Construction claims: How to prevent and handle them

Construction jobs are complex and require a wide range of hands on deck: contractors, subcontractors and third parties. Because of this, there’s a lot of room for error which can lead to costly construction disputes.

When these insurance claims are filed, it’s a hassle – and they’re hugely expensive.

Don’t panic. We have some tips to help you navigate these challenging times. Read on for how to protect yourself from claim losses — or better yet — how to avoid insurance claims before they arise.

What are construction claims?

A construction claim is simply a demand for something due. The most common residential construction claims are filed for delay, payment disputes, unforeseen site conditions and damages.

A construction dispute differs from a construction claim in that it’s a disagreement between two parties over an alleged violation of the contract. If this issue isn’t resolved, it becomes a formal dispute where lawyers are hired and hearings held.

What are the most common types of construction claims?

There are countless challenges during a construction job, however, these four claims are the most likely to come up.

Construction delay claims

These claims become a problem when the project exceeds the agreed upon deadline. Some causes could be permits, weather and material delays. You may not have a lot of control over these delays, but if the client is losing money, you may see a delay claim.

Payment disputes

A payment dispute claim is filed when a contractor or subcontractor has made multiple requests for payment – with no luck – and takes legal action in order to get paid for their work.

Unforeseen site conditions

If the site condition differs from what the client stated in the contract, a different site conditions claim may be filed by the general contractor. If there are hazardous materials present or possibly the ground was said to be cement, but is in fact covered in a protected native grass, there would be grounds for this claim.

Damage claims

If there’s any damage to the property while working on a project – by a contractor or subcontractor – a client may file a damage claim, and you may be responsible for the losses. 

4 tips to prevent construction claims

Conflicts in construction will happen; however, the best way to avoid a lengthy litigation process is to stop the claims before they start.

The difficult truth is that the fees paid from these disputes have bankrupted many businesses in the past. It’s important to focus on four ways to prevent claims and the costly legal mess that follows.

1. Communicate often

Investing in a project manager or a supervisor to oversee the job site, and also to act as the main point of contact, will really save your business.

Many claims arise from personal injury due to an accident and stolen or damaged equipment. Instead of relying on a third-party witness or no witnesses at all, task a member of your team with the responsibility of managing personal and property.

You’ll have an extra set of eyes and ears on the worksite who will resolve small issues as they come up. Many times, when these small issues go ignored, they blowup into a larger dispute. Your project manager can lead communication and mitigate issues right away.   

2. Automate payment methods

Since a lot of issues point back to payment, one of the best ways to avoid disputes is to automate timely construction payments.

Alex Barthet, construction lawyer from The Lien Zone and guest on “The Building Code” podcast, discussed this very topic.

Alex works out of Miami, Florida, and his job mostly consists of helping people get paid. “Doing work and not getting paid is an epidemic down here,” Alex said.

According to Alex, the number one reason people don’t get paid (and the dispute ends up in a legal battle) is due to poor documentation and slow or no payment.

Buildertrend has you covered here. Our platform helps builders stay on top of sending and receiving payments. With our tool Buildertrend Payments, the time-consuming task of managing cash flow becomes automated and tracked in one handy system. You can even send reminders to clients or link sub payments to job schedules so payment is never missed.

3. Manage progress reports and documents   

Handshakes and verbal agreements will get you into trouble. Instead, back everything up and store it in a safe spot like construction software.

In the same episode of “The Building Code” mentioned above, Alex gave expert advice on how to stay out of the courts with smart record-keeping.

Platforms like Buildertrend empower you to keep a detailed record: Take pictures, get signatures and document all changes or updates. It all happens here.

Alex remembers one client who saved his defense in a million-dollar case on his phone. When it came time to gather a good defense, his client assured him: “Don’t worry, I’ve got all the instructions via text message and I’ve saved everything in pictures on my phone.”

The issue? His client didn’t realize his text messages were automatically deleted after six months. What was he left with to back him up? Nothing.

Use this as a cautionary example and document everything. Make sure all construction contracts are signed, detailed and saved in a construction management software.

4. Clearly set expectations in contracts   

On top of your contract being clear and comprehensive, you must understand it and stick to it. Know the timelines, scope of work, workers involved, and most importantly, how to handle disputes and claims.

Set the expectations right away. The contract should outline who’s responsible for the following: delays, losses, damaged equipment or job sites.

“The best people you want to work for are people who may have you sign a contract that has lots of things in it, but then it goes into a drawer,” Alex said.

No one wants to have to get that contract out of the drawer, but when that becomes necessary, expectations must be clearly set. 

The contract is not just a signed document that allows work to commence — it’s also the schedule, the payment plan, the communication methods and the master plan for the project.  

In the last ten years, Alex has seen a trend toward a more umbrella approach to contracts instead of having each worker sign a new contract.

“What we’ve seen over the last 10 years is a migration to a master agreement and purchase orders/work orders… You’re not tied to any job, but what you do is you get all the terms and conditions out of the way. And then the work order is just price, scope and time,” Alex said.
 

Construction purchase orders in Buildertrend can be used exactly for this purpose. It’s a safer way to complete a handshake agreement. Check out how to optimize the process here.  

5 tips for construction claim management  

We’ve given you advice on how to avoid these claims, but sometimes they’ll still sneak in.

If a dispute becomes unavoidable, follow these five tips as your best line of defense when dealing with a legal mess.

1. Address issues as soon as they arise

Communicate and address those smaller issues before they blow up into a formal claim. As difficult as it may be, set emotions aside and deescalate the situation. Work together with your client or sub and you’ll both benefit from saved time and money.

2. Know your contract terms

You’re making a very big agreement that involves a lot of time and money. Know all the details surrounding work being completed and how much it’ll cost. The sections to know in-and-out when dealing with claims are: dispute resolution method, no damage for delay and change order sections.

3. Identify the issues and root cause

When emotions are set aside and there’s open communication, it’s possible to get to the bottom of the issue. Maybe there’s been a lot of negative back-and-forth, but if you can dig down to the onset of the disagreement … it may be an easy one to solve.

4. Set new standards for risk management

Keep your workers safe by creating an emergency plan and doing what you can to control risky situations. If there’s a particularly hazardous job, is there another way to complete the work? Can engineering help problem solve? Or can the use of protective equipment lower the risk? It’s your job to keep a dangerous environment as safe as possible for your workers by having a safety plan and managing risks.    

5. Get help from experts

The smartest business owners know when to ask for help. Contract language can be intimidating and Alex suggests having a professional look it over your before you sign it.

“Spend a few hundred dollars, maybe a thousand dollars and have your contract reviewed by a construction lawyer before you sign it,” Alex said.

Get peace of mind with Buildertrend

Let Buildertrend be your best line of defense. Our user-friendly construction software will keep all those necessary documents safe: the contract, purchase orders, change order signatures, job schedules are all accessible for necessary backup with a couple clicks.  

“Documentation is key,” Alex said. “Using programs like Buildertrend makes a big difference. I’ve had clients who’ve had success in their case because they use easy-to-use programs like Buildertrend.”

Put your business first and schedule a demo today.

Construction claims FAQs

Get answers to the most common construction claim questions.