Owners Must Strategically Prepare for Construction Disputes

Disputes in large-scale commercial construction projects are almost inevitable. To navigate potential litigation effectively, owners must engage in proactive strategic planning. Bill Shaughnessy and I co-authored a practice note for LexisNexis’ Practical Guidance that outlines essential considerations for owners facing construction litigation.

The “Deep Pockets” Challenge

In legal contexts, owners are frequently perceived as the entities with financial resources. Judges, arbitrators, and juries may assume that owners are attempting to avoid paying contractors who have completed the work. To counter this perception, it is crucial for owner claims to extend beyond mere legal technicalities. Strong economic justification must accompany claims, demonstrating that they are fair and proportional. Credibility is essential, as it can significantly influence the outcome of any litigation.

Preparing for Litigation Before Signing Contracts

The preparation for potential litigation should begin well before any disputes arise. Owners must focus on drafting contracts that minimize vulnerabilities. Key elements to consider include:

– **Indemnification clauses** that are sufficiently broad to encompass subcontractor defaults and regulatory violations.
– **Schedule provisions** that incorporate acceleration clauses, allowing for timely completion adjustments.
– **Liquidated damages** that accurately reflect reasonable estimates of actual harm; these should never be referred to as penalties.
– **Venue provisions** that favor the interests of the owner, ensuring a more advantageous legal environment should disputes arise.

Another essential consideration is evidence preservation. Once a dispute seems likely, owners should issue a litigation hold on all relevant documents, including daily reports, requests for information (RFIs), emails, texts, and photographs. It is advisable to meet with the project team promptly to capture recollections while details remain fresh.

Furthermore, securing performance bonds is critical. These bonds are activated only upon a declared default, contingent upon strict adherence to their terms. Early communication with the surety is vital, especially regarding significant change orders. Obtaining consent from the surety before such actions can help mitigate risks associated with potential disputes.

For a detailed exploration of these topics, refer to the full practice note on LexisNexis, which offers further insights into preparing for construction disputes effectively.