Construction Law

Essential Contract Clauses to Prevent and Resolve Construction Disputes featured image

Essential Contract Clauses to Prevent and Resolve Construction Disputes

With the average value of construction disputes and length of resolutions expected to increase over the next year in North America partly in response to the COVID-19 pandemic, it’s time to consider the common causes of these disputes and which contract provisions can aid in their prevention and resolution. Simply being proactive and reviewing the language of your contract with a Ft. Myers construction mediation attorney prior to the emergence of a dispute can not only save you hundreds to thousands of dollars in litigation and attorney fees but also a great deal of time and energy devoted to handling these disputes. 

In this article, we’ll review the construction contract clauses commonly involved in the prevention or resolution of disputes to help you get a better idea of what to look out for when reviewing or drafting your next contract. If you are concerned with the contents of a construction contract you are preparing to sign, don’t hesitate to take a step back and consult with a Ft. Myers construction lawyer from our law firm who can put you in the best position for success. 

Related: 5 Clauses Contractors and Subcontractors Should Negotiate

Scope of Work

The Scope of Work clause is by far one of the most important clauses in your contract for the prevention and resolution of disputes, and it should be the first thing you look for before signing off on any contract. How effectively the priorities, objectives, and timelines of your project are established in the Scope of Work will set the stage for the remainder of the project and determine the likelihood of disputes arising down the line. 

Ideally, the Scope of Work should include a clear description of the work to be completed, the time frame in which it is to be completed, and the materials that will be used to complete it. Depending on the complexity or size of the project, the Scope may also include the following elements:

  • A list of employees and their respective responsibilities 
  • Quality standards, required inspections or testing, and other technical data
  • Specific exclusions to the contract
  • Work to be added and priced separately from the Scope

Related: What To Know About The Scope Of Work in a Construction Contract

Alternative Dispute Resolution

Although we aim for the prevention of disputes altogether, the reality of the situation is that you’re likely to come across a conflict during the course of your project. Whether this conflict escalates into a dispute worthy of litigation is dependent upon whether or not your contract includes a clause for dispute resolution. When faced with a conflict of interests or a miscommunication that has been blown out of proportion, you have three main options for achieving a resolution: mediation, arbitration, and litigation. 

For the purposes of this article, we’re going to be discussing an arbitration clause that allows your dispute to be resolved through an informal process between disputing parties and an arbitrator. Arbitration is preferred over litigation and mediation because it allows the arbitrator to hear arguments from both sides and produce a legally binding agreement. A simple arbitration clause will state that any dispute arising out of the contract, or breach of the contract, is to be decided through arbitration. For assistance drafting and ensuring your arbitration clause is binding, consult one of our Ft. Myers construction lawyers

Related: Construction Disputes and The Benefit of Arbitration Clauses

Liquidated Damages

A great method of shifting the balance of risk in the event of a breach of contract is the enforcement of a liquidated damages clause. Liquidated damages are, in simplest terms, a sum of money agreed upon by all parties at the time in which the contract is signed. Ideally, this amount should best reflect an estimate of actual damages at the point in which the parties signed the contract. Simply setting aside this predetermined amount of damages enables both parties to understand the degree of risk involved, make changes to the schedule as needed, and limit future claims. 

That being said, pay close attention to the word “enforcement.” There are certain factors that can and will be taken into consideration when determining whether the clause is enforceable or unenforceable. The main aspects a court will be looking at when deciding whether or not your contract provision for liquidated damages is enforceable include the following:

  • It must be difficult or impossible to accurately quantify the actual damages caused by the breach
  • The amount must be used as compensation for the damages rather than for a penalty
  • The amount stipulated must be reasonable 

Related: Enforcing Liquidated Damages Clauses

Forum Selection

Last but not least, we’d like to take a moment to discuss the importance of choice of law and venue clauses. Choice of law determines what law will apply to the contract, interpretation of contract terms, and enforcement of the contract, whereas choice of venue determines where legal proceedings will be held, if necessary. These are valuable terms in any contract for several obvious and not so obvious reasons. If you have to familiarize yourself with the procedures of a court in which the opposing party is a local, you’re facing a serious disadvantage. Depending on the principal place of business, the party who begins the process of litigation may have to travel as well. 

The bottom line is that, especially if you’re working across state lines, you’re going to want to choose which set of laws will be governing your contract and which state you’ll end up going to court in. There’s nothing more beneficial in a court of law than local laws, witnesses, and lawyers. If you’re concerned about anything we’ve discussed thus far in this article, It’s never too early to reach out to one of our Ft. Myers construction attorneys to review your contracts for these essential clauses. 

If you would like to speak with one of our Ft. Meyers construction attorneys, please contact us today.

Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.