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Can You Prevent Claims And Lawsuits On Your Construction Project?

by Ron Kelly
Ron Kelly
Why do so many custom construction projects end up in fights? This trio of articles is aimed at the main players in custom construction. Owners, Contractors and Architects each have different and valid perspectives. All three are urged to recognize that there will be problems. The articles offer suggestions and resources to improve the way you can prevent and resolve disputes. Pass this set of articles out before your project begins to help be sure your project doesn't end up a nightmare.

Owner's Perspective

DREAM OR NIGHTMARE?

You're worried about those stories you've heard - of huge cost overruns on building projects, and midproject shut-downs that last for months. You're right to be concerned. You know that careful selection of contractors and detailed attention to contracts is essential. But even careful and experienced people get into problems in custom building projects. It's reported that one third end in dispute. Lawsuits can get expensive very quickly. You can save yourself a lot of time, money, and emotional stress if you understand how disputes arise and how you can settle them.

The average-size custom building project can involve dozens and sometimes hundreds of different workers, supervisors, and inspectors, and thousands of separate parts, operations, and communications. It's nearly certain there will be some mistakes, some misunderstandings, and a few surprise problems. Time and money pressures often push you into at least a few hasty decisions that you're not real happy with later. How you respond when problems arise can make all the difference.

TRUST YOUR CONTRACTOR?

As a consumer, you're in a very uncomfortable position. You simply have to invest an enormous amount of trust in the contractor. You can't try out the product before agreeing to buy it, and can't return it if you don't like it. You don't know the construction techniques and building codes which must be followed. You're relying on the contractor to bring your very personal vision into the real world, while protecting you from all the potential problems with scheduling, costs, and quality. When a major problem develops, you're likely to feel the contractor has betrayed your trust. This crisis of confidence has destroyed many working relationships.

For their part, contractors feel they've really earned their money doing hard, dirty, and often dangerous work. Contractors in disputes usually talk about how they've bent over backwards to try to please the owner. They say they've worked straight through weekends to make schedules, or tried to satisfy your requests for changes or corrections. Maybe they believe they've even given you extra time and materials not charged for. They take it very personally that you're withholding their money until you're satisfied. How dare you, after all they've done for you?

FIGHT OR GET TAKEN?

The stage is set for a fight when your friends hear your side of the story and tell you to hang tough. You and the contractor both convince yourselves quite sincerely that it's not your fault, and not your problem. The contractor talks about mechanics liens and foreclosing on your property. You talk about damage suits and having his license revoked. You see two choices - stand up for yourself or let yourself be threatened and pushed around.

ANOTHER CHOICE.

There's an approach to working out a fair deal that can satisfy your needs in an atmosphere of cooperation and mutual respect. It involves both pushing for your own interests and cooperating at the same time. You can get training in this process, and you can read about it. If there's significant money involved, you'll probably want to hire a professional mediator to help you with the process.

Since most cases settle before they get to court or arbitration, it's nearly always cost-efficient and more satisfying to spend some time, early in the game, cooperatively working out the details of a potential voluntary settlement. It's important to know that in most states all your discussions can have the protection of legal confidentiality in mediated negotiations. This protects your interests if you do go on to court or arbitration.

HOW DOES IT WORK?

In a direct and efficient way, tensions are reduced and better understandings emerge about what the claims really are. By jogging each other's memories, you clarify who really requested what, when something was actually done, and why somebody really got so mad. You and the contractor probably differ in the values you place on labor, schedule, personal pride, construction defects, and cash flow. You can make use of these differences to tailor a solution you can both live with, because you can exchange things which are more valuable to the other side. Partial or temporary resolutions can be developed, to keep a project moving even if you haven't settled all your differences. These can be crucial when weather or construction loans are pushing on you.

