Construction disputes are the industry’s most expensive administrative activity, expensive for the parties involved, expensive for the project’s schedule, and expensive for the relationships between owners, contractors, and design professionals that make future projects possible. Understanding how disputes arise, how they can be prevented through disciplined project management, and what resolution mechanisms standard contracts provide gives owners and construction managers the tools to manage disputes before they escalate into formal legal proceedings.
The most effective dispute prevention strategy is rigorous project administration from the first day of construction, clear change order management, complete documentation, prompt communication, and consistent application of the contract requirements. Most construction disputes arise from preventable failures in project administration, not from contested legal questions that require adjudication.
How Construction Disputes Arise
Construction disputes cluster in a few recurring categories that account for the majority of construction litigation.
Change order pricing disputes. The GC submits a change order for additional scope; the owner believes the price is unreasonably high; the GC proceeds with the work under a reservation of rights; the dispute is not resolved during construction and becomes a claim at project completion. Change order pricing disputes are the most common source of construction disputes and the most preventable, through rigorous change order review during construction and through contract provisions that establish pricing mechanisms for disputed changes.
Scope of work disputes. The owner claims that a specific element of work was included in the original contract scope; the GC claims it was not. These disputes arise from ambiguous construction documents that can be read as including or excluding the disputed work. Constructability reviews that identify scope ambiguities before the contract is executed prevent the ambiguity from becoming a dispute during construction.
Delay and acceleration claims. The GC claims that owner-caused delays, late delivery of owner-furnished equipment, design changes that disrupted the construction sequence, inspection delays for which the owner was responsible, entitle the contractor to additional compensation for extended general conditions and, in some cases, for the acceleration costs required to recover the schedule after the delay. Delay claims are among the most complex and expensive construction disputes because they require reconstruction of the project’s scheduling history and attribution of schedule impacts to specific causes.
Defective work claims. The owner claims that the contractor’s completed work contains deficiencies, waterproofing failures, concrete that did not achieve specified strength, MEP systems that do not perform as designed. The contractor disputes the deficiency finding or claims that the design, not the installation, is responsible for the failure. These disputes often arise after project completion and require forensic investigation of the completed building.
Prevention Through Project Administration
The construction manager’s and owner’s representative’s most important dispute prevention function is rigorous contemporaneous documentation, creating a complete record of the project’s decisions, communications, and conditions as they occur, rather than relying on memory or reconstruction after a dispute has arisen.
Documentation that prevents or resolves disputes: daily construction reports that record what work was performed, what crews were on site, what weather conditions existed, and what issues arose; photographs with timestamps that document site conditions at critical moments; written confirmation of all verbal instructions and owner decisions; and a complete change order log that records every change order request, the owner’s response, and the disposition.
This documentation serves two functions: it disciplines the project’s administration by creating an accountability record that discourages careless decisions, and it provides the evidence that resolves disputes quickly when they arise, because the record of what actually happened is clear and contemporaneous rather than reconstructed from memory months later.
Dispute Resolution Mechanisms in Standard Contracts
The AIA family of contracts, the most widely used standard construction contracts in the United States, provide a structured dispute resolution process that escalates through several steps before reaching formal adjudication.
Initial decision by the Architect or Initial Decision Maker. Most AIA contracts provide that disputes are first submitted to the Architect (or another designated Initial Decision Maker) for a written decision. The Architect reviews the dispute, evaluates the contract and the documentation, and issues a decision. The Architect’s decision is not binding, either party can reject it and proceed to the next step, but it provides a structured first-step resolution attempt that resolves many disputes without further escalation.
Mediation. AIA contracts require that disputes that are not resolved through the Initial Decision process be submitted to mediation before either party can proceed to binding adjudication. Mediation is a non-binding process in which a neutral mediator facilitates a negotiated resolution between the parties. Most construction disputes that reach mediation are resolved there, because the cost and disruption of arbitration or litigation creates sufficient pressure on both parties to reach a negotiated settlement.
Arbitration or litigation. AIA contracts give the parties the option to designate arbitration (binding, private adjudication administered by the American Arbitration Association) or litigation (court proceedings) as the binding adjudication method if mediation fails. Arbitration is generally faster and less expensive than litigation but is still a significant undertaking, arbitration of a complex construction dispute can take two to three years and cost six figures in legal fees on each side.
The Owner’s Representative Role in Dispute Management
The owner’s representative’s role in construction dispute management is to identify emerging disputes early, facilitate resolution at the project level through the change order and RFI processes, and ensure that the owner has the documentation needed to support its position if a dispute escalates. An owner’s representative who resolves five potential disputes during construction through clear project administration and timely communication produces a different outcome for the owner than one who allows disputes to accumulate unresolved until project completion, when they all mature into formal claims simultaneously.
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