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Potential areas for disputes in construction contracts

Construction contract disputes are as old as construction itself. Cost overruns and delays probably even plagued the pharaohs of ancient Egypt: the Great Pyramid at Giza drained the Pharaoh Knufu's treasury and would cost $5 billion to duplicate today, even using modern construction techniques. According to the 2008 CIOB (the Chartered Institute of Building) study, Managing the Risk of Delayed Completion in 21st Century, 31% of high-rise and 33% of power generation projects finish more than three months late. Even with top-notch planning complications are bound to arise in a project as complex as a major construction effort. The potential areas for dispute are as diverse as construction projects themselves but tend to cluster in four general areas:

  • Delayed performance: there are many reasons that a project can get delayed. Some can be beyond the control of the parties (bad weather, unexpected shortages of necessary material) whereas others, such as unrealistic bidding, or disputes over change orders, can be attributed to one party trying to get advantage over the other.
  • Defective work: The parties can either disagree over whether the work meets the agreed-upon specifications or over responsibility for the acknowledged construction flaw.
  • Payment disputes: Under certain circumstances, a developer may withhold payment if a contractor fails to meet a deadline or deliver a substandard product. In other instances, a contractor may place a mechanic's lien on the property, which complicates -- or prevents -- any transaction related to the property (such as a sale) until payment is made.
  • Change Orders and Extra Work: As the project progresses and the development company wants changes to the plans to achieve its vision, disputes can arise over whether the changes are within the original scope of work or whether the developer should pay an additional fee.

There are complex laws and regulations that govern the construction industry and provide the framework for resolving disputes. For example, Article XVI, Section 37 of the Texas Constitution creates a right for contractors to claim an interest in the building they constructed for the value of their labor and materials. Chapter 53 of the Texas Property Code provides a detailed procedure to enforce a mechanic's lien claim. If however, a contractor does not follow the required procedures exactly, the claim can become void. The lawyers at Hendershot, Cannon & Hisey, P.C. understand the ins and outs of the mechanic's lien process and can help a developer defend against a claim for nonpayment as well as analyze the dispute to identify counter-claims for defective work or construction delays.

Not only is it important to have an experienced business litigator analyze the dispute, but choosing a forum for resolving the dispute is also an important strategic decision. Sometimes the initial contract will specify whether the architect has the final say or if the dispute will be submitted to a Dispute Resolution Board of construction industry experts. Other options include mediation, in which a trained facilitator helps the parties resolve their dispute, or arbitration, in which a neutral arbiter, often a retired judge, issues a binding decision. Litigation is always an option as well. In all of these situations, it is critical to have expert legal advice to ensure that the resolution process results in a favorable result.

Call us if we can help you resolve a dispute that is negatively impacting your construction project.

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