Masonry Magazine November 2007 Page. 50
Legal Issues
By Timothy R. Hughes, Esq.
Timing Is Everything
It is axiomatic in the construction industry that the timing of a project can have a huge impact on its potential for success, failure or dispute. The impact of the current residential market on mortgage brokers, lenders and the residential construction industry is self-evident. Those economic trends appear to be causing a cascade of effects into other related industries and financial sectors.
These trends highlight the need to understand the timing of business cycles and the timing of remedies. A good grasp of these issues can inform subcontractors in evaluating and reducing risk as well as maximizing the effectiveness of available remedies.
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Litigation and business cycles
HAVING PRACTICED construction law through several economic down cycles in the construction industry, I have noticed a consistent trend during these episodes: When times get bad, the percentage chance of a project going into litigation skyrockets. This trend is partially a function of tight bidding environments translating to parties wanting to play catch-up on change orders. Additionally, in a hot market, the parties let smaller issues slide to facilitate moving on to the next deal. When the next deal comes along more slowly, it is far easier to fight over the details of on-going or past projects.
Tightening of credit and increased financial shakiness can cause more direct triggers into litigation. For example, an owner having trouble with cash flow slows down payments on their jobs. This hurts the cash flow of not only the general contractor, but also all the subcontractors and suppliers. These disruptions in cash flow from one job can infect the viability of other unrelated projects. Cash flow issues with generals and subcontractors can cause similar cascading impacts. Serious breaches in payment obligations because of cash flow problems can obviously lead directly to litigation. Finally, financial pressures can lead to increasingly desperate assertions of less than reasonable positions during the project.
Cash flow problems also cause an indirect increase in the likelihood of litigation on a project. Cash flow disruption can lead to problems keeping quality subcontractors or suppliers on site. Similarly, companies facing cash issues may have difficulty staffing a project or maintaining quality control. These issues can directly impact the performance in the field and, thus, increase the chances of litigation.
Timing of remedies and
maximizing leverage
TIMING ALSO IS a focal component of understanding your remedies and knowing when and how to assert them in a fashion that maximizes your potential leverage. Two excellent examples are mechanic's lien and bond claims. As a masonry subcontractor, you should be