Business

Ten Strategies for Mitigating Liability and Avoiding Construction Disputes

Construction professionals can plan and prepare for potential disputes in advance. Here are 10 tips all construction professionals should consider to mitigate their liability in the event a dispute later arises.
By Jason Herndon
September 28, 2021
Topics
Business

Despite all the effort and energy construction professionals invest in planning, preparing and delivering a project, construction disputes are not uncommon. Often costly and time-consuming struggles, they can arise out of any number of issues, including poor workmanship, inadequate designs, labor and material shortages, project delays, injuries, defective materials and unexpected events. Unfortunately, there is no crystal ball that tells someone when a dispute is going to happen.

Construction professionals can, however, through intention and forethought, plan and prepare for potential disputes in advance. Here are 10 tips all construction professionals should consider to mitigate their liability in the event a dispute later arises.

Reviewing, Evaluating and Revising the Contract

Identifying and taking steps to mitigate liability on a construction project begins before ground is ever broken. One of the central features of any construction project is the contracts. Contracts come in all shapes and sizes, and affect every aspect of the project. Whether verbal or written, design or construction, or labor or material, every contract is critical to mitigating liability on a project.

Tip One: Be Proactive
A contract should never be an afterthought. Construction professionals should be thinking about their contracts as early as possible. A contract that is hastily thrown together at the last minute can have devastating effects and drastically increase a construction professional’s risk exposure.

Tip Two: Be Intentional
While standard form contracts are sometimes viewed as beneficial due to the template they provide professionals who may not have the staff, time or resources necessary to devote to drafting contracts from scratch for each project, they can be very problematic and increase a professional’s liability exposure if they are simply carried over from one project to the next without any revisions.

For example, liquidated damage provisions are not universally appropriate; rather, they depend on a variety of factors, each of which varies from one project to the next. Additionally, provisions that are valid and enforceable in one state may be void in another state. Construction contracts should always be tailored to a specific project. Construction professionals using standard form contracts, industry or otherwise, should be intentional in reviewing each provision to carefully assess its application and appropriateness to the specific project at hand.

Tip Three: Review, Revise and Update
Construction contracts can easily and quickly become outdated. New legislation, court decisions, prior dealings between parties and industry advancements have a direct impact on contract provisions. Outdated contracts can leave construction professionals in difficult situations where the contract does not reflect prevailing standards or provide adequate protections. More importantly, outdated contracts can leave construction professionals unnecessarily exposed to significant liability. Construction contracts should be regularly reviewed, revised and updated.

Tip Four: Evaluate the Dispute Resolution Provision
Construction contracts often contain alternative dispute resolution provisions, including pre-litigation mediation and mandatory arbitration through a third-party program. While alternative dispute resolution is sometimes favored and can be extremely beneficial to the parties involved in the right circumstances, one size does not fit all.

For years, alternative dispute resolution programs such as private arbitration have been recommended due to their expediency and their cost-saving potential. However, with their rise in popularity, private arbitration programs are becoming increasingly reflective of litigation in state and federal courts. Extensive discovery phases, numerous witnesses and lengthy hearings, combined with the added hourly rate of one or more arbitrators and the administrative costs of the administering program, can moot some of the perceived benefits of arbitration. Construction professionals should carefully evaluate the proposed dispute resolution provision and particularly evaluate whether any proposed alternative dispute resolution process is appropriate to the particular contractual relationship and project.

Tip Five: Consult the Contract Regularly
The benefits of negotiating and drafting an appropriate contract are severely thwarted if the people involved in the project do not understand its terms and requirements. For example, many contracts require that formal written notice of specific events be given to specific individuals in set periods of time, that claims be supported by particular information or documentation, and that additional work or services are non-compensable without prior written approval. Failure of project personnel to understand and follow the contract’s requirements counsel could result in a partial or complete waiver of an otherwise viable claim.

Maintaining Communication

Mitigating liability also depends on good communication. Construction projects can often seem like a marriage. Participants commit to building something together, bringing their own unique talents and skills to the table along with their vices and shortcomings. When communication is lacking, disputes and disagreements are exacerbated. Fortunately, good communication habits can go a long way in mitigating liability on a project.

Tip Six: Communicate Early and Often
Few, if any, issues on a construction project improve by being ignored. Waiting until a small issue has become a large one to start communicating with the other parties makes resolution more difficult and, typically, more expensive. Questions, concerns and uncertainties should all be communicated as soon as possible and in accordance with the terms of the applicable contract to minimize future disputes.

Tip Seven: Have a Plan
Construction professionals should establish an internal communication plan. This plan should reflect the appropriate chain of command within the organization and take into account project-specific requirements. For example, many construction contracts require parties to identify an appropriate project representative. Some contracts require this person to have authority to act on behalf of the designating party during the course of the project, while others simply require this person to be the main point of contact. If a change order request is received by an incorrect individual, the recipient should be aware of the limitations on his or her authority and clear on how to respond or who the request should be sent to.

Tip Eight: Keep Communications Professional
Construction projects can be stressful environments and often bring out very strong emotions. Communications sent in anger or frustration frequently contain personal attacks, foul language, false or unsupported accusations, or incoherencies. Such communications are rarely, if ever, productive. Keep communications factual and objective. If necessary, have a coworker or supervisor review the communication to ensure it is professional.

Keeping Adequate Records
Properly documenting a project is critical to mitigating liability. Payment claims require adequate documentation of payment applications, payments and supporting costs. Delay claims depend on detailed and accurate schedules, weather data and progress reports. Breach of contract claims may depend on written notices, communications, design plans and specifications, and other documents. Despite this importance, construction disputes often involve one or more parties with inadequate records. Maintaining proper and accurate project documentation can place a construction professional in an advantageous position if a dispute were to arise.

Tip Nine: Document Communications
With all the hustle and bustle that takes place on a project, it is easy to use and rely on verbal communications. Whether on site or over the phone, verbal communications offer construction professionals a quick and easy way of distributing information to the necessary recipients. However, as the childhood game of “Telephone” taught us, verbal communications are often misunderstood, misremembered and incorrectly relayed down the line.

While construction professionals should continue to use verbal communications where the needs of the project dictate and the terms of the contract allow, critical information should be properly documented. For example, phone calls or on-site instructions directing a contractor to proceed with a change in the drawings should be followed with an email to the appropriate people documenting the directive, including the scope of the change, the identity of the person directing the change, the date of the directive, any changes to the project schedule, any added costs and any other information required by the contract or otherwise pertinent to the request.

Tip Ten: Using Technology to Establish Good Documentation Habits
Properly documenting a project depends on establishing good habits. Contractors who are not in the habit of maintaining daily progress reports, employee time tickets and other critical information are likely to face significant obstacles in pursuing or defending a project-related claim. Fortunately, the rapidly increasing suite of software programs, applications, and platforms available to construction professionals means there is no shortage of methods to generate and document the progress of a construction project. Additionally, cloud-based storage providers offer alternative means of storing voluminous records at affordable rates. Construction professionals looking to improve their documentation habits should research, evaluate and incorporate those technologies that will support and enhance their businesses.

by Jason Herndon
Jason Herndon is an attorney in Parker Poe’s Development Services Industry Team. He is in the firm’s Raleigh office and focus on construction law and construction litigation. He can be reached at jasonherndon@parkerpoe.com.

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