The construction industry is a capital-intensive sector. In November 2023 alone, the U.S. Census Bureau reported over $2 billion in total construction spending, up 11.3% year on year. With such large sums at stake, expectations are bound to vary, making disputes nearly unavoidable. One area that’s a common source of contention is payments.
Any deviation from expectations may cause the owners to withhold payments as they seek to recoup or adjust losses. Simultaneously, contractors may feel the deliverable was within a reasonable margin of error and payment was rightfully due. The services of a construction dispute lawyer are necessary to settle these payment disputes.
Complexity of Payment Disputes in Construction Projects
Construction is a highly complex industry in which intricate designs drive an even more complicated execution process. Therefore, the cost estimate may vary significantly from the actual cost. Typically, construction contracts include an allowable contingency to account for the uncertainty.
However, these uncertainties may be underplayed, or unforeseen circumstances may arise, inflating the project cost or delaying the project’s completion.
The complexity of the industry creates difficulting in determining the party(ies) responsible for delayed timelines or increased material costs which serves to exacerbate the underlying problem.
Payment disputes often result in litigation due to the high stakes and complexity involved. These legal battles are typically extensive in time and cost.
The total value of disputes in North America surpasses $37 million per year, with the average dispute taking over a year to resolve. Learn how an experienced litigation attorney can mitigate that impact on your project.
Common Causes of Payment Disputes in Construction Projects
While it may be challenging to forecast every possible scenario with the potential to cause payment disputes in construction projects, some are relatively common and steps can be taken to try and avoid these disputes. These include:
Lack of Clear Payment Terms and Conditions: A well-drafted construction contract should provide comprehensible, agreed-upon payment terms. These include conditions that clearly define how, when, and what amount will be due. Any ambiguity in these provisions is a common cause of payment disputes.- Failure to Meet Set Deadlines: Delays in construction projects can have a domino effect on all subsequent tasks; this includes additional labor costs and loss of revenue, hence payment disputes. Additionally, work orders may become necessary when unforeseen events interfere with the progress of the construction. It may be challenging to reach a consensus on the additional costs.
- Issues With Quality: Clients may dispute payments if dissatisfied with the quality of work delivered. This is especially true if they are facing budget constraints. Despite being defined in contracts, quality can be highly subjective making it prime for disputes.
- Inaccurate Project Documentation: Invoices, change orders, and time sheets, among other project documentation, must be accurate and comprehensive. Disputes often arise when these documents are lacking or do not reflect the work done or expenses incurred.
Importance of Construction Dispute Lawyers in Addressing Payment Disputes
Tempering or preventing payment disputes can prove challenging to stakeholders who are already committed to their contractual obligations. The complexity of these conflicts are often beyond the purview of stakeholders who lack legal expertise.
A construction dispute attorney has thorough knowledge of construction laws, understands the intricacies of construction projects, and the expertise to prevent or resolve disputes.
Role of Construction Dispute Attorneys in Payment Disputes Resolutions
Construction attorneys can help with the following:
Drafting Comprehensive Contracts: Contracts are considered the blueprint for the management of the construction project. When well written, they clarify the roles of the stakeholders responsible directly and indirectly for design and construction making it clear how to assign responsibility when deliverables are not as expected or deadlines are missed. A well-drafted contract also includes definitive payment terms. Construction attorneys often work with stakeholders to ensure all terms and conditions are clearly defined. This is beneficial for initial contracts as well as for change orders.- Analyzing Contractual Obligations: An attorney experienced in construction is able to guide stakeholders in understanding their contractual obligations. Often, in the midst of a dispute, objectivity can become diminished as each side becomes focused on their potential losses. This can be remedied with a construction attorney, capable of clearly determining the contractual roles and responsibilities of all parties.
- Alternative Dispute Resolution (ADR) Methods: Construction dispute attorneys are qualified to represent stakeholders in mediation and negotiation to reach settlements. They can also help conduct arbitrations whose resolutions are legally binding. ADR is suitable for less complex payment disputes. But it should be the first option for all disputes as this approach, compared to litigation, is timely, cost-effective, and less adversarial.
- Pursuing or Defending Claims in Court: When ADR methods do not yield the desired results, a construction dispute attorney can pursue or defend claims through litigation. While this is the most costly and time-consuming option, it may be necessary for high-value disputes or in cases of contract breaches. In court, construction dispute lawyers will apply their expertise to protect their client’s interests.
Trust the Experienced Construction Dispute Attorneys at KPPB LAW for Effective Dispute Resolution
The construction attorneys at KPPB LAW have extensive experience in managing disputes for payments and other areas of construction projects.
No matter what stage the dispute is at, and on which side you may find yourself, contact KPPB LAW today for expert legal guidance to achieve the best possible outcome for your project.