5 Common Causes of Construction Disputes

Construction disputes are relatively common and can be quite costly. The average value of a construction dispute in North America swelled to $42.8 million at the end of 2022, up from $30.1 million the prior year, according to a study by Arcadis. Below are five types of disputes that may arise at various points of a construction project.

Delays

Delays are all too common in construction projects and can cause property owners, contractors and other parties to incur additional costs. Delays can happen due to weather, supply chain woes, permit issues, labor shortages and many other reasons. Typically, for delays that are out of the control of any of the parties, such as those caused by weather, national disasters or government shutdowns, no one is liable and each party must bear their own delay costs. Other types of delays are deemed to be the responsibility of one of the parties. For instance, contractors are generally liable for slower than anticipated progress due to labor shortages, while owners are responsible for their own delays in decision making. A thorough commercial construction contract will specify which party is responsible for each kind of delay and how much they must compensate the other party.

Scope of Work

Sometimes, there is a disagreement over the scope of work covered by the terms of the contract. Disputes may arise when the project description in the scope of work provision is vague or incomplete or when the scope changes, which is inevitable over the course of many projects. Scope of work disputes can be minimized by clearly defining what is expected from each party, agreeing upfront to an equitable change order process for scope changes, and effectively managing change order procedures, with proactive communication between all stakeholders.

Payments

Payment disputes may arise when a contractor is not paid the agreed upon amount in a timely manner. The payment provision in the construction contract should include a timeline that clearly defines how and when payments will be made. For instance, a contractor may be paid a certain sum upfront and then paid predetermined amounts after each phase of the project is completed. The contract should clearly define how the completeness of a project phase will be certified for payment.

Quality of Construction

A dispute may arise if the quality of the construction falls short of the standards or of the owner’s expectations. Many factors can contribute to conflicts over quality, including defective materials, poor workmanship, inadequate quality control measures, and unrealistic owner expectations. The risk of a quality dispute can be mitigated with clear contract terms and a thorough quality control process that includes regular site inspections.

Material Costs Changes

Construction contracts are based on anticipated costs, but it is common – particularly over the past few years – for material costs to increase over the course of a project. The risk of disputes over material cost changes can be mitigated by defining in your construction contract what measures will be taken if there are significant material cost fluctuations and who will be responsible for the increased costs.

 

Sheehy, Ware, Pappas & Grubbs represents owners, developers, design professionals, contractors, subcontractors, product suppliers, and their insurers in litigation arising out of construction projects. Contact us to arrange a consultation with a construction litigation attorney.