Quality contracts are essential in construction because many construction projects end up with contract disputes, and many of those end up in litigation.
And litigation can be expensive. The 2018 Global Construction Disputes Report states that construction contract conflicts take, on average, 18 months to resolve.
The content of the dispute can range from delays to owner changes to faulty materials to liability, but the result is the same – everyone looks to the contract to see how the problem should be resolved and who will pay for it.
A quality contract is essential because construction contracts are written in real time. All changes (and there are always many changes) need to be documented via a change order which can then affect the remainder of the contract. While handshake deals are pleasant to remember, written contracts are law. Any changes to the contract need to be written down.
All the signees need to understand the contract as well. There is a reason why provisions are written and agreed upon. Any problem with the contract can lead to expensive litigation over a problem that could have been handled before the contract was signed or change orders were issued.
Construction contract experts also suggest that insurance, delay contingencies and payment schedules are clearly named in the contract.
Methods of resolution
If the contract isn’t clear and disputes need to be resolved, the disputes can head to mediation or arbitration before they are litigated, experts say.
Experts say mediation can solve most problems within one day. They also say mediation works best while the project is underway yet also when both parties can see how giving a little can benefit the whole project. Finding the spot between immediacy and distance can be difficult.
While arbitration also keeps a contract dispute out of court, it is harder to appeal and is binding.
Experts also note that while the average dispute resolution takes place in 18 months, that’s an average meaning that if one dispute is mediated within one day, others drag on for years and years and rack up costs that well exceed the original construction.