Construction contract disputes are prevalent in California’s building industry, often stemming from misunderstandings, unforeseen changes, or external economic pressures. As experienced attorneys at Hafif-Stonehouse Law Group, we’ve handled countless cases where these issues could have been mitigated with better contract language. The primary disputes we encounter include non-payment for completed work, disagreements over change orders that alter the project’s scope, and delays that disrupt timelines and inflate costs.
No two construction contracts are identical, even when based on standard forms like those from the American Institute of Architects (AIA). Payment provisions alone can differ significantly: what documentation a contractor must provide to prove work completion, the timeline for submitting payment applications, when funds are released, and what aspects an owner can contest. These variations create fertile ground for conflicts, especially in large-scale projects involving multiple parties.
Material price increases represent a growing challenge in today’s economic environment. Factors such as tariffs on imported goods, supply chain disruptions from events like the COVID-19 pandemic, and general inflation have made costs unpredictable. Owners generally resist including escalation clauses that allow for price adjustments, preferring fixed budgets. However, for general contractors and subcontractors, these protections are essential. Projects rarely wrap up in just a few months; many span years, during which material prices can surge dramatically, eroding profits and threatening business viability.
Your role in the project heavily influences the type of disputes you might face and the contract language needed to protect your interests:
● Owners and Developers: Focus on safeguards against delays, as postponed completion can delay tenant occupancy and revenue from rents. They often push for strict substantial completion dates with penalties for overruns.
● General Contractors: Require clauses that grant time extensions for uncontrollable events, such as owner-requested changes, weather issues, or permitting delays, to avoid absorbing extra costs.
● Subcontractors: Need terms that prevent risks from being unfairly passed down, including clear payment schedules tied to milestones and protections against upstream disputes affecting their compensation.
Disputes frequently escalate due to conflicting language scattered across different contract sections. For instance, one clause might mandate mediation before litigation, adding time and expense—potentially $15,000 or more for a mediator—while another requires binding arbitration, stripping away the right to a jury trial. These hidden pitfalls are numerous and can lead to costly legal battles if not addressed early.
To illustrate, consider a scenario where an owner delays approvals, causing months of standstill. During this period, material costs rise, and the contractor faces bankruptcy risks without adjustable pricing terms. We’ve seen this play out repeatedly, and in each case, early attorney involvement could have rewritten the narrative.
Preventing Common Disputes: Practical Tips
● Review all payment terms meticulously before signing to ensure they align with your cash flow needs.
● Include detailed change order protocols, specifying approval processes and cost impacts.
● Define delay responsibilities clearly, with mechanisms for extensions and compensation.
● Incorporate material escalation clauses linked to verifiable indices like the Producer Price Index.
FAQs on Construction Disputes in California
● What if non-payment occurs? File a mechanics lien promptly—California law sets strict deadlines, often 90 days from last work performed.
● How do change orders work? They must be documented in writing; verbal agreements often lead to disputes over scope and payment.
● Can delays be excused? Yes, for “force majeure” events, but contracts must explicitly list them.
● What’s the role of arbitration? It’s faster but limits appeals; weigh it against litigation based on your position.
● How long do I have to sue? For breach of a written contract, you generally have 4 years to file a lawsuit, and for breach of an oral contract (including verbal change orders that are not in writing), you generally have 2 years. However, a mechanics lien is different: you only have 90 days from the date the lien is recorded to file a lawsuit to foreclose on the lien and enforce it. If you miss this 90‑day deadline, the lien automatically expires by operation of law, becomes unenforceable, and the owner can have it removed from the property’s title, leaving you with no lien rights or leverage against the property itself.
Navigating these disputes requires expertise in California’s specific laws, including the Civil Code sections governing construction contracts. At Hafif-Stonehouse Law Group, with over 60 years of combined experience, we’ve secured multimillion-dollar settlements in similar cases, such as $87 million in a construction contract dispute.
If you’re dealing with or anticipating these issues, professional guidance is key. Contact Hafif-Stonehouse Law Group for a free consultation to review your contracts and strategies.