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By Aaron Partridge, CPA – Shareholder

A single construction dispute can turn a profitable job into a loss; multiple ones can put a contractor out of business. Here are seven strategies for avoiding them:

  1. Draft contracts carefully. Ambiguous contract language is probably the most common cause of legal wrangles for contractors. Pay close attention to provisions that affect your right to compensation and/or extensions of time in the event of owner-caused delays or changes. These include change order provisions, no damages for delay clauses, differing site condition provisions and substantial completion requirements.
  2. Monitor jobs closely. No matter how well-drafted your contract is, disputes can still arise if your project managers and crews don’t follow contractually mandated procedures. For example, be sure they understand the change order approval process and follow it to the letter. This means complying with all notice and approval requirements and documenting additional costs thoroughly.
  3. Have an accurate schedule. It’s difficult, if not impossible, to assess the impact of delay claims or change orders without an accurate baseline schedule accepted by all parties at the start of the project. A solid schedule also serves as a tool for identifying delays early and taking steps to prevent or minimize them before they lead to potential disputes. If you regularly find yourself falling behind on job progress, look into refined scheduling methods and technology to shore up this problem.
  4. Stay up to speed with applicable laws and regulations. Keep up with laws and regulations that affect your types of projects. If you work on public jobs, for instance, federal or state rules may require certain mandatory contract clauses — and courts may interpret the contract as containing these clauses even if they’re omitted. Failure to comply with these rules is an invitation to disputes or litigation.
  5. Train project managers. By the time a construction company owner learns of a dispute, it’s often too late to prevent dire consequences. Project managers are typically in the best position to spot potential difficulties as they arise. Train yours to identify troublesome issues and act quickly to resolve them. Doing so can often mitigate problems before they turn into full-fledged conflicts.
  6. Consider alternative project delivery methods. New approaches, such as integrated project delivery (IPD), can help reduce disputes. In IPD, contractors, owners and architects (and even major subcontractors and suppliers) enter into a mutual contract. Doing so helps avoid disputes because the parties collaborate from the beginning — agreeing on goals; target costs; and allocation of responsibilities, risks and compensation. Often, they waive liability claims against one another (except for willful misconduct) and make decisions by unanimous consent, subject to arbitration or another alternative dispute resolution mechanism.
  7. Take advantage of technology. Evolving technologies that enhance collaboration and information sharing can help reduce disputes. Take building information modeling (BIM), for instance. This technology creates 3-D or even 4-D models that enable the parties to view the completed project from different angles to better understand the spatial relationships between building components. It also helps job contributors see how changes in design or materials affect the project. Notably, by helping the parties identify and resolve design conflicts before construction begins, BIM can be an effective dispute-avoidance tool.

Doeren Mayhew’s Construction Group is here to assist contractors in navigating all the complexities of running a construction business. Contact us today!