As we wrap up another year of improved construction activity, it is time to reflect upon a few legal trends affecting the construction industry.
1. Everybody Wants a Mediation, but Nobody Wants a Trial
As litigation has become more expensive, fewer trials have occurred – particularly within the construction industry where conflicts are often complex and document-intensive.
This trend, where fewer and fewer cases are tried, has continued for years. Instead, mediation has emerged as the favored way to resolve construction disputes. Not only is mediation mandated in many construction contracts, and expected by many courts, but participants themselves are often eager to try a mediation in an effort to avoid the costs and hassle of an expensive, protracted lawsuit.
The bottom line is that now only about 1% of construction disputes result in a trial, but almost 100% of significant construction disputes result in a mediation.
2. Contracts are More "One Sided" Than Ever
Traditionally, the more construction activity, the greater flexibility in negotiating equitable contract language. But this economic recovery feels different, as many unhealthy risk-shifting strategies entrenched during the recession have failed to recede as the construction outlook has improved.
Contracts with “pay-if-paid” provisions covering not just payment applications, but also change orders and claims, are frequently encountered. Strict notice provisions remain commonplace. And “no lien” and “no bond claim” provisions are still regularly encountered.
While successful contractors and subcontractors have migrated to more profitable projects, unfair contractual risk-shifting “downstream” remains on most jobs. We will see if the optimism and choices associated with an improved construction climate help mitigate the risk-shifting practices that became increasingly common during the economic downturn.
3. “Time is Money,” Particularly When Labor is Tight
Benjamin Franklin and the Ohio Supreme Court have one thing in common. Both have been quoted saying that “Time is Money” on construction projects. No statement rings more true, particularly in the current construction climate where an ongoing skilled labor shortage has made timely project completion more challenging (and expensive) than ever.
We are seeing an increasing number of disputes where the contractor is chasing delay damages, while the owner is assessing liquidated damages – with each side blaming the other for a project that failed to complete on time.
In such an environment, contractors with access to an adequate pool of skilled labor and proper construction supervision will prosper at the expense of those who do not. And these time pressures increase the need for all project participants to fully understand their respective obligations to timely seek (or refute) time extensions and reserve rights to recover damages when the other contracting party fails to honor its contract duties.