Contractor Agreements and Constructions Disputes

In nearly every construction project there is a natural three way tension between the owner/developer, the general contractor and the architect. While every case is different there is generally a common thread that runs through construction disputes. When something goes wrong the owner will withhold payment and construction will be delayed. Often the contractor will claim the problem with the project is the result of a mistake in the architect or engineer’s plans and the architect or engineer will claim the contractor did not execute the plans properly. Variations on this common theme arise if materials used or a subcontractor’s work are inadequate.

Construction disputes must be handled in a timely, cost effective manner. When problems arise we approach them swiftly but methodically. Often construction disputes arise regarding bond and surety issues, change orders, contract interpretation, design problems, project delay and disruption, and quality of work. We have experience in each of these areas.

A few of the issues that must be carefully documented in each construction agreement are:

Payment Schedules. There is a natural tension that arises during the negotiation of a construction contract. A contractor’s goal is to make sure payment is made throughout the project whereas an owner wants to make sure that the contractor does not “front load” (i.e. putting the profit at the beginning of the project) the contract for fear there will be no incentive for the contractor to complete the project.

Project Schedules. Besides cost, the greatest concern an owner/developer will have is the speed with which the project will be completed. Construction delays are expensive and while an owner may wish to demand delay damages, they do not want the quality of the work to suffer. Contractors who agree to be liable for delay damages, however, usually wish to receive bonuses for completing the job early. The issue of completion bonds also arises with respect to project schedules. When disputes arise as to project schedules and completion bonds the surety then becomes yet another party to construction litigation.

Scope of the Work. Unanticipated issues arise in nearly every construction project. To the extent possible, it is critical to document exactly what will be included in the contractor’s bid. It is important to investigate the project site, the applicable building codes, and, of course, the plans, drawings and specification.

Changes. The agreement must clearly document how change orders will be handled and the cost of the work in the event of change orders.

Termination. The manner in which the parties terminate their relationship if a dispute arises is also a frequent source of construction litigation.

Method of Payment. Many owners are concerned that if they pay the general contractor, the general may not pay subcontractors or material suppliers. When this occurs, the subcontractors and material suppliers will look to the owner for payment even though payment was already made to the contractor. One way to avoid this problem is through the use of “joint checks.” However, the “joint check” system reduces the general contractor’s ability to negotiate with subcontractors and material suppliers and may not be considered a true payment to the contractor. A well drafted agreement will specify if and when joint checks will be required and specify how lien waivers will be handled as well.

When construction disputes arise, they can grow complex quickly given the large number of individuals and companies that are involved with any given construction project. It is important to have experience counsel who understands the complexities and subtleties of construction contract disputes and construction defect litigation.