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There are ways of preventing, managing construction litigation

On Behalf of | Mar 9, 2022 | Construction Litigation

A commercial construction project, especially a larger one, is almost always going to be a complicated affair that involves a number of businesses.

The larger the project, the more complicated it will be to coordinate it. Arguably, bigger projects also carry a lot more financial risk.

Usually, in a commercial project, the project manager or landowner will deal with a contractor, who will in turn assign specific parts of the job to subcontractors.

When everyone performs their work as expected, this system is effective. However, when for whatever reason a contractor or subcontractor does not meet its obligations, litigation is almost inevitable.

There are ways that business involved in the project, a contractor or project manager for example, can prevent or at least manage the cost and headache of a lawsuit.

A good contract is a key to preventing construction litigation

Since so much of the construction business depends on contracts, it should come as no surprise that a quality contract can go a long way in preventing litigation.

At a minimum, a contract can set out the parties rights and responsibilities so there is no confusion. Contracts also can establish possible consequences should either side breach the agreement. These consequences may make either side think twice before breaking the deal.

Contracts can also specify where any lawsuit has to be filed and which jurisdiction’s law will determine the outcome.

The contract may also require parties to arbitrate their disputes instead of filing a conventional lawsuit. Arbitration can be a way of saving time and costs in a dispute.

On a related point, even before offering to negotiate a contract, a business will want to do a thorough investigation of those who are interesting in taking on the construction project to be sure they are the right fit.

Asking for a surety bond is another prudent move

A contractor or project manager will also want to ask for what is called a surety bond from those who are promising to do the work. A surety bond is a separate legal document between a contractor or subcontractor and an insurance company or bank.

Typically, the institution issuing the bond promises either to pay damages up to a certain amount or arrange to complete the project if a contractor of subcontractor does not do so.

Similarly, the institution will under the terms of the bond cover payment if a contractor or subcontractor has not paid for labor and materials, as not doing so could put the property in danger of a mechanic’s lien.