Florida construction lawyers are currently debating a deceptively simple question:

When should construction defect damages be measured?

Recent decisions such as Bandklayder Development, LLC v. Sabga and Vuletic Group LLC v. Malkin reaffirmed the traditional contract-law principle that damages for construction defect repairs must be priced as of the date of breach. In both cases, the owners lost because they relied on repair estimates prepared years after the alleged breach rather than pricing tied to the legally relevant date. The courts relied heavily on the Florida Supreme Court's decision in Grossman Holdings Ltd. v. Hourihan, which requires that contract damages generally are measured as of the “date of breach” (which is itself a debate).

That debate has generated considerable discussion, particularly regarding whether the same reasoning should apply outside traditional contract claims, such as related tort claims and claims for building code violations under section 553.84, Florida Statutes. 

But while lawyers argue over when damages should be measured, owners and contractors may be overlooking a more practical question:

Who bears the risk when construction costs explode between the breach and the repair?

The Inflation Problem

Imagine the following timeline.

• Defective construction occurs in 2019 – one possible date of the “breach.”
• Construction is completed in 2021 – another possible date of the breach.
• The defect is discovered in 2024 – maybe also the date of the breach.
• Litigation or arbitration begins in 2025
• Litigation ends in 2028.
• Repairs finally occur in 2029.

Anyone who has bought steel, roofing, concrete, mechanical equipment, or skilled labor over the last several years knows the problem immediately. And in some places in Florida, the inflation in construction costs has been even more dramatic. Regardless of location, the cost to fix the problem today may bear little resemblance to the cost to fix it in 2019, 2021, or 2024.

Under Florida law, if the damages are set as of an earlier date, the recovery will typically be augmented by pre-judgment interest. Unless there is a contractual interest rate, the rate of interest is set by statute (section 55.03), which is adjusted periodically.

One Interest Rate Is Trying to Do Too Much

To the extent they deal with it at all, most construction contracts generally deal with interest in a single provision. The AIA forms typically address interest in a single clause but defaults to the “legal rate” if no other rate is specified. If there is nothing in the contract, the statutory rate would apply.

That works perfectly well when one party simply fails to pay money owed, and certainly money would be “owed” for repairs or corrective work that the owner performs itself, or that a contractor performs to a subcontractor’s work, either under warranty, during the correction period, or otherwise. But an interest rate built around the “cost of money” may not reflect the changes in the cost of construction. A financial-market-based interest rate does not necessarily move in tandem with labor shortages, material escalation, supply-chain disruption, unexpected tariffs or trade wars, or subcontractor pricing. Sometimes it may be higher than construction inflation. Sometimes lower. Either way, it is measuring the wrong thing. 

In most of Florida, though, for the past decade, the increases in the cost of construction have been higher, and in some cases much higher, than the rate of increase in the cost of money.

A Better Idea: Two Economic Mechanisms

Instead of one interest provision, why not use two?

First, a traditional interest rate for unpaid invoices, retainage, change orders, and other pure payment disputes.

Second, a construction-cost escalation provision for warranty or corrective work.

In other words, stop treating payment risk and repair-cost risk as the same thing.

They are not.

What Could Be Used?

There are a variety of construction cost indices out there and available for use. Some are more localized than others. Some are even hyper-local such as the RoMac Building Supply Whole House Commodity Index which is based on the cost “to build a 2,200-square foot wood frame home with a concrete stem wall in Central Florida.” Note, though, that the “right” index for one type of project in one place might not be the right one for another type of project in another place. For example, the cost changes in heavy construction in the I-4 corridor will likely be different from high end residential on Miami Beach or South Walton County.

ENR Construction Cost Index

ENR's Construction Cost Index is one of the industry's most recognized benchmarks. It uses a fixed basket of common labor, structural steel, cement, and lumber across multiple cities. Because it has been published for decades and is widely recognized throughout the industry, it offers a simple and objective benchmark.

ENR Building Cost Index

The Building Cost Index uses the same material basket but substitutes selected skilled labor categories, including bricklayers, carpenters, and ironworkers. For many vertical construction projects, it may provide a closer proxy for actual correction-work costs.

Producer Price Indices (PPI)

The Bureau of Labor Statistics publishes numerous construction-related Producer Price Index series. The advantage is flexibility. A roofing subcontract, mechanical subcontract, or specialty-trade agreement can select an index tailored to the actual scope of work involved.

Turner Building Cost Index

Turner Construction's index incorporates labor rates, productivity, material pricing, and competitive market conditions. It can provide a broader view of commercial-construction cost trends than a simple material basket, but is not localized.

RSMeans City Cost Index

For projects where geography matters, RSMeans offers location-based cost adjustments that account for differences in local labor, material, and equipment costs. It probably has the broadest localized applicability, but might not be as accurate for something like heavy construction.

The Contract Clause Nobody Talks About

Construction contracts and subcontracts routinely address material escalation, fuel escalation, force majeure, tariffs, supply-chain delays, and labor shortages. Yet very few address the escalating cost of corrective work. Perhaps they should.

Rather than arguing years later about whether damages should be measured using 2021 prices, 2025 prices, or 2029 prices, parties could agree at the outset that correction-work obligations on contractors, subcontractors, and suppliers will be adjusted using a designated construction-cost index. Contractually, this should be described as an interest rate dating from completion to avoid the argument that pre-judgment interest would also apply as that would be a double recovery.

The concept is not punitive. It is simply an attempt to preserve the economic value of the work so that the parties to the contract — whether they be owner/contractor or contractor/subcontractor — receive the benefit that they bargained for. Alternatively, the parties could specify in the contract that claims for costs of repair or warranty work will be valued as of a specified date. Some ideas might include some reasonable period of time after notice of the claim, or the date of the beginning of dispute resolution proceedings. Parties agree to other forms of damages in advance (such as liquidated damages for delay) so there would seem no barrier to agreeing how to assess another form. 

The same concept would run downstream from the contractor if, for example, a contractor receives a notice of a claim, passes it on to the proper trade contractor, and then after a claim denial or lack of response, undertakes the repair itself. 

Final Thought

The current Florida debate asks:

When should damages be measured?

That is an important legal question.

But contractors, owners, and subcontractors may want to ask a more practical one:

If a repair is not performed until years later, why should anyone pretend construction costs stood still in the meantime?

Courts will continue to wrestle with the date-of-breach issue, but well-drafted contracts can solve the inflation issue today.

Construction contracts and subcontracts routinely address material escalation, fuel escalation, force majeure, tariffs, supply-chain delays, and labor shortages. Yet very few address the escalating cost of corrective work. Perhaps they should.