Contract Disputes are Increasingly Involving Construction Law Firms Early in the Process

Law firms focused on construction issues are increasingly spending time at an earlier stage in projects, helping with procurement, schedule discussions and subcontracting before conflicts arise. Parties such as owners, contractors and subcontractors are involving lawyers in reviews of project terms before large-scale work begins.

This is happening because project risk moves quickly at the jobsite, particularly when delays begin to occur. Material pricing is difficult to predict beyond certain project durations while labor availability continues to fluctuate across several regional locations. The escalation and delay clauses included in agreements are becoming an area of focus once again among general contractors.

Legal review of contracts is also expanding to address scheduling concerns. Lawyers who represent contractors are finding themselves involved in dispute situations surrounding sequencing and milestone deadlines due to the increased tie-in of schedules and their impact on finance and insurance exposure. Scheduling disputes that remained within the discussion scope of construction managers are now reaching financiers and government parties.

Another new challenge is associated with federal funding in public infrastructure projects. There has been increased competition among contractors to win bids for projects supported by federal money. However, contractors are hesitant to sign contracts that will pay back money at a later time and are uncertain in terms of compliance with procurement processes. As such, legal review is increasing among these projects.

Another new trend is the increasing complexity in the way subcontracting is handled. Larger projects have subcontracted work spread across regions and jurisdictions, involving outside engineers and subcontractors with differing contract terms. Legal review is becoming a bigger effort as it attempts to reconcile the differences in the contract language for the master agreement and subcontracts.

There are also changes in the influence insurance companies exert on construction law firms. Workmanship issues, water infiltration and other disputes have prompted insurance carriers to carefully review contract language prior to approving the policy. This means law firms find themselves addressing insurance-related issues in addition to reviewing contract clauses.

The billing patterns of construction law firms are also changing. Litigation accounts for a significant amount of income, however, the firms are beginning to experience a steady increase in advisory and legal review services. It appears that some clients are willing to incur higher fees for initial review to avoid future conflicts once projects are underway.

However, this does not mean that construction law firms are experiencing a reduction in disputes and conflicts. Many cases stemming from project agreements made during the pandemic are still being litigated since the pricing and timeline assumptions did not match the actual situation at the site. These cases keep making their way through arbitration and mediation processes while new contracts are becoming more difficult.

Construction buyers are also more careful about engaging law firms. Clients are becoming increasingly selective when choosing outside counsel. Previously they would choose a law firm based on its overall expertise; now they want to make sure that the firm has experience working on specific types of cases related to construction.

Litigation remains the core of construction law. However, the emphasis appears to be shifting to earlier intervention to reduce conflict exposure during the procurement process and project planning.