In the Old West, the best way to catch a bunch of outlaws hightailing out of town with their rucksacks full of loot was to head them off at the pass. A common culprit of “loot” disappearing from the bank accounts of many construction companies is disputes with project owners.
Even if you win the showdown at the O.K. Corral, the legal expenses, payment delays and bad blood can lead to dollars lost in the short- and long-term. That’s why contractors need to take a page from the cowboys of old and head off owner disputes at the pass before they get too far ahead of you.
Watch your language
Ambiguous contract language is among the most common causes of legal wrangles with owners. This problem often arises because contractors rely on boilerplate contracts that don’t anticipate all the potential conflicts of each job.
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.
Consider having an attorney with construction experience review your contracts — especially those of large projects with greater risk.
Sharpen project managers’ skills
No matter how well drafted your contracts, 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 notice and approval requirements and documenting additional costs thoroughly.
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.
In addition, encourage your project managers to keep learning about the latest approaches to smart scheduling. A solid schedule serves as a tool for identifying delays early and taking steps to prevent or minimize them before they lead to potential disputes. If your company regularly struggles to keep up with expected job progress, explore refined scheduling methods and technology to shore up this problem.
Roll with the changes
The construction industry is evolving. Technology, for example, is pushing forward to enhance collaboration and information sharing. Take building information modeling (BIM). This technology creates 3-D or even 4-D models that enable the parties to view a 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 a project.
By helping the parties identify and resolve design conflicts before construction begins, BIM can be an effective dispute-avoidance tool. You may also be able to prevent conflicts by using Web-based project management software that speeds communication between you and an owner.
New approaches in project delivery are affecting the industry, too. And these go hand in hand with technology. For instance, under integrated project delivery (IPD), contractors, owners and architects (and even major subcontractors and suppliers) agree to a mutual contract. BIM software is often used to keep everyone on the same page.
IPD helps avoid disputes because the parties collaborate from the beginning — agreeing on goals, target costs, 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.
Ride off into the sunset
How does a contractor ride off into the sunset after any given project with a healthy profit and a good chance of successfully bidding on another job in the future? Completing timely, high-quality work is, of course, paramount. But avoiding disputes with owners is critical to long-term success.
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