Originally published as an Op-Ed by the Oregon Daily Journal of Commerce on December 20, 2021.
As another year comes to a close, we should take this opportunity to reflect on lessons learned and apply them to build better projects in 2022. This was an interesting year for construction as bids and projects picked up in some market sectors and regions while bids and projects slowed or halted in others. Based on reports from various construction sectors, all of this activity resulted in a variety of claims and disputes in 2021. The top causes of claims and disputes on construction projects involved:
- changes in scope;
- owner/contractor/subcontractor failing to understand and/or comply with its contractual obligations;
- incomplete design;
- poor coordination and management of lower-level tiers, including subcontractors and suppliers; and
- force majeure events.
In addition to those issues, the building industry continued to grapple with the pandemic and increasing market uncertainty, especially in terms of the supply chain. The pandemic has disrupted the industry by restricting access to sites and labor, constricting cash flow, and exposing the limitations of contract provisions on force majeure and changes in the law.
Now that we have a better idea of where the claims and disputes in 2021 originated, we must ask: How can the construction industry, and specifically contractors, avoid similar claims and disputes in the new year?
Given the increased pandemic-related uncertainty and that the claims and disputes mentioned above revolve around management and communication on a project, parties to a construction contract should invest more time in up-front planning, design and coordination. When reviewing the contract, special attention should be given to contract provisions most likely to generate a dispute, including the scope of the work, payment terms, changes, project schedules, completion milestones, delay damages and consequential damages. Doing so may help parties avoid conflict down the road by ensuring that parties are clear on their roles, responsibilities and risks at the outset. This forces the parties to come together to review the construction contract, drawings and schedule to address issues before the shovel hits the dirt.
This review is especially important for subcontractors that need to understand and agree with all of the timelines, scope of work, personnel involved, and processes for handling issues or claims as specified by the contract with the general contractor and any other contract that has flow-down provisions and requirements that might apply to the subcontractor’s work.
Additionally, to deal with potential supply chain problems, contractors should be more strategic about taking on new work. When applicable, contractors should factor in potential future cost increases, the rate of potential price acceleration, force majeure clauses, and supply chain delay clauses that allocate risk between the parties. Failure to structure a contract appropriately could lead to potential lawsuits, delays, budget busts and reputational damage.
Although 2021 has been a busy and challenging year for the construction industry, and 2022 looks to be on pace with it, contractors should take time to reflect and reassess how bids, contracts and projects are approached. Communication, better project management and better construction contracts are the key to making next year a success.