The Ultimate Subcontractor Insurance: Construction Project and Document Management Software

Construction project and document management software is the most cost-effective subcontractor insurance to ensure they are fairly and accurately paid for the work they do on projects.

Yet we often hear from trade professionals who are still uncertain about the ROI or value of construction software to their business. In this article, we break down how effective, accurate construction project documentation, from field notes and daily reports, to change orders and purchase orders, is the greatest tool available for trade contractors to avoid legal disputes and get paid.

In the intricate web of the construction world, subcontractors often find themselves threading a delicate path. They must navigate through a labyrinth of contracts, change orders, and unforeseen challenges, all while ensuring that their hard work translates into timely and accurate payment. But this is more challenging than ever.

The construction industry is currently witnessing an unprecedented surge in legal disputes. According to a Bisnow article, construction contracts are landing in court more frequently and at higher dollar figures than ever before. The pressure to accelerate construction projects, coupled with runaway costs, has led to a significant spike in these disputes.

By the end of 2022, the average value of construction disputes in North American courts had reached $42.8M, up from $30.1M the prior year. This figure is the highest ever recorded, and it’s double the averages seen between 2016 and 2019. The number of lawsuits over construction projects is also expected to rise further.

Several factors contribute to this surge in disputes:

Pandemic’s Aftermath: The ripple effects of the coronavirus pandemic are still being felt in the construction industry. As projects have grown in size and complexity, the window for disputes has widened. The pandemic has also led to supply chain disruptions, uncontrolled construction material costs, and labor shortages. All these factors have compounded the challenges faced by landlords, developers, contractors, and subcontractors.

Rush to Start Projects: There’s a prevailing urgency to kickstart construction projects. This haste often results in sacrificing detailed investment in the design phase, which can lead to continuous changes and a “design as we go” reality. As trade contractors, we bid projects based on design specifications set prior to project start. Constant changes to that design to accommodate constructability and unforeseen conditions, create an environment ripe for discrepancies and disputes down the line.

Errors in Contract Documents: The most significant cause of legal disputes in the recent past has been errors and omissions in contract documents. This is primarily due to developers rushing projects to the construction phase without thorough documentation. Additionally, contractors and subcontractors often don’t fully understand their obligations, as well as technicalities of risk shifting inherent in contract language. These lead to further conflicts and liability.

Economic Pressures: The construction industry is also grappling with the economic repercussions of the pandemic. With more than 30% of survey respondents citing price escalation and supply chain impacts as primary drivers of construction disputes, it’s evident that the industry is under significant strain. Material costs for items like steel, lumber, and concrete for commercial projects surged by over 15% between 2021 and 2022. Additionally, with supply chain volatility, there is less competition among vendors to drive down the price of all materials and even machinery and tools. As a result, these costs have escalated significantly.

Force Majeure Claims: The pandemic has also seen a rise in force majeure claims, which are clauses in contracts that waive contractual obligations if an unforeseen event beyond the control of the parties hinders performance. These claims have remained prevalent even three years into the pandemic, indicating the long-term impact of the virus on the construction sector.

Given this backdrop, it’s clear that subcontractors are navigating a minefield. Every project they undertake comes with the risk of disputes, which can delay payments and impact their bottom line. In such a scenario, thorough documentation and clear contracts become their lifeline, ensuring that they are fairly compensated for their work and safeguarded against potential legal battles.

This makes construction project and document management software a must-have for trades.

Imagine a world where every task, no matter how minute, must be documented in real-time due to the risk of not getting paid for the labor and work completed. In construction the prevailing mantra is “If it’s not documented, it didn’t happen.”

The importance of comprehensive construction documentation cannot be overstated.

Subcontractors frequently grapple with the challenge of justifying work that wasn’t part of the original contract or tasks that took an unexpected turn. Without a solid record, we have no basis for justifying payment for work that was already performed, as well as escalated materials and administration costs. These claims then, often submitted after the fact (if at all) hang in the balance, threaten our profits and lead  to disputes.

This is where modern construction management software becomes crucial, offering a platform for real-time documentation. Every change order, every additional hour, is meticulously recorded, ensuring that subcontractors have the evidence they need to justify every penny they bill.