In mediated negotiations, no settlement is imposed, as an arbitrator or judge will. Only when you're satisfied with it do you make it a binding agreement. Because you still control the outcome at this stage, you can sit back and weigh the value of any potential settlement. You can make an informed choice about whether to risk the mandatory settlement the arbitrator or judge will impose. Perhaps it's not surprising that nearly all of these mediated negotiations produce voluntary cooperative agreements. People actually finish the work they agree to do and send the checks they agree to send. Everyone can get on with their lives, having worked out their own terms for resolving the matter.

EXAMPLES?

Amazing solutions often develop out of negotiations like this. To one contractor, being able to get his crew back to work immediately on a foundation pour was worth changing the whole building. Another contractor was willing to drop thousands of dollars worth of payment due when an owner apologized for an insult to the contractor's wife.

YOUR CHOICE.

When you get into problems with a contractor, you have some decisions to make. Do you want to try to put the whole thing behind you and get on with your life, or do you want to commit the time and money required to prepare a case for court or arbitration? Is the chance of winning your claim in court worth the risk of the judge upholding a counterclaim and imposing a judgment against you for damages, expert witness and court costs, and all attorney's fees?

Since all of us can expect our share of problems when we custom build or remodel, it's worth learning how to keep them from mushrooming into expensive delays, liens, and legal battles.

FOR MORE INFORMATION.

Top of Page


Contractor's Perspective

"WE'RE NOT PAYING."

You've probably heard this from a customer before. Maybe you've really been pushing yourself hard to wrap up the job on that custom home or commercial remodel. Suddenly your customer is withholding your money and making accusations instead of paying you. Maybe they've even hired an attorney to go after you for delays or other damages. The more you hear, the madder you get. Sound familiar?

No matter how careful you are, and how many satisfied customers you've had, it's likely to happen to you someday. It's reported that one third of all construction contracts end in dispute. Lawsuits can get expensive very quickly. You can save yourself a lot of time, money, and emotional stress if you understand how mediation can help you settle disputes yourself.

MEDIATION VS. ARBITRATION.

Mediation is different than arbitration. Any settlement you reach in mediation is a voluntary one. You keep control over the outcome because a mediator does not impose a settlement, the way an arbitrator or judge does. You have a chance in mediation to talk directly with your customer, in a legally-protected process designed to help you and your customer reach voluntary agreement quickly and inexpensively. Only when you're satisfied with it do you make a binding agreement.

SPECIFIC EXAMPLES?

One builder, threatened with months of mid-project delay and possible bankruptcy, was able to get his crew back to work immediately when mediated negotiations produced an agreement in days. Another contractor, after getting nothing but more bills from two years of civil litigation, was able to settle his suit and the owner's counter-suit in six hours of face-to-face mediated negotiations.

HOW DOES IT WORK?

In a direct and efficient way, tensions are reduced, and better understandings emerge about what the major claims are, and what their potential resolution could be. By jogging each other's memories, you clarify who really requested what, when something was actually done, and why somebody really got so mad. Builders and customers usually put different values on labor, schedule, personal pride, minor defects, and cash flow. You can make use of these differences to tailor a solution you can both live with, because you can exchange things which are more valuable to the other side. Partial or temporary resolutions can usually be developed to keep a project moving even if you haven't worked everything out completely. These can be very useful when weather or construction loans are pushing on you.

CRISIS OF CONFIDENCE.

A good construction mediator is able to help your customer understand the clash of expectations and emotions that may be driving his or her refusal to pay. Take, for example, the very different way in which unforeseen problems hit the builder and the customer. As a builder, you know very well that the average-sized custom building project can involve dozens and sometimes hundreds of different workers, supervisors, and inspectors, and thousands of separate parts, operations, and communications. You know it's nearly certain there will be some mistakes, some misunderstandings, and a few surprise problems. Time and money pressures will often push you into at least a few hasty decisions you're not real happy with later. Change orders seem a fact of life that you know can throw all sorts of extra costs, delays, and bruised feelings into the project. From your perspective, that's the way the contracting business is, and you live with it.

