Posted by: Jeffrey Fick | April 28, 2009

Dispute avoidance and resolution

Construction work is not an exact science.

The contractor, and the project are exposed to numerous uncontrollable conditions, such as, unforeseen weather delays, material delays, working projects expanding in scope and impacting the schedules of pending projects, manpower problems, etc. Any one of these conditions or a combination of them can trigger a dispute.

What to do if you hava a dispute with a contractor…

Independent studies of contractor/consumer disputes indicate that most disputes are caused by:

1. Communication Problems;
2. Unrealized Expectations, and
3. Unforeseen additional costs, not actual contractor negligence (wherein the contractor would be 100% responsible), or product failure.

Because you perceive the situation to be in dispute do not allow that thinking to erode the initial trust and confidence you had in the contractor. What initially appears as contractor negligence, may not be.

Problems – Communication & Unrealized Expectations

A contractor is negligent if he fails to perform the work as specified in the contract. The contract is the Critical Deciding Factor for resolving disputes. In order to avoid communication problems, or unrealized expectations, protect yourself by making sure the contract clearly specifies your expectations.

  • If you have a special request never rely on verbal communication. Get it written into the contract document.

“The palest ink is better than the best memory.”

Automatically reject any contractor who refuses to allow you to modify his proposal in order to clarify specifications to a mutually fair understanding.

 Problems – Unforeseen Additional Costs

A contractor is negligent if the work in dispute could be installed by another contractor without additional cost. However, a contractor cannot bid or include in the specifications unforeseen conditions.

 “What you can’t see you can’t bid.”If unforeseen conditions are anticipated, if possible, have an anticipated fixed cost, or formula, for calculating additional cost included within the contract so you are prepared for the unexpected and you avoid the feeling of being taken advantage of by the contractor when the work is in progress.

 

You may also wish to negotiate into the contract the “option” to use a different contractor for the additional work phase.

If possible try to avoid engaging another contractor because it triggers “split responsibility” and could cause problems with project coordination, project performance and damage liability.

A contractor is negligent if there is damage to the Owner’s property that would not normally occur with another contractor.

If there is damage and it would have happened regardless the contractor, then that damage is considered an unforeseen or unavoidable condition, not contractor negligence, and would be repaired as a Change Order. In many cases this additional work would be covered under your homeowner’s insurance.

STEP ONE… Stay cool! Evaluate the situation from both the Owner and Contractor’s position. You need to look at the situation from both sides, because if the dispute is arbitrated or litigated, that is what the outside party will do.

STEP TWO… Establish positive ground with the Contractor. Discuss what is right about the project so that the dispute can be put into its proper perspective and that it does not overshadow the entire project.

“You can get more with honey than vinegar.”

STEP THREE… Discuss the Owner/Contractor relationship and how a mutually agreeable resolution would be beneficial for both parties.

A Satisfied Owner pays his invoice timely, writes letters of satisfaction, and refers his/her preferred contractor to others.

A Satisfied Contractor goes the “extra mile” for his customers and remains in business to provide service after the sale.

Also recognize that contracting is a highly competitive business and contractors work on extremely thin margins. That is why most contracting businesses fail.

If there are unanticipated extraordinary profits in a project, a contractor would normally “absorb” the additional unexpected cost rather then risk a dispute triggering a dissatisfied customer.

However, if the contractor is requesting more money it is safe to assume he has no room for absorption in his initial contract price.

STEP FOUR… In some cases, the contractor may perceive that the Owner is “nick picking” or triggering the dispute to avoid payment.

The best way to eliminate the concern from the dispute settlement is to establish an escrow account with a mutually agreeable third party.

Thereafter, the escrow is released to the contractor upon resolution of the dispute as outlined in a mutually agreeable “Settlement Agreement.”

STEP FIVE… Reexamine initial negotiations and contract discussions with the new data that is triggering the dispute.

Is it possible that if both parties knew in advance that the dispute would occur that the contract would be different?

If so, the Owner is not damaged by the dispute. The dispute is then an unforeseen condition and should be handled as a Change Order to the initial contract.

STEP SIX… Reduce the dispute resolution to writing. In many cases the dispute becomes a Change Order to the initial contract so that the completed work meets the Owner ‘s expectations. In some cases, no action is taken by either party. It is critical that the “no-action” resolution is reduced to writing so that each party is in clear alignment with the resolution.

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