Payment delays, scope disputes, and escalating claims remain some of the most common—and costly—sources of conflict in BC construction projects. In a recent article, I examined the proposed Construction Prompt Payment Act, legislation designed to improve cash flow on construction projects by mandating timely payment under construction contracts and reducing reliance on litigation and adjudication. While prompt payment legislation has the potential to address chronic payment delays, it is not a universal solution. In practice, it may add complexity, cost, and procedural risk for some owners and contractors, particularly where disputes arise over scope, deficiencies, or contractual interpretation. It’s best to avoid disputes in construction contracts before they begin.
Rather than relying on statutory remedies after a dispute has already arisen, those involved are far better served by proactive construction contract management that reduces the likelihood of disputes arising in the first place. The observations that follow are intended to help project owners, general contractors, subcontractors, and construction professionals—including architects and engineers—identify practical strategies to avoid disputes that can derail schedules, strain relationships, and erode project profitability.
1. Do Your Research
Before beginning any building project, an owner should carefully consider what they want to achieve, their realistic budget, and timeline. Knowing these requirements, they should carefully consider the contractor they hire, making sure the contractor’s experience and skills match the project you have in mind. Ask for references. Find out how long they have been in business. Ask to tour some of their completed projects and to interview those owners. Find out if earlier projects were completed on time and on budget and if not, why not.
Contractors should do their own research, too. Does the owner have the financial resources to undertake this type of project? Have they done similar projects before? If so, what were the experiences of previous contractors?
2. Enter Into a Comprehensive Written Contract
I am shocked how often in my practice I am consulted by clients who have become involved in a dispute over very large value projects where there is no governing written contract, or if there is a written contract, it is entirely inadequate. I am told there wasn’t time, or the parties knew each other, or felt it wasn’t necessary because the matter was “simple”. As a result, the only contract is verbal, with sometimes no more than the price discussed. While a verbal contract is legally valid, determining the terms can be challenging. There may have been no discussion of important terms at all in which case the Court may be left to infer what the parties intended. Is there a timetable to complete the work? Who is responsible for cost overruns? How are change orders to be handled?
With a properly written contract, the rights and obligations of the parties are set out clearly, leaving no room for interpretation and therefore removing a common area of dispute. Contractors and sub-trades should wherever possible have a well drafted standard form written contract. Investing in this process now, with a lawyer drafting the contract, could save time and money later. Owners should review proposed written contracts carefully. Where significant amounts are involved, consider involving legal counsel to review in advance. Again, the initial investment will bring peace of mind as the project progresses.
“Standard form” doesn’t always mean “no changes”. For large projects, “one size fits all” contracts might not be the best solution. Owners should not hesitate to request changes where appropriate, and contractors should realize that some customization of their standard form contract may serve the parties better.
3. Stick to the Terms of the Construction Contract
Once a written contract is signed, know what it says and stick to its terms. A contract that is routinely ignored may not be fully enforceable. Thus, if the contract calls for monthly invoicing, do it. If payment is due within 30 days, pay on time. By adhering to contractual terms, the other party will know that if there is a material breach of what the contract requires, a prompt response permitted by the contract can be expected.
For contractors, a common mistake is to specify that the work be secured by advance deposits but then not ensure the advance payments continue to the completion of the project. The initial advance is paid, but as the work progresses, the deposit is exhausted and instead of requiring further advances, the work is done and then billed. At some point the owner falls behind and now the contractor is faced with a collection problem. Where the contract specifies payment in advance throughout the construction process, insist on that happening. If the owner is unwilling to do so, this is the first sign that things may be going sideways. If an advance is not forthcoming and the contract allows it, cease working until paid.
For the owner, if dissatisfied with the work, do not just stop making payments. Have a frank discussion with the contractor regarding your concerns. If necessary, look to the contractual mechanisms available to resolve disputes early and use them.
4. Prioritize Communication
Above all else, frequent and clear communication is essential in any project of significant size. Construction projects are complex. Matters rarely proceed without some sort of surprise or challenge. In the case of residential construction, owners are likely unfamiliar with many standard construction practices. For example, if the contract is being performed on a “cost plus” basis, it is important that the implications of that be clearly explained to the owner.
While it is a good idea to have cost estimates included with the contract, explain clearly that these are only estimates and that the final cost will be a function of the cost of material and labour spent to complete the project. To avoid the perception that any estimates are somehow a representation of what the final costs will be, I suggest avoiding the term “budget”. To me, at least, where there is a “budget” any cost overrun implies that something is going wrong. An “estimate” better conveys the uncertainty of the costs.
