What are the primary causes of disputes under construction contracts?
Date: 22 November 2017
Misunderstandings and disputes are an ongoing and expected part of doing business. However, in some industries, these conflicts can take a more significant toll regarding time and money loss. Construction is undoubtedly one of those sectors.
The good news is that most conflicts are centered around contractual disagreements. A high percentage of these disputes can be prevented or resolved through heightened awareness, clarification and attention to contractual details.
In general, most construction contract disputes are due to:
1.Lack of clarity about expectations. When contracting parties have different expectations regarding outcomes, a conflict will arise.
For example; the contractors expect that all design disciplines are fully coordinated during the design stage to allow smooth construction, however, conflicts arise due to clashes (uncoordinated design) which in turn become a dispute as to whose responsibility to coordinate the drawings etc. Consequently, several layers of complex issues arise such as delays, disruptions, additional cost, etc.
2.Lack of understanding of rights and obligations. When contracting parties don’t read the contract, or make assumptions without carefully understanding the provisions under the contract, disputes are inevitable. Those who don’t seek out expert advice to ensure their rights and obligations are adequately stipulated, are more likely to face conflicting contract issues which may lead to disputes.
For example; who owns the float? Contractors assume that the float belongs to them, which is contrary to the developers/principals belief or assumption. (this topic “Who Owns the Float” will be covered in a separate article in the future).
3.Contract provisions are sometimes not followed, which also lead to disputes. This is often due to a lack of clarity about rights and obligations. In some cases, one or more participants believe that “being contractual” means “being confrontational” which creates justification for making waves that build conflict.
For example; notifications of delays and variations. Many contractors do not like to issue notices of delays to keep their clients ‘happy’ and not enter a conflicting mode. This approach can be very harming to both parties because both, the contractor and the principal, will lose the opportunity to rectify the situation at an early stage. Consequently, the time and cost effect (if left towards the end of the project) can be substantial. In other words ‘disputes’.
4. Parties to the contract have different interests. For example; the contractor’s interest is to finish the project at a maximum profit through pursuing every variation and extension of time claims, plus negotiating with subcontractors and suppliers for the lowest cost. Notwithstanding the effort of acceleration etc. On the other hand, the developer/principal's interest is to finish the project at the lowest cost and best quality by imposing strong contract provisions, scrutinized variations evaluation process and declining extension of time claims.
These conflicting interests very often result in serious conflicts and disputes. However, these disputes can be mitigated if experts are engaged at a very early stage to ensure expectations, rights and obligations are clearly identified.
If you need assistance to mitigate and/or resolve contract disputes contact:
FC International at 0800 333 009
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