for contractors, subcontractors, and suppliers across Oakland, Wayne, Macomb, and Washtenaw Counties. Our attorneys evaluate extra work claims, analyze contract notice provisions, and pursue or defend change order disputes through negotiation, lien enforcement, and litigation.

Breach of Contract Claims for Authorized Change Work

If a change order was signed and the GC simply refuses to pay, you have a straightforward breach of contract claim. The signed change order is the contract; non-payment is the breach. File your Michigan construction lien for the unpaid change order amount within 90 days of last furnishing and pursue the breach of contract claim simultaneously.

Quantum Meruit: Recovery Without a Signed Change Order

Where no formal change order was signed, quantum meruit provides an equitable alternative. To recover in quantum meruit in Michigan, you must show: (1) you provided labor, materials, or services to the project; (2) the other party accepted the benefit; and (3) allowing non-payment would be unjust. Recovery is measured by the reasonable value of the work — not necessarily the contract rate. Quantum meruit can be pursued alongside breach of contract as an alternative theory.

Including Extra Work in a Michigan Construction Lien

Under Michigan’s Construction Lien Act (MCL 570.1101 et seq.), your lien covers all labor and materials furnished under your contract, including authorized extra work. Do not reduce your lien amount because a change order is disputed. File for the full amount claimed and let the foreclosure proceeding resolve the pricing dispute. Missing the 90-day deadline from last furnishing is not recoverable — the lien right is gone permanently.

Builders Trust Fund Act Implications

If the GC received payment from the owner that included amounts for your extra work and failed to pay those funds to you, the GC may have violated Michigan’s Builders Trust Fund Act (MCL 570.151 et seq.). Fund diversion is a felony under Michigan law and creates parallel civil liability. This is a powerful additional lever, but it requires proof that the GC received construction funds earmarked for the relevant work and diverted them.

Michigan County and Court Context for Change Order Disputes

In Metro Detroit, construction change order litigation is handled in the circuit court of the county where the project is located. Oakland County 6th Circuit Court in Pontiac, Wayne County 3rd Circuit Court in Detroit, and Macomb County 16th Circuit Court in Mt. Clemens all have active construction law dockets. Szura & Delonis, PLC has litigation experience in all three courts.

If your construction contract contains an arbitration clause (common in AIA-based agreements and many major GC subcontracts) change order disputes will typically be decided by an AAA arbitrator under the Construction Industry Arbitration Rules rather than a judge. Both forums require the same documentation quality; arbitration is not more forgiving of poor recordkeeping than court.

Common Change Order Mistakes Michigan Contractors Make

After years of representing contractors in Metro Detroit and throughout Michigan, the most damaging change order mistakes we see are consistent:

• Performing extra work without any written confirmation of the directive and then being surprised when the GC denies it.
• Waiting until the end of the project to submit all change orders at once — by then, memories have faded, the GC has left the job, and the lien deadline may have passed.
• Including change order amounts in broad, unconditional lien waivers signed during the project without carving out the disputed amounts.
• Signing a subcontract with a pay-if-paid clause and then relying on the GC to fight the change order battle with the owner.
• Failing to segregate extra work costs from base contract costs in real time, making reconstruction of the change order claim nearly impossible.
• Consulting an attorney after the 90-day lien deadline has already passed.

Frequently Asked Questions About Michigan Construction Change Orders

Change order disputes move quickly. By the time a GC or owner formally refuses to pay for extra work, the lien deadline clock is already running, and the evidence supporting your claim is getting colder every day.

At Szura & Delonis, PLC, our Michigan construction law attorneys represent contractors, subcontractors, and suppliers in change order disputes, lien enforcement, and construction litigation throughout Oakland County, Wayne County, Macomb County, and Washtenaw County. We analyze contract notice requirements, evaluate extra work documentation, and pursue full recovery through negotiation, lien foreclosure, and litigation in Michigan circuit courts and AAA arbitration.

Call us at (248) 716-3600 or contact us online. We respond quickly to time-sensitive construction matters — because your lien clock does not wait.

This article is provided for general educational and informational purposes only. It does not constitute legal advice and does not create an attorney-client relationship between the reader and Szura & Delonis, PLC. Michigan construction law involves complex statutory deadlines, procedural requirements, and fact-specific analysis. Do not rely on this content as legal advice for your specific situation. Prior results do not guarantee similar outcomes.

About the Author

Richard M. Delonis is a Michigan construction, business, and real estate attorney at Szura & Delonis, PLC (Southfield/Metro Detroit). He advises construction managers, general contractors, subcontractors, and property owners on lien rights, collections strategy, contract disputes, and project-risk issues.

