Construction disputes and claims are mostly resolved in a straightforward and timely way, but unresolved disputes can be devastating for a project. As project partners put up their guard and reduce cooperation, and company money flows to the lawyers, it’s only a matter of time before progress on site is affected, let alone relationships, reputations, and profit at project completion.
Construction litigation is bad for business and in this article we’ll explore ways to reduce construction disputes, or resolve them with minimal loss should they occur. We’ll also discuss the impact of the construction warranty in construction litigation.
Why do construction litigation and disputes occur?
In most cases of construction litigation, one party is accused of breaching the construction contract. Breaches can happen due to a combination of environmental, economic, and behavioral factors. Projects are usually complex and long-term processes with high uncertainty, and it is impossible to foresee or prepare for every possibility at the outset, either in contractual terms or project planning. Covid-19 is a pertinent example of this. Therefore, even apparently clear breaches can involve contract interpretation, and lead to costly negotiations about the degree of responsibility and how the issue should be resolved.
The world’s construction industry is trying to reduce losses that result from construction disputes, by employing methods to resolve disagreements in a cost-effective and time-efficient manner. The right Software for Construction can help in many ways, including efficient on-site data collection, storage, and presentation.
Source: 2020 Global Construction Disputes Report
The general reasons for disputes are:
- Contractual problems
- Project members behavior
- Acceleration of the project and time schedule
- Lack of coordination
- Ineffective project management control
- Differing goals for project parties
- Construction delays
- Design errors
- Engineer and Employer’s Representative personality and culture
- Project complexity
- Quality and workmanship
- Site conditions
- Tender documents
- Changes are done by the owner during the construction process
- Value engineering
Whilst disputes in and of themselves do not constitute a breach of contract, they may lead to one, or even contract termination, or a claim against the contractor’s surety bonds. In order to reduce the possibility of disputes arising, all signatories should take proactive steps before the project itself begins. PlanRadar can help you in this step by providing a direct communication platform for all parties from day one until the end of the project.
12 simple tips to avoid going through construction litigation
In any construction dispute, lawyers will refer to the construction contract. To reduce the risk of disputes arising, ensure that the project team invests the time required to negotiate the contract and fully understand it. Failure to understand the contract is the main source of dispute and litigation. A project team may hurry through a contract, fail to realize the potential implications of certain details, or not feel able to challenge them, due to general busyness, pressure from another signatory, or themselves trusting that ‘it’s all standard’.
PlanRadar Software for Construction helps by prompting and tracking appropriate steps to reduce the risk of construction litigation. By acknowledging and following all of these steps, a company protects all parties to the contract including themselves, whilst improving the general quality of their work and inspiring the confidence of their clients. It’s a basic principle of being better organized, coupled with effective data capture and synchronized cross-party access.
- Adequate planning before work commencement will reduce the risk of delays on site, and help you to finish on schedule.
- Any defects on site to be documented in a daily report.
- Schedules must be realistic including flexibility to allow for unforeseen disruptions.
- Understand and negotiate ALL contract terms and conditions with your clients.
- Follow the contract and insist that the other parties do so also.
- Keep your communication emails formal, and reasonable, and do not delete them.
- Be aware of areas of risk such as delays, quality, and design issues.
- Develop and implement a risk management strategy, with input from specialists in each technical field.
- Ensure that critical issues are discussed in meetings rather than by email and that any critical decisions are recorded and signed off by appropriate parties.
- Perform any contractual obligations as scheduled.
- Remember your duty to mitigate if the other party breaches the contract, meaning that you must do what you reasonably can from your side, to reduce the impact of the breach.
- Adopt technology systems that increase effective communication and information transparency between the project parties.
PlanRadar addresses all of these areas through their software that helps even technophobes to save time and energy whilst meticulously documenting, tracking, and managing progress and defects on-site because they soon realize it saves them time and covers their back. The direct communication between parties helps everyone to ‘run a tight ship’ knowing that their actions are appreciated in the present day and documented to protect them from any future litigation.
Alternative construction litigation resolving methods
Most construction contracts now have a series of formal steps written into them, to be followed in the instance of a dispute. These start with negotiations, then a non-binding expert opinion, progressing to mediation, and finally, arbitration. If none of these resolve the dispute, litigation begins.
Hier fehlt ein abstand Negotiation is the best way to resolve a construction dispute because it minimizes the cost and time for all project parties, and makes all parties stop to take a breath and assess the situation before more costly processes are initiated.
