Category | Briefing Papers
As I was considering what I could tell contractors that they should know and do to reduce the risks of becoming involved in an expensive construction dispute, I considered these alternative themes:
You might think these topics are unrelated or at least not related to the issue of construction disputes, but hold on. Each of these statements involve the concept of readying oneself for an event or situation that may or may not ever happen. Indeed three of them deal with preparing for something you hope will not happen.
In my 24 years of litigation experience, I have found that the easiest disputes to resolve in my clients’ favor are those that my clients anticipated, prepared for, and laid the groundwork for resolution before they even arose. While acknowledging that my experience is somewhat skewed because I generally only see those construction projects in which a dispute has arisen, it occurs to me that construction disputes are as certain as death and taxes. (I have never, ever, ever had a construction contractor call me to say that the construction project it just concluded was dispute free and proceeded as planned! Having never been the recipient of good news from my construction contractor clients, and dealing only with the “problem projects” I admit that I may be a tad cynical.)
But even assuming that every construction project has the potential for a disastrous dispute having severe financial consequences to some or all parties, what can you do to make sure you are on, or at least close to, the winning end of a resolution? The answers follow.
Many conditions which have the potential for causing construction claims can be discovered, with a moderate amount of effort, before you bid or begin your contract negotiation. First, a careful pre-bid site investigation is essential. We are all familiar with clauses in construction contracts in which the contractor acknowledges that it has thoroughly investigated the project, its site, and the conditions of the locale. This is not just excess verbiage. Here’s what you should do on every project before you bid or begin negotiations for a contract:
Do not limit your pre-bid or pre-negotiation activities to merely soliciting the lowest possible prices from your subcontractors. What you don’t know can hurt you in the context of signing on for a construction project at a fixed price or one with the guaranteed maximum price. It is likely that what you don’t know will be “the thing” that will affect the job more than anything you did know.
If you are negotiating a contract with the owner, the owner will be impressed by your thorough investigation. No one wants a construction dispute, and showing the owner that you, through thorough preparation, are addressing up front those items which may prove to be a dispute at a later time, will give the owner comfort that it is negotiating or looking at a bid from a competent and careful contractor.
Read the contract and think of the worst case scenario and how the contract would deal with it. Whenever I think of negotiating construction contracts, I think of a client who told me that he did not have to worry about the troublesome contract clauses I suggested he attempt to eliminate because none of those things that were the subject of those clauses was ever going to happen. In some respects, and based upon experience, he might be right, but the fact that you do not expect to die this year should not cause you to drop your life insurance. Your construction contract is like insurance. It deals with the unexpected and the unknown. Most of the construction contract is designed to allocate the risk of the financial consequences of something occurring during the project that neither party fairly anticipated. Don’t let your optimism or enthusiasm for the project dissuade you from attempting to negotiate a fair balance of those risks. Some contract clauses to pay particular attention to:
Not all of the issues that arise during the course of negotiating these types of contract clauses are purely “legal.” Consider a 50-line, small print indemnification clause filled with legalese that the owner says has the net effect of making the contractor responsible for all of the damages resulting from his performance of the work. While that may sound fair, and while you may not want to hire a lawyer to interpret the legalese in the provision, consider now a situation where during the course of performing the work, the contractor was 10% at fault for something that the owner was 90% at fault for. Should the contractor have to pay 100% of the damages? The answer of course is no. This is matter of fairness, not just a matter of legal interpretation or negotiation. Strive for a contract that places the burden of events which you control on you and the consequences of events that the owner controls on the owner. Your indemnity clause should fairly require you to indemnify the owner for your mistakes and the owner to indemnify you for its mistakes.
Further, do not agree to broad “no damage for delay” clauses. The delay you might end up suffering through is one that puts you into constructing during the winter for which you included no provision in your price. If you cannot recover damages for delay and only get your contract price which assumed you were going to be constructing in normal summer and fall weather, you may well bear the financial consequences of delay regardless of the fact that the delay may have been caused by the owner or by something outside the control of either party.
Long story short: talk to a construction lawyer who has drafted, and tried cases about, construction contracts. We are all cynics for the reasons explained above. We have seen the worst case scenarios and how the construction contract can reduce your risk. The lawyer’s fee for an ounce of prevention is miniscule compared to the fee for a pound of cure.
There are several things you can do from “day one” on the project to prepare you well in the event of a construction dispute. They all involve “paperwork.” The paperwork will not only serve as evidence if a dispute later arises; it will impose a discipline on your project management team, forcing them to look at the job on a critical level during every day of the project.
MAKE A RECORD! While a picture is worth a thousand words, a document is worth at least five hundred. People tend to believe what is recorded before a dispute became a full-blown lawsuit or arbitration. Records created at a time during which neither party had an incentive to “bend” or “stretch” the truth are far more persuasive than documents generated with lawyer’s spin.
If you don’t follow my recommendations, don’t worry, I’m here to help you get out of the mess.
This discussion is generalized in nature and should not be considered a substitute for professional advice. © FWH&T