One subcontractor stops work after material prices rise or a supplier misses a delivery date. Soon, other contractors cannot start their work and the project schedule begins to slip. What began as a dispute over one contract can put the entire development at risk.
For commercial real estate investors and general contractors, the amount in dispute may become only one part of the financial problem. As a standoff continues, the cost of a stalled project can quickly become the bigger concern.
When the standoff costs more than the dispute
A dispute over higher material costs or a missed delivery date may start with one subcontractor. However, a work stoppage can create problems across the project. Several factors can increase the financial effect of the dispute:
- Carrying costs that continue during the delay
- Missed deadlines tied to project financing
- Other contractors unable to begin scheduled work
- Revenue postponed by a later opening date
- Added costs from changes to the construction schedule
The cost of these delays can exceed the amount at the center of the dispute. For example, a $100,000 payment dispute could create a larger financial problem if several contractors cannot start work and the project misses a financing deadline.
What litigation could mean for an active project
Once the cost of a standoff begins to spread across the project, the dispute process becomes another business consideration. Litigation can involve formal discovery, motions and court hearings. While the case proceeds, the contract dispute may remain unresolved as project costs continue to build.
A court case can resolve contract claims and determine available remedies. However, the court process does not necessarily address the immediate business problem of keeping an active development on schedule. Other contractors may remain delayed and revenue dates may continue to change while the dispute proceeds.
How arbitration can keep work moving
Arbitration may offer a more focused process when the contract requires or permits it. The parties can present the specific contract issue behind the standoff, such as a price increase, supply delay or contested change order, to an arbitrator.
A narrower process may help separate the contract conflict from work that can continue on the project. Arbitration does not guarantee a quick result, but focusing on the issue holding up construction can reduce the risk that one dispute consumes the entire development.
Look beyond the amount in dispute
When a subcontractor standoff threatens an active development, the original contract dispute may no longer represent the project’s greatest financial risk. The effect on financing, construction schedules and future revenue can become far more costly.
A review of the contract, the disputed issue and the wider effect on the project can provide a clearer picture of what is at stake. For developers and general contractors, identifying the issue that threatens progress can help frame the dispute around the project’s most pressing business concern.