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The Ten Commandments For Avoiding Litigation On Construction Projects

I wish I had a dollar for every time that I have heard an owner, contractor, or other construction industry participant wax nostalgic about the "good ole days" in construction when a man's handshake was his bond and written contracts (and construction lawyers) were an unnecessary distraction from the construction process. The truth is, we live in a more litigious time, and the construction industry is no exception. Not a week goes by without hearing about another construction project that has gone bad. Like the nightly news, very rarely do we hear good news about construction projects that go smoothly. However, a review of "what's right" about these "good projects" is instructive. Following the tips below will not guarantee a trouble-free project, but they will prevent many problems and mitigate the size and costs of those problems that do arise.

  1. Get It In Writing. It amazes me how often even sophisticated clients enter into construction projects without signed written contracts. This is begging for trouble;
  2. Read It. I am equally amazed at the number of clients who embark on seven-figure construction projects after only a cursory review of the contract documents. While the typical construction contract contain numerous tedious provisions, be aware that each provision is there for a reason. If you do not understand a provision, ask for an explanation or, better yet, re-write it;
  3. Formalize Contract Changes. Nothing spawns construction litigation like verbal change order agreements. Memories fade, and the cooperative spirit often wanes as a project drags on. Moreover, most contracts require change orders to be in writing;
  4. Resolve Problems Sooner, Not Later. Problems, particularly small ones, should not be allowed to fester. Mountains will rise out of mole hills, creating adversarial relationships and increasing the cost of litigating the problems later. If a problem cannot be resolved immediately, at least identify it, quantify it, and agree upon some basis for resolving it at a later time;
  5. Get Insurance. Remember, it's too late when that newly-constructed wall collapses on your neighbors' Porsche;
  6. Make Sure Payments Offer Fair Compensation For Work Performed. Nothing motivates like money. While it is important for project morale that everyone in the construction chain is paid fairly and promptly, it is equally imperative that funds advanced do not exceed the value of work in place;
  7. Expect The Unexpected. Remember that construction projects almost always come in late and over budget, generally through no fault of the contractor. Weather, material delays, and owner changes all contribute to project delays and price escalation;
  8. Plan For Contingencies In The Project Budget And Deadlines. Make clear in the contract your expectations regarding project costs and deadlines. If damages will be difficult to measure, consider "liquidating" them in advance on a per diem basis;
  9. Never Release Final Payment Until The Project Is Finalized. Remember the "Golden Rule" of Construction: He who has the gold, makes the rules. And finally'
  10. Get Help. Today's construction projects, even smaller residential ones, are legally and technically complex. Don't be penny-wise and pound foolish. Have a knowledgeable construction attorney review your contract documents on the front end. In the words of that omniscient car mechanic man, "You can pay me now or pay me later." Trust me, it's always more expensive later.
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