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Building better construction projects in 2022

 

Antonija Krizanac is an attorney and member of the Construction and Design Group in the Portland office of Stoel Rives LLP. She can be reached at (503) 294-9459 or [email protected]

As another year comes to a close, we should take this opportunity to reflect on lessons learned in 2021 that we can use to help us build better construction projects in the New Year.

This year was an interesting one for construction as bids and projects picked up in some sectors and parts of the country and some projects slowed down or came to a close in others. According to reporting from various construction sectors, all of this activity resulted in a variety of claims and disputes on construction projects in 2021. The top causes of claims and disputes involved the following issues:

1. Changes in scope;
2. Owner/contractor/subcontractor failing to understand and/or comply with its contractual obligations;
3. Incomplete design;
4. Poor coordination and management of lower lever tiers, including subcontractors and suppliers; and
5. Force majeure events.

Besides these causes, the building industry continued to grapple with the pandemic and increasing market uncertainty, especially supply-chain issues. The pandemic has caused additional disruption, including 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 the claims and disputes mentioned above revolve around management and communication on a construction project, parties to a construction contract should invest more time in up-front planning, design and coordination. When reviewing a contract, special attention should be given to 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 deal with issues before the shovel hits the dirt.

This review is especially important for subcontractors who 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 which has flow-down provisions and requirements that might apply to subcontractors’ 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 among 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 difficult 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 indispensable to making 2022 a success.

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