Disputed dollar amounts accounted for one third of the $325 billion in construction project costs in this country in 2022. Disputes between owners and contractors are often resolved through negotiation but have also led to many trips to the courthouse.
Getting to the courthouse may appear deceptively cheap. But construction disputes can ultimately lead to complex and costly construction law and litigation problems and delays. These issues occur in Florida as well as across the United States.
According to a recent analysis by the risk mitigation consultant HKA, the three leading causes of disputes were changes in the project’s scope, unforeseen physical conditions and incorrect design. These problems are also preventable.
Changes in scope
Contractors often consider changes in scope with the same disdain as change orders. These are submitted to project owners when there are unexpected issues that increase the original costs. Changes in scope often occur when a project is expedited and started before the completion of final specifications.
Completing all design and engineering plans before work begins is one way to help prevent these disputes. But recent pandemic-related material and labor shortages still make this more difficult.
Contracts containing each party’s responsibilities and following each step in the construction can prevent this problem. Strict recordkeeping can then limit a party’s liability exposure.
Risk may be allocated to the party that is most qualified to control it. An owner who pays for design, for example, should warranty it to the contractor. Contractors should be responsible for labor issues because they are better equipped to solve that issue.
Unexpected site conditions are expected in construction. Parties, however, should perform their due diligence at the site to learn as much as possible about its physical conditions. Set forth which party is responsible for the unexpected before it is discovered and the process for addressing it.
Owners typically have more control over this risk. They should have probes performed on the property at the beginning of the project. Otherwise, other parties may assume that there are on-site physical problems and they may inflate their prices.
Even with taking these precautions; however, problems may arise. The parties should agree on options for addressing them. The contractor’s responsibilities after problems are discovered, such as owner notification, should be spelled out.
In the traditional-design-build process, the owner engages an architect to design the project before it goes to bid. The owner is usually liable for problems in these projects.
Contractors should engage in a thorough review of design documents before completing their bid. Owners usually warrant designs they provide. Mistakes would constitute a breach of contract and the contractor may be entitled to damages.
It may be difficult, however, for project owners to know if a design is sound at the beginning of the project. They should obtain a third-party opinion on the project’s design from experts such as an architectural consultant. Reliance on the architect’s assurances may be insufficient because they may modify existing designs from other projects to save costs and time even though those designs do not meet code or structural requirements for the current project.
Attorneys can help prepare contracts and other documents that address these issues. They can also take other steps to assure that rights are protected.