While the length and value of construction disputes decreased in North America from 2014 to 2015, the average value of disputes was still $25 million, according to an Arcadis report. Globally, 53% of project owners claimed they had one or more underperforming projects in 2014, and 84% of respondents to a McGraw Hill Construction study claimed project delays averaging more than 24% over the planned project timeline, according to Navigant. Underperformance and project delays often lead to disputes and claims. And just like everything else in construction, getting out in front of potential issues always helps to reduce risk. It’s no different with construction disputes and the claims that arise from them.
Nip It in the Bud
According to a research perspective released by the Navigant Construction Forum, using a contract to try to shift risk is not a very effective way to reduce the chances of claims. That’s because legal counsel today is highly adept at finding ways around contract terms designed to shift risk. A much better approach is to have processes that identify the origins of disputes, and resolve them before they reach the point of no return. The point of no return is the point at which one or the other party feels there is no other option but to submit a claim.
A construction contract explains the agreement among the parties involved in a construction project. When one party does not perform according to the contract, then any other party may make a claim. While, there are many different types of claims, they generally fall into three main categories:
- Scope of work changes
- Site conditions differ from what was originally discovered or claimed
- Time issues such as delays, disruptions, or accelerations
If you want to get out in front of the issues related to disputes and claims, a good place to start is at the bidding or proposal stage. There are often telltale signs at this stage of the project that can alert you to pending disputes that will cause claims. Here are a two of them:
1. The delivery method.
Whenever an owner or contractor is set to undertake a project using a new delivery method they haven’t used before, the risk for disputes and claims increases. To mitigate the issues associated with this, you can build your expertise in the delivery method by bringing people on board who are already familiar with it. Education and training well before the beginning of the project can also help to minimize the effects of taking on a new delivery method. Another technique is to hire consultants who are familiar with the delivery method you plan to use.
2. Design has not been reviewed for accurate cost estimation and constructability.
Design professionals often don’t have deep knowledge of construction practices and construction estimating. Because of that, design documents can miss the mark in both how accurately they inform estimating, and how realistic they are to build. The way around this potential problem is to make sure that design documents go through reviews by people who are well versed in both estimating and construction methods and materials.
As Construction Moves Forward
There are also warning signs once construction is underway, such as delays on the acceptance and approval of a baseline schedule. Regardless of who is responsible for the delays, everyone will face challenges as a result, and that sets up perfect conditions for disputes and claims. Another early warning sign once construction is underway, is the need to use contingency funds early in the project. Whether you are an owner or contractor when you start using contingency early in the project, it should alert you to the possibility of more changes than you originally expected. And more changes increase the possibility of disputes.
For owners, changes in the schedule, changes in the labor mix, issues with subcontractors, and excessive change orders that are not the result of design changes by the owner, are all forewarnings of potential disputes and claims.
For contractors, requests for recovery schedules from the owner are early warning signs of potential claims arising from a dispute related to acceleration. As the contractor, if you have filed notices of delay as well as time extension requests, and you have done so within the contract terms, then filing a notice of constructive acceleration when the owner requests a recovery schedule, will help to preserve your claim rights.
It’s very important to make sure you have systems in place to track your time, costs, and the effects related to potential disputes and claims.
When All Else Fails
It wasn’t until the early 1980s that case law evolved to create opportunities for claims like those associated with the impact of changes and delays on changed work. According to Michael V. Griffin, writing in “How to Avoid Construction Claims, and What to Do About Them if They Occur,” nearly all major claims arise from the schedule, delays, impact, disruption, or acceleration. That means that successfully resolving claims hinges on the key issues of scheduling, planned versus actual performance, identifying a cause, and assigning responsibility for deviations. Griffin recommends that any party to a construction contract should have “adequate project control systems, procedures, and techniques in place and working, so that the elements of proof get captured, documented, exchanged by the parties, and are convincing to an adversary.”
These are just a few of the causes for disputes and claims. While this is not legal advice, adopting these practices should help you avoid disputes, and more importantly claims, should they unfortunately arise.