Construction disputes – why they’re bad and how to avoid them

Sometimes construction projects end in disputes between General Contractors and their customers. Also, disputes regularly occur between the General Contractor and their Subcontractors and Suppliers. These disputes sometimes end in legal action, result in media attention and even disrupt the project – sometimes bringing it to a halt. Usually it’s only lawyers that benefit from disputes. Yet, somehow disputes are becoming more frequent on construction projects, almost becoming a way of business for some.

Why disputes should be avoided

Where possible disputes should be avoided because they:

  1. Are time consuming – don’t underestimate the time that disputes take to resolve, time that could be better utilised elsewhere on the construction project, or on other projects. Fighting a dispute could mean other projects are suffering in your absence or you’re missing new opportunities. Even if you win the dispute the amount won often won’t compensate for the damage and losses suffered elsewhere.
  2. Often damage the company’s reputation. Clients and subcontractors frequently avoid contractors that have a reputation for project disputes.
  3. Damage the relationship between the parties which seldom returns to normal after a dispute and distrust usually lingers.
  4. Are costly, especially when they become legal and involve lawyers. Fees can quickly overwhelm any claims won.
  5. May end poorly for the construction company who doesn’t receive the full value of their claim. No matter how sure you are of your case there will always be some smart lawyer who will find a loophole, or some judge that doesn’t understand construction.
  6. Can disrupt the construction project and sometimes cause further problems. Customers sometimes withhold payments on the disputed amount, disrupting the contractor’s work. Contractors refuse to take on additional variations. In extreme cases it’s almost like open warfare as the parties snipe at each other and argue and bicker. Teamwork is forgotten. The project goals are forgotten.

Avoiding disputes

Generally most disputes can be avoided if appropriate actions are taken, such as ensuring:

  1. There’s a legally enforceable contract in place which protects both parties’ interests.
  2. The contract is well written and doesn’t have conflicting clauses or contractual loopholes.
  3. The contractor understands the contract and complies with its provisions. Often Project Managers don’t read the contract until a dispute arises – it’s normally too late then!
  4. The contractor communicates with their customer, their subcontractors and suppliers, timeously notifying them when problems and variations arise.
  5. The contractor submits and resolves variations as soon as practical.
  6. Customers act in a fair and reasonable manner, adjudicating claims as soon as possible and accepting blame when they’re responsible.
  7. Accurate records are maintained. These include daily diaries, minutes of meetings, written communications, drawing receipts and issues, site instructions, etc.
  8. There’s willingness by the parties to talk and negotiate and when necessary to compromise.
  9. Personalities and emotions are kept out of the dispute.
  10. The contractor admits when they’re wrong and doesn’t lodge extravagant claims.
  11. The consequences of escalating the dispute are weighed up carefully, since the costs of legal action may be more than the outcome is worth.
  12. Expert advice is sought when necessary.
  13. The construction contract is administered in a spirit of honesty and cooperation by all parties.
  14. Senior management are made aware of potential disputes and problems on a project so they can take the necessary action and intervene if required to avoid the problem escalating.

 

Unfortunately some customers, Project Managers and construction companies have a reputation for being excessively contractual, being unreasonable or being overly enthusiastic with their claims – it may be sensible to avoid working with these companies or people, or if you have to, then ensure your team is competent and able to defend your company.

Sometimes a dispute is unavoidable, but I’ve generally found that most construction variations and claims can be amicably settled without going down the dispute resolution or legal process.

When disputes are unavoidable

Unfortunately disputes which cannot be resolved do arise, and then it’s important to follow the dispute resolution process stipulated in the contract. Only as a last resort should you proceed down the legal route. Having said this, though, do not hesitate to ask for a legal opinion or for expert advice. Of course also ensure that senior management is aware of the problems and the next steps being considered.

Just because there’s a dispute doesn’t mean you can walk off the project. Sometimes construction companies do this, but it could be a fatal mistake if the proper termination procedures haven’t been followed, and may allow the customer to take action against the contractor for breach of contract.

Conclusion

Contractors need to be contractually astute. They need to understand the terms and conditions of the contract when they price the project, ensuring they are acceptable. These terms and conditions should be checked before the contract is signed. Project Managers need to understand their contracts and ensure they administer the project in terms of the conditions. By being proactive and knowledgeable most disputes can be avoided.

Have you been involved in a contractual dispute on your project?

 

(Written by Paul Netscher the author of ‘Successful Construction Project Management: The Practical Guide’ and ‘Building a Successful Construction Company: The Practical Guide’. To read more visit www.pn-projectmanagement.com  )