Experts are seeing what is likely a “hold-over” from COVID: skyrocketing dispute costs. The roots of many of the issues that are only now winding their way to resolution can also be seen as COVID-related, since they involve conflicts over material costs, and timing challenges. Here are the top causes of disputes from the past year, and advice from attorneys about preventing them.
2020-2023: Challenge and Change
Stewart Whitehead, an attorney at Winstead in Austin observes: “The projects we’re litigating right now were being built when there were supply chain issues and unprecedented price escalations and labor impacts…. I don’t have any lawsuits over a building that started in 2023.” Noting that the higher cost of disputes “illuminates the challenges and changes that society and the industry has experienced since 2020,” Arcadis reports that in North America, “since 2019, the average dispute has increased by 128%.” According to Arcadis, the top three causes of construction industry disputes last year were:
- Errors and/or omissions in the contract document.
- Owner/Contractor/Subcontractor failing to understand or comply with contractual obligations.
- Poorly drafted or incomplete or unsubstantiated claims.
Lawyers advise contractors to prevent disruptive disputes over errors and omissions and contractual obligations by taking “time upfront to thoroughly understand both the project and the contract.” As Whitehead puts it: “You need to spend a little bit more time on the front end of the project….Spend a little bit of extra money on the contracts to account for known issues, and to try to think of things you may not know now based on your experience.” As the climate changes, for example, it’s critical to consider “how the impacts of extreme weather or resource scarcity could impact projects going forward. That might include provisions for water efficiency minimums in a new build, or laying out schedule allowances that give contractors more time for every day temperatures are above 100 degrees….”
Experts at Construction Dive remind us that in the contracting stage, it is also best to agree on an appropriate process for change orders—and then stick to it, despite scheduling pressure:
Contractors and subs often proceed without first securing written authorization from the owner … .Instead of relying on good faith, before implementing any change, review the contract and familiarize yourself with all requirements for change orders, including time constraints, format, content and approval process. This may result in pausing the construction project for an hour or two, but a slight delay in the short term can dramatically decrease an expensive change order dispute at the end of the project.
Even with careful attention to the contract at inception, contractors must continue communicating and documenting throughout the life of every project. In the day to day rush to the finish line, these business basics can easily get overlooked, though they are proven to pay off in the long run:
Collaboration is key in any successful construction project. Stakeholder meetings should be scheduled and organized at the beginning, throughout the duration of the project and at the end to ensure all team members are working on the same page … .Proper documentation is a key part to compliance and ensuring project quality. It’s important to maintain a manageable system of record keeping that provides easy access and up-to-date versions of construction documents.
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