Construction Project Contract Disputes

Disputes and claims are common in many construction projects. Usually, common sense and sound planning and management prevail in such disputes. Clear identification of requirements, team formation, good communication channels, good bidding practices, and complete construction documents all work to minimize misunderstandings and avoid disagreements.

Unfortunately, some disputes are inevitable. When they arise, address them. It is common for construction disputes to go unattended during the course of a job and accumulate at the end of the project. This is poor timing for the facility manager, who is busy trying to complete final inspections, move in the end user, and close out the job.

Most disputes occur over changes in the work, namely, revisions to contract drawings as issued at the time a contract was signed. Specific procedures are delineated in the General Conditions for the processing of change orders, including the handling of concealed conditions, claims for additional cost, minor changes in the work, and uncovering and correction of the work. There are also provisions for acceptance of defective or nonconforming work and termination conditions.

The second most common source of disputes is poorly documented or coordinated drawings. For example, a GC eager to land a contract may receive a set of drawings with numerous conflicts between lighting and ductwork. The owner, unaware of the problem, may be surprised when the GC finally raises the issue and asks for an interpretation. If the A/E solves the problem, but requires the use of ten more light fixtures, who will pay for them? Coordinating engineering and architectural drawings from the beginning can help avoid such conflicts.

When disputes occur, they generally center on placing blame. The onus is often on the owner to discover where the problem originated—with the architect’s drawings and specifications or with actual construction.

The original intent of traditional contract administration—owner-A/E-GC—was to provide construction of the highest quality. Unfortunately for all involved, the traditional system often appears to set the parties at odds with each other. If there are problems with the documents, the contractor will infer that it is the architect’s fault; if there are problems with construction, architects may be placed in a position of determining blame.

In most cases, the facility manager retains overall accountability for the success of the project and thus mediates between the various outside parties. Construction problems have to be corrected if they affect the ultimate success and outcome of the working environment.

Resolving the Problem

When a facility manager is in the midst of completing a project, there is usually no time to discover who is at fault. On big-ticket problems, such as roof failure, it is usually possible to take immediate stopgap action to prevent further deterioration and to take the time to determine fault. For other problems, however, the facility manager makes a decision and determines cause and fault at a later time.

Laying blame is less important than resolving the problem. An effective facility manager can often settle most problems through dialogue with each of the parties. Once the situation is resolved, the facility manager can attempt to determine clearly where the problem originated.

Contracts often provide that the GC and subcontractors continue working on a project even while a dispute is in progress. In some cases, particularly if delays are not part of the problem, this may be workable. If a dispute must be resolved before work can continue, the facility manager and end user must understand that the more they stall, the more they compromise their own position. They stand to lose a great deal more than the GC if work is delayed, because move-in will be delayed.

When a situation can’t be resolved through conversations with each party, a facility manager may have to resort to formal negotiations, arbitrations, or (as a last resort) legal actions.

Formal negotiations. Formal negotiations are when parties formally sit down to discuss their various viewpoints. For example, if light fixtures need to be relocated, the architect’s view may be that the contractor placed the mechanical equipment incorrectly. The contractor, conversely, may have discovered something in the building that didn’t allow the specified placement of the mechanical equipment. Project engineers may have determined that the equipment could have been placed where originally planned, but perhaps the mechanical subcontractor installed equipment that was different from the originally specified size.

Arbitration. Formal arbitration is the next step in resolving disputes. Many contracts contain a clause such as, “Any disputes will be settled under the rules for arbitration in effect in [the state in which the project or organization is located] at the time of construction commencement.”

This clause indicates that all parties agree that claims and disputes will be settled through binding arbitration and that no lawsuits will be filed. Many organizations are opting for this approach in order to prevent expensive and time-consuming litigation. Lawsuits regarding buildings and construction can last years. This is especially true in situations where it is difficult to establish where the fault lies.

Litigation. When all other remedies have been exhausted, a dispute may go into litigation. The clear, precise, and consistent documentation that has been kept throughout the project is critical to litigation issues. Many cases that could have been won in court have been dropped because project notes, meeting minutes, and telephone logs were not maintained and could not be reconstructed with enough reliability to hold up under cross-examination.

In many cases, it may be beneficial to call in an outside expert with no prior knowledge of the project to assist with the determination of cause and effect. Individuals who are particularly good at this can often easily identify causes—they are not caught up in the politics and pressure of the situation and can be objective in their evaluation.

In more complex situations, pursuing legal action can become extremely expensive. In many cases, legal costs outweigh the costs of simply fixing the problem.

More information on this topic is available from the BOMI International course Fundamentals of Facilities Management, part of the FMA® designation program. More information regarding this course and BOMI International’s education programs is available by calling 800-235-2664. Visit BOMI International’s website,