Avoiding Litigation

By: Rex A. Christensen, Esq.

Very few things can send a successful business into a tailspin more effectively than a lawsuit. Whether a construction business is forced to file a lawsuit or whether it is being sued, the litigation process will drain the company's resources, including money, time, and energy. Therefore, a few simple strategies to avoid litigation should be employed.

1. Negotiate A Favorable Contract. Surprisingly, many business owners enter into substantial agreements without reviewing the contract documents in detail. Others submit proposals on generic forms not specific to their business. The temptation is great to accept the contract as written to expedite the work. However, slight modifications to a contract can make a huge difference. Contract terms regarding the timing of payment, authorization of additional work, retention payments, jobsite conditions, and the like can often be negotiated, and can result in a more workable contract, which in turn means that a breach of the contract is less likely.

2. Protect Your Lien Rights. By preserving as many legal rights as possible, a company can diminish the likelihood that a dispute will escalate into a lawsuit. A contractor or supplier who properly prepares all lien documents will increase the chance that it will prevail if a lawsuit is filed. The other party to the dispute will not want to sue or defend a lawsuit it is likely to lose. Therefore, a contractor or supplier that preserves its lien rights will have that extra bit of leverage that may make the other side opt to work out an agreement instead of going to court.

3. Obtain Written Authorization for Additional Work. Disputes often arise when extra work or materials are provided. Construction projects are time sensitive, and in the rush, many suppliers and contractors will provide additional services without a written agreement to do so. This is often done in good faith, and both sides fully expect the verbal agreement to be honored. The problem with verbal agreements is that it becomes easy for each side to develop its own interpretation of what work was authorized and what price was agreed to. If the exact scope of the additional work and the amount and timing of the payment are not established in writing before the work is done, then a dispute is almost inevitable. No additional work should be done unless the terms of the additional work are specified in writing. This may seem unrealistic, but failure to follow this advice will almost certainly lead to a misunderstanding, and is likely to lead to litigation at some time.

Unfortunately, not all lawsuits can be avoided. Even those contractors and suppliers who take the steps outlined above, and even those who seek legal advice along the way, may occasionally be dragged into a lawsuit. The businesses owners who do all they can to minimize the risk will likely reap the reward of continued success. On the other hand, a business which is forced to expend its time, capital, and energy on litigation instead of more productive endeavors may lose some of its competitive advantage.

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By: Rex A. Christensen, Esq.
Rex A. Christensen, Esq.
CHRISTENSEN LAW FIRM
2168 East Williams Field Road, Suite 200-A
Gilbert, Arizona 85295
(480) 378-2400
rex@rexachristensen.com