October 25, 2017

Reducing Construction Litigation Costs – It’s in Your Control


This article originally appeared in the October 20, 2017 edition of the Daily Journal of Commerce Oregon.

Everyone knows litigation can be expensive, yet many construction professionals are unaware that significant litigation costs can be avoided with some advance planning and more thorough organization and management of project information.  If you think you may have left money on the table in a project, whether from an impact claim, delay claims, or change order dispute, you’re not alone.  What if efficient dispute resolution, including litigation, could help you run a more profitable business?


It is always preferable to resolve differences with your partners through business negotiations rather than legal action.  However, at times litigation is unavoidable.  In my experience as a Construction Manager and Litigator, the three types of information always in dispute are accounting, communications, and project documentation.  If you are not able to produce this information in a clear and organized way initially, your attorney will spend a considerable amount of time doing this for you.


If you are involved in or think arbitration or litigation may be necessary to recover lost revenue, consider implementing these best practices related to project and information management for your next project to control the costs of litigation and have a faster path to resolution.


Back Up and Manage Communications Data

Even relatively routine construction projects produce a tremendous amount digital data, and the ease with which documents are created and edited has added to the volume significantly.  This is all compounded by the growing amount of digital information stored across multiple platforms.  The result: data organization is poor more often than not.  


Managing the volume of data, understanding what data you have, and where it is stored and backed up is important.  For example, if you have 15 employees all using the same messaging application, and that data is stored and backed up every six months, then you can easily find the data if needed.  


Things to consider:

  • Use a central server and prohibit the use of personal email accounts
  • Standardize email folders and subfolders, and show employees the benefits of organizing email
  • Best practices already requires organizing hard files.  This should be extended to all electronic data, including communications
  • Consider using a company-wide text messaging application


Use a Sophisticated and Detailed Schedule of Values on Every Project

If you are using a Schedule of Values simply as a way to tabulate billings, either as a general, subcontractor, or owner, it provides insufficient data for litigation purposes. You don’t just need to know the current contract value and who has been paid what – but you need to know the contract value at different times and who has been paid what at different times.  A Schedule of Values aims to do this, yet more often than not, they are lacking critical information.


The Schedule of Values should be used as a tool and used together with change orders, lien waivers, and other project documentation, and should easily identify overruns before they become an issue.


A detailed Schedule of Values should:

  • Track the project to date and forecast the project to date  
  • Include billings to date, paid to date, unpaid balance by period, percentage complete, remaining balance, original contract balance, and changes to the contract balance, by period, and more  
  • It should be standardized by cost code (consider Associated General Contractors CSI Codes) while also fluid to accommodate changes or amendments    


A detailed Schedule of Values provides you a snapshot of the entire project at a glance.  From this, you can spot trends looking backward to forecast and avoid problems in the future.  Actual progress versus amount billed and paid, compounded by disputed change orders, is where disputes typically arise and these issues can be resolved more quickly if the proper documentation is available, if not avoided altogether.  


It’s in Your Control

Information related to construction projects is typically managed as efficiently as needed in order to get the project done.  However, the information required for litigation purposes requires more precise organization.  When disputes arise, litigators are paid litigator-level fees to find, organize, search, and sort data as a starting point to legal work.  The purpose of clear organization of information and documentation is to reduce the amount of time you will pay your attorney to develop your case or defense.  It’s the difference between throwing everything in a box and packing with purpose.  


Managing construction projects with an eye on data and information management WILL reduce litigation costs.  A contractor’s control over litigation is still limited in many ways, but managing data on the front end is not one of them.


For more information on this topic, please contact marketing@jordanramis.com or call (888) 598-7070.


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