Contract Construction Smarts: Helpful Provisions for Dispute Resolution

For this week’s Guest Post Friday, Musings welcomes back Doug Reiser (@douglasreiser), though from new digs.  Doug is a construction attorney, LEED AP and the principal at Reiser Legal LLC in Seattle, WA. His office provides effective construction counsel for businesses in the construction industry. He also runs the Builders Counsel Blog, a blog focused on progressive issues in Washington construction law.  Doug is a former partner/member at Wolfe Law Group LLC and former owner and director of Express Lien Inc.

There are many types of attorneys out there, but there are certainly two styles: ones looking for the fight and ones trying to prevent the fight. I take the preventative approach. Client funds do not grow on trees. That old saying “an ounce of prevention is worth a pound of cure” should say a “ton of cure.” It’s that valuable.

Sometimes the problem for prevention attorneys is trying to relay that message to a construction business. The cost of smart prevention is mainly thought of as just that – a cost. But when it buys you a cure for pennies on the dollar, it’s worth it. You will know it’s worth it when you finally become engaged in a costly three year long legal proceeding over a construction dispute.

Some smart provisions to prevent and ease your construction dispute:

Reducing, Streamlining and Managing Claims

I previously wrote about the importance of “Claims Periods” in an Avvo Legal Guide last year. Reasonable claim periods are a must for any contractor. You need to know when your subcontractors or building partners have an issue, so that you can effectively resolve it.

In writing these clauses, it’s important to let your contracting partners understand the reason why the period is necessary (the harm done to you by failing to raise the claim), what constitutes a claim, how long they have to make a claim, and what means they can use to make a claim. It is suggested to ensure that making a claim is simplified, so as to ensure that a claim period is a reasonable obligation. Accept e-mail, take text messages, or create a project site through Google.

Managing Delivery of Documents

If you have been in a lawsuit you understand the value in good documentation. Make this your contracting partner’s obligation and enforce it. A clause requiring monthly or even weekly delivery of job logs, timesheets, receipts, photos, testing results and other important data is a must. This comes in handy especially on public works, where Davis-Bacon wages are needed and up to date cost tracking can be vital.

A good document production clause only works if it’s enforced! Make certain to train your supervisors/staff on how to collect data and give your contracting partners an easy way to deliver data. For instance, you might want to utilize a utility such as Dropbox, a data storage and sharing device that runs from a computer or your iPhone.

Bottom line – find a way to get data as it’s created in the easiest way possible. It will save you thousands of dollars in discovery later on, and in some cases might actually prevent a lawsuit when you can pull out that smoking gun document and say: “look here.”

Force the Use of Cheap & Efficient Resolution Procedures

No one likes the word “cheap” but that is really what we want – a cheap, effective solution. We can resolve our problems by using and enforcing contractual devices to save time and money.  Here are a few must haves:

• Liquidated Damages – Things such as delays should not burn down the bridge between you and your contracting partner. Be smart and think about what a problem (i.e. delay) costs you, then agree ahead of time and collect these damages as they arise. Its advisable to always enforce these clauses on the go, don’t let them sit or they might explode into a full-blown dispute.
• Fees and Costs – Everyone knows that they should have a clause to recover fees and costs. But your clause should have the intention of preventing costly proceedings, not giving incentive. Think about requiring a stipulated bond for attorneys fees and costs, prior to filing any action.
• Know Your ADR Method – Mediation and arbitration clauses are staples. But, find out what you like the best and use one process. Remember that mediation is good for disputes occurring while the contract is still being performed. But after termination or completion, it might be best to simply go to arbitration and mediate between lawyers while it’s on-going. Going through formal mediation, then formal arbitration can be costly.
• Know Your ADR Pro & Procedure – The American Arbitration Association is expensive! Administration costs and is time consuming. Use the contracting period to select an arbitrator or mediator, select discovery limits, and set a schedule for completion. Do the administration yourself! This will allow you to proceed quickly and cost-effectively.
• Review and Appeal – People fear ADR’s lack of an appeal. But, the Courts permit parties to contractually provide for an appeal of matters of law. This should help both contracting parties feel at ease about selecting a neutral – if they screw up the application of law, you can have an appellate judge take a look.

Enforce Your Rights!

Time and time again I see contracts with clauses that will never be enforced. Construction is a game of gentlemen and sometimes you will never see fit to squeeze everything out of your contract.

A good contract gives you rights. Failing to exercise those rights might have consequences (potentially waiving rights) and could be costly.

Working with your team (attorneys and staff) to develop an operating procedure for how you handle contracts and the projects they involve is absolutely golden. Collect that data, check for claims, and know your route to and through ADR. It will save you countless hours of preparation for a legal proceeding and in most cases ensure that you never end up in one to begin with.

As always Doug and I welcome your comments below. Please subscribe to keep up with this and other Guest Post Fridays at Construction Law Musings.