Construction Buyers are Pressuring Law Firms into Handling Project Recovery Work

Construction law firms are getting involved in a new kind of project, one that deals with stalled construction and contractor defaults through project recovery. When faced with incomplete developments, buyers and owners are consulting their lawyers not just for claims advice but also for help finding ways in which the partially completed project can be taken to completion.

The problem is most evident in commercial development given the varied and sometimes difficult financing environment in various property markets. While projects may have been able to secure finance during the favorable lending environment, there are others which may now be struggling with budget constraints linked to higher interest costs or lower rates of leasing.

In these cases, the concerns going beyond issues of breach and potential claim filing. In many instances, it will take the legal services firm to find a way by which construction can be continued even if this means having to change contractors and suppliers or determining whether incomplete work complies with building codes.

Termination of contracts is becoming a complicated matter. There may be instances when owners who wish to terminate contracts with contractors are faced with the choice of continuing with the project and meeting deadlines while avoiding wrongful termination claims. It seems legal firms are advising clients to be careful when terminating these contracts before proving their case.

There have also been instances of disputes concerning surety claims. The process involves negotiation between owners and sureties regarding which party will be responsible for the work left undone and the cost of replacing contractors. Surety claims for incomplete projects often lead to construction law firms working extensively on cost projections.

This is not just an issue involving large projects. Municipal projects where the contractor is unable to deliver have led to public demands for work on incomplete roads or school projects. When it comes to public projects, any attempt by the agency to rebid incomplete work will run into procurement issues. Hence, there is an increasing demand for project recovery expertise among construction law firms.

Some clients who wish to move ahead with private projects despite problems with the contractor are seeking more information on potential financial difficulties, such as backlog or unpaid subcontractor costs. Buyers of properties and real estate developments are showing more interest in this regard, probably due to the unstable price conditions.

Recovery work requires a more detailed approach from law firms. The main concern among their clients is the proper scheduling of work that will allow continued construction without violating liens or causing other legal complications. This means that legal firms have more reason to be involved in project planning meetings.

The problem does not always involve legal dispute resolution. It appears that there are instances when owners are willing to try a more negotiated approach with the contractor to ensure that work is not terminated completely. This would mean that legal advice from construction law firms is sought on new contract terms.

Clients are expecting more from these law firms. Developers, lenders, and public projects do not want project recovery to take too long because this could affect the relationship between the financier and client, as well as affect future project procurement activities. In this regard, these law firms have to work in commercially sensitive environments.

Some of these law firms focused on traditional litigation work may need to develop new expertise as recovery becomes a popular assignment. Clients who face incomplete projects are interested in knowing whether the project can still move ahead without ending up in disputes.