Settlement of a construction dispute at the pre-trial stage for a customer from the IT sector

Introductory information:

The сustomer and the contractor concluded a construction contract for the current repair of 2,000 square meters of office premises. The scope of works and their cost were fixed in the local budget.

In the course of fulfilment of the contract, the contractor went 2-2.5 times beyond the contractual scope of work following oral instructions from the customer.

As the works were coming to an end, the contractor requested the customer to sign additional agreements increasing the contract price by 2.5-3 times. The customer refused to sign these documents.

As it often happens, during the construction process the contractor and the customer lost common language. The parties’ negotiation process reached a deadlock.

The contractor completed the work and demanded payment for the work performed, but the customer had a number of claims about the quality of the work. In addition, without an engineer and an economist in the company, the customer could not reasonably and unbiasedly estimate the scope of the works, their quality and cost. The customer, whose main activity is not related to construction, believed that in the absence of a concluded contract for additional works there were no legal grounds for payment of the cost of the performed works.

At this stage, the client asked REVERA for assistance.

What was done by REVERA?

• Analysis of the situation as a whole, including signed and unsigned contracts, accounting documents, claims, reconciliation acts, payment documents, correspondence, etc;
• Consultation on the current situation with explanation of weaknesses and strengths of the position, litigation prospects of the potential dispute;
• Estimation of possible financial costs and time resources;
• Elaboration of the strategy of behavior and the action plan.

The action plan included:

1. Negotiations with the contractor to outline the customer’s position in order to settle the dispute peacefully involving construction and technical expertise;
2. Organizing a tender for commercial proposals to select an expert organisation with the best financial conditions and timeframe for preparing the report;
3. Professional legal formulation of questions for the expert organization;
4. Supporting the expert examination and explaining the results of the expert examination ( opinion) to the customer in simple terms;
5. Adjustment of the negotiation strategy taking into account the results of the expertise, including the actual scope of work performed (both main and additional), the existence of defects, calculation of the cost of their correction, etc.;
6. Several rounds of negotiations with the contractor and reaching an oral agreement;
7. Fixing the results of negotiations in the final documents.

As a result:

• the customer and the contractor signed agreements on payment for the work at contractual rates minus low-quality work, 50% of the cost of construction and technical expertise;
• the contractor quickly received the cost of the completed works, and the customer saved money that would have been incurred to pay for additional work at state rates, court costs, legal support.

Findings:

• Parties should formalise agreements in writing in a timely manner, including changes that occur in the course of their execution;
• A contractor has the right to suspend the performance of work, which contractors rarely use in practice, resulting in even greater financial losses;
• The absence of a contract does not mean that there is no legal possibility to recover the value of the work performed under non-contractual grounds, such as unjust enrichment. At the same time, not in all cases actual fulfilment of works means their unconditional acceptance and payment;
• Involvement of professional construction participants (engineers) and lawyers at the early stages of project structuring and construction will help to avoid a number of potential problems that the client or contractor may only suspect.