When something goes wrong on a construction job, the knee-jerk response is to pursue legal action. But the reality is that not every claim should be pursued. Making a wrong decision to pursue a claim may end up costing you more than any award you stand to receive.
The contractor or owner contemplating filing a claim should step back and objectively review all the materials and circumstances to determine if going forward makes good business sense. Here are five questions that may help you make the right decision about pursuing a construction claim.
IS THERE SIGNIFICANT FINANCIAL DAMAGE?
If there is not significant financial damage, you may not have a basis for a claim. Not every construction dispute results in dollars lost, and real losses can occur on all sides.
Owners may experience production delays and lost work days that produce unanticipated losses in the form of negative rental cash flow, additional interest payments, and so forth. But an owner's procrastination in making a decision may cause contractors to suffer losses as well. Delayed contract completion can result in escalated labor, material, and equipment costs.
More than one party is injured in such cases, but pursuing legal action to determine which party was most injured and which is responsible for damages may not be the best use of your firm's time or resources. Take a hard look at the facts and be honest in your appraisal of the circumstances. Try to view them as an objective third party would.
ARE YOU DEALING WITH AN "EMPTY POCKETS" SITUATION?
Suppose you have a viable claim, go to court, and win? Will the defendant be able to pay? The time to do careful credit checks is before you start the work.
The question to ask yourself is: "Even if I had a valid claim and won the case, would I ever see a penny?" If the answer is "no," consider whether pursuing the claim makes sense or whether it would be worth your time to officially vindicate your position.
WERE THERE PROBLEMS ON THE JOBSITE?
As much as everyone tries to prevent them, problems do arise on the job. Disputes between owner and contractor can usually be settled in a business-like manner, however, disputants sometimes make hasty judgments and take the wrong action.
Attempting to correct the situation or punish the wrongdoer can only make the situation worse. Denying access to a contractor may result in lost days and dollars, ultimately hurting the owner. Similarly, less-than-perfect work as a means of retribution prompts owner complaints and costs time and money to correct later, ultimately hurting the contractor.
The parties involved should try and hold amicable discussions. An equitable review of the facts can sometimes resolve any problems. Recognize that both parties may be to blame. Due consideration of field conditions and relative costs may result in a "wash," as each side absorbs its own cost, at no expense to the other.
WHO IS RESPONSIBLE FOR THOSE ON THEJOB?
The owner or contractor may not be directly culpable for any disputes or delays, but both sides are responsible for other people they've hired.
The owner may be responsible for the poor performance of the designers, architects, and inspectors. Likewise, the contractor exercises some control over subcontractors, superintendents, and engineers. Determining who is responsible for whom is the first step in determining where liability can be assigned. If you can assign liability, you may have a claim.
DO YOU HAVE SUFFICIENT DOCUMENTATION OR EVIDENCE TO SUPPORT A CLAIM?
From the first handshake between owner and contractor, the project's history should be fully documented with names, dates, people, places, estimates, take-offs, computations, drawings, and meeting minutes. Change orders with prerequisite backup data must be noted, filed, tracked, and processed. Delays, changed work conditions, lost-time days, weather conditions-all must be noted in official documents.
Daily logs, time and material accounts, daily work reports-these must be accurately maintained and updated. If you have the documentation, you will be in an excellent position to pursue your claim or defend yourself; without it, you may not have a case.
If after answering these questions you decide to go forward, check your contract for dispute resolution methods. You may have any of four options before turning to litigation:
If all else fails, you may have no other alternative but to consider litigation. Remember, though, that as the dispute escalates more time will be required to resolve the claim, and more people will become involved. There will be higher financial costs and increasingly entrenched expectations. Before you go down that path, ask yourself the five basic questions detailed above. They will give you a clearer picture of whether the costs involved to pursue a claim are going to be worth the effort and any final judgment.
About the Author
Gordon H. Curtis, president of Wagner Hohns Inglis Inc. (WHI), Mount Holly, NJ. Wagner Hohns Inglis Inc. is a construction consulting firm that has pioneered the development of project scheduling for the industry WHI specializes in three service areas: construction claims resolution, critical path method (CPM) scheduling, and project management.