Construction Disputes: How to Resolve Them?

how to resolve construction disputes

Construction is prone to a healthy amount of conflict, especially with the vast amount of people and processes involved in just a single projects. But while conflict is one thing most teams push through, construction disputes are an entirely new level of challenge.

When a construction dispute arises, the parties to the contract may find themselves at loggerheads, not knowing what course of action to follow. So let's discuss the ins and outs of disputes, their impact on a project, and how to effectively avoid them and litigation altogether.

Table of contents:

What is a construction dispute?

Construction disputes are disagreements between the parties involved in a contract. They most commonly arise in an owner and a contractor relationship, but can also emerge from suppliers, construction subcontractors, real estate developers, and architects. These disputes themselves are not a breach of contract, but they may lead to a breach of contract, termination, or even claims threatening the contractor’s surety bonds if unmitigated. Parties in a contract, therefore, need to take the necessary steps to reduce the possibility of disputes arising for parties in a contract.

What causes construction disputes?

Before we delve into ways to resolve construction disputes, it is essential to closely assess what causes construction disputes. Construction disputes stem as a result of disagreements between the parties involved in a contract. The violation may be a perceived or confirmed violation of the contractual obligations by either party. The three primary factors that lead to construction disputes are issues with contracts, behavior, and contractual problems.

Issues with contracts 

According to a 2023 Construction Disputes Report from Arcadis, errors and omissions in the construction contract document were the number one cause of disputes in North America.

Typical forms of contracts pre-describe the obligations and risks each party is willing to bear. Due to the rigid nature of such agreements, they become unsustainable over extended periods, and it forces the parties involved in the contract to operate under uncertain terms. When conditions of uncertainty arise in a contract, they lead to a shift in the risks and obligations among the parties involved. Consequently, disputes may occur due to the perceived change in risk allocation in the contract.

Behavior

In the recent Arcadis report, the 2nd most common cause of reported disputes was, "owner/contractor/subcontractor failing to understand and/or comply with its contractual obligations."

Since contracts do not cover every eventuality, problems may arise in areas where the contract remains silent. When such disputes arise, parties may want to gain as much as possible from each other. Equally, the parties may have different perceptions of the facts surrounding the contract. One party may have unrealistic expectations, thus affecting the ability to reach amicable agreements. Also, a party may refuse to perform their contractual duties in a bid to avoid liability.

Project uncertainty

Project uncertainty is the difference in the amount of information needed to start a project and the available information. The information required depends on the complexity of the performance requirements, project scope, time, and budget. The information available is dependent on planning effectiveness, collection, and interpretation of the information at hand.

When there is a high level of uncertainty, the stakeholders cannot plan for every project detail before work commences. With such a high level of uncertainty, project details and specifications may change, leading to disputes.

Impact of construction disputes

Construction disputes can impact projects significantly in terms of both money and time. According to a 2024 Construction Disputes Report from Arcadis, the average value of disputes in North America is $43 million. Additionally, the average length of disputes in North America was around 14.4 months, a 6% increase in average length from the previous year representing a significant amount of time that could seriously stall project progress and funding.

Common types of construction disputes

Due to the nature of construction projects, there are various ways in which construction disputes can arise. Below are some of the common types of construction disputes we have.

Change of finish date 

All of us are familiar with the adage that “time is money.” In modern construction projects, this adage is also true. A change in the finish date may lead to increased project costs. Contractors may incur additional fees from idle labor or equipment. Rental charges of equipment may accrue even though the equipment is lying idle. Supervisors and workers may also be idle, leading to unrecoverable costs. Therefore, these changes in finishing dates put a lot of pressure on contractors and may even affect their other projects. This will result in a considerable loss in profit.

Delays

When delays occur, the party responsible should issue a notice in writing, letter, or electronic mail. The written notices clarify and pass on complete information to all the involved project stakeholders. Delays bring about disputes as to who should bear the responsibility for them. Most construction contracts deal with delays by extending the time of completion. The owner can keep the rights to recover the damages from the delays from the contractor. FIDIC conditions of contracts state that a contractor is supposed to give notices on circumstances that may lead to delays beforehand, or else they may lose the rights for time extension or compensation.

Design

Mistakes in design can also lead to additional costs, which become the cause of delays. There is no planning sequence followed for the release of design information, which impacts construction. Design teams may also abrogate their responsibility leaving the contractor in harm’s way to solve design problems independently. In so doing, the contractor unknowingly assumes the risks of impending design failures.

