Construction Contract Reviews: What to Do If You Encounter a Dispute

When it comes to construction projects, disputes can arise unexpectedly. Whether you are a contractor, client, or subcontractor, facing a disagreement over terms in a construction contract can cause major delays and added costs. However, addressing the issue swiftly and professionally can help resolve the dispute without escalating it to costly litigation. Here is a guide on what to do if you encounter a dispute during or after reviewing your construction contract.

1. Stay Calm and Review the Contract

The first step when encountering a dispute is to remain calm. Construction projects are complex, and disagreements are not uncommon. Often, issues stem from unclear terms or miscommunication.

Review the contract thoroughly. Pay attention to specific clauses that are at the heart of the dispute. Key areas to review include:

• Scope of work: Ensure both parties are clear on the expectations and deliverables.
• Payment terms: Confirm that the payment schedule and terms are clearly defined.
• Deadlines: Review any milestones, deadlines, and penalties for delays.

Dispute resolution clauses: Many contracts include specific methods for resolving disputes (e.g., mediation, arbitration).

By carefully reviewing the terms, you may find that the issue is a misunderstanding or misinterpretation that can be resolved through dialogue.

2. Communicate Clearly with the Other Party

Once you've reviewed the contract and identified the cause of the dispute, open communication is essential. Reach out to the other party involved—whether it's the contractor, client, or subcontractor—to discuss the issue.

• Be professional: Keep the conversation focused on resolving the issue, not assigning blame.
• Document everything: Make sure all conversations, emails, and communications are documented. This will be useful if the dispute escalates.
• Be open to negotiation: Often, a compromise or adjustment can resolve the issue without further conflict. Be ready to suggest solutions that can satisfy both parties.

3. Use the Dispute Resolution Clause (If Available)

Most construction contracts include a dispute resolution clause that outlines the steps to follow when a disagreement arises. These clauses are typically designed to help resolve conflicts without resorting to litigation.

Common methods of dispute resolution include:

• Mediation: A neutral third party helps both sides come to an agreement.
• Arbitration: A more formal method where an arbitrator makes a binding decision based on the contract terms.
• Negotiation: Both parties engage in direct discussions to reach a mutually acceptable solution.

If your contract contains a dispute resolution clause, it's important to follow the process outlined in the contract. Failing to do so can weaken your position if the dispute escalates to legal action.

4. Seek Legal Advice

If direct communication and dispute resolution methods fail, it may be time to seek legal advice. Construction contract disputes can be complex, and a lawyer specialising in construction law can help you understand your rights and options.

A lawyer can:

• Interpret the contract terms: Help you understand any ambiguous or unclear clauses.
• Negotiate on your behalf: Represent you in negotiations to settle the dispute.
• Prepare for litigation: If the dispute cannot be resolved through negotiation or arbitration, your lawyer can guide you through the process of legal action.

Involving a lawyer early on can prevent the dispute from escalating and save time and money in the long run.

5. Consider Mediation or Arbitration

If a direct negotiation doesn’t work, mediation or arbitration might be the next step. These methods can help resolve disputes in a less formal, less costly manner than going to court.

Mediation is a collaborative process where a neutral mediator helps both parties discuss their issues and reach a compromise. The mediator doesn’t have the authority to impose a decision but facilitates communication.

Arbitration, on the other hand, involves a neutral arbitrator who hears both sides and makes a legally binding decision. Arbitration can be faster and less expensive than litigation but still involves a formal process.

Many contracts specify whether mediation or arbitration must be used before going to court. Adhering to these processes can help you avoid litigation and resolve the issue more efficiently.

6. Prepare for Litigation (As a Last Resort)

If all else fails and the dispute remains unresolved, litigation may be unavoidable. However, this should be considered as a last resort, as it can be time-consuming and costly.

Before pursuing litigation, consider the following:

• Strength of your case: Assess whether you have a solid legal foundation for your claim. A lawyer can help you determine the strength of your case.
• Costs and time: Litigation can take months or even years. Weigh the potential costs against the benefits of resolving the dispute through other means.
• Damage to relationships: Litigation can strain or even sever business relationships. Consider whether you are willing to risk the long-term relationship with the other party.

If you decide to proceed with litigation, it’s crucial to have an experienced construction lawyer by your side to guide you through the legal process.

7. Learn from the Experience

Finally, after the dispute is resolved, take the time to learn from the experience. Whether you won or lost the case, a dispute can provide valuable insights into how to handle contracts in the future.

Consider these points:

• Review your contracts: Ensure that all future contracts are clear, detailed, and include a dispute resolution clause.
• Improve communication: Foster a culture of open and transparent communication to avoid future conflicts.
• Seek professional advice: Consider working with legal professionals to review contracts before signing to prevent future disputes.

Disputes in construction contracts are not uncommon, but how you handle them can make a significant difference. By reviewing the contract, communicating clearly, and utilising dispute resolution methods, you can often resolve issues without going to court. In cases where litigation becomes necessary, having legal guidance is crucial. The key is to address disputes promptly, professionally, and with a focus on finding a fair solution for all parties involved.