Understand the Contract for Construction
According to the 2019 Global Construction Dispute Report released by the renowned construction consultancy Arcadis, the number one cause of legal wrangles in the construction industry is when any of the parties involved (owner/contractor/subcontractor) “fail to understand contractual obligations.”
Contract is king. A contract rules and dictates everything that is intended to happen within a project. However, before the contract you must make sure you understand the scope of work to be provided. If it is outside your usual engagement, either politely decline or bring in appropriate resources who have a proven track record.
Generally, a construction contract should cover the following:
- The scope of work
- Project timelines, schedule of work and deadlines
- Conditions and responsibilities
- Contract terms and conditions
- Technical specifications and standards.
- Fees, chargeable costs and payment schedule
- What happens when there are delays or breaches of the contract
Depending on the type of project, you may want to consider appropriate clauses and conditions. For instance, if the project is expected to last over a year, escalation clauses are often inserted to allow for potential increases in materials and labor rates.
For any large-scale project, bring in a specialist construction attorney. Such lawyers bring years of relevant experience and intimate knowledge of the potential for disputes in the industry. From planning, execution to termination of a contract, lawyers act proactively to secure your interests. Clarity of scope and contract serves to prevent disputes that can lead to litigation.
Before you sign the dotted line, make sure you study and understand the contract. Even the best considered projects can go awry.
Example: Wembley Stadium
Seminal. Historic. Mammoth. Those were the words used to describe the Wembley Stadium project, at its commissioning.
A few months into the project, the narrative changed. The Telegraph dubbed it “the Wembley hangover,” while the Herald Sun called it “problem-plagued.” The Independent was a little less kind, describing the construction process as a “farce and a fiasco.”
The stadium was already four years behind schedule while its initial estimated price of £445 million more than doubled. Photocopying during the legal dispute? A whopping £1 million. If you’re wondering what really happened, here’s the short answer: construction disputes.
From loss of revenue, drawn-out disputes to soiling of brand reputation, construction disputes take a heavy toll. Here are some ways to avoid such disputes.
Prioritize Project Management
Construction projects are often complex and exacting. The sheer number of activities that need scheduling, coordinating and monitoring can be daunting. That is where many general contractors lose their way.
Joy Gumz couldn’t have put it any better: “operations keeps the lights on; strategy provides a light at the end of the tunnel, but project management is the train engine that moves the organization forward.”
Budgeting, tracking, communication, documentation, scheduling, – just name it. It’s hardly surprising that the American Academy of Project Managers has outlined at least 120 responsibilities of a project manager.
By employing best practices in construction project management, the chances of disputes and chaos are greatly reduced. A case-in-point is scheduling—many projects end up in litigation because of delays. With lean scheduling techniques in project management, a company can keep tabs on progress and be ready for any setbacks.
Employ Alternative Dispute Resolution (ADR) Methods
Contracts are often considered with the best intentions, but as long as humans are involved, disagreements and mishaps are a given. Since litigation and arbitration are so expensive, the parties involved in the contract should agree on the simplest method to resolve them. The agreed ADR means should be discussed, agreed and documented. The simplest ADR approach is to require meditation prior to any formal litigation or arbitration.
A mediator is someone who is well-versed in construction disputes and skilled at helping parties unpack and resolve conflicts. The mediator doesn’t adjudicate or pass judgement but rather focuses on helping parties appreciate different perspectives and to reach an understanding. A good mediation is sometimes defined as when both parties go home unhappy, but the dispute is resolved.
Mediations are faster than civil litigations, often lasting around 1 to 2 days. The cost involved in preparing for and undertaking a mediation process is relatively minimal compared to litigation.
You’ve heard the saying “an ounce of prevention is better than a pound of cure.” In the construction industry, that statement carries more weight because nothing hurts a construction company, a project or an owner like legal wrangles. Implement the above-listed measures to save your company from painful disputes.