Dispute Resolution: Best Practices
authors Bruce Kelleran
Any of us who have been in the kitchen and bath design and remodeling business for any length of time have had a project that, at one point or another, went sideways on us. When that happens, it can be extremely painful, time consuming and financially harmful to your firm’s bottom line. For that reason, it’s prudent to give some thought to how such situations are to be handled before they occur or, better yet, how to avoid them in the first place.
It’s important that both you and your client have a clear understanding of what the project entails when a contract is signed. The contract should include detailed plans and clear, detailed specifications of all the actual products that your firm will be supplying. If the client is to supply some of the products (fixtures, appliances, etc.), the contract should spell out who will receive them at the job site and who is responsible for receiving them from the supplier or shipper, and, if such products turn out to be defective, who is responsible for the cost of reinstalling them.
With the correct level of detail in your contract, there should not be confusion about what is or is not included in the work you are doing for the client. It’s critical, however, that these plans and specifications be reviewed in detail with the client, preferably with the client initializing each page of all documents. It is also important to include a clause in your contract that makes it clear that the contract is limited to only those things included in the written agreement and does not include anything that might have been discussed but not included.
A good set of plans and specs will take care of the objective parts of the project, but it does not really cover many of the more subjective issues about the project. Most of these issues are fairly predictable from your past experience, such as variations in tile color, perception of paint sheen and colors, graining of wood, etc. A way to deal with these issues is to develop a “client handbook” to explain to the client what to expect and what their responsibilities will be in terms of reviewing and approving samples. This client handbook can also be a place to go over what the client should expect, such as what the client needs to do to get ready for the project, work hours, clean up, etc. Since the final payment will usually be due upon “substantial completion,” this is a good place to define what that means.
One of the issues that sometimes arises is a difference of opinion as to how certain work should be done. Sometimes you will feel that the work you have done is up to “industry standards,” but your client will not accept your definition of industry standards. It’s a good idea to have a reputable source to refer to in such circumstances. The National Association of Home Builders publishes a set of performance standards for residential construction, available from the NAHB book store. This publication is extremely helpful in clarifying issues of fit, finish and tolerances that can arise in the course of a remodeling project, such as is something square or level, and what do those terms actually mean.
You should have a copy of this publication in your office and your project managers should be familiar with this publication. You should also have language in your contract that refers to this as the source of industry standards for the resolution of any disputes over such issues. Without such a reference, everything becomes a subjective issue. Make sure your contract states clearly that this publication will be used as the source for defining industry standards.
There are going to be times when a client focuses on an issue and will just not let it go. In such a case, you will have to decide whether to dispute the issue or simply give the clients what they want. It’s usually less costly to defer to the clients than to press them. When you cannot reach a settlement, you will have to resort to some form of dispute resolution.
There are several things you should have in place before any dispute arises. If your company works with a law firm, discuss with them whether they have experience with construction contracts and dispute resolution. If you’re not already working with a law firm, try to find one with this experience. Doing this in advance allows you to interview several firms in order to find one with which you are comfortable. Once you’ve settled on one, have them look over your contract to make sure it addresses all relevant issues and that you are not setting a trap for yourself down the road.
As soon as you sense that a situation could lead to a dispute, you should personally step in and meet face to face with your client to make sure that it gets resolved and that everyone agrees as to what action or actions are going to take place to get things back on track. Sometimes a little attention from the owner of the business is all that’s required to smooth things over.
We all have a tendency to be certain that our point of view is the correct and fair position and that the other party is wrong and unreasonable, and it’s easy to fall into the trap of, “It’s not about the money, it’s the principle of the thing.” But I would argue that it is about the money – and it can add up to a substantial sum if you don’t handle dispute resolution reasonably and rationally.
If all of your best efforts to settle things amicably fail, you will have to resort to whatever procedures you have incorporated into your contract. Your contract should spell out what happens if disputes cannot be resolved by the parties. It’s a good idea to require the following step-by-step process: 1) mandatory mediation and, if a resolution cannot be reached, then 2) binding arbitration. Your contract should spell out what agency or organization will handle these procedures. One such agency is the American Arbitration Association. It is also a good idea to require both parties to share equally in the cost of the mediator and/or arbitrator to discourage either party from rushing into this process.
The dispute resolution process can prove very costly and most mediators will tend to give the customer the benefit of the doubt as opposed to you, the expert contractor. You should try very hard to avoid going down the mediation/arbitration road, and the best way to do that is by doing the up-front work of managing expectations.▪