Resolving Business Disputes With a Subcontractor

A dispute with a subcontractor can involve unpaid work, defective construction, missed deadlines, change orders, or disagreements over what the subcontract requires. Before filing a lawsuit, review the contract, gather the project records, follow any required notice or dispute-resolution procedures, and try to resolve the problem through negotiation, mediation, or arbitration when appropriate. If those efforts fail, you may need to litigate to recover damages or enforce your rights.

For legal help, a construction lawyer can review your contract, evidence, and potential remedies. Find a business litigation attorney through the Super Lawyers directory.

What Causes Disputes Between Businesses and Subcontractors?

Most subcontractor disputes come down to one question: Who was supposed to do what, and who should pay when something goes wrong? Common sources include:

Scope disagreements: parties interpret the scope of work differently:

• Change orders: parties disagree about whether extra work was authorized, how much it costs, or if more time is justified.
• Payment disputes: nonpayment, retainage, disputed invoices, or unpaid additional work.
• Delays: missed deadlines, labor or material shortages, scheduling conflicts, and overlapping delays.
• Defective work: disagreements over workmanship, incomplete work, repairs, or work quality.
• Contract breaches: breaches involving project requirements, insurance, warranties, termination, indemnification, or other obligations.

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Start with the Contract

Before taking action, review the scope of work and the obligations each party agreed to. Pay attention to terms about payment, change orders, scheduling, defective work, default, termination, insurance, and indemnification.

Then find the dispute resolution clause. It may require negotiation, mediation, arbitration, a specific claims procedure, or written notice before litigation. The contract may also set deadlines for reporting delays, requesting additional compensation, documenting defective work, or notifying the other party of a breach.

Missing one of these requirements can complicate an otherwise valid claim. An attorney can review the subcontract and help you determine what the agreement requires before you take the next step.

Document the Subcontractor Dispute

At the core of business disputes, two or more parties have their own version of events. Documentation is key to validating your version. Keep copies of all contracts, amendments, and change orders.

Keep a record of all communication to help create a timeline of events. Keep records that can establish who was responsible for what.

Try To Resolve the Dispute Before Legal Action

Communication can often resolve disputes before they escalate. Put the subcontractor in writing about the problem, the relevant contractual provisions, and the proposed resolution.

Keep the language clear and direct to avoid further confusion. If informal efforts don’t work, a formal demand letter may be the appropriate next step. At that point, approach the other party to negotiate.

Consider Mediation or Arbitration

Before jumping into business litigation, consider whether alternative dispute resolution (ADR) can resolve the problem. Mediation uses a neutral third party to help the parties negotiate a solution without imposing a decision. It does not bind the parties unless they reach a settlement agreement.

Arbitration works differently. An arbitrator hears the dispute and issues a decision under the applicable rules. Check the subcontract for arbitration clauses that may require binding arbitration. Some contracts name the American Arbitration Association (AAA) to administer the proceeding.

The contract may require specific dispute resolution mechanisms before either party can pursue litigation.

What Remedies Are Available in a Subcontractor Dispute?

Available remedies depend on the specific facts and applicable jurisdiction. Monetary damages are commonly available. These may include unpaid amounts, the cost of corrective work, the cost of completing unfinished work, and additional expenses caused by the breach. Commercial construction contracts sometimes include liquidated damages. These are damages established in advance for particular breaches, especially delays.

Sometimes, the appropriate remedy is action, not money. In limited circumstances, a party may seek an injunction or specific performance. Depending on the contract terms, termination provisions may apply. A party may first be required to send a notice to cure. If that cure doesn’t happen, they could seek to terminate the contract.

When Is a Lawsuit Necessary?

A lawsuit may be necessary to resolve construction disputes when alternative methods fail. Negotiation and ADR have failed because the parties cannot reach an agreement. It may also be necessary when the contract requires litigation.

In some situations, a court order may be necessary. To seek judicial relief, you must file a lawsuit to bring the claim before the court. Litigation may also be necessary when the subcontractor suffered significant financial losses.

Before pursuing litigation, the parties should speak with a business litigation attorney. The lawyer will review the case and available evidence. They will also discuss the lawsuit’s potential timeline and costs. Preparing for trial may include gathering more evidence or taking depositions of involved parties. Depending on the situation, attorneys’ fees may be available as part of damages.

Speak with a Lawyer

Resolving a dispute with a subcontractor starts with understanding the agreement and establishing what actually happened. A construction attorney can help you assess the situation before you make a decision that could affect the project or your ability to recover damages.

Find a business litigation attorney through the Super Lawyers directory.