How to Settle a Dispute With Your Contractor, Without Litigation

How to Settle a Dispute With Your Contractor, Without Litigation

Are you concerned about the quality of work delivered by your contractor? Maybe they are not following the scope of work you initially agreed to? Perhaps they’re taking twice as long as was agreed? Or maybe they’ve found some other loophole in the contract; some other way to take advantage of your business? If so, you are not alone; such disputes do arise from time to time in the corporate world between a business and its contractor(s). Ideally, every single contractor you ever hire will work diligently to deliver quality work within the designated budget. Perhaps most importantly, this “ideal contractor” will do so in a timely manner. Everyone leaves happy, and there’s no need to even consider going to court. However, this is not an ideal world, and things sometimes go sideways. Is the situation irretrievably poisoned? Is an expensive and time-consuming lawsuit the only option?? Fortunately, no! This where having a high-quality San Antonio Business Attorney on speed dial can save you. We can parachute in to help you avoid a costly mess and (hopefully) save the day. If a contractor’s job goes awry, your first priority must be to make as much lemonade as you can, from the lemons you have been given. What does that look like? And perhaps more importantly, how? Let’s dive right into it. STEP 1: READ YOUR CONTRACT; READ IT CAREFULLY; THEN READ IT AGAIN! The contract that you signed with your contractor may (should!) address certain significant aspects of the job, including the scope of work, the completion date and start date, and some sort of dispute resolution procedure. In the unfortunate event that your contract does not address these areas, buckle up and get ready for a wild ride. After that, remember to hire a competent Business Attorney to draft your next contract. Some of the common areas of dispute (which your contract will hopefully address) may include:
  • Starting Date: unsurprisingly, this is the day the contractor is required to start the job.
  • Completion Date: again, unsurprisingly, this is the date the contractor is required to complete the job.
  • Material Costs: this clause will set forth who pays for material costs, and on what schedule they will be paid.
  • Payment Schedule: when the contractor is paid – whether determined by time, completion percentage, deliverables, or any other metric. Some common options include:
    • Full up-front payment
    • Partial up-front payment, balance upon completion
    • Progress payments according to percentage of completion, with retainage (common in construction)
    • Progress payments according to specific deliverables (common in technology)
    • Partial payments over a recurring schedule (common in time-limited, quasi-employment type contracting arrangements)
Sometimes, a change in the middle of the project is unavoidable. This is why it’s always good planning to keep a contingency plan, just in case. Sometimes it is simply unavoidable that the schedule, scope of work, price, or other aspects of the deal will (must!) change due to unforeseen circumstances (on both parties’ account). If so, then you and the contractor should take extra care to agree on the required changes in writing. For this, you can sign addenda or amendments, making any contract modification official. STEP 2: IF A PROBLEM ARISES, EARLY COMMUNICATION IS YOUR FRIEND! As soon as you are aware of a festering issue, speak directly and openly to your contractor to address it. Often, an incipient dispute can be resolved with a bit of genuine discussion before it escalates into a full-blown legal conflict. This is a more convenient and civil way to take care of the problem, while avoiding hassle and expenses of a protracted legal battle for both parties. It is entirely possible that the contractor is simply unaware of the problem, and will appreciate your calling his or her attention to it before rushing to the courthouse. You might find the above obvious to the point of unhelpfulness (it basically amounts to “just go talk about it” after all). Two quick observations about that: (1) for being “obvious” you’d be surprised by how many people skip it, and (2) we’re about to talk about what to do next if it doesn’t work. STEP 3: OUT-OF-COURT OPTIONS If a frank discussion has failed, you should not fall into the trap of believing litigation is your only path forward. If you or the contractor wishes to avoid litigation, there are some other options that will cost you much less than taking the matter to court. These include the following: STEP 3A: INDUSTRY & AGENCY CONFLICT RESOLUTION PROGRAMS Your state’s contractor licensing trade group or agency may have some sort of dispute resolution/conflict resolution program geared toward addressing general contractor disputes. You may consider submitting your dispute to one of these programs or groups. A word to the wise: these groups have a reputation for being biased towards the contractors, and that reputation is well-earned. Nonetheless, the cost savings may be worth the trade-off STEP 3B: MEDIATION Mediation is a non-adversarial dispute resolution process where a neutral third party, called the mediator, helps the two parties in conflict discuss and attempt to reach a resolution of the dispute. A mediator will often be a senior attorney with expertise in litigation or a retired judge. Mediators can also obtain several different types of certifications, both for their expertise in mediation (e.g., the American Academy of Distinguished Neutrals) as well as for mediating particular types of cases (e.g. family law). They will hear the perspective of both parties, facilitate a mediated discussion between them, and ultimately attempt to convince both parties to agree to a mutually-agreeable settlement. All of that being said, you must remember that mediation is non-binding in nature. If you don’t consent to the proposed settlement at the end of the mediation, you do not have to accept it. STEP 3C: BINDING ARBITRATION As the name suggests, binding arbitration (unlike mediation) results a binding opinion/decision. The parties must abide by the outcome. In binding arbitration, an arbitrator – an attorney or a judge with significant experience in the field – will act as the decisionmaker. A binding arbitration is a little bit like an “express lane” trial, without a jury and without lots of the procedural frills, and there’s no right to appeal. The arbitrator will listen to your arguments and the contractor’s arguments. Then, the arbitrator will establish the facts and render a decision. There are many benefits to binding arbitration over a protracted court battle. It’s faster. There’s less procedural maneuvering. You often can’t have a class-action in arbitration. It’s private. It’s final and, except in rare circumstances, unappealable. STEP 4: ALL ELSE HAS FAILED; GO TO COURT – SMALL CLAIMS COURT, IF YOU CAN It should also be noted that of the steps above, you can combine various methods to mix-and-match the dispute resolution process that’s right for you. If the discussion, industry dispute resolution, mediation and/or arbitration process have all failed, you can file a case in small claims court. In Bexar County there are four Justice of the Peace (JP) courts that handle the flow of small claims court cases, and in most other counties in Texas, the procedure is similar. Small claims court has jurisdiction over disputes with amounts of up to $20,000. This is a mandatory jurisdictional cutoff and you can’t plead around it – meaning if the amount in dispute is greater than $20,000, small claims court is not available to you, even if you ask for less than the $20,000 (for example, if you have a claim of $21,000 or $22,000 and attempt to get into small claims court by only pleading for $19,900, the court WILL NOT HEAR YOUR CASE; it will be dismissed for want of jurisdiction and you’re headed to a different – and more expensive – court). You can file a claim in your local JP court, in any of the following JP precinct:
  • The precinct in which you are located;
  • The precinct in which the contractor is located;
  • The precinct in which the project is located;
While the procedural requirements of small claims courts are typically much less strict than County Court or District Court, you will nonetheless need to produce certain documents to prove your case, including:
  • A copy of the contract, including any amendments or addenda thereto;
  • Written record or agreement on time and scope of work (with photos, if at all possible);
  • Receipts of any purchased material;
If you want to learn more about the Small Claims Court process, you can watch this YouTube “explainer” that I prepared on the topic: STEP 5: CONCLUSION While you have every right to go to court to settle the dispute, it may cost you a lot. Not to forget, it will probably leave your project hanging in limbo for an extensive period of time (for years in a worst-case scenario). However, our business attorneys may be able to help prevent such as predicament, and ensure a quick outcome, not only by assisting with potential settlement negotiations, but also by assisting you with skillful contract drafting in the first place. Contact Law Offices of Ryan Reiffert, PLLC today for a free consultation!

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