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What are the most common reasons for construction disputes?

On behalf of Cohn Lifland Pearlman Herrmann & Knopf LLP | Jan 17, 2020 |

When you decide to get involved in construction projects of any size, you should consider your potential liability. As part of that process, you should strongly consider purchasing appropriate insurance and making sure you understand the laws that apply to the project. In most cases, these steps are only the beginning of the analysis.

Managing your liability can also mean being a good team player. Construction projects often involve many players, including owners, architects, project managers, contractors and subcontractors. All of these people need people need to work together.  In order to do so, they need to start the project with clear, well-written contracts. When they don’t, things get messy—as shown by a recent report on the top causes of construction disputes.

Strong, clear communication is essential

The global design and consultancy firm Arcadis release an annual report on construction disputes. It looks at the dollars and time spent on these disputes, as well as their causes. In 2018, the average cost of construction disputes in North America was $16.3 million, and the average duration was just over 15 months. While these numbers were both down from previous years, the top causes remained rooted in poor communication:

•            Poorly written contracts. North American contracts may need to withstand greater pressure than in other places due to the design-build nature of so many projects. When both the design and construction of a project are covered under a single contract, its language faces even greater scrutiny.

•            Failure to meet contractual obligations. The number one source of construction disputes worldwide, this is only the second most common source in North America. It’s a problem anytime a contractor doesn’t get its work done on time, and if you’re the contractor, you may want to make sure your subcontractors indemnify you for their work to the full limits of your liability.

•            Poorly drafted claims. When contractors, subcontractors or suppliers provide claims that don’t meet certain standards of documentation, they may have their claims denied out-of-hand. Companies and courts evaluating these claims might expect not just a narrative, but evidence like witness statements, expert testimony and photos or other documents.

One of the most valuable conclusions we can draw from this data is that it is worth your time and money to prepare, review and execute clear contracts that say what you want them to say. This is the only way to ensure your possible liabilities are correctly and clearly defined before problems arise.

How do contract disputes get resolved?

The Arcadis report also looked at the top forms of dispute resolution. Part of the reason North American firms saw a reduction in dispute costs and time may owe to the continued focus on party-to-party negotiation and mediation. Keeping matters out of court can help parties return their focus to work, but it still pays to be prepared. You can strengthen your position by heading to the table with a fully realized argument.