There’s no escaping the fact that we live in a highly litigious society, and construction litigation is all too common: There’s a 1 in 4 chance that a contractor will have a potentially devastating lawsuit filed against him. Becoming involved in a lawsuit is at best an expensive proposition and at worst a gut-wrenching experience. Even if you are able to adequately recover your litigation costs, the process of dealing with construction disputes is both long and emotionally draining and is sure to challenge your patience and test your will.
For contractors, accepting the threat of litigation in your future is the first step; understanding how to best resolve any dispute that arises is the more difficult next step. Always know that somewhere—likely buried in the positions put forth by the opposing parties—lies a resolution, where each party compromises its demand just enough to eliminate the necessity of a costly judicial action.
Finding that place isn’t always easy, but it is almost always possible.
Settle With Everybody
It gets more complicated when there is more than one contractor involved, as in the following example. A college hired a general contractor to renovate one of its residence halls, including some bathrooms and shower stalls. After completion of the project, the school discovered that there were a number of leaks being caused by defective work in the bathrooms. The college sued the general contractor for breach of contract and sued the plumber for breach of its warranty, alleging improper installation of shower pans and drains in the bathrooms. The plumber quickly settled. Eventually so did the general contractor.
Case closed? Not quite.
The GC cross-claimed against the plumber, seeking payment of the monies that the GC paid to the college. The plumber cried foul, saying that his company had been released from claims for improper work when it settled with the college.
But the plumber was wrong. The court concluded that just because the plumber settled with the college, that didn’t mean it was released from claims for indemnification being made by the general contractor. A tough lesson for the plumber who had forgotten to make the general contractor part of its settlement with the college.
Three Parts to Every Settlement
Settlement agreements are interpreted and governed by the law of contracts, so it is critical that the parties not only reach an agreement conceptually, but that they also sign a document that’s clear and concise, and that lists the actual terms of the settlement. This will demonstrate that the parties have mutually agreed upon the essential elements of their resolution.
When settling any type of construction dispute, make sure you formalize the settlement in a written document. Have it signed and dated, and include:
1) The names of all the parties that may be involved or have anything to do with the dispute;
2) A description of the what, when, and where of the incident that led to the dispute; and
3) The consideration for the settlement—what the parties are giving and getting to obtain a release and settlement of the dispute.
Settlement agreements are highly favored by judges as a means of conserving judicial resources, and therefore courts will enforce them when possible. Parties will do themselves a favor in making sure that any settlement they reach is one that is reduced to a written document and signed. Case after case has been unnecessarily litigated because the parties never got around to formalizing their settlement. Courts are reluctant to enforce what one party only thought the other party agreed to.
It is bad enough to find yourself in the middle of a dispute; it is ever so much worse to think that you have settled a controversy and then be hauled into court because the deal was never actually formalized or signed. Remember to always ink the deal.
Alexander Barthet ([email protected]) is a principal of The Barthet Firm, a 12-lawyer commercial law practice focusing on construction-related matters. This article is for informational purposes only. It is not intended as legal advice. Consult an attorney before taking any action.
