June 18, 2014

Should I Pursue a Construction Claim or Hunt Pheasant?


The cost of construction litigation is high enough to scare birds. At least when it involves commercial projects. This time of year, most of us would rather hunt pheasant than sue somebody. What are some of the things the lawyer and client must think about before deciding to sue on a construction claim?

Before answering the question, we need to lay some ground rules: First, both the lawyer and client must recognize that construction disputes are fundamentally economic disputes and should be evaluated only in economic terms. In other words, forget the "vengeance" part. Take it out on a pheasant.

Second, the job of evaluating the claim never ends — for either the lawyer or the client — since it is the responsibility of both the lawyer and the client to continually assess and compare the costs of litigation with the likely benefits.

Having said that, the following five factors should be considered when deciding whether to pursue litigation of a construction claim:

  1. Value of the Claim: The lawyer and client must make an honest assessment of the value of the claim. Usually, an outside expert is necessary for this purpose. Most companies do not have the in-house expertise necessary to value a commercial construction claim. Even if the expertise is "on staff," most company employees are not able to evaluate the claim (and legitimate back charges against the claim) in an unbiased way. Thus, most often it is best to hire outside experts to evaluate the claim and advise both the company and the lawyer whether the claim ought to be pursued. The lawyer will be able to use the expert at mediation or trial and, as with any important investment of time or money, the more information you have, the better you can control the risk.
  2. Contract Defenses: In commercial construction litigation, the written contract often places significant barriers between the claim and any recovery on the claim. For example, the contract may impose notice obligations that must be satisfied before claims may be asserted, or it may require that the prime contractor be paid before the subcontractor may assert a claim. All such possible defenses should be identified and analyzed, at least preliminarily, before commencing litigation.
  3. Attorney Fees and Costs: Complex construction litigation often generates six-figure legal fees. Fees in this range may significantly hamper company cash flow. Most lawyers require a substantial deposit against fees at the onset of the litigation process, in part to avoid the ugly prospect of having to bring a claim against the client later on to recover fees.
  4. Value of Management Time and Resources: Construction litigation often involves hundreds of hours of employee time meeting with lawyers and the experts, reviewing documents, and attending depositions, hearings, mediations and trials.
  5. Lost Opportunity Cost: As management and employees devote time and resources to the litigation, it often becomes difficult to devote the necessary time and attention to marketing and obtaining new work for the company.

Finally, don't even think about pursuing a construction claim unless you have a solvent defendant, a valid lien, or a valid bond claim. If you don't have a target, don't shoot. Unless it's a pheasant.

This article is intended to inform the reader of general legal principles applicable to the subject area. It is not intended to provide legal advice regarding specific problems or circumstances. Readers should consult with competent counsel with regard to specific situations. For more information on this topic, please contact marketing@jordanramis.com or call (888) 598-7070.


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