How to Use Documentation for Risk Mitigation in Construction

Twenty years ago, a roofing contractor could complete a construction project with a handshake and an invoice. While getting final payment from customers has always been challenging, the need for contracts and written documents is crucial today to avoid potentially costly litigation. 

Owners have become litigation and insurance savvy and know how to take advantage of an unprepared contractor. If a problematic project results in litigation, nine times out of 10 the party with the best “paper” will win. In other words, the party that has the most detailed and descriptive paper trail supporting their side will more than likely succeed in court. 

Here are four tips for building and maintaining that strong, well-documented paper trail on your projects. 

1. Create a strong contract and understand its provisions.  

The first line of defense to claims on a construction project for a contractor, subcontractor or supplier is always the contract. The contract contains pertinent provisions that a party may use to pursue and defend potential claims.  

Although it is often difficult to negotiate the terms of a contract, to the extent possible, a construction professional should be aware of provisions that would help shield their contract from potential liability from claims. These provisions may include limitations on the types of damages that can be awarded, such as a provision that waives the ability to obtain consequential damages (pain and suffering, lost profits, loss of business reputation, etc.).  

Additionally, contract provisions requiring home or business owners to provide written notice to contractors within a certain time period (often three business days) following the discovery of defective workmanship may create a defense to the client’s claims if they failed to provide sufficient notice. 

2. Maintain accurate written records of all project communications.  

Anyone involved in the construction industry should also keep accurate written records of all communications involving defective workmanship, delays or other project claims. These written communications may include daily reports, emails, memoranda, text messages and letters.  

A contractor should also use common sense when issuing or authoring written communications. Barring any contractual provisions to the contrary, a good rule of thumb is that if it is good for you—meaning it can assist you with bringing or defending claims—put it in writing. If it’s bad for you, pick up the phone and avoid putting something in writing that could later turn intoa smoking gun if you are in litigation or arbitration. 

3. Document any existing issues found during your work on the project. 

If you notice defective work (preexisting and not your own), take extensive photographs and/or video of the alleged problems. Visual depictions are especially useful in defending claims where contractors are hired to repair a building that is suffering from defective conditions, water intrusion or preexisting mold. 

4. Keep documents well organized from the start.  

Once your company has generated documents such as the contract, daily reports and follow-up correspondence, it is important to retain those documents in an organized file. This is especially important if there is the possibility that the project could result in litigation.  

By generating and retaining documents that support your company’s position, you will be better able to defend your work against litigious owners. 

The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation. 

Trent Cotney is a partner and construction practice group leader at the law firm of Adams and Reese LLP and NRCA General Counsel. You can reach him at [email protected] or 1.866.303.5868.