For eSUB customer, Andee Hidalgo, owner of Spearhead Construction, that documentation through eSUB in resolving claims disputes is critical to her business.

“The claims part is so incredibly important to companies like ours,” Hidalgo said.

With eSUB, Hidalgo maintains a chronological record of events, complete with photos and notes, not only making it easier to track project progress and issues, but to protect her company as well.

The platform’s features have empowered Hidalgo to respond promptly to disputes, ensuring that her company was adequately compensated for any delays or additional costs.

“We genuinely rely on those field notes,” she said. “To be able to analyze that information and have those foremen in the field that are able to quickly respond and understand that there’s a key piece of information we need to be aware of so we can respond quickly in accordance with our contract requirements; that’s the difference [between] surviving and not.”

But it’s not just about recording tasks. The construction industry, with its myriad stakeholders, is a hotbed for communication challenges. A slight delay in relaying a change or a misinterpreted message can result in work that either wasn’t approved, or approved tasks being overlooked, and potentially never billed for.

These missteps, seemingly minor in the moment, can snowball into significant disputes when it’s time for payment. Integrated communication tools within these software platforms act as a bridge, ensuring seamless communication between all parties, field to office and then office to contractor for billing and payment. Changes, clarifications, approvals, and updates are instantly relayed, minimizing the room for error.

Then comes the invoicing. In a world without this software, subcontractors would find themselves sifting through mountains of data, manually piecing together backup documentation from the field, to validate invoices that are both comprehensive and accurate. It’s a daunting task, fraught with the potential for errors.

Those hours add up fast, and the errors could be catastrophically costly.

However, with all the data already fed into the construction management software, generating invoices becomes a seamless process. Every billable task is automatically incorporated, ensuring nothing slips through the cracks. The added layer of built-in error-checking further ensures that the invoices generated are as accurate as they are comprehensive.

In the unfortunate event of a dispute, the value of centralized data storage becomes glaringly evident. Scouring through scattered data, trying to piece together a coherent narrative, can be both time-consuming and frustrating. But with everything stored in one centralized location, subcontractors have all the evidence they need right at their fingertips. This not only expedites dispute resolution but also strengthens the subcontractor’s position with a comprehensive overview of the project.

After a contentious project in 2015, Thermal Construction recognized the need for a robust documentation system to safeguard their company from potential risks and to ensure they are always compensated for their work. They adopted eSUB to help deal with those risks, and it has paid off:

“eSUB is a money saving investment…” says co-owner Sheila Myers.

Myers highlights the importance of daily reports and the ability to add pictures to document day-to-day activities on projects. This helps in preventing potential lawsuits and getting paid for work already performed above and beyond the initial contracted amount

The company’s use of those daily reports through eSUB, as well as field notes, has allowed them to maintain comprehensive records of everything that happened on a job, ensuring they have evidence when disputes arise.

Myers recounts a recent job that went sideways, and how Thermal’s use of eSUB helped them get paid even after things went awry.

“We were doing a project and … it was a disaster,” Myers says. “So, we kept notes, we kept track of any issues that the people running it were causing us. We kept a record of delays that they were creating.”

In the frequently busy (often chaotic) environment of a construction site, where tasks often overlap and multiple stakeholders are involved, maintaining clear lines of accountability is paramount. Without this clarity, subcontractors can find themselves unfairly bearing the brunt of blame or costs. The transparency offered by construction management software ensures that each stakeholder’s responsibilities are crystal clear, protecting subcontractors from unwarranted claims.

Truth and Transparency vs. Risk

In this sense, the flip side of risk mitigation is “truth and transparency.” In other words, by being timely, transparent, and truthful in their documentation and communication, trade contractors can also mitigate risks and keep the job moving forward. By staying ahead of delays and flagging potential building challenges, adjustments can be made and communicated before significant rework and disputes arise. This is especially important in projects where multiple stakeholders are involved, and aligned interests are crucial for the project’s success.

For subcontractors operating in the high-stakes world of construction, the margin for error is razor-thin. A single unpaid task or unresolved dispute can have cascading repercussions. In this environment, construction project and document management software isn’t just a tool—it’s a lifeline. It ensures that subcontractors are compensated for every task, shields them from unwarranted claims, and offers them the peace of mind they so rightly deserve.