By Kellen Cushing, Carmody MacDonald PC
Commercial and residential construction projects are inherently complex undertakings involving numerous parties working under tight deadlines and limited budgets. Change is inevitable and unpredictable in these projects, most often due to changes in project scope, incomplete or incorrect design, and unforeseen physical conditions.
When something doesn’t go according to plan, it can impact the other parties’ abilities to perform their jobs in a timely manner and lead to litigation. Claims and litigation can be costly, time consuming and stressful for all parties, and may damage the relationship and reputation of the parties involved.
Proper contractual planning among project owners and contractors can reduce the likelihood of litigation. Making preliminary management plans and incorporating them into the project’s contracts provides effective ways to address changes that can occur during a project and keep things moving forward. While preparation cannot always prevent roadblocks in construction projects, preemptive planning can make for much smoother sailing, even in the face of unpredictable circumstances.
The best ways to avoid or minimize costly and time-consuming lawsuits include the following:
Know your contract. Create a clear and comprehensive contract that defines the scope, schedule, budget, quality and responsibilities of each party. The contract should also include clauses that specify how to handle changes, delays, defects, disputes and remedies. A well-written contract can prevent misunderstandings, ambiguities and conflicts that may lead to claims and litigation.
Finalize your budget. Entering into a construction contract where specifics will be worked out later is a common occurrence that can cause a slew of issues as a project progresses. Finalizing a project budget and obtaining a Guaranteed Max Price contract guarantees a clear limit of the cost while expediting the bid process for contractors. Knowing the max budget of a construction project provides repose to the parties and confidence in the contract.
Manage changes and delays. Contracts should include a clear and agreed-upon process for requesting, approving and implementing changes, and for assessing and granting time extensions. Keep track of the impact of changes and delays on the project and document any agreements or adjustments. A clearly defined system for change will prioritize organization and effective communication.
Prepare for the unknown. Contracts can prepare for breaches and delays from the parties involved. But how can a contract prepare for something totally out of anyone’s control? Implementing force majeure clauses can alleviate the need for lengthy disputes over a breach of the contract. A force majeure clause, sometimes referred to as an “act of God clause,” removes liability for breach of contracts from catastrophic events and natural disasters, preventing blame in faultless situations.
Resolve disputes early. Have a dispute resolution mechanism in place, such as negotiation, mediation, arbitration or adjudication. Try to maintain a cooperative and respectful attitude toward the other party and focus on finding a mutually acceptable solution rather than assigning blame or seeking revenge.
One of the best ways to learn how to manage and mitigate the risks of construction claims and litigation is to study real-world examples of construction disputes and how they were resolved or avoided. Case studies can provide valuable insights and lessons learned from the successes and failures of other projects and parties. Always seek legal advice and representation if necessary.
Kellen Cushing is an associate in Clayton, Missouri-based Carmody MacDonald’s litigation group. This column is for informational purposes only. Nothing herein should be treated as legal advice or as creating an attorney-client relationship.