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
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.