According to the US Census Bureau, the annual value of all construction work is approximately $1.5 trillion — that’s almost 7% of the country’s GDP. Whenever you have an industry that’s as big, complicated, and valuable as the construction industry is, you better believe that lawyers are going to be close at hand. And just like lawyers in other fields — like family law, personal injury law, corporate law, etc. — construction lawyers have a special focus on the building industry. These attorneys spend their careers studying and practicing in the incredibly complex field of construction law. In this article, we’ll explore the different branches of construction law, and break down the basics that construction businesses need to know to protect themselves.
What is construction law?
Construction law refers to the legal branch that deals with the laws, regulations, and requirements in the construction industry. It includes elements of contract law, property law, commercial law, employment law, and many others. Construction law is essentially a library of rulebooks that govern how a construction project must be completed, and who is liable if something goes wrong.
Because of their complexity — and the enormous sums of money at play — things go wrong on building projects all the time. Legal disputes are incredibly common on construction projects, and construction law touches all aspects of a project, from the pre-planning to the months and years after a project is actually complete.
And those disputes aren’t cheap. In a 2020 report, Arcadis found that the average construction dispute was valued at $18.8 million in 2019 and took 17.6 months to resolve.
Given the huge annual dollar value of construction claims, construction law work isn’t going anywhere soon.
Related: What does a construction lawyer do?
Fields of Construction Law
Like the “industry” itself, construction law is not really a specific, singular subset of law practice the same way, say, the practice of personal injury law may be. Construction law is an amalgamation of many different legal fields, including contract law, finance, real estate, bankruptcy, administrative, employment, environmental, insurance, and regulatory, just to name a few.
Despite this seemingly haphazard grouping of different legal fields, construction law has grown into its own distinct practice area. Large firms, small firms, and solo practitioners all provide counsel and assistance to all parties associated with construction all throughout the construction process. Large construction companies often have in-house lawyers whose sole job is to represent their interests.
It’s probably an oversimplification, but we have to organize this somehow. The practice of construction law can generally be divided into three areas:
- Pre-Project (before the project starts)
- During the Project (active construction phase)
- Post-Project (active construction complete)
Work done prior to the project can be some of the most crucial work undertaken by a construction lawyer. This is when contracts and agreements must be drafted for use both up and down the payment chain. Policies must be set regarding lien or bond claims, as well as other payment security rights and/or financial risk-shifting. A construction lawyer may even be enlisted to assist HR with employment policies. Finally, regulatory work must be undertaken to secure permits or negotiate with licensing agencies or explain building code requirements.
This is all just the tip of the iceberg.
When it comes to the law, few documents are more powerful than the construction contract itself. Every project is governed by a contract, and the legal requirements that go along with it.
Construction has contractual agreements up and down the payment chain, ranging from the general contract for the entire scope of work, to sub-contracts, and supplier agreements. These agreements are all full of tricky issues and complicated clauses like contingent clauses (pay if/pay when paid), claim notice provisions, no damage for delay clauses, arbitration clauses, and more – any of which can cause significant problems for an unwary construction participant.
Besides clauses that need careful consideration on wording or acceptance, some types of contracts have specific requirements set forth by state law. It isn’t rare to have the general form of a contract and some specific contractual wording required for work on residential property. In these cases, the failure to consider the requirements can result in losing the right to payment altogether.
In addition, construction is full of other agreements that work as contracts between the parties, though these other agreements are not always treated with the same weight or importance. Lien waivers are contractual agreements between parties on a construction project related to the availability of securing any potential amount owed. These documents may or may not have specific requirements, but they should be treated with the same respect as any other contract.
While many construction participants use standardized template contracts from parties like the American Institute of Architects as a jumping-off point, these contracts can, and often should, be modified to better fit the needs of a particular client. Because of this, contracts should always be reviewed prior to execution in order to get a prospective view and lay of the land with respect to working on a particular project or for a particular participant.
Construction projects rarely, if ever, proceed neatly and exactly as originally drawn-up. The vast majority of projects will include some form of modifications or change requests. When some change must be incorporated into the project, that changes the scope of the contract for the original work to be performed. These contractual modifications are called change orders.
