According to the 2019 Global Construction Disputes Report, the average construction dispute in North America in 2018 cost $16.3 million and took 15.2 months to resolve. Preventing this loss of time and money should be important to all parties involved in a construction project. Negotiating construction contracts well, and with a specific focus on avoiding and resolving disputes, can help contractors, subcontractors, and property owners improve the chances of an amicable construction process that avoids litigation.
Tend to the Details First: Negotiating Construction Contracts
Listed below are the top three causes of construction disputes, according to the report cited above.
- Failure of involved parties to understand or comply with contractual obligations;
- Errors or omissions in contracts; and
- Failure to properly administer a contract.
In short, most of the issues that cause construction disputes are contract-related. The good news is this: more attention to detail and inclusion of precautionary measures in construction contracts can help prevent these common disputes. Additions to contracts that specify the means by which disputes are to be addressed and resolved can also be effective.
Experienced construction lawyers in Indiana can help owners, contractors, and vendors by negotiating construction contracts, drafting them, and review them with an eye for dispute prevention. When preventive methods fail, attorneys can also help involved parties address Indiana home improvement claims and construction defect claims under Indiana home improvement law and other statutes.
The Basics of Negotiating Construction Contracts
Construction contracts typically include clauses related to the scope of work, payment arrangements, and how changes or delays are to be managed. Omitting details in these areas can lead to disputes as construction progresses.
Omissions in the scope of work clause can result in problems or accusations related to work quality or completeness. This is often simply due to a lack of clarity in contract documents, which later results in misunderstandings and disagreements regarding responsible parties and agreed-upon work under the contract.
Payment issues, project changes, and work delays are frequently interrelated. The parties should clearly specify in the original contract the means by which one or both parties may make changes to the original construction plan. The contract should also specifically set out the process and payment arrangements for addressing delays.
Additional Construction Contract Clauses Can Protect the Interests of All Parties
In addition to the issues discussed above, the contract should also include detailed clauses in the following areas to add further protection and direction for the involved parties:
- Dispute resolution procedures;
- Dispute prevention;
- Incentives; and
- Liquidated damages.
Indemnification clauses establish responsibility for incidents and accidents, such as an injury to a subcontractor’s employee or damage to adjacent property. These additions to contracts should consider the insurance policies and other sureties of the parties to the contract and clearly establish how potential occurrences should be covered.
Dispute-resolution clauses set forth the appropriate and agreed-upon means for handling a dispute if it should arise. Such a clause might require mediation or arbitration prior to the filing of a lawsuit. These sections can also set forth requirements or guidelines that parties must continue to meet contractual obligations for work or payment while the dispute is resolved, effectively preventing the loss of valuable productivity.
Dispute–prevention clauses lay out additional preemptive actions to prevent potential conflict before it begins or address any issues that arise promptly. These clauses might require that involved parties meet or otherwise communicate on a specific schedule to discuss the project and any complications. Additional inclusions might detail responsibilities for monitoring the project or set forth standard practices and timelines for addressing problems as they arise.
Contingency agreements and incentives provide the opportunity to require the completion of one action, or a series of actions in order for a reciprocal action to be required. For example, a contingency payment arrangement would state that if the contractor completes X, Y, and Z, then the property owner is obligated to pay the full amount remaining due. An incentive goes one step further, promising additional benefits or payments for work or behavior that meets or exceeds specific expectations.
Liquidated damages clauses are useful because they set forth predefined values for breach of contract in specific areas of a project, eliminating to need to haggle over the amount of damages in a dispute.
Safety and Duty of Care under Indiana Home Improvement Law
A 2017 Indiana Supreme Court case, Ryan v. TCI Architects/Engineers/Contractors, Inc., illustrates the need for thorough contract review, particularly when form contracts are used. In that case, the general contractor, who would not normally be liable for an injury to a subcontractor’s employee under Indiana law, was held liable due to phrasing in the form contract, which the court found established a duty of care upon the general contractor.
A contractor can also be found to have a duty by conduct for the actions of a subcontractor or other parties when specific and accurate safety protocols and responsibilities are not included in a construction contract. This matter was addressed in the 2017 Indiana case of Gleaves v. Messer Construction Company.
Negotiating Construction Contracts: How Construction Lawyers in Indiana Can Help
Clearly, there is a lot to consider when drafting and negotiating construction contracts in Indiana. Skilled construction lawyers in Indiana can assist in drafting, review, and negotiation of contracts. From knowing what clauses to include in a contract to addressing disputes in the early stages and through to litigation, the attorneys of Camden & Meridew, PC can help you navigate Indiana home improvement law and construction contracts. Call us today at 317-770-0000 or complete our online contact form to schedule a consultation.