3. Ambiguous contract documents
Depending on the author, I have found contracts can be well-written and fair, or vague and biased toward one party or another. In the single-family residential market, contracts are non-existent or ambiguous at best. Homeowners have asked me if they should ask for a contract, and I always respond with a yes. Unfortunately, they typically rely on the contractor to provide them with an agreement. This, in turn, gives unscrupulous contractors the opportunity to leverage a contract in their favour.
On the other hand, I have seen contracts written unfairly and with confusing or ominous language. These construction managers or general contractors know that if, for example, subcontractors want the work, they will sign. In other instances, contractors proceed with only a Letter of Award, awaiting a signed contract agreement.
Writing vague clauses into contracts or leaving out important clauses altogether leaves the door open to interpretation and then to dispute. In Canada, groups offer templated contracts (e.g. those from the Canadian Construction Documents Committee [CCDC]) to provide fair and appropriate risk and balances. Accuracy in the contract documents is valuable to mitigate disputes.
4. Failure to comply with commercial contractual deliverables
Many owners and contractors read their contracts once—or from my experience, I read the contract for them, outline their deliverables, and they get on with their work. What many fail to do, however, is reference the contract for agreed-upon processes, procedures, and entitlement. This happens frequently on a project. To ‘get the job done,’ agreements or deals are made that end up operating under an assumed or virtual contract. This could possibly waive any contractual entitlement originally agreed upon.
One of the most abused contractual entitlements is that of notices, such as Notice of Delay. Some contractors think they can take care of the problem ‘in house’ and make up time lost in the schedule with this approach, but do not inform the other party until it is too late. By then, the required notification period could have been exceeded, waiving any entitlement to extension of time or costs. The contractor will submit the claim anyway and hope to garner some compensation through future negotiations. The general contractor or owner will most likely deny the claim—though typically for the amount of cost, rather than for exceeding the notice period.
Another issue many contractors engage in is one of politics. They might absorb problems on a project in good faith to avoid upsetting the owner or general contractor. The aim is to prevent damaging relations or losing a future contract. This is dangerous and can end up once again waiving entitlement for time extension or delay and disruption costs. I have never understood why parties to a contract would choose to operate this way, as the contract is written to protect everyone involved. How can you tarnish relations by following a contract to which you both agreed?
In the end, too many do not read their contracts until a dispute happens and they need it to prove and give credibility to their claims. Only then will they realize their entitlement or lack thereof. From what I have seen, both parties are often guilty of not reading and adhering to the contract.
5. Design deficiencies
Any RFI to clarify a design deficiency can be mismanaged. This issue goes hand-in-hand with the top reason for dispute—poor contract administration—as initiation for an RFI begins with the project. Not only can problems manifest themselves at the source of an RFI (e.g. frivolous contractor requests), but this management of information responsibility also lies with the designer whose drawings were deficient.
What I have found unusual is some project delay is contributable to inadequate design drawings, and the delay experienced was a result of waiting for clarification or revised drawings. Many parties to this type of disruption or delay do not think compensation is warranted, but entitlements might be possible, and assignment of responsibility needs to be directed toward the designer. What is interesting is claims for damages are seldom submitted against the designer and end up being absorbed by the owner. By holding designers accountable, this can help distribute financial responsibility for project delay.
The thoughts in this article are observations from my experience, not legal advice or a critique of the industry as a whole. It is my opinion most disputes can be avoided, but only if appropriate efforts are made before or at the beginning of a project.
I am aware of a couple multinational construction companies that have internal auditors looking for these risks, but many others across Canada do not. They rely on the construction professionals they employ to identify the commercial risks and administer them, but experience shows on many occasions these efforts fall short. Following the example of the larger construction corporations, having a third party review the commercial processes and documentation methods can be an asset in the long run at a fraction of the cost to resolve a dispute in the end.
From poor construction documentation to inadequate contract administration, certain recurring themes seem to plague building projects.
Steven T. F. Karst is a construction claims consultant from Toronto with more than 25 years of industry experience within residential, commercial, and industrial environments. Karst has handled contract management as well as cost control on multimillion-dollar programs, provided expert opinions for construction claims for world-class projects, and worked as an entrepreneur in the construction trades. He can be reached at email@example.com.