Conflict is common in the construction industry but most conflicts can be resolved without ending up in a legal battle. Construction contractors who plan ahead and quickly respond to conflicts are the most successful at avoiding litigation. While there is no guarantee you won’t be dragged into court on any particular construction project, there are steps you can take to reduce the chances of litigation.
Your contract is usually your first chance to protect yourself from litigation
There are several standard clauses in most construction contracts which you should review and request changes to. The most important clauses involve dispute resolution procedures, lien rights, payment terms, change order rights, indemnity, and scope of work specifications. This article addresses the two clauses which will give the construction contractor the most protection from litigation. To receive the most protection from litigation, it’s best to have a construction lawyer review and negotiate the terms of all of your construction contracts.
The Most Useful Clause for Avoiding Litigation is the Dispute Resolution Clause
Dispute resolution procedures should first require informal discussions between conflicting company leaders. If this does not resolve the dispute with a specified time, then you must take the dispute to mediation. Your contract should clearly state only after informal discussions and mediation fail to resolve the dispute, then a party can take the dispute to court or arbitration. This resolution procedure increases your odds of resolving a conflict and prevents you from being immediately hauled into court by a litigious client.
A Construction Contractor Must Ensure the Right to File a Mechanic’s Lien
Also important is the clause that explains your lien rights. First, determine if you are working in one of the few states that requires the granting of lien rights in the contract. If you are, make sure the contract gives you the right to file a mechanic’s lien. If not and lien rights are not discussed, be happy. Your right to file a mechanic’s lien is created by law so it does not need to be granted to you in the contract. When lien rights are discussed in your contract, read it carefully to make sure it doesn’t say you are agreeing to waive your lien rights. If it does, try to have the language removed or qualify the waiver of lien rights “only to the extent timely paid”. Waiving your lien rights may result in litigation being your only way to enforce your right to be paid for the goods or services you provided.
Requests for Information (RFI) Can Prevent Misunderstandings
When bidding for work on a project and during performance of your work, requests for information (RFI) can prevent misunderstandings which will ultimately result in litigation. If you have not received information needed to perform your scope of work, or you find conflicting information in the specifications, or just don’t understand any aspect of executing your work, submit an RFI. Ideally, RFI’s will insure that the contractor receives all the information needed to successfully complete the work. If a dispute still arises and you requested guidance through an RFI on the issue, you can prove the problem is not your fault because you either did not receive any information or received incorrect information. This written proof you tried to solve the issue before it became a problem will discourage litigation against you on the issue.
The Best Way to Decrease Your Odds of Ending Up in Court is Being Proactive
While avoiding all litigation may be impossible, the best way to decrease your odds of ending up in court is being proactive. If any type of misunderstanding, conflict, fight, or dispute arises during your work, handle it immediately. Don’t ignore it, hoping the passage of time will make the problem go away. Quickly investigate the problem, bring it to the attention to anyone who needs to know, and communicate honestly with anyone who may be able to help with a resolution. It is understandable your natural instinct is to avoid upsetting your construction client. Just remember though, the time, money, and stress of litigation will always be worse than an angry client.