Construction disputes arise when disagreements occur between parties involved in a construction project. These disputes have several negative repercussions, potentially leading to delays, increased costs and damaged relationships. To mitigate these risks, you should prioritise proactive communication, follow contractual obligations and keep thorough documentary records. This article will help you navigate construction disputes and explain some key legal remedies and strategies you can use.
What is a Construction Dispute?
Construction disputes arise because of disagreements between the parties in the contract. These conflicts can often arise due to:
- lack of understanding of the contract terms and conditions;
- project delays and time extensions;
- changes to the original scope of work;
- site conditions;
- trade disputes;
- failure to administer the terms and conditions of the contract;
- cost overruns and payment disputes; and
- quality of work claims.
A dispute alone may not breach a contract, but they have the potential to escalate into breaches or lead to contract terminations. To help you reduce the possibility of a dispute arising, all parties to the contract should take proactive steps before the project begins.
1. Benefits of a Contract
A contract can serve as a legally binding agreement that outlines the rights, responsibilities and obligations of each party involved in the construction project. By signing the contract, all parties involved legally agree to its terms and conditions. It is important that you thoroughly review the construction contract. Some significant clauses you may wish to focus on include clauses concerning:
- project timelines;
- work quality
- payment schedules;
- procedures where external events interfere with performing your obligations (force majeure clauses); and
- dispute resolution procedures.
Given the involvement of multiple parties in construction projects, having clear communication and defined contract terms is crucial. Before signing a contract, you can negotiate clauses that could be potentially problematic to you and the project.
Continue reading this article below the form2. Communication
You can strive to amicably resolve disputes by encouraging open communication. Often, misunderstandings or disagreements can be resolved through communicating without the need for legal intervention. You should aim to communicate openly and regularly with all parties involved in the project, including contractors, subcontractors, suppliers and clients. This helps you to address issues and concerns early on, avoiding protracted disputes.
Some key communication tips include:
- completing pre-construction tasks, e.g. preparing estimates, schedules, and contracting subcontractors, early in the construction process;
- maintaining communication with contractors and other traders, such as electricians and plumbers, in the process;
- establishing realistic schedules while accounting for potential delays and disruptions; and
- documenting any challenges or issues encountered during the project’s execution.
3. Accurate Records and Documentation
Thorough record-keeping is important for supporting your claim if a dispute arises. Documenting all communications, agreements and changes provides you with evidence in any potential legal proceedings about the construction dispute. Taking proactive measures to gather and safeguard information and records early can also strengthen negotiations.
Accurate records and documentation can include:
- records of contracts;
- change or variation orders;
- correspondence with parties, including emails, text messages and file notes of calls;
- work logs;
- diaries;
- original paperwork; and
- invoices and receipts.
4. Alternative Dispute Resolution
Implementing alternative dispute resolution (ADR) clauses into contracts can help streamline conflict resolutions. ADR often uses a neutral third party to facilitate discussions between you and the other parties in the contract. Most construction contracts require ADR to take place before proceeding with litigation. Litigation can be costly and time-consuming, so it is often recommended to proceed with ADR for handling construction conflicts and disputes.
Notable ADR methods include are explained in the table below.
| ADR Method | Explanation |
|---|---|
| Negotiation | This method involves the parties directly and is more flexible. In negotiation, you and the other party/parties work together to find a mutually acceptable solution. |
| Mediation | Mediation involves a neutral third party called the mediator, who facilitates discussions between the parties to help them come to an agreement. |
| Adjudication | Here, the adjudicator will review the evidence and arguments by all parties and will make a decision based on the evidence provided. This decision is typically binding on the parties. |
| Expert Determination | This method uses independent third parties to assist in the dispute. Using their expertise in their field, they possess specific technical knowledge relevant to your dispute. |
5. Potential Legal Remedies
Legal remedies for construction disputes vary depending on the nature of the conflict and special circumstances surrounding the situation.
Firstly, there may have been a breach of contract. If another party fails to fulfil its obligations under the construction contract, you may seek remedies for the breach or termination of the contract.
Alternatively, one party may have been negligent. This negligence could have resulted in damages or defects in the construction project. If this is the case, you, as the affected party, may pursue a claim. This could involve seeking compensation for the cost of repairing or remedying the defects caused by the negligent party.
The other party or parties could have also been fraudulent. This occurs if they intentionally make false statements or misrepresent material facts, such as their qualifications, experiences or intentions. If this happens, you may have grounds to seek damages (monetary compensation).
6. Litigation
Construction disputes often escalate to litigation when parties cannot resolve their differences through negotiation, mediation, or arbitration. Litigation involves taking the dispute to court, where a judge will make a final, binding decision on the matter. Litigation is often used as a last resort as it can be costly and time-consuming. However, it may be necessary if the other methods discussed above can not be used to achieve a satisfactory outcome.
This guide provides key information on how to manage a business dispute as quickly and cost-effectively as possible.
Key Takeaways
Taking a proactive approach when initial issues arise in a contract is important. To address critical aspects of your construction dispute early on, consider:
- effectively drafting a contract;
- maintaining clear communication with all parties involved;
- keeping accurate records and documentation;
- choosing alternative dispute resolution before resorting to litigation;
- understanding what legal remedies are available to you; and
- using litigation as a last resort when you require a binding, legal solution.
While these guidelines are general, each construction dispute can carry unique elements, and often, no two construction disputes are the same. Seeking legal advice promptly regarding your contract is advisable, as it can aid in resolving or mitigating issues before they escalate.
If you would like assistance regarding a construction dispute, contact our experienced dispute resolution lawyers as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.
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