As construction is truly a team sport, a contractor’s success hinges on the contributions of all team members—the laborers and tradesman, the project managers and office personnel, c-suite executives, and, yes, the company’s lawyer. Too often, however, construction companies turn to counsel as a necessary expense, not an investment. A contractor’s lawyer, however, can improve a project’s bottom line in three key ways: contract review, project advising, and dispute resolution.
CONTRACT REVIEW AND DRAFTING
Construction project work starts with a written agreement, which warrants a lawyer’s review. That review can range from drafting the agreement (highest cost) to checking a few key terms (lowest cost). Determining the services needed depends on the project’s unique circumstances from the basics—public or private project; project scope and cost; contracting parties’ relationship—to the advanced—contractor’s key objectives and major risks. Because all these factors direct an agreement’s terms, discussion with counsel should (a) describe the project, (b) explain the ideal successful performance, and (c) identify major problems to avoid. With these “big picture” objectives, counsel can sort out the details in the contract language and drive the agreement’s negotiation to achieve these goals as best as possible. Finally, contractors should consider having counsel prepare a bullet point analysis (or even checklist) of the final agreement’s key terms to give project executives and managers an easy reference guide for items like claims deadlines and payment application requirements.
DAY-TO-DAY PROJECT ADVICE
This less-often used legal services investment can reap the greatest benefit. Because literally millions of variables can disrupt a project’s planned operation, a contract’s fundamental agreement—an expected scope of work for an expected price—remains constantly at risk. When a contractor encounters unforeseen conditions, has its progress delayed, or has to perform additional work, the contractor risks taking on increased costs. And, if the contractor does not take the proper steps to obtain increased compensation, then by basic arithmetic, the project’s profit margin decreases. Investing in legal counsel to chart the best possible path to resolve project issues and preserve claims as they arise can pay dividends in multiples. All too often a problem that a few hundred dollars of legal advice could have resolved at its inception becomes one requiring a few tens (maybe hundreds) of thousands of dollars to address months later. Further, counsel’s advice can help a contractor maintain a clear record of project developments to preserve contract rights should disputes arise.
A properly-prepared contract and an effectively-managed project usually foreclose disputes, but of course they still occur sometimes due to all that can go wrong. Regardless of the forum—litigation, arbitration, or mediation—at the dispute’s outset, discussion with counsel should include these critical questions: “How much does the company stand to recover or lose?; What likelihood of success does the company have?; What cost has the company incurred (or expect to incur) in the dispute?” Multiplying the maximum potential recovery or loss by the likelihood of success and comparing that figure to the overall spend provides the metric needed for business-oriented decision-making throughout the dispute. Developing an accurate such metric requires investing in counsel’s time to gain an in-depth understanding of the case, but this initial expense yields significant savings as the matter progresses and helps establish an early strong position to leverage a favorable settlement.
Following the above guidelines helps to ensure legal services minimize losses and increase revenue, and that transforms legal expenses into company investments. Contractors should seek out counsel who can both develop such service plans tailored to your company’s unique needs and implement them successfully—in other words, a trusted advisor.
Posted May 9, 2023