Because the contract provides the basis for what can (and must) be done on the project (and provides a framework for many future claims), change orders should be treated with the same attention to detail as the original contract. The ability to recover for work, or to make a claim for incorrect work, can come down to the validity of a change order and whether proper procedures or requirements were met. Making sure a client’s interests are best protected with respect to a modification of the work or material to be furnished falls squarely in the realm of construction law.
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Approvals, Licensing, and Planning
Construction projects often require some sort of government approval – but the extent of governmental involvement or the intricacies of the approvals needed vary by project type and scope. Whether a project only requires a standard check and authorization of building plans, or requires some use variance, it’s the job of a lawyer involved with construction law to assist the client in obtaining the necessary consent. In many cases, the number and identity of the approvals needed is not necessarily clear, and construction lawyers can provide the assistance needed to determine and obtain the proper permits and approvals.
Additionally, construction participants are often required to possess some specific license in order to legally perform construction work. These requirements can be strict. The failure to obtain the proper licenses to perform the work being furnished can result in significant penalties. In addition to a loss of security rights that might otherwise be available, contracting without a license can be a crime! It can cause the unlicensed party to lose any right at all to be paid for the work they have performed, and it could even force the unlicensed party to re-pay everything paid for a project.
Before construction can take place on any given property, there may be property law issues to sort out. A property may need to be purchased, or managed in a different way prior to initiating a construction project. Disputes related to the previous owners, to the deed, zoning, or other issues may need to be taken care of prior to further construction.
Without confidence related to the property itself, construction and development companies occupy a precarious place. Additionally, questions regarding the mineral rights of a specific property, or any servitudes, rights-of-way, or other encumbrances can be of crucial importance related to construction work, and accordingly for construction law.
Employment law is another critical area of construction law, and it’s one where construction participants themselves must have a firm grasp. Turnover is high in construction. Hiring, firing, management, discrimination, and hostile work environments all must be dealt with.
Hiring and firing within the framework by the book is an important part of running a successful construction business. Construction lawyers, therefore, may be obtained to assist with Human Resources (HR) policies and procedures. If an employment dispute arises, additional assistance and support from an attorney will be necessary. Having compliant policies is important for any business, and businesses that routinely experience high turnover (like those in construction) are some that can gain the most benefit from legal-endorsed and streamlined processes.
Construction companies also have obligations regarding employees with which companies in other industries may not be familiar. Certain construction projects require “prevailing wage” determinations to ensure that workers are being paid appropriately. Determining whether a project requires this calculation, making the calculation itself, applying it, and checking the “certified payroll” of other contracting companies are all aspects of employment law in construction that a construction law attorney should be able to help with.
As mentioned previously, the disparate practice areas that make up construction law globally can often flow between phases of a project. One example is that the compliant employment law policies and procedures must generally be in practice before (and irrespective of) any particular project. Other aspects of employment law in construction, such as prevailing wage issues or jobsite employment issues arise after a project has begun.
Another area of employment construction law practice relates to workers compensation. A workers comp claims can give rise to technically complex issues best suited for a lawyer to provide assistance with, including prior to any claims being made. Information regarding policy, procedure, and responsibilities can benefit from an attorney’s eyes.
General Negligence and Torts
Accidents happen in construction. Businesses must be prepared to deal with the aftermath. Workers get hurt, problems occur outside of the contract due to the other parties’ negligence, there can be construction defects that later cause someone damage, construction could cause a nuisance for which the law provides recovery, workers or equipment could trespass on a neighbor’s property, damages to property or injuries can occur due to negligence during the performance of work, and more. All of these types of claims, where a party suffers harm to personal, property or financial interests, can be governed by the laws of tort.
Lawsuits are not uncommon, and while many construction-related lawsuits that are work-specific would likely be a contractual claim. Negligence claims can play a big part in recovery in situations where there was no privity of contract or when there is a contract but it doesn’t apply for other reasons. We live in a litigious society, and construction work is notorious for producing accidents and injuries to people and property. This results in a high number of claims.
