An Atlanta-area school district, already embroiled in construction litigation, learned that the replacement contractor hired to salvage a project has also been involved in litigation. The story made headlines in the Atlanta Journal-Constitution. But the bigger question is – when does a company’s litigation history become a concern, or even a predictor of how a project will turn out? This is not a simple question.
Does involvement in litigation mean that a design or construction company is not reliable? (Or, using the public procurement term, “responsible”?) Companies competing for public work must often list pending litigation, and even some private owners ask for this information. So litigation information is sought for some purpose, and companies must air their laundry, dirty or not. I would hazard a guess that members of public boards entrusted to decide whether to hire an architect or a contractor will often not agree on when litigation history is a meaningful indicator of whether the company will properly carry out the proposed project.
Obviously, there are signs that most would agree present a concern: if a company has been terminated for cause by an institutional or public owner; or if a company is the subject of multiple lawsuits by subs or vendors who have not been paid; or if there are credible allegations of fraud or of statutory violations. Even then there could be a legitimate explanation for the situation (often there isn't), but it’s a concern to be investigated, just the same. But many companies have concluded litigation successfully and have been vindicated in the process, only to learn that the mere existence of the now-former lawsuit is an obstacle to getting new work.
The Atlanta Journal-Constitution article conceded: “Lawsuits are common in the construction industry”. (And if you quibble with that statement, ask yourself whether you would say that such lawsuits are not common.) Construction industry lawsuits result from a myriad of factors. Some arise from incompetence, or even deception. Many arise from unforeseen circumstances or miscommunication. Some lawsuits arise from actions that reasonable people would consider to be unacceptable. Many are between two reputable companies who find themselves in a predicament that is difficult to untangle, or without a clear root cause, or one driven by outside forces. It is easy to write the headline that a company has been involved in litigation. It is harder to decipher whether the situation means the company is not “responsible” and should be rejected for a new project. Owner groups both public and private must learn to look past the initial list, ask some more questions, and not let the existence of litigation, by itself, dictate the outcome.
When is litigation history a sign of unreliability? It depends.