5 methods to resolve disputes without litigation:
- A negotiation clause means that if a dispute occurs between the contractor and the project owner, both will attempt to reach a satisfactory solution, and minimize project deterioration.
- A contract may specify a suitable neutral mediator to assist in constructive dialogue between parties in the event of a dispute, or mediation may be agreed upon at the point at which a disagreement arises.
- Expert determination is the engagement of a specialist’s opinion to inform all parties in technical arguments. It’s not legally binding but ensures that all parties have a fair chance to understand the technical dynamics of what has happened.
- The adjudication method also includes a neutral third party but unlike the previous methods, the adjudicator will give a decision. Adjudication clauses typically include the possibility of applying to a court to enforce the adjudicator’s decision.
- Arbitration includes an arbitrator who has relevant experience in the disputed field. The arbitrator considers documents and facts that concern the situation and can make a decision that favors one side if the parties fail to achieve consensus. Arbitrations can be legally binding, depending on the jurisdiction.
If parties do not find any other way to resolve the issues they go through litigation which is a legally enforceable method to resolve the dispute. Litigation is usually very thorough, complex, slow, and costly including for the ‘winning’ side. For this reason, typically all parties will be willing to engage in a process of trying to resolve the dispute without litigation.
When a dispute arises, the first thing to do is carefully read the contract and ask your lawyers about your legal position, though presumably you already know your contract word for word. Next, consider how you would be willing to compromise in order to find a swift and amicable solution, reduce further costs and refocus on project progress. Working with attorneys and lawyers should be your last resort. Engaging a counsel regarding the questions of law is the beginning of a cost-intensive lawsuit.
Construction warranties play an essential role in construction disputes, so it’s important to consider the details carefully when setting up your construction warranties.
Appropriate legal assistance at the start of the project may protect you from larger legal costs later on.
There is no better insurance than delivering and documenting high-quality work. You can run a more efficient site and ensure quality by engaging with Software for Construction.
Impact of construction warranty on the construction disputes
The main function of a warranty in the construction industry is to limit the risk of disputes and claims between the project parties. The contractor accepts responsibility to fulfil their duties and allows the owner to check the workflow of the project at any time. Therefore, failure to achieve the goals as stated in the construction warranty may well represent a contract breach, and lead to dispute and litigation.
These guidelines aim to minimize any detriment by the existence or non-existence of warranty obligations in the construction contract.
- Both parties should identify and note any unusual aspects of the project that might affect warranty liability.
- When the contract contains warranties of a fixed duration, such as a callback warranty without a durational aspect, both parties should examine the language of the contract closely to agree on a common base for the maximum and minimum of these durational warranties.
- When negotiating warranty provisions in construction contracts, contractors and owners alike should resist the temptation to treat them as independent provisions not related to payment, time, and other negotiated provisions.
- The contractor should be careful not to get caught between inconsistent warranty provisions in subcontracts and the prime contract.
- Both parties should be aware of the nature of the construction services that the contractor will be providing.
- Both parties should know the law in the jurisdictions in which projects are located and develop their strategy for contracting and negotiating, considering the prevailing jurisdiction’s laws.
Any construction company can plan for, and reduce the risk of, disputes and litigation by delivering projects to a high standard and investing in appropriate software that ensures the effective tracking and management of defects. This will save time, money, and the draining stress of litigation.
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Most common explicit and implied construction warranty types in the building industry
Most construction contracts include numerous categories of warranty which are either explicitly written into the contract or implied in all contracts. For example, there would be an implied warrant for the accuracy and completeness of the plans and specifications in order to build the project, and then an explicit warrant for the availability of funds for the construction in order for it to be delivered on schedule.
The contractor may warrant its licensure or status as an entity and that the individual signing the contract is authorized to do so. Here is a list of warranties that the contractor can express or imply to the owner:
- Construction Services warranty
- Callback (Repair) Warranty
- Vendor Warranties (warranty of a product or system directly from the vendor who manufactures and/or distributes it. For example, roofing system warranties)
- Design-Build Warranties
- Good Workmanship
- Habitability (only in residential projects to cover wide range of defects)
- Vendor Literature
PlanRadar the smart solution for managing your work
PlanRadar is a Computerized Maintenance Management Software (CMMS) that allows you to document and follow up on project and site details, even offline. Create your business model now to store all project data to the cloud, follow your project through with easy access to statistics, and manage every defect by assigning it to a named responsible person.
Your memory is excellent, but you can’t download, show or simultaneously share your memories with your project partners, or draw off reports to submit to your lawyers documenting the management of every defect that occurred during the project.