Construction projects, regardless of size, whether a local monumental undertaking or an international infrastructure/architecture development (and possibly a combination of both from a development perspective), are complex projects. Complex, in this instance, means multi-party coordination, multiple contracts and a dynamic site. As a result, disputes can arise; if they are not addressed properly and in a timely manner, they may eventually escalate into formal disputes.
Some common disputes in the construction industry naturally must come from a misunderstanding of the contract, or general project delays, depending on any number of issues, quality issues, breaches of legal requirements, or payment disputes. Knowing these common disputes will allow for a better early identification and understanding of such disputes in order to help resolve such issues early and collaboratively.
What is a Construction Dispute?
A construction dispute occurs when disagreements arise between the parties to a construction project, which are owners, building contractors, subcontractors or suppliers. Construction disputes occur concerning disagreements that arise concerning: terms of a contract; project delays or other failures of one of the parties; payment issues; quality of work disputes; and/or safety violations.
Construction disputes can create additional or significant delays in construction, additional or significant financial losses, and/or litigation if not resolved expeditiously. The significance of the need to resolve a construction dispute expeditiously should not be understated in order to stay on schedule, but also to ensure that the situation is not compounded by escalation or delay due to additional legal action.
Common Construction Disputes
1. Safety Requirements or Regulatory Compliance
Causes: People get into disputes because the contractor or subcontractor has failed to comply with the prescribed safety standards (i.e. fire safety, labour safety) issued by government agencies or has not sufficiently followed the prescribed steps for obtaining the proper permits to build. Not following through on environmental standards may also lead to disputes.
Tips to Avoid:
Frequently monitor and review local safety regulations and permits.
Provide training to your team to ensure they comply with safety standards.
Develop a checklist for permits and inspections before the start of work.
2. Contractor and Subcontractor Disputes
Causes: Disputes arise from a general lack of understanding of roles, expectations to perform work, finish timelines, lack of clarity on contract terms, lack of communication regarding delayed payments and a misunderstanding of what is to be provided.
Tips to avoid:
Be specific as to the role and expectations in the contracts you use.
Communication should be formal and follow all prescribed channels to eliminate misunderstandings.
Contract payment schedules should be structured to reflect the key milestones agreed upon for the project
3. Conflicts with Scheduling
Causes: Scheduling conflicts happen when there are delays from adverse weather, problems with incomplete permits, short resources (like skilled labor, equipment), or variations in design. The project schedule delays affect the project timeframe and create felting effects on downstream work.
Tips to Avoid:
Commit to a realistic project schedule with a buffer for unforeseen events.
Monitor staff time and progress regularly and amend their schedule accordingly.
Promptly communicate with all stakeholders any delay or other changes with an updated anticipated schedule.
4. Conflicts Over Resources
Causes: Conflicts often occur when one party claims that there are not enough materials, equipment, or labor or that resources were misallocated or of poor quality. Conflicts could happen because the subcontractor or general contractor would be delayed and not have the required resources or equipment on-site.
Tips to Avoid:
Develop an allocation plan for major resource items and review it regularly.
Communicate regularly with all parties involved in the change of allocated resources.
Regular audits to review resources, quality of materials, equipment usability and resources.
5. Environmental Impact Disputes
Causes: Environmental disputes can occur when construction activities violate environmental laws, such as improper waste disposal, site contamination, or unapproved alterations to ecosystems. Nearby property owners or environmental groups may raise objections.
Tips to Avoid:
Comply with local environmental regulations and obtain necessary permits.
Engage with environmental consultants to ensure all project activities are eco-friendly.
Monitor environmental impacts regularly and address any concerns proactively.
6. Payment and Budget Disputes
Causes: Payment disputes often arise from late payments, failure to pay for change orders, retention disputes, or disagreements about the overall project budget. Price fluctuations, inflation, or unforeseen costs can further exacerbate the issue.
Tips to Avoid:
Set clear payment terms and milestones in contracts.
Ensure timely and complete payment for services rendered.
Maintain an open line of communication about any budget adjustments.
7. Quality of Work or Materials Disputes
Causes: Disputes occur when the work delivered does not meet the specified standards, such as subpar materials, faulty construction techniques, or design deviations. This can be identified during inspections, testing, or after project completion.
Tips to Avoid:
Clearly outline quality expectations and material specifications in contracts.
