The top 6 causes of construction disputes and how they are resolved

by Ben Hammond | Dec 7, 2023

In 2022, the cost of construction disputes in the United States totaled $42.8 million. Unfortunately, construction disputes are widespread due to the complexity of most projects and the involvement of multiple parties and contractors. Construction disputes often happen due to a disagreement or misunderstandings between parties. Arbitration can be an effective way to handle a construction dispute, and is perceived by many to be faster and more economical than litigation.

No matter the size or scale of the project, construction disputes arise for many of the same reasons. Construction disputes are complex because they involve technical engineering or design concepts, logistical issues, contractors and subcontractors, or multiple individual claims within a construction project. From single-family dwellings to complex multimillion-dollar commercial buildings, here are the six most common causes of construction disputes:

Lack of written contract terms

Verbal agreements often lead to misunderstandings, arguments, and disputes. A written, signed contract is the best approach to mitigate misunderstandings. A contract and any written amendments thereto serve as a critical reference should issues or discrepancies arise. The contract should outline all terms, conditions, expectations, timelines, and costs.

Failure to document changes

Your contract should describe how the parties handle change orders. When materials, project scope, cost, or timelines change, there should be a protocol for communication and approval. It’s essential to document change orders and associated costs via text, email, or a written contract, with a written and signed contract being the best practice.

Misinterpretation of contract terms

Even with a written contract or email documentation, details of the terms aren’t always clear to one or more parties. A contractor or subcontractor might not understand an expectation, process, or the scope of the work. When a misinterpretation occurs, it can lead to a dispute.

Improper site inspections

The party commissioning a construction project is responsible for safe and effective site conditions. Still, contractors are legally obligated to investigate work sites and identify any issues that could delay or prevent work. Lack of proper inspections can lead to disputes later, as it can be challenging to pinpoint what led to delays.

Damage from trade work

Disputes can arise when accidental damage occurs during trade work, such as electrical and plumbing. It can be challenging to determine the cause of the damage, especially if many subcontractors are working on the project. Timely and accurate damage reporting by construction companies can provide a record and avoid disputes. Logging progress photos and documentation throughout a project can also help prevent disputes.

Conflict over budgets or project schedule

When a project exceeds the initial budget or timeline, disputes often occur, especially if the details are not outlined in a contract or written change order.

Resolution of Disputes Through Arbitration

Construction arbitration is a procedure that involves submitting a dispute to one or more arbitrators who make a binding decision that can only be appealed in very rare circumstances. It is a private construction dispute resolution procedure and does not involve going to court. The process may involve the business owner, contractors, subcontractors, architects, engineers, financial stakeholders, and suppliers.

Benefits of Arbitration

Arbitration can be less costly (but not always) and is seen by many as a more effective way to resolve a construction dispute.

Other benefits to arbitration include:

Flexibility and control over the dispute resolution process

Protects professional reputation as arbitration matters are private

Offers the ability to select an experienced arbitrator with specialized construction knowledge, expertise, and legal understanding

More About Arbitration Services

Solving a construction dispute favorably depends on choosing a construction arbitrator with the right legal and construction expertise. Construction disputes often involve complicated engineering and design concepts. Explaining and dissecting abstract and technical aspects can be challenging unless the arbitrator is well-versed in construction law and terminology. With an arbitrator familiar with the construction industry and jargon, arbitration becomes faster, easier, and, ultimately, more successful.

Hilger Hammond is frequently engaged in arbitration both in the role as the advocate and as the arbitrator. If we could be a resource, please do not hesitate to contact us with any questions.

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