Construction contracts are landing in court more frequently and at higher dollar figures than ever before, according to a report from Bisnow. By the end of 2022, the average value of construction disputes in North American courts reached almost $43 million, the highest amount recorded. This figure was up from about $30 million the year prior and double the averages between 2016 and 2019. Experts say the number of lawsuits over construction projects is expected to rise even more in the coming years.

Dan Bawden is an experienced custom homebuilder and renovator. He’s also an attorney and expert witness in construction lawsuits.

“The lawsuits and arbitrations are not friendly events for contractors and subcontractors,” Bawden says. “Our industries have these stereotypical reputations for being shady or doing crappy work. We are always fighting an uphill battle there. In the courtroom, especially in jury trials, every juror sitting in that jury box has been ticked off by a contractor somewhere along the line or somebody in their family has. You don't think that's going to influence their attitude towards you, but it does. So, the courtroom and these dispute resolution settings are not good for us and should be avoided at all costs.”

Bawden says creating a paper documentation trail is one of the best defenses against landing in court. Doing so requires effort, but “it will keep you out of the frying pan litigation-wise,” he says.

Software Solutions

A growing number of general contractors and subs are turning to construction project and document management software as an insurance policy to avoid legal disputes. Many see this as the most cost-effective way to mitigate risks and optimize payment for work that’s often not documented effectively.

“We were doing a project and … it was a disaster,” says Sheila Myers, co-owner of Thermal Construction. “So, we kept notes, we kept track of any issues that the people running it were causing us. We kept a record of delays that they were creating.”

Myers says daily reports and the ability to add pictures to document day-to-day activities in eSUB, their reporting software, helped them prevent potential lawsuits. It gave them comprehensive records of everything on the job, ensuring they had evidence should a dispute arise.

“Because of the field notes and the different things we had reports for, we had the documentation to prove what happened on the job,” Myers says. “It proved that there were issues, and we got paid and didn't have to file a lawsuit."

According to Steinberg Law Firm in South Carolina, attorneys and experts are often the main costs in construction lawsuits. Costs vary depending on the characteristics of each case, but costs are typically higher in cases with more complex issues, more parties involved, and more aggressive defendants.

Construction lawsuits also take a lot of time—almost 17 months on average, according to a study by Levelset. In an industry where cash flow is a struggle, that's a hardship subcontractors don't need. This is why Myers views project management software as a money-saving investment.

“We’ve had issues getting paid,” Myers says. “But because of all the information that we have in [the software], if we're ever in that situation, that information is all right at our fingertips. We have the pictures, we have all the notes that we put in there, and it all helps us with whatever we may have to do to get paid.”

Andee Hidalgo, owner of Spearhead Construction, says entering information into your program daily may seem time-consuming and tedious, but it prepares you for whatever could happen. She says eSUB, her company's reporting software, has empowered her to respond promptly to disputes, ensuring that her company was adequately compensated for any delays or additional costs.

“We genuinely rely on those field notes,” Hidalgo says. “To be able to analyze that information and have those foremen in the field that are able to quickly respond—and understand that there’s a key piece of information we need to be aware of so we can respond quickly in accordance with our contract requirements—that’s the difference [between] surviving and not.”

Hidalgo says subcontractors frequently grapple with justifying work that wasn’t part of the original contract or tasks that took an unexpected turn. Without a solid record, they have no basis for explaining payment for work they already performed and the escalated materials and administration costs. These claims are often submitted after the fact (if at all) and hang in the balance, threaten profits, and lead to disputes.

This is why lawyers like Bawden say real-time, meticulously recorded documentation that includes every change order and additional hour can give subcontractors evidence that could help them stay out of court and on the job site.

“You want to stay out of the courtroom at all costs,” Bawden says. “Even if you have an attorney through your insurance that's defending you, it's still super stressful. It's going to be a big distraction from your work. They will ask for all kinds of documentation, which is easier to provide if you're using software.”