Your customer is usually in a different world. As a consumer, they're in the very uncomfortable position of having to invest an enormous amount of trust in you. Why? Because they can't try out the product before agreeing to buy it, and they can't return it if they don't like it. They usually don't know the construction techniques and building codes which must be followed, and are worried that they're overpaying you from the very beginning. They're forced to rely on you to satisfy their desire to bring a very personal vision into the real world. That necessary investment of trust is a hazard, because when those real world problems develop, customers often feel that you've betrayed their trust. The anger generated by that loss of confidence and sense of betrayal is often a central driving force in construction disputes.

FIGHTER OR PATSY?

The stage is set for a fight when your friends hear your side of the story and tell you to hang tough. You and the customer both convince yourselves quite sincerely that it's not your fault, and not your problem. You talk about mechanics liens and foreclosing on the owners' property. Owners talk about damage suits and having your license revoked. You're angry and frustrated. You see a choice - stand up for yourself or let yourself be threatened and pushed around.

ANOTHER CHOICE.

There's an approach to working out a fair deal that can satisfy your needs in an atmosphere of cooperation and mutual respect. It involves both pushing for your own interests and cooperating at the same time. It's a very cost-efficient way to develop the details of a potential settlement. With some basic cooperative negotiations training, you can often work things out with your customer on your own. If you hit problems, or if a lot of money is at stake, you will probably want to hire a skilled mediator to help you.

You still control the outcome at this stage. You can sit back and weigh the value of any potential settlement. Is the chance of winning your claim in court or arbitration really worth the risk of the judge upholding a counterclaim and ordering you to pay damages, court costs, and all expert witness, and attorneys' fees? If you think it's worth it, then you can make an informed choice to go for it.

It's important to know that in most states you can have the protection of legal confidentiality for all your discussions in mediated negotiations. This protects your interests if you do decide to go on to court or arbitration, or find yourself in a License Board hearing.

FOR MORE INFORMATION.

Top of Page


Architect's Perspective

HOW IT STARTS.

First you hear the owners say: "There's no way we're going to pay for this construction. It's absolutely inadequate and will have to be redone." Then you hear the contractors say: -"We followed the plans, with all the changes the owners requested. We're going to lien the property." Efforts to point out how they each contributed to the problem only fan the flames.

Then you hear them each say: "We're going to go find a hard-nosed attorney. Architect, we hold you equally responsible for this, and you'll be hearing from our attorney, too." You know that very shortly you will no longer be able to speak to them directly, only to their lawyers.

How you respond at this point can make all the difference between the voluntary resolution of a problem, and being a defendant in a couple of lawsuits. No matter how careful you are, and how many satisfied customers you've had, you're likely to face this situation someday. It's reported that one third of all construction contracts end in dispute. There are likely to be a lot of reasonable solutions to the problem. But if owners and contractors start threatening each other, you have to know what to do, and do it quickly.

YOUR EXPOSURE?

Architects have to boil down all sorts of conflicting owner desires into plans and specifications, usually on a budget. You're often asked to recommend or review the qualifications of contractors who will build from the plans. You're frequently paid for continuing involvement in checking compliance and reviewing possible plan modifications. These typical duties carry a lot of exposure when problems crop up. Even when a dispute has little to do with your work, you're still likely to get stuck in the middle. Lawsuits get expensive very quickly. You can save yourself a lot of time, money, and emotional stress by learning how to defuse and resolve tense owner-contractor disputes, before they start down the slippery slope towards the civil court system.

A SET-UP?

Technical problem-solving is only part of the what's needed. Custom building projects are set-ups for emotional clashes between owners and contractors. A major component of your role as dispute resolver needs to be helping them understand the clash of expectations and emotions that may be driving their conflict towards a court battle. Take, for example, the very different way in which unforeseen problems hit the contractors and the property owners.

The contractors know very well that the average-sized custom building project can involve dozens and sometimes hundreds of different workers, supervisors, and inspectors, and thousands of separate parts, operations, and communications. They know it's nearly certain there will be some mistakes, some misunderstandings, and a few surprise problems. Time and money pressures will often push everyone into at least a few hasty decisions they're not real happy with later. Change orders seem a fact of life that can throw all sorts of extra costs, delays, and bruised feelings into the project. From the contractors' perspective, that's just the way the business is, and they're trying to earn a living.

