Construction partners hoping to avoid project disputes know full well that the best first step is to draft airtight, unambiguous contracts.
But as a team of construction law experts hosting the latest WeirFoulds Tools for Success webinar explained recently, it’s also important to cultivate strong relationships to keep projects on the rails and avoid costly disputes.
“You can have the best contract in the world, but if you’re not maintaining those relationships, it’s not going to help you at the end of the day,” said Jeff Scorgie, construction lawyer with WeirFoulds. “If you’re really difficult to work with, or if you don’t work well with the team members and your partners on the project, you’re setting yourself up for failure.”
Scorgie and fellow WeirFoulds construction lawyers Krista Chaytor and Faren Bogach were joined by Jiwan Thapar, CEO of JTE Claims Consultants Ltd., for a discussion on construction disputes June 10 as the firm wrapped up a six-part webinar series.
Scorgie noted the Ontario construction firms that have survived and prospered during the pandemic are the strongest collaborators.
“When COVID struck last year, a lot of the projects that we saw be navigated successfully through that storm were the projects where the parties had a great working relationship, and they were able to navigate this kind of difficult, unforeseen situation together, both sides willing to…compromise in order to get out successfully on the other side.
“And now we’re seeing a very similar thing with the escalation of material prices. So when unforeseen things happen, that weren’t contemplated at the beginning of your job, you want to be able to leverage and rely on those good relationships and that sets you up for success down the road.”
Thapar asserted that two strong strategies to avoid a disputes quagmire are to make best attempts to avoid a dispute in the first place, and if that is not possible, resolve the dispute as early as possible.
“Understanding what it takes to avoid a construction dispute is the most important thing in contract administration,” he said.
Thapar referred to Arcadis’s Global Construction Disputes Report from 2020 which documented the depth of the problem. The average value of a dispute in North America is $US18.8 million and the average length of disputes is 17.6 months.
Arcadis found that the number one cause of construction disputes in 2019 was poorly drafted or incomplete or unsubstantiated claims. Next was failure to make interim awards on extensions of time and compensation, and third was contractors failing to understand or comply with contractual obligations.
Scorgie said avoiding ambiguity in the contract is critical to minimizing disputes.
“Being very clear on exclusions, being clear on how the change order process works, is there an agreed upon markup for changes, have the parties agree on the hourly rates that will be used for changes, put all of that very clearly in the contract — don’t just assume because there’s been a discussion that you don’t have to address it in the contract.”
Thapar said claims under a contract need not necessarily lead to disputes. Due to the complex nature of construction projects and the different interests of parties, conflicts are inevitable. If the conflicts are not managed properly, one party will submit a claim. If the claim is not resolved, the conflict becomes a dispute.
When a conflict reaches that stage, Chaytor said, contractors that have extensive documentation are better equipped to win a fight. Focus on being organized, she said, manage documents meticulously, make sure minutes of meetings are accurate, and gather all relevant photos and videos.
The more details, she said, the better.
And avoid “crazy” emails, Bogach said. Actual messages that became part of the record included: “We need to try to make subcontractor responsible for this screw-up”; “We really need to find some change orders”; “I’m tired of dealing with you. Get off site”; and, “We missed this on the drawing, see if we can get a change order.”
In the end, Scorgie said, firms want to preserve their reputation.
“Too many disputes can become problematic from a reputation standpoint in the industry,” he said. “Sometimes it may actually be more strategic, more prudent, for your organization to really work together with the other side to try and get it resolved early on. And that goes back to what I mentioned earlier about relationships, trying to manage and preserve those relationships.”
Follow the author on Twitter @DonWall_DCN.