The world has become gravely litigious, particularly in the commercial construction and real estate industry. Claims and litigation are an inevitable risk on construction projects. While the projects and people involved may change, the issues and disputes surrounding construction projects are always consistent.
Let’s take a look at four reasons why construction became so litigious.
The Widespread use of subcontractors
About 40 years ago general contractors (GC) self-performed a lot of work and a lot of different types of work, all under one roof. So, it was in their best interest to be as efficient as possible. This was possible because GC's ultimately managed the trades internally and all the goals of the trades were aligned with the GC (thanks to the umbrella).
This has since changed, and now GC’s manage several companies as they manage the construction of the work. No longer does the GC need to manage direct manpower efficiencies as long as nothing is delayed — and if it is delayed, they don’t bear the burden of the additional costs to combat inefficiencies. No longer do all the goals align because it went from all trades under one umbrella to many companies and no umbrellas. Each subcontractor has its own business with its own projects, causing its own problems.
A poorly-coordinated design will inevitably create conflict, added costs and delays resulting in conflicts and unexpected costs and timeline delays. An accurate and complete design can help the process become less litigious. When the contract is priced, it's important to make sure that the plans and specifications are detailed and complete. Otherwise, the contract sum may be an unrealistic and unreliable figure that is subject to change; and can result in claims for delays and impact damages. Fast-track construction increases the risks of misunderstanding and litigation.
Lack of project data and ability to study it
Unfortunately, data analytics is not the strong point in the construction industry, this reality alone results in overruns and delays for obvious reasons. The lack of available information not only results in costly problems, but the lack of data analysis also forces more arguments, which inevitably leads to dispute. Without a lot of data, well organized and analyzable, its difficult to “prove” that they should be compensated, resulting in disagreements and, yes you guessed it, litigation. The thing that's most frustrating is that the data IS available. It’s just that most people in construction don’t have the time or know on how to leverage it. If and when data analytics becomes the norm in construction, a lot of the common problems resulting in overruns will go away. Contingencies will become minimized as well.
Heightened competition in a competitive bidding world
From the beginning of time, humans have been builders and innovators, as it was necessary for survival. Fast forward thousands of years and it’s still an integral part of our lives across all nations. It is big business and with big business comes competition. As a result, the competitive bidding process forces contractors to compete on price. The competitive culture in construction often has contractors making promises on cost and schedules that aren’t necessarily “risk adjusted” to ensure that they win the bid. Inevitability, this leads to cost overruns which, due to reasons outlined above, can cause disputes.
It isn’t difficult to see why construction has become such a litigious industry, and it is interesting that each issue has some tie into delay, impacts and inefficiencies, and is always a subject of discussion in any dispute.
Data is the key to combating the widespread litigious epidemic in construction.
SmartPM Technologies, Inc. has created a completely automated software that analyzes data found in your Primavera & MS Project construction schedule. This analysis will arm anyone with access to the schedule with everything they need to know to effectively control project schedules, budget and risks thereof. Contact us today to learn more.