Bottom Line Up Front: It is hard to get through a large-scale construction project without hitting a bump in the road in the form of dispute between the owner, general / prime contractor, subcontractors, suppliers, sureties, and so on. Construction projects have tight deadlines and multiple moving parts, which tends to breed costly and time-consuming disputes. The best defense to avoiding disputes is to conduct significant upfront planning before the project starts. The following big-picture tips will help you minimize your risks and avoid project disputes down the road.
(1) Read the Contract: It is imperative that contractors know and understand their contract / subcontract backwards and front before it is executed and before a project starts. Oftentimes, contractors do not obtain a full understanding of the contract documents until a dispute is raised and they walk through the contract in detail for the first time. This is never a good situation. All contracts should be fully understood and negotiated in a manner to cut down on potential disputes. This is usually best accomplished by ensuring that the contract is fair and evenhanded for both parties. Contracts that are too one-sided for one party tend to back the other party into a corner where litigation is their only option when a dispute arises, which should not be the goal of any contract.
(2) Pre-Con, Pre-Con, Pre-Con: It is often said that for every hour of pre-construction work spent before a project begins, you save 2 hours of work during the project. A rigorous pre-con process is imperative to a successful project. Contractors that don’t spend time up front putting together solid estimates and schedules, lining up subcontractors, ordering long-lead items, and taking other key steps are certain to hit snags during the project. As is generally the rule, an ounce of prevention is worth a pound of cure.
(3) Prepare Realistic Schedules: Unrealistic schedules create realistic problems during the course of a project. One misstep (delay) tends to lead to a snowball effect where all activities scheduled to occur after that delay are disproportionately affected by the delay. Schedules should be well-planned to take into account contingencies that tend to appear during construction projects. To the extent delays do occur, the schedule must be revised to properly account for that delay and to implement a plan to mitigate the delay.
(4) Document project issues in real-time: Nothing is more important to avoiding construction disputes than preparing solid, detailed, and contemporaneous documentation during the project. Daily reports should be treated as the most important document on a construction project, and should be used to notate the daily work performed, labor on site, problems encountered, delays incurred, differing site conditions, and so on. It is generally not until after a dispute occurs that contractors realize the true importance of daily reports. Solid daily reports provide you an upper hand in a dispute, whereas deficient daily reports put you at a significant disadvantage.
(5) Don’t kick the can down the road: When a problem comes up on a project, deal with it head-on. Many times, a general / prime contractor will convince its subcontractor to deal with a delay or extra cost issue after the project is over in order to avoid spending time during the project negotiating costs. Owners frequently do this with general / prime contractors as well. Do not let this happen. Once a project is completed, you lose almost all of your leverage to negotiate fair value for the extra work performed and extra costs incurred, and oftentimes, contractors are forced to take pennies on the dollar for their claim. While it may cause some friction to deal with these issues during a project, it keeps both parties honest and usually ends better for the contractor.
(6) Know your disputes clause: If you wait to review your disputes clause until after a dispute actually arises, you are doing it wrong. Contractors must have an intimate understanding of the processes involved in negotiating / settling a dispute. Some clauses call for mediation / arbitration and others call for litigation as the primary means to settle disputes. Many clauses have rigid notice provisions that require a contractor to submit formal notice of a dispute shortly after it arises, or run the risk of waiving that dispute forever. The best way to succeed in a dispute is to ensure that your disputes clause provides favorable parameters to limit and mitigate disputes to the extent possible.
Lessons Learned: Disputes can never be completely eliminated from construction projects, but contractors that follow the steps above will be better protected from disputes than contractors that do not follow these steps.
Doug Hibshman is a partner in Fox Rothschild LLP’s Federal Government Contracts and Procurement, Construction, and Infrastructure Practice Groups in Washington, DC, and routinely represents owners, contractors, subcontractors, and suppliers in construction-related disputes.