The owners are usually in an entirely different world. As consumers, they're in the very uncomfortable position of having to invest an enormous amount of trust in both you and the contractor. Why? Because they can't try out the product before agreeing to buy it, and they can't return it if they don't like it. They usually aren't skilled at visualizing from plans, don't know the construction techniques and building codes which must be followed, and are often worried that they're overpaying from the very beginning. They're forced to rely on you and the contractors, the construction professionals, to satisfy their desire to bring a very personal vision into the real world.

That necessary investment of trust is a serious hazard, because when those real world problems develop, customers often feel that their trust has been betrayed. The anger generated by that loss of confidence and sense of betrayal is frequently a central driving force in construction disputes, and prevents people from focusing on what's needed to solve the problem.

WHAT CAN YOU DO?

With a good grounding in dispute resolution technique, you can usually reduce the emotional tensions enough to get them to sit down together. You can create an atmosphere of mutual respect and cooperation, and help them figure out what needs to be done to resolve the problem. By jogging each other's memories, you all can clarify who really requested what, when something was actually done, and why somebody really got so mad.

Owners and contractors have a strong common interest in avoiding the risk of a judge or arbitrator ruling against them. You can help them avoid the chance that one or both will have to add huge delay, expert witness, attorney, and court costs to the price of the fix. They also generally place different values on labor, schedule, personal pride, construction defects, and cash flow. You can help them make use of these differences to tailor a resolution they can both live with, because they can each exchange things which are more valuable to the other side than to themselves. Partial or temporary resolutions can usually be developed to keep a project moving even if you haven't worked everything out completely. These can be crucial when weather or construction loans are pushing on them.

HOW LIKELY IS THIS?

If this sounds like wishful thinking to you, you should know that construction mediators conduct these kinds of meetings week in and week out. Nearly all of them lead to voluntary cooperative resolutions.

Their techniques can work quite well for you too, in keeping you out of trouble with your clients. It's possible that you may want to call in an experienced professional, if the going gets rough, or if you are too much in the thick of the dispute to serve as a neutral third party. You should know from the very beginning about the protection of legal confidentiality available in most states for all your discussions in mediated negotiations. This protects your interests if you do have to go on to court, arbitration, or an administrative hearing.

FOR MORE INFORMATION.

You can get more information and valuable materials for preventing legal trouble on your project at www.ronkelly.com. The site offers conflict prevention and resolution tools, model dispute prevention contract language and more. You might want to explore the option of having a Standing Neutral available on your project. The Standing Neutral, familiar with the project from the beginning, is immediately available to help you get the project back on track before tempers flare and positions harden. You can also do some reading on negotiations. Fisher and Ury have written an outstanding book on cooperative negotiation called "Getting to Yes" (Penguin Books).

Since all of us can expect our share of problems in this business, it's worth learning how to keep them from mushrooming into expensive delays, insurance claims, and legal battles.

Biography


Mediating since 1970 and arbitrating since 1986, Ron has initiated and guided enactment of dozens of key sections of California law protecting the integrity of ADR. He's a founder of two of California's main ADR professional organizations. He's been honored with eight major awards for his pioneering work in building the field, including Peacemaker of the Year in California and Honored Instructor at Berkeley. As an arbitrator and mediator, Ron's helped thousands of lawyers, business professionals and government agencies settle their disputes quickly and fairly. Ron has trained thousands of lawyers, judges, government officials, and business professionals on four continents, and his training materials are licensed and used around the world in numerous languages. Judges in most Bay Area superior courts have chosen to enroll in his trainings. He regularly trains mediators and arbitrators through the Bar Association of San Francisco, other Bay Area bar associations, and through UC Berkeley's CLE program.



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Website: www.ronkelly.com

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