Construction Law Update: Iowa Court of Appeals Says Contractors Must Substantially Comply with Administrative Code Regulations
On October 6, 2021, the Iowa Court of Appeals decided the case of Cooley Pumping, LLC v. Melcher, 2021 WL 4592247 (Iowa Ct. App. 2021). The Melchers hired Cooley Pumping to design and install a new septic system at their home. After completion of the work, the Melchers refused to make final payment because they claimed various defects and deficiencies with the work. Cooley Pumping filed a lawsuit to recover the final payment, and the Melchers counter-sued for damages related to the alleged defective work.
One of the Melchers’ claims was that Cooley Pumping failed to comply with certain applicable DNR regulations found in the Iowa Administrative Code. The parties disagreed about what level of compliance is required for regulations. The Melchers argued that strict compliance was required, while Cooley Pumping urged that substantial compliance was the correct standard. The Iowa Court of Appeals ruled that substantial compliance was the applicable standard, and stated that “substantial performance ‘excuses contractual deviations or deficiencies which do not severely impair the purpose underlying the contractual provision.” Put another way, it “‘permits only such omissions or deviations from the contract as are inadvertent or unintentional, are not due to bad faith, do not impair the structure as a whole, are remediable without doing material damage to other parts of the building in tearing down and reconstructing, and may without injustice be compensated for by deductions from the contract price.’”
Applying the substantial compliance standard to the DNR regulations, the Iowa Court of Appeals concluded that the evidence showed “there were minor deviations from the original plans developed, but that nothing has hindered the performance of the system,” and that “alleged defects of the system are only . . . defects if we find strict compliance with [Iowa Administrative Code] chapter 69 is the applicable standard.” Because the applicable standard is substantial compliance, the Melchers’ claim failed because the Court concluded that Cooley Pumping substantially complied with the regulations.
The Iowa Court of Appeals’ ruling is consistent with Iowa contract law that applies the substantial compliance standard to contract provisions unless the parties have contractually agreed otherwise.
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