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Top Three Construction Disputes and How to Avoid Them
December 20, 2022

Construction professionals sometimes feel as if it is déjà vu when it comes to disputes—and they are right. There are a handful of claim types that always seem to rear their heads, even in projects that generally are run well. This article will briefly describe those claims and how to avoid them in 2023.

1. Design Error Claims

These claims often come up when an inexperienced owner (or architect) are working on an entirely new type of project. If an owner provides the design, the owner is generally liable for it (and any designs provided by their architect). Design errors can materially impact bids, schedules, material requirements, and nearly every activity on the path.

To avoid those errors, an owner may hire a design builder or take additional steps to shift the risk to contractors by making the contractor responsible to perform a constructability review. An “errors and omissions” clause in a contract also can help stave off this liability.

Design-builders are generally adept at adjusting to errors or issues related to their own designs. They also are particularly skilled at working through those issues in a way that will not adversely impact a schedule. This is a necessary skill set for a design-builder, as they bear a majority of the risk under such a delivery vehicle.

2. Unforeseen Conditions

These are a problem because, well, they are unforeseen. The challenge for parties in a dispute is to establish foreseeability or contractual clauses that excuse certain site conditions that emerge during construction.

A common example occurs during construction on reclaimed soil where subsurface conditions are suspect. To combat this issue, an owner may require a contractor to perform test borings and conduct geotechnical surveys to obtain as much information as possible prior to construction. If issues are found, there must be a contractual obligation to place the parties on notice of what issues have been found, when, and in what form.

On one hand, an owner or GC may want to entirely shift the risk on these issues to another party. On the other, it sometimes takes a collaborative approach to work through a problem and bring a project to conclusion. Either way, there must be a contractual mechanism to guide the process in the event unforeseen conditions are identified.

3. Scope Changes

Assuming that scope changes are not the result of design deficiencies or unforeseen conditions, this issue tends to be a problem for owners. A company’s needs may change during the course of construction or perhaps anticipated permits for certain activities change. An owner may also need to expand construction vertically to accommodate growth that occurred after construction starts.

Similar to unforeseen conditions, there must be a mechanism in the contract to address scope changes. Some changes can be accomplished through simple change orders. Other, more material changes (e.g., cardinal changes), may require an entire amendment to the contract or substitution of one scope of work for another.

If the contract is a GMP or the like, where the parties have agreed to a set sum to complete the project, an upward modification may be necessary. Owners and contractors alike should be wary of how these changes are documented and ensure that cost changes are allocated properly. For example, if the owner created the design, it is possible that all material changes would be the owner’s responsibility no matter the reason (other than contractor negligence, as one example). If the project is design-build and the scope change is due to a planning failure, the contractor may be responsible.
In the end, experienced construction professionals know that no project is perfect and no one has a crystal ball. With a carefully drafted contract and clear communication throughout the entire project, owners and contractors can minimize risk to and from each other.

Make it your resolution in 2023 to communicate often and have your counsel involved before problems start.

Construction Law Julian E. Neiser