Goals

Subcontracted firms engaged in large construction contracts may employ a lot of personnel. Each of these firms may have its own goals and commitments that are not compatible with the goals of other key players in the project. As expected, this may lead to disputes.

Quality of materials

Sometimes disputes may come up as a result of the quality of materials used. Specifications may be vague on the conflicts, and each party may have different views on whether the quality is in accordance to contract specifications. The parties may have different opinions as to whether the construction quality and craft are sufficient. This can lead to additional contract costs that may lead to many costly disputes if left unresolved.

Difficult projects 

The project stakeholders may need to carry out proper risk management before a project commences, and more often than not, this is not done. Projects take longer than planned if there is insufficient accounting of possible risks associated with a project’s complexity. The delays and claims remove the owner’s rights to claim for delays or damages.

How to resolve a dispute 

It is unlikely for a project to run from start to finish without a dispute arising. Unfortunately, most dispute resolution procedures are an afterthought by contractors who focus on scope and price. However, it takes just one bad experience for one to handle dispute resolution more seriously.

There are primarily four main methods in resolving contractual construction disputes, as discussed below.

Negotiation 

Usually, negotiation is the first part of dispute resolution. Negotiation is when the parties in dispute try to reach amicable conclusions between themselves before moving further to other means of dispute resolution. It is the easiest, least expensive, and could yield the most immediate productive results. If it does not deliver results, it at least maps out the actual points of disagreement so that the parties know where they stand.

Mediation

Mediation is when the parties in dispute involve a neutral third party to help in resolving the dispute. Mediation is not a legally binding method of conflict resolution but is one of the most effective ways to get out of a situation before it worsens. The parties attempt to reach a just resolution outside the court before moving to other means.

Arbitration

Arbitration is the method contractors and lawyers prefer when it comes to dispute resolution. Most contractors list it as the way to address disputes in contractual terms. If the parties opt for arbitration, they must choose a neutral third party with the relevant experience to bring them to an amicable solution. Unlike in mediation, the arbitrator gives the final verdict to the conflict, whereas in mediation, the mediator only assists the parties to conclude. The costs of arbitration are significantly higher, and the decisions are legally binding in some jurisdictions.

Litigation

Litigation involves trials that are enforceable and legally binding. It is the most thorough, complex, and costly dispute resolution process. It is also very slow, so most parties opt for other dispute resolution processes instead.

Preventing disputes

Disputes in construction are prevalent, and preventing a conflict is better than solving one in the first place. Sometimes parties end up aborting entire projects if they cannot make successfully deliberate on disputes. Below are some of the best ways of preventing conflicts.

Risk management

In the 2023 Construction Disputes Report from Arcadis, the 2nd most effective claim avoidance technique identified by respondents was risk management. With a comprehensive preconstruction phase and systematic checks and balances during all project phases, project teams can help actively reduce and eliminate conflict that can evolve into disputes.

Clear payment terms

Most construction projects work based on interim payment cycles. A contract should have agreed on dates where payment applications should be made, related payment notices issued, and the actual payment release. This system of predetermined payment dates and terms reduces the likelihood of disputes.

Communication

Disputes also arise when the parties fail to maintain communication. Most developers and contractors communicate when the project commences and expect everything to run smoothly according to plan. This is often not the case, and parties should share at every stage of the project to address any challenges that pop up during the construction process.

Keep records

Having a normal handshake agreement one of the worst mistakes you can make in construction. Always ensure that you put everything in writing. Records should include notices, letters, emails, photos, and daily reports. Construction is an expensive affair, and you risk losing a lot of money if you do not put everything in writing. Record keeping removes any doubts about agreements made by the parties.

Centralizing all records and communication, or at least as much as possible, in a cloud-based construction software is also essential for reducing risk. According to the recent Arcadis report on construction disputes, contractor transparency of cost data in support of claimed damages was identified as one of the most important factors in mitigation and early resolution of disputes. Choosing construction management software with robust cost management features is another way to improve overall documentation.

Say goodbye to delays and litigation! See how the Activity Log in Autodesk Construction Cloud offers a record of truth for your projects. See how it works:

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Follow the contract

The involved parties should ensure that they understand the contract in place with all the clauses, terms, and amendments. Most projects adopt a standard building contract and make changes to transfer the risks. These changes need to be negotiated and understood. Once both parties understand the contract, they should follow all the contract provisions uninterruptedly throughout the project’s lifecycle.

Summary

A project’s success depends on how fast you can identify critical problems and communicate to the appropriate parties to resolve them. Implementation of better communication and mitigation strategies prevents the never-ending disputes likely to drown your project’s success.

