By Steven T. F. Karst
The 2017 Arcadis Construction Disputes Report states 30 per cent of construction projects in North America end up in dispute. In Canada, the construction industry is adept at solving technical problems and developing innovative and new methods and materials. Simply put, the industry has always been about getting the job done—who can complain about that? In every major city, small town, or remote wilderness site, one sees innovative projects on the go or recently completed. Yet, along with this innovative technical construction ability comes the seemingly inevitable dispute.
Considering this, there are efforts afoot to help avoid disagreements and provide early dispute resolution. That said, no matter how technically innovative the project design, the management of physical work and project information is less so. It is this heavy reliance on human capital that exacerbates construction disputes. After reading the Arcadis Report, I looked back through my experience working on projects and producing construction claims reports with its top five causations for dispute in mind. I agree with Arcadis’ findings, and wanted to share my experience and thoughts on these matters. The following is my discussion of the top five categories exacerbating construction disputes.
1. Poor contract administration
Documentation, documentation, documentation! This may sound as if I am suggesting mountains of project records, but this is only true in part. Good contract administration relies on documenting the important information and filtering out the white noise. There is such a thing as capturing too much information to the point where all the data becomes useless.
Tracking accurate records is important, but so is communicating or demonstrating the documentation processes to the project team. I have frequently witnessed project kickoff meetings dealing only with onsite construction logistics, without ever really addressing the commercial processes required to make the project run smoothly. In fact, for the most part, the commercial aspects never receive consideration. This would include commercial deliverables such as schedule submissions, how meetings will be held, and minutes distributed and edited.
Further, the change approval process needs to be adequately communicated to the project team and all subcontractors. This would also apply for drawing changes, requests for information (RFIs), and site instructions. From my experience, it seems too many people are learning document processes on the fly, with no standardization.
Why is this? To most, getting the job done is at the forefront, and if this goes well, then many assume all other aspects of the project simply fall into place. However, when a project goes south or becomes delayed, commercial documentation becomes even more important to mitigate the risk of dispute. If this has not been adequately addressed, set up, and communicated at the beginning of a project, it opens the door to the possibility of endless disputes.
The management of information can be an extreme bottleneck on a project, and has been the reason for many disputes. Information should be the first line of defense, but due to poorly managed contract administration, it becomes the number-one source of disputes. In the end, the one with the highest quality of documentation wins!
2. Inadequate claims
Unsupported claims are all too common; some of the attempts I have seen are laughable. In one example, I was retained to analyze a delay claim of a contractor submitted against my client. This claim stated my client, the owner, delayed the contractor and therefore they were entitled to $1.5 million. This claim was submitted on one page, without establishing entitlement, demonstration of causation, or breakdown of the quantum of damages. After careful analysis, the data demonstrated the contractor was the cause for most of the delay—not the other way around as claimed.
Some contractors submit claims for damages without adequate support; many of the claims landing on my desk were drafted on a single page. I have noticed a trend among some subcontractors to just submit a claim for damages and hope for the best. Basically, the train of thought seems to be claim high and then hope for a favourable outcome
When general contractors or owners receive claims from subcontractors like this, they immediately deny the claim. Yet, this has undoubtedly created a tendency to deny all requests for additional money or time, no matter how legitimate. This becomes costly in a couple of ways.
First, if the additional costs or time requested were truly entitled but denied, the contractor must cash-flow this issue until a resolution is found. Such resolutions typically happen well after project competition. Secondly, if no resolution can be realized, the dispute can require the retention of lawyers and experts at significant cost to each party. Relying on a well-written contract helps save everyone money in the long run.