How to Avoid Disputes with Better Project Communication
Construction project disputes have risen in the past couple of years, mainly due to the pandemic and its effect on the labor market and material costs and deliveries. According to HKA, the value of these disputes adds up to almost half of the budgeted capital expenditure – 46.3%, on average. And the claims for additional time affect schedules by a further 71.4%. Contractors can use project communication to reduce the number and cost of claims and disputes.
Leading causes of disputes
In a 2021 study, HKA analyzed 1,401 projects in 94 countries. They found that the top ten reasons for construction disputes were:
- Change in scope
- Contract interpretation issues
- Contract management and/or administration failure
- Design information was issued late
- Design was incomplete
- Design was incorrect
- Poor management of subcontractor/supplier and/or their interfaces
- Physical conditions were unforeseen
- Access to site/workplace was restricted and/or late
- Workmanship deficiencies
The majority of these causes can be traced back to poor project communication. The pandemic also created an avalanche of problems, including material price increases, delivery delays, and project site shutdowns.
How to avoid disputes with project communication
1. Use a contract for everything
Contractors at all levels, including subcontractors and sub-subcontractors, should use a contract when employing another firm. The contract doesn’t have to be onerous or confusing but should clearly spell out a few key terms to help prevent disputes, or at least provide an agreed way to resolve them. The bare bones of the contract should include the following terms:
- A clearly defined scope of work, including exclusions and work to be performed by other parties
- Who does what, including preparatory work and cleanup and disposal after the work is complete
- Overall project schedule and the schedule for specified work, include potential damages for not meeting anticipated schedule
- Payment terms
- Dispute resolution procedure
2. Document the project from beginning to end
Since a dispute or claim can come at any time during the project, and it’s not easy to determine what information is important, you should document a project’s progress from beginning to end. Claims may come to light weeks or even months later. Documentation should include complete daily reports that detail the manpower on-site, work completed, and any delays or shortages. Reports can be augmented with photos and/or videos that are time and date stamped for authenticity. Complete daily reports can often resolve claims quickly, saving everyone added time and money.
3. Send regular updates
All contractors on site should send regular progress updates to their clients. Subcontractors and sub-subcontractors should send their reports to the general contractor. Updates should include a breakdown of the work completed and what’s next, as well as any anticipated changes or delays. These updates should be sent on a weekly basis at least and should be clearly documented. More frequent reporting increases the visibility of negative trends and allows the project team to mitigate risks.
4. Back up informal conversations with documentation
If information is exchanged via text message or phone calls, it should be followed by a more formal form of communication to document the conversation. This gives both parties a chance to clarify or correct the information received. Text messages can be used as evidence in a claim, but phone conversations may be seen legally as hearsay unless they are recorded. Documenting conversations is a good way to ensure that the information can be used to defend or support a future claim.
5. Provide real time cost updates
Recent material price increases have significantly affected project budgets. It’s important to keep clients updated on the status of their project budgets, including any potential cost increases or change orders. Contractors can assist clients with financial analysis to help them identify and address potential financial risks.
6. Store/backup all communications in the cloud
Proof of communication should be stored online, in cloud storage. This allows all project team members to access the information they need from anywhere at any time. Most cloud storage systems provide multiple backups, ensuring the security and safety of the data no matter what local conditions are like. The information should be clearly organized to facilitate easy retrieval. Many project management software packages provide cloud storage for communications and are available for a reasonable price.
As the industry continues to come out of the effects of the pandemic, contractors can use this time to create protocols and procedures to ensure that they have the information they need to make or defend a claim. Having this information available can often help avoid formal disputes, reducing costs and project delays for everyone. Project management software can help teams organize their communication and standardize procedures.