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We use Google Analytics (Advertising) to deploy digital advertising on sites supported by Google Analytics (Advertising). Ads are based on both Google Analytics (Advertising) data and behavioral data that we collect while you’re on our sites. The data we collect may include pages you’ve visited, trials you’ve initiated, videos you’ve played, purchases you’ve made, and your IP address or device ID. This information may be combined with data that Google Analytics (Advertising) has collected from you. We use the data that we provide to Google Analytics (Advertising) to better customize your digital advertising experience and present you with more relevant ads. Google Analytics (Advertising) Privacy Policy
Trendkite
We use Trendkite to deploy digital advertising on sites supported by Trendkite. Ads are based on both Trendkite data and behavioral data that we collect while you’re on our sites. The data we collect may include pages you’ve visited, trials you’ve initiated, videos you’ve played, purchases you’ve made, and your IP address or device ID. This information may be combined with data that Trendkite has collected from you. We use the data that we provide to Trendkite to better customize your digital advertising experience and present you with more relevant ads. Trendkite Privacy Policy
Hotjar
We use Hotjar to deploy digital advertising on sites supported by Hotjar. Ads are based on both Hotjar data and behavioral data that we collect while you’re on our sites. The data we collect may include pages you’ve visited, trials you’ve initiated, videos you’ve played, purchases you’ve made, and your IP address or device ID. This information may be combined with data that Hotjar has collected from you. We use the data that we provide to Hotjar to better customize your digital advertising experience and present you with more relevant ads. Hotjar Privacy Policy
6 Sense
We use 6 Sense to deploy digital advertising on sites supported by 6 Sense. Ads are based on both 6 Sense data and behavioral data that we collect while you’re on our sites. The data we collect may include pages you’ve visited, trials you’ve initiated, videos you’ve played, purchases you’ve made, and your IP address or device ID. This information may be combined with data that 6 Sense has collected from you. We use the data that we provide to 6 Sense to better customize your digital advertising experience and present you with more relevant ads. 6 Sense Privacy Policy
Terminus
We use Terminus to deploy digital advertising on sites supported by Terminus. Ads are based on both Terminus data and behavioral data that we collect while you’re on our sites. The data we collect may include pages you’ve visited, trials you’ve initiated, videos you’ve played, purchases you’ve made, and your IP address or device ID. This information may be combined with data that Terminus has collected from you. We use the data that we provide to Terminus to better customize your digital advertising experience and present you with more relevant ads. Terminus Privacy Policy
StackAdapt
We use StackAdapt to deploy digital advertising on sites supported by StackAdapt. Ads are based on both StackAdapt data and behavioral data that we collect while you’re on our sites. The data we collect may include pages you’ve visited, trials you’ve initiated, videos you’ve played, purchases you’ve made, and your IP address or device ID. This information may be combined with data that StackAdapt has collected from you. We use the data that we provide to StackAdapt to better customize your digital advertising experience and present you with more relevant ads. StackAdapt Privacy Policy
The Trade Desk
We use The Trade Desk to deploy digital advertising on sites supported by The Trade Desk. Ads are based on both The Trade Desk data and behavioral data that we collect while you’re on our sites. The data we collect may include pages you’ve visited, trials you’ve initiated, videos you’ve played, purchases you’ve made, and your IP address or device ID. This information may be combined with data that The Trade Desk has collected from you. We use the data that we provide to The Trade Desk to better customize your digital advertising experience and present you with more relevant ads. The Trade Desk Privacy Policy
RollWorks
We use RollWorks to deploy digital advertising on sites supported by RollWorks. Ads are based on both RollWorks data and behavioral data that we collect while you’re on our sites. The data we collect may include pages you’ve visited, trials you’ve initiated, videos you’ve played, purchases you’ve made, and your IP address or device ID. This information may be combined with data that RollWorks has collected from you. We use the data that we provide to RollWorks to better customize your digital advertising experience and present you with more relevant ads. RollWorks Privacy Policy

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We can access your data only if you select "yes" for the categories on the previous screen. This lets us tailor our marketing so that it's more relevant for you. You can change your settings at any time by visiting our privacy statement

Your experience. Your choice.

We care about your privacy. The data we collect helps us understand how you use our products, what information you might be interested in, and what we can improve to make your engagement with Autodesk more rewarding.

May we collect and use your data to tailor your experience?

Explore the benefits of a customized experience by managing your privacy settings for this site or visit our Privacy Statement to learn more about your options.