Can You Prevent Claims And Lawsuits On Your Construction Project?

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.

                        author

Ron Kelly - Arbitrator, Mediator, Trainer

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… MORE >

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