Real Estate Law

The Anatomy of a Construction Dispute- The Claim

A new year brings with it promise and challenges. The promise is a relatively clean slate and the thought that 2015 will be a great year for construction professionals and those that assist them. The challenges come from the almost inevitable issues that can arise on a construction site with its many moving parts and enough potential pitfalls to make even the most optimistic construction attorney, contractor, subcontractor or supplier think that Murphy was an optimist.

In order to assist with the potential challenges, this post will be the first in a series of “musings” on the best way to handle a payment dispute arising from a construction contract. This week’s post will discuss what the first steps should be once a payment dispute or claim arises. We’ll assume that you, as a construction contractor, have taken early advantage of the services of a construction lawyer and have carefully reviewed your contract for issues before signing that contract.

So, how can a claim come up on the job site? Aside from just refusal of payment by either an Owner or General Contractor, one way is through the change order process. For instance, you, as a subcontractor, are ordered to perform certain additional work and while negotiating a written change order (you would of course get all changes in writing) you and the general contractor cannot agree on a price, or even on what the scope of the changed work should be. You then submit your claim in a timely fashion and move forward with the work as is likely contractually required. You submit your pay application for the claimed amount and either get no payment or less that what you believe to be full payment.

What are the next steps? One, be sure to keep all documentation of your claimed amount, your notices, and any other correspondence in an organized fashion. Two, examine your contract to see what, if any, contractual ADR requirements such as arbitration or mediation are required prior to any further legal action. Three, call a construction attorney to see if he or she can find anything that you may have missed. By doing these things and acting accordingly, you will preserve your rights for if and when you need to go to court or arbitration to enforce your claim.

Once you’ve done these three things, and only with clear legal advice, consider the financial implications of continuing with the project. In most if not all instances, continuing is better than walking because from a legal perspective, you are almost always better off finishing your work and claiming that you weren’t paid then walking and defending why you didn’t finish.

Know that if you walk from the job you will likely be subject to a claim from either the owner or general contractor and that you’ll have to justify why you walked and didn’t finish. As such, this is always a last resort, but in the rare instance (and I do mean very rare) that the financial burden of continuing caused by the lack of payment will be so great as to essentially close your company, it is a final option. I cannot be more clear than to say that this is the very last resort and that I do not recommend such action.

Of course it’s always a good idea to keep every step of construction well documented internally and by written confirmation of verbal instructions.

By laying this ground work both before and after a claim arises, you will increase your chances of success should you need to take further actions to enforce your claim through the legal system.

Next week I’ll discuss some of the methods of enforcing your payment claim once you’ve exhausted less formal means.

As always, I welcome your comments. Please subscribe to keep up with this and other Construction Law Musings.

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