Types of Construction Disputes and How to Avoid Them

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construction disputes

Disputes are a common occurrence in construction, and many businesses spend a significant amount of time and resources on litigation each year.

In 2020, construction companies worldwide lost an estimated $48.6 billion to disputes, according to a report by global research firm HKA. The international consultants at Arcadis found those numbers decreased ever so slightly in 2022, but overall dispute costs remain at an industry high.

It’s clear that disputes are a major risk to profitability. But, if they’re so common, how can they be avoided?

Understanding how and why disputes happen is the first step to preventing them.

The problem of miscommunication

One of the most common causes for construction disputes is miscommunication. When companies and their clients, general contractors, subcontractors, or suppliers misinterpret contract terms or otherwise fail to effectively communicate during the different phases of a construction project, this can lead to conflict over schedules, budgets, and other key details.

Disputes frequently occur if project work doesn’t meet expectations or when there are costs and delays that are unaccounted for in the project estimate. In many cases, a problem that could have been easily resolved turns disastrous because of incomplete or missing documentation. Clients and partners that feel blindsided by unexpected changes are much more likely to pursue legal action than those who are kept “in the loop”.

Even if the misinterpretation or lack of communication comes from the client’s end, for most construction companies, preventing litigation is more important than proving who is at fault when a dispute occurs. Whether the business is a plaintiff or defendant, in construction litigation means a loss of time, money, and professional credibility that’s unaffordable.

Below are a few examples of the most common communication-related causes of disputes and litigation. We’ve also included some tips to help you avoid these misunderstandings.

Types of construction disputes

1. Confusion over scope of work

The subcontractor doesn't understand the extent of the work they’re bidding on. The client has entirely different expectations than the contractor. Why aren’t these people on the same page?

The truth is, good communication isn’t easy, especially in construction. When parties don’t have a streamlined, standardized way to share information, misinterpretations are bound to happen and often aren’t caught until well after project work begins.

Because these types of miscommunications frequently occur, tools that can help bridge the gap between stakeholders like construction project management software are vitally important. Traditional communications are tedious. When field crews need to collect data on pen and paper or in Excel and share them using email or other manual methods, reports take too much time to complete, collect, organize, and distribute. Project managers spend hours tracking down data from the field, and suddenly weeks go by without an update to partners.

Digital solutions allow construction companies to more quickly collect and share information in a standardized format. For example, Raken allows general contractors to use templates to record all phases of a project in detail and share this information with clients and subcontractors in real time with the click of a button. Instead of receiving updates periodically, stakeholders can monitor progress as it happens, catching potential issues early and making quick, responsive changes.

2. Changes to original scope of work

Most projects evolve as they progress, and may require scope changes. These can range from updates to the project’s original design because of quality concerns to extended timelines due to bad weather.

While these changes may be unavoidable and circumstantial, disputes can arise when the changes or the reasoning behind them aren’t effectively communicated to all stakeholders. Delays because of a safety concern are understandable, but when that safety concern is only mentioned after the initial deadline has come and passed, clients are more likely to feel slighted.

Daily construction reporting software like Raken allows GCs to not only easily make updates to daily reports, but allows reporting from other parties, like subcontractors, to be added to the document. And, thanks to cloud storage, updates from the field are shared with stakeholders clearly in real time. You’ll not only have a record of what caused any scope changes onsite each day, you’ll also be able to quickly and effectively help your partners understand project status with no surprises.

Construction messaging software can also help you more effectively keep your teams informed and aware of any changes to the project.

3. Site conditions

While the party commissioning a project is ultimately responsible for site conditions, contractors are legally obligated to investigate sites themselves and identify issues that can delay or prevent work from being completed as planned. However, if inspections aren’t thoroughly documented, this can lead to disputes as it is difficult to say what the cause of a delay is without proof.

Raken's construction safety checklists provide a framework for field workers to make sure they’re checking all the boxes when it comes to site inspections. Never miss an important issue, and make sure it’s well documented so that when a change in scope is needed you can easily reference the reason why.

Our daily reporting features also allow contractors to issue real-time warnings and add time-stamped photo and video documentation to reports to quickly make clients and stakeholders aware of problems encountered on sites in the clearest way possible.

4. Trade disputes

Some disputes occur because of accidental damage during trade work. Electricians, plumbers, and other trade contractors may cause damage that needs significant repairs, but it is often difficult to determine the true cause, especially when they are working alongside other subcontractors.

Again, thorough, accurate, and timely reporting protects construction companies against trade disputes because it provides a record of what the jobsite looked like at any given time. Using construction quality management software, construction companies can keep accurate records of progress and review jobsite photos to pinpoint when any accidental damage occurred.

Improve your documentation & avoid construction disputes

Improving your business’s documentation processes can help you avoid the common pitfalls that lead to disputes and litigation. Making it easier to record and share project data keeps all parties involved with a construction project informed and engaged.

Download our construction daily report template to see an example of good field documentation, or schedule a demo today to learn how Raken can help you mitigate risks with better data.