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Avoiding Construction Project Disasters

Construction project disasters can happen so easily, but there are ways to avoid them. There are very few business transactions that bring together so many industries, legal complexities and potential issues, and cause so much costly litigation, as does the process of financing, designing, constructing or remodeling a commercial or residential structure. Completing this process with clear title to a well-designed and engineered, properly and timely constructed, and legally compliant building at the budgeted cost is often a complicated and perilous journey.

Avoiding Construction Project Disasters

Based on our experience representing architects, engineers, suppliers, equipment dealers, general contracting companies, subcontractors and owners, there are some easily-followed pieces of advice that will substantially lessen the risk of the deal and substantially increase the chances of success for any party, without after-the-fact “heartache.”

Have all communications documented.

It is important to have proper documentation because you must have written proof when it comes to contract disputes.

If you can’t show that something happened or what happened with a piece of paper, assume it didn’t happen. The majority, if not all, of the contract documentation as to any level of the transaction are going to require that everything be in writing. Courts do not relish having to decide an issue on the basis of undocumented, conflicting verbal testimony and the results are often undesirable for all concerned. So, document anything and everything that happens. Any communications as to how, when, why or with what something is supposed to happen should be either carried out in writing or verified in writing immediately after the oral communication. It’s easy these days! Agree with other parties that communications can or will occur via e-mail and document email addresses for purposes of communication. Properly used, e-mail is admissible documentary evidence and is a vast improvement over notes of verbal agreements or statements.

Understand what you are purchasing.

Making payments before receiving products or labor could double your expense!

Don’t make payments for anything without knowing for certain that it has been delivered or the work has been performed as promised and that the entity you are paying has also paid its related costs. New Mexico law and that of most states provides that “every person performing labor upon, providing or hauling equipment, tools or machinery for or furnishing materials to be used in” a building project ” has a lien upon the same for the work or labor done.” Even if you pay a contractor, if that contractor has not paid for the labor or materials itself, a subcontractor could place a lien on your property. Avoiding such liens, and having to pay for goods or services more than once, is of obvious importance. There are laws in place requiring disclosure of information about the project and the exchange of specific documents to eliminate the risk of liens. Which leads us to the next bit of advice . . .

The finances should be set properly in the beginning.

Before construction even begins, you must first locate and properly arrange the finances.

Get the financing arranged as a very first step. Starting the complex process of putting together a team to help you build your future home or business location starts with being able to pay for it. In a design-build scenario, the architect and/or engineer can work with the owner and its financing source to come up with a plan and design in line with the budget. Often the financing source may also assist in procuring other needed services such as appraisers, surveyors, or a title company. These professionals, together with your own trusted advisors, will generally have vast experience and expertise in helping you assure that you get what you are paying for and that no liens are filed and your title is clear.

Hire “your people” too!

It is always a good idea to have some people on your side looking out for your best interest.

Remember that you are relying upon the advice, character, skills and professionalism of many people and companies who, while essential to the process, are selling a product to you in order to make a profit. They will provide you a wealth of information and expertise without which you could not go forward, but they must not be entirely relied upon in deciding what is in your best interest and how to manage your risk. The only individuals who are ethically and legally bound to act on your behalf and in your best interest are your attorneys and accounting professionals. These are “your people.”

Have your contracts reviewed!

Having your contracts reviewed by an attorney and an accounting professional would be a good idea in protecting your business.

If ever the old caution, “Never sign anything without reading it” were true, it is in the context of a construction or remodeling project. Unfortunately, the documentation of all of the facets of a construction project is typically lengthy, jargon-riddled, and virtually indecipherable to an inexperienced owner. It would be very unwise in all but the very simplest of projects for the owner not to consult an attorney to review contracts, instruments and project documents, to assist in communicating with and coordinating the “team,” and to generally advise about protecting your best interests and achieving your goals. Construction projects involve large sums of money with many different financial and tax choices and implications. Therefore, it is also wise in most cases to consult with an accounting professional to help you make choices and to know the consequences in advance. The relatively small investment in having “your people” review and inform you about the many relationships, documents and decisions on your journey through a construction or remodel project may just be the most important part of your investment.

The attorneys at Law 4 Small Business are trained experts, with many years of experience in avoiding disasters involving construction and remodeling projects. We can help you avoid construction project disasters before they get out of hand. Believe us, the expense of planning and managing your project from the beginning will be many times less than dealing with mid-course disputes or trying to recover damages from a disaster!

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