Example: You just signed a $350,000 subcontract for a commercial build in Oakland County. The owner stops paying after month two. You walk off the job to protect your cash flow. Next thing you know, you’re being sued for breach of contract—and the pay-if-paid clause may mean that you can’t collect a dime until the general contractor gets paid by the bankrupt owner.

Key Takeaways

• Pay-if-paid clauses are enforceable in Michigan—you may not get paid if the owner doesn’t pay the GC, even if you did great work.
• No-damages-for-delay provisions are valid unless the delay was unforeseeable, caused by bad faith, or involved active interference
• Michigan law prohibits indemnifying someone for their sole negligence on construction projects (MCL 691.991), but broader indemnity still exists
• Contracts without written change order requirements expose you to disputes over extra work and unpaid change orders
• Missing suspension-of-work clauses mean walking off a non-paying job can make YOU the breaching party
• Metro Detroit projects across Wayne, Oakland, Macomb, and Washtenaw Counties see these contract disputes frequently

Scenario: The $180,000 Lesson

Mike runs an HVAC company in Southfield, Michigan. He landed a big subcontract for a medical office building in Troy. The contract looked standard—40 pages of dense language he’d seen before. He signed it.

Four months in, the owner stopped paying the general contractor. The GC stopped paying Mike. Mike had $180,000 outstanding—enough to cover his materials, labor, and make payroll for six weeks.

Mike walked off the job. He figured he’d file a construction lien and collect. But when his attorney reviewed the contract, they found three troublesome clauses:

1. Pay-if-paid provision: Mike only gets paid “if and when” the GC receives payment from the owner
2. No-damages-for-delay: Mike can’t claim damages for project delays, even owner-caused ones
3. No suspension-of-work right: The contract gave Mike no right to stop work for non-payment

The result? Mike was found liable for abandoning the project. The owner had gone bankrupt, so the GC never got paid—which meant under the pay-if-paid clause, Mike had no ability to collect payment either. He lost $180,000 and faced a counterclaim for the cost of hiring replacement contractors.

Mike’s mistake wasn’t the work he did. It was the contract he signed.

Clause #1: Pay-If-Paid Provisions

Short answer: Michigan courts enforce pay-if-paid clauses that clearly make the general contractor’s receipt of payment from the owner a “condition precedent” to paying subcontractors. If the owner doesn’t pay the GC—even if the owner goes bankrupt—the subcontractor may get nothing.

How This Clause Works

A pay-if-paid clause can shift all payment risk from the general contractor to you. The contract language typically reads something like:

“Contractor shall pay Subcontractor only if and when Contractor receives payment from Owner for Subcontractor’s work. Receipt of payment by Contractor is a condition precedent to Contractor’s obligation to pay Subcontractor.”

This isn’t just a timing delay—it’s a complete condition. If the owner doesn’t pay (bankruptcy, cash flow problems, disputes), you don’t get paid.

Michigan’s Legal Standard

The Michigan Supreme Court established the rule in Berkel & Co. Contractors v. Christman Co., 210 Mich. App. 416 (1995). For a pay-if-paid clause to work in Michigan, it must:

• Use clear, unambiguous language
• Explicitly state that payment is a “condition precedent”
• Not just suggest payment will be delayed for a “reasonable time”

Michigan courts will enforce these clauses as written. The court in Berkel specifically rejected the argument that the clause merely delayed payment to a “reasonable time” because the contract contained no such limiting language.

Recent Limitation

One important exception: In Macomb Mechanical, Inc. v. LaSalle Group, Inc. (unpublished, 2015), a Michigan Court of Appeals held that pay-if-paid clauses only apply to work covered by the original subcontract. Extra work performed under unsigned change orders might not fall under the pay-if-paid provision.

What This Means for You

Best practice: Before signing any subcontract in Wayne, Oakland, Macomb, or Washtenaw Counties (or anywhere in Michigan), search for these phrases:

• “condition precedent”
• “only if Contractor receives payment”
• “if and when payment is received”
• “payment contingent upon”

If you see these terms, you’re looking at a pay-if-paid clause.

Common mistake: Contractors assume they’ll “just file a lien” if they don’t get paid. But a pay-if-paid clause can limit your lien rights to whatever the owner still owes the GC—which might be zero.

Clause #2: No-Damages-For-Delay Provisions

Short answer: No-damages-for-delay clauses are enforceable in Michigan, preventing contractors from claiming damages when project delays—even owner-caused delays—impact your schedule and budget. However, four exceptions can void these clauses: unforeseeable delays, abandonment of contract, bad faith, or active interference by the other party.

The Basic Clause

A typical no-damages-for-delay provision reads:

“Contractor’s sole remedy for any delay shall be an extension of time to complete the Work. Contractor waives any claim for delay damages, including but not limited to extended overhead, labor inefficiency, and lost productivity.”

