Contract documents

January 18, 2022

Construction is a risky business. Disputes can occur at any stage in the construction process and can involve contractual breach, nonpayment, workplace injury, delays, quality of construction and more. This article explains how contractors can mitigate legal and financial risks that may arise from disputes by following industry best practices.

Best Practices to Avoid Construction Lawsuits

The following are best practice recommendations for avoiding a construction lawsuit:

Benchmark – One of the most important activities a construction company can perform is construction benchmarking. By definition, benchmarking is “a standard or point of reference against which things may be compared or assessed.” Construction benchmarking can ensure continuous improvement, boost profits and increase productivity, as well as establish best practices internally.  The process of benchmarking can also provide detailed information about a construction firm’s commitment to industry best practices and contract performance at the time of reporting. You can benchmark performance across your construction firm’s activities (i.e., health and safety, project management costing, supply chain operations, procurement, and value management), as well as conduct competitor and strategic benchmarking to stay current and identify any gaps in your services or procedures.

Know The Laws and Regulations Pertaining to Your Project – Have a thorough understanding of your jurisdiction’s laws and regulations. Contractual and licensing requirements for construction may vary by jurisdiction, so it is important to ensure you are up-to-date so you can remain compliant.

Draft Your Contract Carefully – Contracts are a “bargained for exchange” of construction work for payment, stipulated by terms and conditions. Both parties must agree to terms related to work and payment, as well as modifications like change orders or construction change directives. Draft your contract carefully and avoid ambiguous language. Pay special attention to important provisions such as compensation, schedule, delays, jobsite conditions, and dispute procedures.

Perform Project Risk Analysis– When planning each construction project, conduct a thorough analysis of the risks associated with that project. Once risks are identified, your construction firm can manage them by identifying their severity and understanding which project team member is responsible to manage that risk. A thorough reporting procedure for project team members to identify and promptly communicate potential issues as they arise is important.

Contractors are responsible for protecting their reputation and financial interests. Best practice within the construction industry is the application of ethical and legal principles in all phases of the project. When contractors fail to implement protections, the next step can be mediation, arbitration, or litigation. Construction contractors can avoid arbitration and litigation by establishing best practices in line with industry standards.

AIA Contract Documents has provided this article for general informational purposes only. The information provided is not legal opinion or legal advice and does not create an attorney-client relationship of any kind. This article is also not intended to provide guidance as to how project parties should interpret their specific contracts or resolve contract disputes, as those decisions will need to be made in consultation with legal counsel, insurance counsel, and other professionals, and based upon a multitude of factors.