Did you know that disputes during construction occur frequently and are often expensive? The amount per dispute is currently averaging out to $43 million in North America in 2024, as reported in the Arcadis Global Construction Disputes Report. The average time for these disputes is 14.4 months, which is six percent longer than the previous year. These conflicts often arise from contract disputes that can be fully prevented.
A construction contract serves as a rulebook that helps guarantee the success of projects, working relationships, and expectations. According to Minnesota construction breach of contract lawyer Bill Gschwind, a breach of contract occurs when one party breaks the rules set out in the contract.
Contract disputes in the construction industry are quite common and often happen as a result of the complex nature of the construction process. In construction projects, it is normal to have multiple parties who enter into various agreements at different levels of the contractual structure.
In case participating parties of a construction project do not comply with the expected cost/time/quality threshold, trouble may arise that can easily escalate into a legal case for breach of contract.
It would certainly benefit all participants in the construction trade to be familiar with the causes of such problems, how they are usually eliminated or minimized, and the standard response incorporated in building contracts.
Why Construction Disputes Arise
Contract disputes can happen for many reasons. According to the business law firm website https://www.caruccilegal.com/, there could be simple misunderstandings, poor wording within the contract, or maybe circumstances have changed.
Construction projects involve many different parties and often have tight schedules. These extremely unforgiving schedules often lead to site conditions becoming unpredictable.
One big thing that keeps coming up is scope changes, where people start to argue over whether that extra work is actually billable and also about what a fair cost should be.
Then you have delays, which are another major headache. Problems such as these often escalate into disputes over who had timeline ownership at some point and whether the subcontractor’s extra pay claims are admissible. Relevant issues that always come up include the imposition of a fine by the owner on the contractor for failing to complete their deliverables.
Employers, architects, builders, and other industry handlers can always share blame, depending on their influence at that time.
Clients may also face payment conflicts, including late payments, money not remitted to the contractor, and bills disputed by members for various reasons.
In the United States, contractors sometimes file mechanic’s liens just to secure payment. This approach alone can make the whole situation much more confrontational.
Even missed notice requirements can escalate and lead to disputes even when the underlying claim is otherwise reasonable.
Many contracts ask for prompt written notice for claims. If those deadlines are not followed, even a claim that might be valid can be denied.
The Dispute Resolution Ladder
Most construction contracts have a dispute resolution procedure that involves several steps, starting with more informal ways of conflict resolution and ending with the most binding one.
The initial step involves negotiations between the parties trying to reach an agreement on their own. This method is a typical way for resolving disputes during construction work, as it is a quick and cheap process helping maintain relationships.
If the intervention fails to resolve the issue, the next line of action is usually called mediation. During mediation, a third party assists the parties involved in the dispute in reaching a resolution.
Where mediation fails, the effected parties will then proceed to either arbitration or litigation.
Arbitration vs. Litigation: What the Choice Actually Means
Arbitration, unlike litigation, aims to resolve disputes between the parties in a peaceful way. An arbitrator or a court that has a specialized competence is appointed for the purpose of resolving the dispute.
An outcome is delivered by the arbitrator/s and is most often final and binding under the provisions of the Federal Arbitration Act, with little basis for appeals.
The process is efficient and quick, but once the arbitrator makes a decision, reversing it can be difficult.
For construction disputes, arbitration may offer certain benefits such as technical understanding of the problems, confidentiality of proceedings, and speed of resolution. Keep in mind that complicated and lengthy disputes involving multiple parties are still possible during this period.
Court litigation offers other options, such as the subpoena power of third parties and the ability to appeal the decision. Precedent law can also work in favor of your case.
The Contract Governs, Until It Does Not
The dispute resolution path is mostly decided by what the contract says, so reviewing the dispute resolution clause before signing is important.
Does the agreement actually require mandatory arbitration? Does it say mediation has to happen first as a condition before arbitration can even start? Check the contract to know exactly how to proceed with this issue.
Clarify the message to be sent regarding the claim and the period allowed for raising it.
The sooner the parties agree on a procedural framework before the project begins, the more likely they are to comply with it without disputes arising at a later stage.
One of the major differences between a well-substantiated claim and a weak one is the kind of documentation that is available. A meticulous documentation includes the history of the project, the variations involved, the approval of the appropriate parties, and the communication made by the different parties.
The dispute resolution process makes decisions based on evidence, which should be established well before the process ever begins.
Image by pressfoto on Magnific
Contributed posts are advertisements written by third parties who have paid Woman Around Town for publication.
