Originally posted Friday, 10 September 2010

Written by Chloe O’Neill

Selecting the right legal counsel at the right time can be a tricky part of the construction business. In our down economy with projects bidding at low costs and more companies going bankrupt, it’s important now more than ever for Owners to understand legal selection. While the deciding factors such as who, when and why may seem obvious, it’s more complicated than many Owners realize. Waiting too long to consult a lawyer on a project can lead to costly litigation, but is a salaried in-house lawyer just as, if not more, expensive? Using internal counsel rather than hiring outside your company utilizes your already paid-for resources, but is an outside counsel better for the job? What’s the best way to prevent and/or resolve disputes without breaking the bank?

Why Owners Seek Counsel

Construction lawyers handle a wide variety of cases for Owners, ranging from contract drafting to litigation. Sara Beiro Farabow, Partner at Seyfarth Shaw, LLP in Washington, D.C., says most of her cases involve defending contract claims, such as changes, differing site conditions, inefficiency and delay claims.

Rushing through the contract drafting and execution process gets many Owners into a legal bind, according to Farabow. “Sometimes I receive a call from in-house counsel stating that someone realized a contract had not gone through any legal review, the scheduled construction start is this week and ‘We needed the contract executed yesterday.’”

Each project is unique and carefully planned, so why wouldn’t each contract be equally unique and carefully reviewed? To a project manager this might seem daunting and too time-consuming for the tight schedule at hand, but as many experienced Owners may know, a poorly drafted contract can be more time-consuming for the business in the end. Thankfully, the attorney should take the weight off the Owner’s shoulders. According to Farabow, a good construction lawyer does not just hand over a “laundry list” of problems and risks. “A seasoned attorney should carefully analyze the issues and then propose legal solutions, such as alternative contract language or new contract terms that manage or allocate the identified risk,” says Farabow.

Farabow handles construction cases in the U.S., Europe, Asia and South America. While the different cultures handle contracts and claims slightly differently, some construction law issues are standard across the globe. “I’ve developed an appreciation for different approaches to structuring and negotiating construction contracts,” says Farabow, “But really it’s more striking to me just how similar the heartburn issues are in construction contracts, whether you’re breaking ground on U.S. or foreign soil.”

John Sier, a construction attorney with Kitch, Drutchas, Wagner, Valitutti & Sherbrook, P.C. in Detroit, Michigan, would like to think his most common case involves dispute prevention during contract drafting. “Unfortunately, we do confront the issues that arise from a breakdown in the communication between the parties,” says Sier. “The parties don’t agree on the scope or extent of a cost or schedule impact, and the outside counsel is brought in as an advocate rather than as a facilitator.”

Despite the thrill of litigation, it seems construction lawyers prefer to extinguish disputes before they burst into flames to save Owners costly and business-disrupting lawsuits.

When to Seek Counsel

Having a lawyer on-staff or on-call is great, but if you don’t know when to ask for their help, it may not save you much hassle in the end. While Owners may hesitate to pay an attorney to deal with a claim or “red flag” that could turn out to be nothing, not contacting your attorney at the beginning could cost you much more in litigation in the end.

Both Sier and Farabow agree that hiring a good attorney as early as contract drafting is the ticket to saving the most money on legal disputes. “For example, we many be able to minimize the likelihood of delay claims by analyzing whether it makes sense to negotiate a liquidated damages provision, an incentive bonus provision for early completion, or other provisions,” says Farabow.

Owners may think that a contract outlining every disputable issue is 100 percent thorough, but Sier suggests taking it a step further: “If the contract is clear in the methods for handling issues as they arise in the project, then claims will be addressed earlier at the lowest possible level before it erupts into a dispute.”

Of course, there will no doubt be situations where Owners have a contract slip-up due to time constraints or oversight. In case of a rising dispute, Sier suggests that an Owner contact outside counsel before a claim is asserted if at all possible, at the first sign of a “red flag” such as an increasingly frustrated or angry tone in a letter from or phone call with the potential plaintiff. He suggests that Owners avoid compiling a “claims file” during a project that will be dealt with later as this can aggravate into major claims by the end of the project. Instead, he suggests that Owners handle each dispute as it arises. “There may be timing requirements that need to be monitored or followed in order to protect the contractual or statutory rights of both sides,” he says. Once those issues get out of hand, there’s no turning back to the time when it could be dealt with cheaply and quickly.

Generally, the consensus is that the longer you wait, the more expensive it becomes. The more a dispute lingers between parties, the less likely they are to settle on a reasonable agreement. “Once legal fees escalate and the parties become more personally and financially entrenched in their positions, mediation can become more difficult,” says Farabow. “Consider the use of mediation, minitrials and other ADR procedures to resolve disputes more efficiently.”

Should the worst happen and litigation become necessary, there are still ways to manage the risks of unexpectedly high legal and consultant costs. Farabow suggests that Owners ask their legal counsel to assess the strengths and weaknesses of the case at the earliest possible stage and to craft a focused discovery plan. Then, be sure to request a fee estimate broken down by phases: discovery, pre-trial , trial and post-trial. “This should include not just attorneys’ fees but experts’ and non-testifying consultants’ fees, such as scheduling and damages experts,” says Farabow. By asking the right questions and demanding detailed information on the legal process, Owners can keep litigation costs manageable.

Who to Consult

Since many larger Owners such as universities or hospitals have an in-house legal department, it can be difficult to determine when to bring in an attorney not already on the payroll. In-house counsel may seem cheaper, but if a construction-specializing attorney can resolve a dispute quicker, outside counsel may be the way to go.

“In-house counsel’s expertise can be very generalized from working on such a wide range of cases rather than focusing on construction law,” says Sier. But, Sier also notes that in-house counsel can be perfectly effective if the problem stays in the lowest level of dispute resolution. His advice to Owners: “Bring in outside counsel at the earliest point you feel there will be a disagreement that’s not likely to be resolved at the lowest level.”

Sier also distinguishes that all projects were not created equal. If you’re working with a very large contractor, they may have a claims group of lawyers to uphold contracts down to the word. Owners should be aware of the legal scope of their vendors, and match their own legal protection as closely as possible in such cases by hiring construction law specialists.

Once you’ve decided outside counsel is necessary, how do you select the right attorney? Farabow suggests doing your homework by asking for referrals from peers and researching attorneys online to find those who have published construction-related legal articles. Be skeptical of some online sources, however. “The Internet is full of law-related materials that are actually very general and superficial marketing materials disguised as law articles,” says Farabow. She also suggests finding a lawyer who not only specializes in construction law but also has education in construction, engineering or architecture, and affiliations with industry associations such as COAA, DBIA, AIA, NASFA, AGC, ABC, EJCDC, CIRT, NASBP and SFAA.