Construction Lawsuits: How to Deal with the Inevitable

Construction Lawsuits: How to Deal with the Inevitable
By ClockShark | 4 minute read

Despite binding contracts that define specific remedies for construction disputes, perceived deficiencies and wrongdoing can develop quickly into legal action. Claims and disputes are frequently settled amicably prior to spiraling out of control, but not always. If you’ve been dealing with an unhappy client, supplier or subcontractor, you may be aware that legal action is imminent.

Construction lawsuits is not normally filed with no warning, but it will still probably come as a surprise to actually be served with papers. At this point, take the time to read the filing carefully, but take no further action without legal advice. There is always a stipulated response time; note the date and details carefully.

If your firm does not currently have a trusted legal counselor, finding one should be the first priority. If you already have a corporate attorney, it is wise to put your legal representative on notice that there may be a need to defend your position in the future.

How a company reacts to an initial threat of litigation has the power to influence the course of future legal action. When communication breaks down between two parties, the situation can escalate quickly. Construction lawsuits can drag on for months or even years. It will be impossible to ignore, and it will be expensive, both in terms of time and dollars. It is possible, though, to put it in perspective and get on with the business of running a business. That may, in fact, be a source of comfort during any legal proceeding.

What to Do – and When

Once you move beyond the initial shock and inertia, document your company’s position; call your attorney; examine your contract; notify your insurance company . . . Take a deep breath!

As Fehzan Ali writes in a 2012 Forbes article, a first lawsuit is “going to feel like a punch in the stomach at best and like the world is ending at worst. But the only way out is through.” Ali notes that he was “paralyzed” by the notice that his startup company was being sued jointly by Facebook and the Washington Attorney General. His article, though at times humorous in tone, has practical advice for any business owner facing construction lawsuits.

As he points out, legal action is expensive, and it has less to do with right and wrong than with finding a practical settlement that allows both sides to save face, getting through it and emerging with both the financial resources and the determination to rebuild.

What are the best options? Is there an expedient way to settle disputes? Is mediation helpful; or it is required? Will insurance cover legal fees? Is it better to settle early rather than to face a long legal battle?

There are no simple answers that fit all situations, but there are “first steps” to take to become better prepared for dealing with any contingency. When an ongoing dispute becomes a full-fledged construction lawsuits, much more detailed documentation will be required. If some of the initial backup information, datelines and recollections are already available, the job becomes more manageable.

A logical second step is to try to construct a timeline of actions, conversations, specific events and details that are pertinent to the complaint. Document your position in any way possible: Start a binder that contains copies of written memos, transcripts of emails, notes of meetings or telephone conversations, photographs, daily logs, weather records that are pertinent, order forms, sales receipts, time cards, cost records, construction plans and specifications, contracts and inspection reports.

What About Arbitration and Mediation?

It is not unusual for construction contracts to include binding arbitration or mediation clauses, and statistics show that sitting down to resolve a complaint results in success in an impressive percentage of cases at substantial cost savings for both sides. The efforts are not always successful, but even if they are not mandated by contract, mediation might be a viable effort at the outset of a dispute.

If initial meetings between the two sides become deadlocked, sometimes the only option is to proceed along the path to a court settlement, which usually involves a detailed review of the complaint, depositions from both sides, and perhaps another call for mediation before a settlement is negotiated.

The Truth — and Nothing But

Any construction lawsuit is, at its core, a case of “He said, she said.” A lawsuit is also a “balancing act” between what you can afford to do, and what you cannot afford not to do. The one thing that no company can do is completely ignore a suit or the threat of a suit. Performance issues constitute the majority of legal claims against construction companies, and whether they involve excusable or inexcusable delays or quality deficiencies or cost overruns, they can be complicated and subject to interpretation.

Specific charges and allegations may make your blood boil, but it is important to remain as calm and balanced as possible. Deal with facts; maintain your position unequivocally to the best of your memory and documentation. Never be tempted to embellish or fabricate details to paint yourself and your company in a better position.

Never withhold pertinent information from your attorney, even if there might be things that damage your position. You cannot afford to be less than totally forthcoming with your attorney, no matter how difficult that might be.

Also know that the other side will take every opportunity to intimidate you, and to gain an advantage. Stay calm and balanced; rely on friends and family to lift your spirits and reinforce your determination. Don’t hide the fact that you are involved in a legal action, but don’t discuss legal proceedings openly other than to confirm the ongoing litigation.

Corporate insurance may, in some cases, include legal defense. If so, the lawyer appointed to defend your case will, without doubt, be interested in minimizing the insurance company’s liability. Cooperate; stifle your desire to “win” and follow the insurance company attorney’s lead if a settlement is a recommendation. The best outcome, as previously noted, is to get on with business.

Financial and Other Concerns

There is a reason that more than 90 percent of civil and corporate suits result in settlements. Even if a jury trial is an option, it is unlikely to be the most economical solution for either party. Again, as Ali points out the goal is not really to be avenged, but rather to get on with life and with business. In any lawsuit, both parties feel wronged. Emerging with minimal damage is a reasonable goal.

Aside from money, the time a case can take to get to trial can be as long as five years in some jurisdictions; the typical timeline of up to a year is substantial as well, and settlement is usually a better option all around.

Both parties to a construction lawsuit, the initial complainant and the defendant, seeking to maximize the financial consequences to the other party. Know that it is rare for either side to receive the amount that is asked; it is also relatively rare to expect that legal fees will be recovered, even if you emerge victoriously. But it is absolute folly to think that defending a suit, even if you are totally blameless, will not be expensive.

Those legal fees add up, so plan accordingly, and be as frugal as possible when mounting a defense. If your company does not have funds available, perhaps the better part of valor would be to settle quickly, minimize your losses and move on.

Make yourself, your company records and your employees available, as necessary, for discovery and meetings with the legal team. It is vital to your defense. Remember, though, that the attorney works for you, and you have every right to know about proceedings that affect your case and your company as they occur.

Being sued is no fun. But construction lawsuits and disputes are a fact of business. Being named in a lawsuit does not mean the world is against you, as Ali states. Get through it, rebuild and move forward!

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