Construction law is intimately connected with the payment process. Claims made regarding money not paid for work done — or disputes regarding whether more (or any) money is due — make up a large portion of the claims and disputes related to construction work. In addition to contractual provisions governing the payment process and timing, there are several state and federal laws that apply to construction payments.
Mechanics Lien & Bond Claim Law
Luckily, construction participants can take advantage of payment security built directly in to the laws of every state. On private construction projects, mechanics lien laws provide construction businesses with an interest in the improved property to virtually guarantee payment. Bond claim laws provide similar protection on public projects.
However, taking advantage of the benefits provided by these laws can be technically complex, and at times may necessitate the services of a construction lawyer. Determining the deadlines, drafting and completing legally-sufficient forms, meeting filing requirements, and more all can require legal assistance. And, if the claim must be enforced, a lawsuit is required.
Prompt Payment Laws
Additional issues regarding payment can spring up with relation to other construction-specific laws and rules. Prompt payment requirements and retainage issues are common in construction, and a construction lawyer can provide both policy guidance and help with specific issues – whether you’re making payment or trying to get paid.
Prompt payment rules set forth the general time frame during which payment must be made to parties on a construction project, depending on the project tier. However, there are often many intricacies that can allow these periods to be lengthened or be rendered inapplicable. These intricacies are similar to the issues that would be relevant to other claims regarding payment or work. That means they may be best handled by parties with a knowledge of construction law and how to approach the issues in a manner to best position the relevant party.
Retainage, likewise, can be bound by rules and requirements that are complex to navigate. Many projects require or allow retainage, but the time period for when that retainage must be released can be complicated. Further, making a claim on retainage is a complex process that construction companies may not feel comfortable pursuing unless represented by a lawyer.
Like payment, another contractual claim that arises post-project is a workmanship dispute. Not all construction turns out exactly as desired, and there are many levels of skill present throughout a job. When work is not of sufficient quality (or is alleged to not be of sufficient quality) a workmanship dispute arises. Often, these claims go hand-in-hand with payment disputes – but that’s not true of every case.
Not only is a certain standard of work generally set forth by the contract, state laws require contractors to perform at some minimum standard of quality and workmanship. As a result, not only can claims be made directly between the contracting parties, complaints can also be filed against a contractor’s license or with the licensing board or registrar. In either case, a prudent contractor or property owner enlists the assistance of a lawyer well-versed in construction law to facilitate the process.
What ties many of these claims and practice areas together is that a construction lawyer must generally have some familiarity with litigation. Construction, in practice, leads to many disputes of one size or another, and it’s common for these disputes to end up with actual (or at least threatened) litigation. Litigating is an art. While actually seeing the inside of a courtroom is not extremely common in relation to the number of lawsuits filed, knowing your construction lawyer is capable is important.
As shown here, construction law mirrors the industry it represents: a large group of different specialties lumped together by the circumstance. While knowledge and proficiency in construction law doesn’t mandate a deep knowledge of each of the areas noted above, the construction lawyer is best prepared by having the ability to dive into each of these practice areas to better serve their clients or employers.
Alternative Dispute Resolution
While some construction disputes end up in court to be argued via litigation, alternative dispute resolution is becoming more popular in the construction realm. The three main types of ADR common in construction are mediation, arbitration, and dispute resolution boards (DRBs). Contracts often have a clause requiring parties to engage in one or more forms of ADR before they are allowed to proceed to a lawsuit.
Construction is Complex: So Is the Law
Much of the legal landscape is not necessarily made up of statutes or laws themselves, but of court interpretations of the laws. Every time a case is tried in court, the judge will make a determination about what the laws mean. These decisions set a precedent for future cases. Over time, these precedents form the flexible walls of the arena within which construction disputes are litigated.
Construction law is not a simple topic, and it should be approached with caution. While most of these topics are best navigated with the representation of an experienced construction lawyer, businesses often have to weigh the pros and cons of pursuing a dispute on their own, or even whether the dispute merits the cost of consulting a lawyer.
If you are concerned about a potential dispute or what rights you have under the law, the Levelset Community is an excellent place to start. In addition to getting input from other construction professionals, construction attorneys from across the country provide free legal advice and answers to thousands of questions from contractors and suppliers every month.