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OP-ED: Best Practices for Protecting a Business in a Litigation-Heavy Climate

Daily Journal of Commerce Oregon

March 12, 2021

Overview

Although we’re still very much in the midst of the COVID-19 pandemic, an end appears to be in sight. And even though we’re progressing back to some semblance of “normal,” businesses will continue to experience the collateral effects of the pandemic well into the future. One of those collateral effects is an uptick in litigation, including in the construction industry. Consider some pointers about how to ensure preparation in the event the litigation bug strikes.

Carefully review contracts and ensure they’re being used correctly

The world has changed, and contracts probably should too. Standard form construction contracts are par for the course in the industry, and for good reason. They are costeffective, familiar, and have largely been vetted through years of drafting, redrafting and litigation. But as we’ve seen recently, what used to be standard, gloss-over provisions – like force majeure clauses – have taken on a new importance in the pandemic environment. This serves as a good reminder to routinely review forms, both internally and with counsel, to ensure that they fit the business and specific projects.

It’s equally important to make sure that existing form contracts are being used correctly, which is not always a foregone conclusion. We often see general contractors using subcontractor agreements that are incompatible with the language of the standard forms or that fail to accurately pass through the required obligations, which could result in a breach of the general contractor’s agreement with the owner before construction even begins. Problems also arise when folks attempt to make major modifications to a standard form, such as the AIA A101 (standard form agreement between owner and contractor), without making corresponding revisions to incorporated documents, such as the General Conditions of the A201.

To be sure, any modifications to the standard language should be closely scrutinized, and all forms should be reviewed periodically by a legal professional – and read carefully in the context of each project – to make sure the right form is being used, with any necessary modifications, and that all forms being used for a given project are consistent with one another.

Build the best team and scrutinize counterparts

Given the substantial uncertainty that the pandemic environment has created, it’s also more important than ever to make sure that internal and external teams are up to the task. In circumstances where so many factors – including market conditions, governmental regulations and others – fall outside of one’s control, it may be better to pass on new projects than to risk taking on one that is likely to become distressed. 

No matter one’s risk tolerance, this is a good time to evaluate internal teams and confirm  that the right pieces are in place to tackle the assignments on the horizon. If not, consider whether in-house training and development could fix the problem, and also whether employee recruitment practices need to be tweaked. We also recommend shoring up external relationships by meeting with subcontractors to discuss goals and expectations, ensuring that these businesses are providing qualified workers, and facilitating cooperation and dialogue between teams.

We also suggest developing a cohesive system to assess clients and potential clients to determine whether they are a good fit. Depending on the circumstances, this process can include basic internet searches to more detailed background checks, credit history evaluations and reviews with previous partnering relationships. The bottom line is that one should make sure not only that the team is capable of handling its assignments, but also that subs are meeting expectations and that clients are capable of paying the bills.

Revisit document retention hygiene

No one wants to hang on to old emails, correspondence and contracts forever, but we recommend being mindful about what is kept and what is tossed in order to avoid ending up in a precarious situation in the case of litigation. The bottom line is that once a document exists, getting rid of it always carries some risk from a litigation standpoint. It’s important to remember that, for the purposes of the retention conversation, the word “document” is not limited to words on paper – it also includes any recorded data, including voicemails, photographs, emails and even text messages. 

To avoid the appearance of a cover-up, sanctions, or worse, we recommend that development of a thoughtful document retention policy to establish protection in the event of litigation. Such a policy should spell out which documents are to be created and saved, how those documents are to be categorized and stored, and how long they should be kept. Contract terms, statutes or regulations may dictate how long various types of documents must be kept and in what format. These requirements vary from state to state and project to project. As a result, no single document retention policy fits all businesses. But having clear policy in place serves an extremely important function, particularly in an era when modern construction projects involve an ever-increasing swath of information, and the economic climate is ripe for litigation. 

Many of the practices described above require a small investment, but that investment will pay dividends if one ends up having to prosecute claims or defend one’s company in litigation.

This article summarizes aspects of the law, it does not constitute legal advice. For legal advice for your situation, you should contact an attorney.

Column first appeared in the Oregon Daily Journal of Commerce on March 12, 2021.

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