If you have been involved in a construction project — whether as a commercial owner or contractor — you have likely encountered issues involving scope, change orders, cost, schedule, or defective work.
Understanding common issues in construction disputes can improve your odds of a successful outcome. This article outlines five best practices for navigating issues that often lead to or arise in these disputes.
Ensure Appropriate Project Documentation Throughout the Life of the Project
Project contracts form the foundation of any construction project. Working from unsigned proposals, estimates, or handshakes can create problems. And recycling old form contracts without reviewing legal developments or project-specific issues can lead to unintended consequences. Experienced construction counsel can help owners and contractors develop documentation policies that support compliance and strengthen project-related claims and defenses.
Projects can take months, years, or even decades to complete, often encountering unforeseen conditions and changes along the way. If the owner-contractor relationship turns adversarial, proper documentation becomes even more critical. For example, significant litigation arises from disputes over the scope and meaning of change orders. Parties often agree to changes via email or conversation, but these “agreements” may not be formally documented, leading to enforceability disputes. A formally executed change order is far easier to assert and defend in court than piecing together emails, conversations, and unsigned documents. For disputed changes, create a dedicated file of related communications. Courts generally give contemporaneous records more weight than after-the-fact recollections.
Both owners and contractors should act proactively at the first sign of a problem rather than waiting until the end of the project when it may be too late.
Understand Your Contractual Rights and Remedies
Having documentation in place is one thing; understanding your contractual rights is another. A common tension in construction disputes involves the balance between owner involvement and approval versus contractor expertise. Many owners seek extensive involvement in planning, design, construction, and inspections. Contractors often interpret owner markings of “reviewed” or “approved” as the owner assuming contractual responsibility, while owners may view such markings differently.
Whether you are an owner or contractor, understanding your contractual rights and obligations is essential. Carefully negotiating project documents and understanding contract terms can significantly influence both project trajectory and dispute resolution. Understanding the parties’ roles and responsibilities — and adhering to them in practice — helps avoid misunderstandings. Both parties might work with counsel to create user-friendly charts explaining contractual processes for changes and notices.
Understanding your contractual remedies is equally important. Contracts often require written notice of claims to the other party soon after the claim arises, and pre-suit dispute resolution provisions may require notice and opportunities to cure before filing suit. Contracts may also mandate arbitration over litigation or bench trials over jury trials. Failing to understand and follow these requirements can limit available remedies and cause unnecessary delays and costs. Know the steps required when a dispute arises to preserve all rights and remedies.
Secure Adequate Insurance Coverage and Promptly Notify Your Carriers of Claims
A variety of insurance products specific to the construction industry are available for construction projects. Determining which party must obtain insurance — and the type and amount of coverage — is essential for both owners and contractors. Insurance coverage disputes add time and expense to construction lawsuits. Conducting appropriate risk assessment at the outset helps determine necessary coverage levels.
When loss or conflict arises, promptly notify all insurance carriers of potential claims to preserve your rights. In the event of physical loss or damage, take early action to ensure site control, preserve evidence, mitigate further damage, and document the incident. Consider retaining expert witnesses early so they can participate in these steps.
Understand Lien Rights and Deadlines
Contractors typically have lien rights, which provide a mechanism for securing payment from the owner. Liens serve as a powerful tool in payment disputes, but most states impose detailed statutory requirements and deadlines that must be strictly followed when enforcing lien rights. In Wisconsin, for example, contractors must file liens within six months of the last day they furnished labor or materials. They must also serve notice of intent on the owner at least 30 days before filing. Lien laws vary by state and project type. These deadlines can slip away quickly. Failing to document and enforce lien rights can impair a contractor’s ability to collect damages. Contractors should seek guidance on lien law at the project’s outset — and certainly if a dispute seems imminent — to avoid missed requirements and deadlines.
From an owner’s perspective, resolving payment disputes before a lien is recorded against the property can avoid a cloud on title and potential problems when selling or refinancing the property. Requiring lien releases and similar documentation in exchange for periodic and final payments may reduce the risk of liens.
Know the Applicable Statute of Limitations and Statute of Repose
State laws known as statutes of repose and statutes of limitations restrict the time for filing construction-related lawsuits. These periods vary by state and claim type.
A statute of repose sets a fixed period after construction completion beyond which no party may file a lawsuit. The purpose of these statutes is to protect contractors from indefinite liability.
The statute of limitations establishes the deadline by which a party must file litigation (or arbitration) following a breach or other actionable conduct. Depending on whether the claim sounds in contract or tort, the limitations period may run from the breach date or from discovery of the defect. Discovery rules may toll the limitations period when the injured party could not reasonably have known of the cause of action.
These statutes become particularly important in multi-year projects where workers may have completed some work years before the project finishes. This often arises in claims for defective work discovered during the project but performed years earlier.
As noted above, these statutes can vary widely from state to state. Seek legal advice on applicable rules at the earliest sign of a dispute to avoid missing a filing deadline and potentially losing or limiting available claims and damages.
Key Takeaways
Owners and contractors should:
- thoughtfully negotiate construction contract terms and execute contract documents reflecting those terms;
- establish project documentation processes and adhere to them throughout the project;
- understand contractual rights and remedies in the event of a dispute and act timely;
- stay current on insurance best practices and promptly notify carriers of claims;
- comply with and understand state lien requirements; and
- seek legal guidance on the applicable statutes of limitations and repose for the project’s jurisdiction.
For insights on these and other strategies, visit Foley’s Construction Team page.
