Construction contracting businesses have the second-highest bankruptcy rate of any type of private business. Things could be going great, but one unpaid change order, a late payment, a costly rework, or an unanticipated legal claim has the potential to derail your progress and leave you grasping for the remains of your company.
Construction claims are a major hassle, and the only good construction dispute is one that is avoided. Spending time and money on arbitrators, or even worse, on a lengthy and painstaking litigation process, is sure to throw a wrench in your budgetary plans for the year. This article looks at the different types of construction claims and how to stay far away from them. We’ll also share a few thoughts on how to negotiate disputes when they do come up, and how to reach a fair resolution for both parties without wasting time and money with lawyers.
The Most Common Types of Construction Claims
To get started, let’s look at the types of construction claims that you’re most likely to encounter. This list is by no means exhaustive but should get you thinking about the major sources of disagreement between construction firms and their clients.
Delay Claims – The client files a claim because the project is taking longer than was agreed, and this is resulting in a financial or productivity loss on the part of the customer.
Price Acceleration Claims – From time to time, contractors will be required to exceed project budgets to complete a project on time or ahead of schedule. Price acceleration claims arise from disagreements between the contractor and client on who is legally required to bear the costs of accelerating work.
Change of Work Order Claims – These claims are related to the scope of work and whether a required change falls within the preexisting scope of work or not.
Different Site Conditions Claims – These claims arise out of differences between the actual condition of the job site and the way it is represented by the client in the contract. For example, if the job site is meant to be a grass field, but the contractor arrives and finds a gravel pit, it will be costlier to dig a foundation and the contractor can file a claim for different site conditions.
Damage Claims – Contractors occasionally damage property while completing a construction job and may be held liable for such by the client through the filing of a damage claim against the contracting company.
Simple Steps for Preventing Construction Claims
Preventing construction claims isn’t as easy as following a few simple steps – otherwise, they would never happen. The reality is that you and your firm will always be exposed to litigation, but there is a lot you can do to avoid facing these claims if you can plan for the worst while hoping for the best. Here’s our best advice for avoiding claims against your contracting firm.
Make friends with your clients – Business is business, but a strong client relationship can go a long way towards helping smooth things over when things don’t go according to plan. We’re all just people, and people understand that mistakes happen and things go wrong. You’re much more likely to reach a better resolution and work out your differences based on a great existing relationship.
Write great contracts – An excellent contract with a clearly defined scope of work will help to mitigate and claims related to extra work or work not completed. Don’t be sly or play games when it comes to contract negotiations – be open and transparent about what you’re offering and what the customer can expect. Managing expectations effectively is your first line of defense against Change of Work Order Claims.
Get great insurance – The frugal business owner in you may not want to outlay cash for insurance against property damage on the job site, but the prospect of your business going under because of a simple mistake should be enough to twist your arm. If you’re insured for property damage liability, you can entirely avoid negative consequences for accidental damage, and your premium could be relatively small based on your track record. Check in with a trusted insurance broker to review your best options.
Communicate – Litigation is a pain for everyone involved, and most claims are a result of a simple misunderstanding that could have been resolved with a clear communication and discussion. Today’s project management software options make it easier than ever to pull stakeholders together for a documented discussion that will avoid any he said/she said in the future.
Avoiding construction claims is really the same as avoiding lawsuits in other businesses. It comes down to communicating effectively between parties, managing expectations and operating in good faith. At the end of the day, make sure you can trust your clients and the folks you do business with. Maintaining good working relationships, writing detailed contracts, and ensuring your business where appropriate will go a long way towards keeping your firm safe from construction claims in the future.