Translation: The owner can delay your work for months, costing you tens of thousands in extended overhead and lost opportunities—and you have zero recourse except more time to finish.

When These Clauses Get Voided

Michigan courts recognize four exceptions where no-damages-for-delay clauses won’t protect owners:

• Delays not contemplated by the parties at contract signing
• Abandonment of the contract by the delaying party
• Bad faith on the part of the contracting authority
• Active interference by the other contracting party

Example

A mechanical contractor in Dearborn (Wayne County) was delayed six months when the owner failed to obtain permits and utilities connections. The contract had a no-damages clause. So the court will likely find that the owner’s failure was “active interference”—they affirmatively prevented the contractor from working. The clause won’t apply, and the contractor will recover $140,000 in extended overhead.

What This Means for You

Best practice: You can’t always strike these clauses, especially on public projects. But you can protect yourself:

• Document everything: Every delay, every communication, every impact
• Send delay notices in writing: Follow contract notice requirements
• Identify the cause: Was it truly unforeseeable? Did it involve bad faith?
• Calculate actual costs: Track daily overhead, labor inefficiency, lost opportunities

If the delay falls under one of the four exceptions, you may have a claim despite the clause.

Common mistake: Accepting verbal time extensions without documenting the cost impact. Always submit a change order for time AND money when delays occur.

Clause #3: Indemnification Provisions

Short answer: Michigan law prohibits contractors from being forced to indemnify others for the other party’s sole negligence (MCL 691.991), but broader “intermediate form” indemnification that includes joint negligence remains enforceable. These clauses can make you liable for accidents and claims you didn’t cause, potentially exceeding your insurance coverage.

What Michigan Law Says

MCL 691.991 states that any provision requiring a contractor to indemnify another party for damages arising out of bodily injury to persons or damage to property “caused by or resulting from the sole negligence” of that other party is against public policy and is “void and unenforceable” in Michigan construction contracts.

BUT —and this is critical— the law doesn’t prohibit intermediate indemnification. You can still be required to indemnify an owner for claims where you’re only 10% at fault and they’re 90% at fault.

Here’s an example of such a “intermediate indemnification” clause:

“Contractor shall indemnify Owner for all claims arising from Contractor’s work, except those caused by Owner’s sole negligence.”

Here’s a better clause for contractors:

“Contractor shall indemnify Owner only for claims arising from Contractor’s own negligence, errors, or omissions.”

The Insurance Problem

Commercial general liability (CGL) policies may exclude coverage for contractual liability beyond what you’d face under common law. If your construction contract requires broad or intermediate indemnity, you might be self-insuring claims without realizing it.

What This Means for You

Best practice:

• Read the indemnity clause carefully: Look for phrases like “arising out of,” “relating to,” or “in connection with” Contractor’s work—these are broad triggers
• Negotiate for proportional liability: Try to add: “but only to the extent caused by Contractor’s negligence”
• Involve your insurance agent: Have them review indemnity requirements before you sign
• Request additional insured status: If you’re indemnifying the owner, they should be listed as additional insureds on your policy

Common mistake: Assuming your insurance “covers everything.” Policies may specifically exclude broad contractual indemnity, leaving your company potentially liable.

Clause #4: Change Order Procedures

Short answer: Contracts requiring written change orders before performing extra work are enforced in Michigan. Verbal approvals don’t satisfy these requirements, and emails, and text messages may not either. If you perform changed work without proper written authorization, you may work for free, even if the owner requested it.

Why Change Orders Matter

Construction projects in metro Detroit rarely go exactly as planned. Conditions change. Owners request upgrades. Design errors emerge. The question isn’t whether you’ll have change orders. It’s whether you’ll get paid for them.

A well-drafted change order clause should specify:

• Who has authority to approve changes
• How changes must be documented
• Timeline for submitting change order requests
• Pricing methodology (time and materials, lump sum, unit prices)
• Impact on project schedule

The Written Requirement

Many contracts include anti-waiver provisions like:

“No change to this Contract shall be valid unless in a written change order signed by Owner’s authorized representative. Contractor’s acceptance of oral directives or unsigned change orders constitutes a waiver of any claim for additional compensation.”

This language is enforceable. Contractors who perform extra work without complying with written change order requirements likely will be told that they can’t recover payment.

The Exception: Waiver by Conduct

Some Michigan courts have found that owners can waive written change order requirements through their conduct—for example, by repeatedly accepting and paying for verbal change orders throughout the project. But this is risky to rely on.

