Dealing with Construction Disputes: How Should Your Business Proceed?
Running a small construction firm often means working with tight margins to stay competitive. In this context, unexpected costs or delays can be particularly damaging. Disputes over projects can cost time and money and may harm your firm’s reputation.
Fortunately, there are several proactive steps you can take to minimize the risk of disputes and quickly resolve any that do occur.
Common Causes of Disputes
Most disputes in the construction industry arise from disagreements over contract terms. Specific causes include:
- Errors or omissions in contract documentation
- Improper contract administration (the leading cause globally)
- Misunderstandings or non-compliance with contractual obligations by owners, contractors, or subcontractors
Strategies to Avoid Disputes
Preventing disputes is the best way to handle them. While there are no guarantees, the following steps can significantly reduce the likelihood of conflicts:
1. Set Out Your Work Plan
A detailed work plan helps identify potential trouble spots. It outlines how the project will be organized and managed to ensure timely and within-budget completion.2. Understand Contract Documentation
Make sure you thoroughly understand all contract documents. Clarify any ambiguous terms and ensure there are no conflicting clauses or loopholes.
3. Comply with Pre-Construction Requirements
Fulfill all pre-construction tasks, such as providing estimates, creating schedules, contacting subcontractors, and ensuring orders are placed.
4. Establish Realistic Schedules
Plan for risks and potential disruptions. Realistic scheduling is crucial for maintaining project timelines.
5. Document Everything
Ensure all contracts are signed, document potential disagreements in writing, and issue daily reports to maintain transparency.
6. Implement Comprehensive Systems
Set up systems that account for all processes and procedures, providing sufficient information and transparency to all parties involved.7. Address Problems Promptly
Tackle issues as soon as they arise to prevent them from escalating into full-scale disputes.
8. Consult Professionals
Seek advice from professionals regarding potential hazards and other impediments.
Surety Bonds: A Safety Net
Surety bonds offer protection in the event of a dispute. These bonds involve three parties:
- The Surety: Guarantees to pay a specified amount if the principal fails to meet a contract obligation.
- The Principal (You): Required to get the bond and expected to abide by its terms.
- The Obligee (Owner): Requires the bond and receives payment if the principal does not fulfill the contract.
Surety bonds guarantee that financial obligations will be met, offering peace of mind to all parties involved. While these bonds can be costly, the surety has an interest in resolving disputes to minimize damages. A surety may step in to help negotiate satisfactory resolutions when parties cannot agree.
Next Steps
Remember, our accounting services are here to support you with expert guidance tailored to your specific needs. Contact Porte Brown to learn how we can help you maintain a smooth and successful operation.
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