Disagreements, conflicts, and disputes aren’t uncommon in business, and the construction industry sees its fair share. Even small construction projects can suffer setbacks and unforeseen issues resulting in delays, payment issues, or client disputes.
But while these things might not be completely preventable, there are steps a main contractor can take to reduce the likelihood of disputes happening.
You’re more likely to avoid disputes and maintain good relationships if you have a comprehensive and bespoke contract in place. An effective contract should outline the terms of your working relationship, making it clear what the expectations are and who is responsible for what.
Having a written contract between contractors and subcontractors reduces misunderstandings around the scope of work, payment terms, and notice provisions.
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Are contract disputes common within the construction industry?
Unfortunately, disputes within the construction industry are not uncommon. This is because a construction project, especially a large project, involves so many elements, and there are so many things that can go wrong.
Project delays and missed deadlines can occur for all kinds of reasons, from bad weather to missing materials to inadequate labour.
When these things happen, it can put a significant burden on the main contractor. This can cause disputes between contractors and the client or between contractors and subcontractors.
What can contractors do to avoid contract disputes?
You may think you have a good relationship with your clients and subcontractors, but these relationships can quickly go bad when a problem arises, especially if that problem involves money. You need to take reasonable steps to protect your business from avoidable disputes.
Be proactive. Ensure effective project management, proper planning and adequate professional indemnity insurance policies. Have clear communication lines in place. Keep relevant parties updated and ensure any documents required for the project are easily accessible.
Set reasonable construction project timelines
Work with project managers to ensure timescales are realistic and that it’s possible to meet the developer’s requirements. Give subcontractors sufficient time to complete work to the required standard.
If there are issues with sticking to the original timescales, make sure all respective parties are informed. Involve developers in discussions so you can find solutions quickly and avoid any expensive contractual disputes. Good communication is vital for project success.
Put formal construction contracts in place
Before you commence work, make sure you have a robust construction contract in place and all the contract documents have been signed. Where construction projects are particularly complex, obtain legal advice to ensure the contract terms are fair.
As well as having construction contracts between you and the client or developer, get a written contract in place between you and your subcontractors. A formal contractor-to-subcontractor agreement goes a long way towards avoiding disputes (especially disputes over payment terms).
Check out this article to learn more about what should be in a subcontractor contract.
Maintain good working relationships and communication
Communication is the key to any good working relationship. Be clear about the scope of work and terms of the contract. Give the other party time to read the contract and collate any other documents you require (such as insurance policies, licences, training certificates etc.)
Once contracts are in place and work has commenced, ensure all parties are regularly updated with any relevant information or changes to the scope of work. Keep communication lines open and inform subcontractors of anything that might impact their work.
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How can disputes between contractors and subcontractors be resolved?
Disputes between contractors and subcontractors happen for various reasons. For example, if a contractor fails to meet the terms of an agreement or if project delays occur because a subcontractor does not complete work to a satisfactory standard.
The best way to avoid contract disputes is to ensure all parties have a detailed understanding of the project requirements before commencing work.
If you have contracted someone to complete a project and they don’t carry out the work to the desired standard, have missed the agreed completion date, or the work is defective, there are steps you can take before taking legal action.
Find out why things went wrong
Sometimes subbies have valid reasons for not completing projects on time or to standard. After all, things don’t always go to plan in construction – even the most straightforward jobs can turn into nightmare projects.
So speak to your subcontractor. Find out what the problem was. Perhaps the issue was because of material shortages. Maybe there was a misunderstanding or poor communication over the specifications and expectations. Maybe they had a family emergency.
Give them the opportunity to make it right
Many subcontractor contracts include clauses that state a subcontractor must make good any defective work at their own cost. If this is the case, then the subcontractor responsible for defective work should be given the opportunity to fix it.
But even if you don’t have this clause (or any kind of contract), you should still give the subcontractor a chance to put things right before getting into what could be an expensive dispute. Most subbies would probably choose putting something right over losing out on future work.
Try to negotiate a fair outcome
If the dispute is minor and you have a good relationship with your subcontractor, you may be able to come to a suitable compromise between you. In other cases, it might be necessary to bring in a mediator to help with negotiations. Either way, it’s better for both parties if you can negotiate a fair outcome before taking drastic action.
Refer to the terms of the contract
If there is any ambiguity, refer to your contract (if you have one). Does it specify that subcontractors responsible for a mistake must make good any defects at their own expense? If so, remind your subcontractor of the terms they agreed to and hold them to account.
Check whether your contract allows you to withhold payment. If you try to withhold payment when you have nothing in writing that says you can, your subbies could threaten legal action for unlawful deductions.
Speak to a legal professional
If alternative dispute resolution mechanisms haven’t worked and negotiations fail, you may need to take legal action. Ideally, this should be a last resort as most contractors and subcontractors would prefer to avoid construction disputes in the first place.
If you don’t have a formal contract in place it can make it difficult to resolve disputes as your perspective may be very different to the subcontractor’s perspective. Ongoing legal battles can result in significant cost.
Having clear contracts between contractors and subcontractors can help both parties avoid damaging contractual disputes.
Get bespoke contracts from HardHats
An off-the-shelf construction contract won’t always offer you the protection you need when it comes to subcontractor disputes, but a HardHats contract will.
We specialise in creating bespoke contracts between contractors and subcontractors in the construction industry.
You might think a bespoke contractor-to-subcontractor contract sounds expensive, but our services could work out at as little as £3 per subcontractor per month (find out more about our fees here).
We think that’s pretty reasonable, considering we not only create the contract but we also do the hard work of getting them signed electronically by all of your subbies.
Plus, you can use our software as a subcontractor management tool at no extra cost. Securely store digital copies of any documentation relating to your subbies, including training and insurance certificates, invoices, expense claims and payment details.
And the best part? We don’t take over your payroll, meaning you keep control of your cash flow, and your subbies don’t have to pay a fee every time they want their wages.
Find out more about how HardHats can protect you by contacting us to get started.