Conduct regular quality checks throughout the project.
Address any issues immediately and request remediation if needed.
Methods of Construction Dispute Resolution
Arbitration Construction Disputes Resolution
Arbitration is recognized for resolving many construction disputes, particularly in international or large-scale construction projects or contracts. It allows both parties to reach a fair and neutral settlement by agreeing beforehand to abide by the settlement of a neutral arbitrator.
Arbitration offers various procedural options, making it a popular choice for resolving construction disputes due to its efficiency. Unlike courts or mediation, arbitration typically allows for more flexibility in resolving issues related to payment, work performance, and timelines, as the neutral arbitrator has the discretion to tailor the outcome. Additionally, arbitration decisions are generally enforceable, thanks to legal frameworks and international conventions that ensure the outcome is upheld by courts.
Litigation as the Last Resort
Litigation represents a significant and formal legal procedure for adjudicating disputes in a binding and enforceable manner through the court system. While it provides professionalism, authority, and enforceability, litigation has several shortcomings, which are ultimately why it has become a last resort in construction disputes, including high costs, time-consuming processes, and a lack of confidentiality.
Litigation may be necessary in construction disputes, however, when the potential payments at stake are significant, the parties’ actions to prevent and/or stop performance have prejudiced other parties’ position and potential litigation involves breach of contract, breach of statutory obligations, breach of tort obligations or claims against other serial third-party players.
Litigation may be the most efficient way of addressing legal remedies for complex construction projects, or those involving joint ventures or public-private partnerships. It provides the best way to obtain compliances like Environmental Compliance from all parties involved, where required.
Negotiation and Mediation Forms of Resolution
Negotiating and mediating are two forms of non-adversarial ways of resolving a dispute, and each has its own steps and methods of proceeding with each party to resolve their dispute through methods like Alternative Dispute Resolution. A negotiating process will allow the parties to agree to a resolution without involving a third party for a neutral settlement.
A mediation process involves a neutral third-party facilitator, providing each party an opportunity to agree to a resolution that both parties will find more or less satisfactory. Negotiation and mediation are methods used to resolve construction disputes because they are less formalized, reduce costs, resulting in a better solution without being locked into contracts, timelines, and/or claims/defences process.
Tips to Avoid Construction Disputes
Clear Contracts: Contracts should clearly define the scope, timelines, payments, and responsibilities of all involved parties to reduce potential misunderstandings.
Realistic Timelines: Timings should be realistic, with either sufficient cushion time or time spent with contracting time frames.
Open Communication: Openness and transparency can go a long way to allowing parties to address issues as they come up and earlier rather than later in the process.
Document Everything: Document the basics – changes, payments, agreements (regarding timing and other factors).
Dispute Resolution: Have a clear understanding of how disputes will be handled, including mediation (if applicable).
Timely Payments: Payments need to be made on time and in accordance with the terms agreed to.
Regulatory Compliance: Need to comply with all applicable laws of the municipality and province.
Quality Control: Regular inspections will mitigate issues regarding quality control.
Manage Subcontractors: Keep an eye on the work carried out by subcontractors to ensure they understand their role and the time frames allotted to complete their work.
Legal and Financial Consultants: Seek input from a qualified individual for red flags – don’t depend on them to resolve conflicts.
Conclusion
Disputes in construction are an everyday occurrence in actual practice on any size and scope of project. If the parties involved understand the common causes of disputes and establish a good dispute resolution strategy, there may be a reduction in risk and delays. Predictive risk management is an excellent practice to follow.
As we mentioned earlier, clarity both in relation to how contracts are drafted and how contracts are negotiated with stakeholders, proactive communication with stakeholders, and plans to mitigate potential disputes are essential points to help reduce the risk of escalation. The difficult task is identifying disputes early and having a reliable, systematic process in place to resolve disputes, while maintaining healthy relationships and protecting your investment.
FAQs
Construction disputes are commonly caused by delays, payment problems, design issues, misinterpretations, and failure to follow safety or environmental regulations.
Construction disputes cannot be completely prevented, but may be minimized if both parties follow the terms of their agreement and constantly communicate.
Negotiation and mediation will be the quickest and most affordable methods. However, if negotiation fails, next try arbitration, not litigation, to maintain matters confidential and limit the time frame.