Construction is one of the riskiest businesses in the United States. It requires the coordination of many entities, which is one reason alone there are many disputes.  What do you think causes construction claims and disputes?

In this tight economy, the competitive bidding system forces contractors to price their work in a way that will give them the best opportunity to be the low bidder. Sometimes, too much attention is placed on getting the work and not enough attention is given to how the work can be done profitably.

In addition, the construction process typically involves parties from different disciplines temporarily joining together to deliver a construction project. Each party’s responsibility within the construction process is intertwined with others, either as a prerequisite for another party’s work or as an integral part of such work. When one of the parties in the construction process fails, the others are adversely affected. When a problem faced by one party in the construction process is ignored or recognized late, the problem may escalate into disputes and claims. Disputes and claims are detrimental to all parties.

A prerequisite to recognizing and remedying problems on the construction project is understanding their causes. The National Cooperative Highway Research Program has identifed practices and characteristics of contractors and owners that are associated with the high incidence of claims, including the following:

Contractor Practices

  • Inadequate investigation before bidding.
  • Unbalanced bidding.
  • Bidding below costs and over-optimism.
  • Poor planning and use of wrong equipment.
  • Failure to follow authorized procedures.

Owner Practices

  • Changes in plans and specifications during construction.
  • Inadequate bid information.
  • Inadequate time for bid preparation.
  • Excessively narrow interpretation of plans and specifications.
  • Restrictive specifications.
  • Contract requirements for socioeconomic objectives.

Causes Associated with the Contract Documents

  • Exculpatory clauses.
  • Mandatory advance notice of claims.
  • Finality of field engineer’s decisions.
  • Changed Conditions clauses.
  • Lack of periodic review of documents.

Causes Associated with Contract Awards

  • Diversity of state contract award rules.
  • Treatment of bid mistakes.

Causes Associated with Contract Administration

  • Coordination of owner responsibilities.
  • Interpretation of owner policy and practices.
  • Attitude and style of contract administrators.
  • Documentation of contract performance in field records.
  • Owner program factors.

Causes Associated with Claim Settlement Procedures and Practices

  • Encouragement of project-level settlements.
  • Delegation of settlement authority to field supervisors.
  • Effectiveness of field/headquarters consultation.

Review this list and think again.  What other causes of disputes can you identify?

Image: Ed Schipul