If an estimate is being prepared without the benefit of final architectural plans, note that the accuracy of current estimates is limited by the lack of complete plans. Note where the estimates are particularly uncertain, such as in the exaction phase or in the finishing phase if the finishes are not yet specified. Explain to the owner that as the project progresses, changes to the work specified by the owner are likely to impact the cost of the project. Suggest that costs will be minimized by minimizing change orders and when they do occur, making them as far in advance as possible. Be sure to include an allowance for contingencies and explain what you anticipate could be included as a contingency.
Be clear about what is and is not included. A comprehensive estimate that includes taxes, management fees, and contingencies is better. Avoid the temptation to exclude these items in order to make the estimate look artificially low.
Excavation and foundation work are often some of the biggest sources of unexpected costs. Since this work occurs at the beginning of a project, if costs are rising, it is important for contractors to explain the increase to the owner to avoid growing mistrust.
Similarly, owners have a responsibility to monitor the progress of the construction project. Regular site meetings are a must. Is the site kept clean and orderly? Is the progress as expected and are the invoices being delivered in line with the contract? Using the example above, if an owner sees larger excavation costs than budgeted, and the contractor has not explained why, seek an explanation. Avoid accusing the contractor of error as there are many legitimate reasons why costs rise. However, you are entitled to a satisfactory explanation and if requested, a plan of action to reduce costs elsewhere.
Out of necessity, many, if not most, communications will be verbal, either over the phone or at site meetings. Every effort should be made to confirm any significant decision in writing so that there is no misunderstanding. What might be clear at the time is likely to be anything but six months later when there is a fight over why something was done and who is responsible.
As an owner, should you run into financial difficulty during the project, avoid the temptation to let unpaid invoices build up while you hope for the best. Be up front with your contractor and try to work out ways to reduce your financial concerns. Perhaps cost savings can be achieved by reducing the scope or substituting different materials. Ignoring the problem is likely to lead to liens against your property and expensive litigation while the project sits unfinished. Collaboration rather than confrontation is the goal.
Both parties should approach their relationship with the other based on goodwill and flexibility. Remember that most contractors want to do a good job, and most owners want a well-built project completed with a minimum of surprises. If you always communicate with that in mind, many misunderstandings can be fixed without escalation to crisis levels.
5. Be Prepared for Dispute resolution
Despite best efforts to avoid disputes in construction contracts, sometimes disputes will arise. These should be anticipated in the contract, and dispute resolution procedures should be specified. Disputes should be handed quickly rather than just hoping the problem will go away. If the owner is not paying and there is a right to file a builder’s lien, do so promptly – do not allow the time to file a lien to expire as this forfeits one of the strongest mechanisms to force owners to pay outstanding accounts.
It may be possible to retain the architect to review invoices and approve the work done as part of this contracted role. This gives peace of mind to the owner that the work done is satisfactory. For the contractor, it lessens the chance an owner will complain if the architect has approved the invoice. It may also be possible to have the architect consider any dispute and settle the matter. This can be both speedy and inexpensive but be sure the architect is aware of this role and prepared to engage in it if this service is to form part of the contract. A mechanism for paying the architect for these services should also be included.
Otherwise, short of engaging in the court process, mediation and arbitration might be considered. Mediation is essentially a structured negotiation. The mediator does not impose a settlement but ensures the parties communicate their positions effectively to each other. Some mediators may suggest compromise solutions, but their views cannot be imposed on the other party. However, an arbitration is like a private trial. The arbitrator will decide the dispute, not the parties. Compared to Court, arbitration can usually be undertaken more quickly and at less expense. However, it is often more expensive than mediation, as there are more preliminary steps that must be done before the arbitration, and the evidence must be led more formally, leading to much longer hearings than mediation. Arbitrators are paid daily rates for the time spent involved in arbitration.
Final Thoughts on Avoiding Disputes in Construction Contracts
When a construction contract encounters problems, get legal advice sooner rather than later. The earlier a problem is identified, the easier, and therefore less expensive it is to remedy. In some cases, it may be possible to overcome the problem and continue with a productive relationship. If that proves impossible, the sooner you have legal representation, the more options you will have, and the better the evidence will be. The more time passes, the more memories fade, documents go missing, and problems of proof arise.
Feel free to reach out to me, Ron Nairne, for consultation at any time