Amid labor shortages, uncertain market conditions, rising material costs, and ongoing supply chain issues, construction disputes have hit record highs: according to a recent Arcadis report, the average value of disputes in North America shot up 42% from 2021 to 2022, and disputes remain at high levels when compared to years past. The Infrastructure Investment and Jobs Act, which authorizes over a trillion dollars in new infrastructure spending, has the potential to exacerbate these issues in 2024 and beyond.
To manage construction-related claims, effective collaboration between stakeholders—including project personnel, in-house and outside counsel, and construction claims experts—is critical. This article outlines an effective framework for managing and resolving construction claims, ensuring project success and client satisfaction.
Assuming a claim could not be rectified at the project level with an existing change-management system, project personnel should identify and thoroughly document the cause and subsequent financial and time-related impacts. Simultaneously, project personnel should notify in-house counsel and assist with gathering information related to the cause for claim. In-house counsel should then assess potential causes of action and legal implications, review contracts, and develop strategies for approaching claims that ensure its company’s rights are reserved with proper notification in accordance with the contract.
Depending on the complexity of the claim or dispute, outside counsel may be engaged for their expertise in construction law and to provide external perspective, counsel on state-specific regulations or statutes, and legal advice. Expert consultants may be required for analysis of causation and financial quantification using industry-accepted methodologies to help make an informed strategic decision.
Here are additional best practices:
Thoroughly evaluate potential legal actions. It is paramount to identify and understand the causes of action at this initial stage. This requires a detailed examination of the legal and factual elements to establish each potential claim. Attorneys and consultants must work closely to gather and analyze all relevant evidence, documents, and testimonies that support the case. The aim is to build a solid foundation for the claims, ensuring that every aspect is documented meticulously and that the evidence aligns with required legal standards. This is critical for setting the direction of the legal strategy and ensuring that the team is prepared for the complexities ahead.
Promptly notify insurance carriers and brokers. This notification should be accompanied by a comprehensive submission of all relevant documentation, including certificates of insurance and executed contracts, to legal counsel. Such documentation is essential for assessing coverage, understanding contractual obligations, and strategizing on the best approach to claims and disputes.
Engage expert consultants early in the process. This is advantageous for several reasons. Experts can provide a deep dive into the technical aspects of the case that might be beyond the purview of legal teams and clients. Experts also play a crucial role in reviewing the work for remediation, providing long-term knowledge of the project and critically evaluating the analyses, conclusions, and opinions of expert witnesses for accuracy and reliability. Their involvement enriches the team’s understanding of project-specific risks and complexities, which is instrumental in crafting a more informed and strategic approach to litigation. At the end of the day, your expert consultants will be heavily used in whatever form of proceeding is chosen, whether arbitration, meditation, or at trial.
Collect all necessary documentation. Establishing a “claims database” with relevant documentation related to the claim—including drawings, change orders, costs, project schedules, and correspondence—is crucial. The parties should also gather relevant insurance documents, which are essential to fully understanding insurance coverage limits and provisions, particularly for potentially implicated contractors. Project personnel should engage with counsel to discern not only the documents essential for project completion but also additional documentation that may become critical in the context of litigation.
Understand the work needed to rectify the claim. This might involve developing cost codes and scheduling activities specific to the work required to rectify the claim issue(s) and achieve project completion. In the event remediation contractors are required, a clear scope of work is necessary for not only project completion but also aligning legal strategies that demonstrate a direct connection between any breach of contract and the resulting damages. In cases involving multiple parties for remediation and litigation, it is essential to distinctly attribute each aspect of damage to the respective contractor, aiding a clear and persuasive argument in legal proceedings.
The qualified privilege granted to the thoughts and opinions of expert consultants, as recognized in many U.S. jurisdictions, is a strategic asset. This privilege safeguards confidentiality of strategic discussions, enabling a more open, honest, and comprehensive exploration of the case. Utilizing this privilege allows legal teams to delve deeper into the nuances of the claim, benefiting from expert insights without compromising the confidentiality of their strategic considerations.
During this stage, counsel should conduct a thorough legal analysis of the claim, assessing the strengths and weaknesses of the case. Depending on the complexity and value of the potential claim, in-house or outside counsel should engage a construction claims expert to independently quantify financial damages and effects on the project schedule using industry-accepted methodologies.
Key Considerations:
Use the expertise and influence of the insurance broker to advocate for coverage. The broker's understanding of policy nuances and insurance law can be instrumental in applying pressure on insurance providers to provide coverage.
Draft a settlement agreement early in the process. A settlement agreement prepares the entire team, including project coordinators and in-house counsel, for a positive outcome and can help align the team on expectations and legal strategies.
Ensure that an expert thoroughly reviews all documents related to remediation work, especially in the context of litigation. Project personnel must understand that work required to rectify the basis for the claim must not only address the immediate problem but also stand up to rigorous scrutiny in court.
Using the construction expert’s independently quantified financial damages and effects on the project schedule, in-house counsel—with support from outside counsel, if necessary—should engage in negotiations with the opposing party to resolve the claim in accordance with the contract’s dispute-resolution process.
If the claim escalates to formal legal proceedings, in-house counsel and outside counsel would then collaborate on litigation/arbitration strategy. At this point, project personnel should assist in coordinating with legal teams, providing necessary project-related documents, and facilitating communication between parties. Construction claims experts would prepare litigation/arbitration-ready expert reports with a detailed independent assessment of financial damages and project schedule impacts.
Following these best practices will lead to a better litigation result.
It’s an exciting time for the construction industry. But today’s projects are vulnerable to disputes, which can derail carefully laid plans and run up costs.
To resolve disputes effectively, stakeholders—from in-house and outside counsel to project personnel to expert consultants—must work together. Understanding the roles, procedures, and best practices noted above can lay the groundwork for success.
The views and opinions expressed in this article are those of the authors and do not necessarily reflect the opinions, position, or policy of Berkeley Research Group, LLC or its other employees and affiliates.