What This Means for You

Best practice:

1. Stop work when changes are requested: Don’t perform any changed work until you have written authorization
2. Submit change order requests immediately: Document the change, your price, and schedule impact within 24-48 hours
3. Follow the contract procedure exactly: If it requires a specific form or signature, get it
4. Track changed work separately: Use different job codes, time sheets, and invoices for changed work
5. Send confirmation emails: Even if you get verbal approval, confirm it in writing

Common mistake: Performing extra work to “keep the project moving” and assuming you’ll “work it out later.” That almost always ends badly for the contractor.

Clause #5: Suspension of Work Rights

Short answer: Michigan construction contracts that don’t include explicit suspension-of-work rights can trap contractors in non-paying projects. Walking off a job without contractual authority to suspend work, even when you’re not being paid, can possibly constitute “abandonment,” making you the breaching party and exposing you to damages claims.

The Problem

When payments stop coming, contractors face a difficult choice:

• Keep working and “hope” to get payment at some point
• Walk off and get sued for abandonment

Without a suspension-of-work clause, you have no good option.

What a Good Suspension Clause Looks Like

“If Contractor does not receive payment of undisputed amounts within ten (10) days of the due date, Contractor may, upon seven (7) days’ written notice to Owner, suspend performance of Work until such amounts are paid. Contractor shall not be liable for any delays or damages arising from such suspension, and the Contract Time shall be extended accordingly.”

This clause gives you:

• The right to stop work for non-payment
• A procedure to follow (notice requirement)
• Protection from liability for the work stoppage
• Time extension for the delay

What This Means for You

Best practice:

1. Add suspension language to your contracts: Make it a standard provision in every agreement
2. Follow the notice procedure exactly: If your contract has a suspension clause, comply with all notice requirements
3. Don’t walk off without authority: Even if you’re not getting paid, follow the suspension procedure
4. Secure the jobsite: When you suspend work, remove equipment safely and leave the site in a secure condition
5. Protect your lien rights: File preliminary notices and liens while you’re suspended, don’t wait

Common mistake: Thinking you have a “common law right” to stop work for non-payment. In construction, your contract primarily controls your rights, not general principles.

When to Call a Michigan Construction Lawyer

Contact an experienced construction attorney BEFORE signing a contract if you see:

1. Any pay-if-paid clause on a project where the owner’s or GC’s finances are questionable
2. Broad indemnification language that goes beyond your negligence
3. No change order procedure or vague procedures that don’t specify who can approve changes
4. No suspension-of-work rights and payment terms longer than 30 days
5. Out-of-state venue or arbitration clauses requiring you to litigate elsewhere
6. Liquidated damages that seem disproportionate to actual likely damages
7. Unlimited consequential damages provisions making you liable for lost profits and business interruption

Call a construction attorney DURING a project if:

1. Payment stops and you’re considering walking off the job
2. Significant changes occur without written change orders
3. The owner demands work beyond the contract scope
4. You receive a notice of a mechanics lien from someone you hired
5. A third party is injured on your project
6. You’re asked to waive claims as a condition of payment
7. The project is significantly delayed and you’re facing liquidated damages

Time matters in construction disputes. The Construction Lien Act has strict deadlines, and taking action early can save your payment rights.

Frequently Asked Questions About Michigan Construction Contract Clauses

Protect Your Business: Two Options

These contract clauses can negatively impact profitable projects and put your business at risk. Don’t sign contracts with “dangerous” provisions without understanding what you’re agreeing to.

Option 1: Take action before you sign

Email or call to schedule a contract review. Bring your proposed contract, and we’ll identify the potential “landmines” in the contract and suggest specific language changes to protect your payment rights, limit your liability, and give you the tools you need to collect what you earn.

Option 2: Get help now if you’re already in trouble

If you’re facing non-payment, considering walking off a job, dealing with unsigned change orders, or being blamed for delays you didn’t cause, time matters. Michigan’s lien deadlines don’t wait, and the longer you wait to act, the fewer options you have.

Szura & Delonis, PLC
29777 Telegraph Road #2401
Southfield, MI 48034
(248) 716-3600
admin@szuradelonis.com

We represent contractors, subcontractors, suppliers, and construction managers throughout Oakland County, Wayne County, Macomb County, and Washtenaw County. We understand Michigan construction law, we’ve handled numerous payment disputes and contract claims, and we know how to protect contractors’ rights.

This article is provided for general educational and informational purposes only. It does not constitute legal advice and does not create an attorney-client relationship between the reader and Szura & Delonis, PLC. Michigan construction law involves complex statutory deadlines, procedural requirements, and fact-specific analysis. Do not rely on this content as legal advice for your specific situation. Prior results do not guarantee similar outcomes.

About the Author

Richard M. Delonis is a Michigan construction, business, and real estate attorney at Szura & Delonis, PLC (Southfield/Metro Detroit). He advises construction managers, general contractors, subcontractors, and property owners on lien rights, collections strategy, contract disputes, and project-risk issues.