Construction Contract Dispute Resolution: Complete Contractor Guide 2025

Introduction

Disputes are an unfortunate reality in construction. Complex projects, multiple parties, changing conditions, and competing interests create friction. How you handle disputes—from prevention through resolution— significantly impacts project success and profitability.

Government construction adds unique dispute procedures. Federal contracts follow the Contract Disputes Act with specific claim requirements. State and local contracts have their own procedures. Understanding these processes protects your rights and positions you for fair resolution.

This guide covers dispute prevention, claim procedures, and resolution methods available to contractors in government construction.

Key Dispute Resolution Concepts

Claim: Written assertion seeking payment, adjustment, or interpretation
Dispute: Unresolved claim requiring formal resolution
ADR: Alternative dispute resolution (mediation, arbitration)
CDA: Contract Disputes Act (federal contracts)
COFD: Contracting Officer's Final Decision

Common Dispute Types

Understanding common dispute categories helps with both prevention and resolution preparation.

Scope and Change Disputes

Constructive changes (owner direction without formal change order)
Differing site conditions (Type I - different from contract, Type II - unknown)
Design errors and omissions
Scope interpretation disagreements
Disputed change order pricing

Schedule and Delay Disputes

Excusable vs. compensable delays
Concurrent delays
Acceleration claims (directed or constructive)
Liquidated damages disputes
Extended general conditions claims

Payment Disputes

Progress payment withholding
Retainage release issues
Change order pricing disagreements
Backcharge disputes
Final payment and close-out issues

Other Common Disputes

Termination (for cause vs. convenience)
Warranty claims
Subcontractor pass-through claims
Suspension of work impacts
Contract interpretation differences

Dispute Prevention

The best dispute is the one that never happens. Proactive management prevents many conflicts.

Before Contract Award

Thorough document review during bidding
Submit RFIs to clarify ambiguities
Note potential issues in bid qualifications
Understand dispute resolution provisions
Review risk allocation carefully

During Contract Execution

Contemporaneous documentation of everything
Immediate written notice of issues
Follow notice requirements exactly
Regular communication with owner/A-E
Address issues early before they escalate

Relationship Management

Build trust through consistent performance
Communicate proactively about problems
Seek win-win solutions to issues
Keep disagreements professional
Escalate appropriately when needed

The Claims Process

When disputes arise, following proper claims procedures is essential to preserving your rights.

Notice Requirements

Most contracts require timely written notice:

Notice of intent to claim (often 10-21 days)
Specific notice for different claim types
Failure to notify may waive claim
Include all required information
Deliver per contract requirements

Claim Submission

Elements of a proper claim submission:

Written demand for specific relief
Contract provisions supporting claim
Factual basis with documentation
Calculation of damages
Certification (required for federal claims over $100,000)

Claim Quantum

Damage Type	Description
Direct Costs	Labor, materials, equipment for changed work
Extended Home Office	Overhead during delay (Eichleay formula)
Field Overhead	Extended site costs during delay
Lost Productivity	Inefficiency due to disruption
Escalation	Price increases from delay

Resolution Methods

Multiple paths exist for resolving construction disputes, from informal negotiation through binding litigation.

Negotiation

Direct Discussion

Least costly approach
Preserves relationships
Fastest potential resolution
Requires good faith from both parties
Consider escalating levels of management

Mediation

Facilitated Negotiation

Neutral third party facilitates discussion
Non-binding unless agreement reached
Lower cost than arbitration/litigation
Parties control outcome
Confidential process

Arbitration

Binding Decision by Neutral

Private hearing before arbitrator(s)
Faster and less formal than court
Limited discovery and appeals
Decision typically binding
May be required by contract

Litigation

Court Resolution

Formal court procedures
Full discovery rights
Appeal rights available
Most expensive and time-consuming
Public record

Comparison of Methods

Method	Cost	Time	Control
Negotiation	Low	Fast	High
Mediation	Low-Medium	Fast-Medium	High
Arbitration	Medium-High	Medium	Low
Litigation	High	Slow	Low

Federal Contract Disputes

Federal construction contracts follow the Contract Disputes Act (CDA), which establishes specific procedures.

Contract Disputes Act Process

Step 1: Submit Claim to Contracting Officer

Written claim requesting specific relief
Claims over $100,000 require certification
Submit within 6 years of accrual

Step 2: Contracting Officer Decision

CO must issue decision in reasonable time
Under $100K: 60 days
Over $100K: 60 days or notify when expected
Decision includes appeal rights notice

Step 3: Appeal Options

Board of Contract Appeals (90 days)
Court of Federal Claims (12 months)
Can continue work during appeal (unless ordered otherwise)

Important CDA Provisions

Interest: Accrues from claim submission
Certified claims: Fraud penalties apply for false certification
Continue performance: Must continue work during disputes
ADR: Federal agencies encouraged to use ADR

Documentation Best Practices

Strong documentation is essential for claim success. Document contemporaneously—recreating records later is difficult and less credible.

Daily Documentation

Daily reports with detailed information
Workforce counts by trade/activity
Weather conditions and impacts
Equipment on site and usage
Visitors and direction received
Work accomplished and problems encountered

Correspondence

Confirm verbal direction in writing
Send written notice immediately when issues arise
Document owner delays and impacts
Keep copies of all correspondence
Maintain organized files

Photo and Video

Photograph conditions before starting work
Document differing site conditions
Record progress regularly
Capture issues when they occur
Include date/time stamps

Schedule Documentation

Maintain contemporaneous schedule updates
Document delay causes and impacts
Keep schedule analyses for claims
Record actual vs. planned progress

Frequently Asked Questions

What happens if I miss a notice deadline?

Missing contractual notice deadlines can waive your claim rights entirely. Some courts allow recovery if the owner wasn't prejudiced by late notice, but don't rely on this. Set up systems to ensure timely notice for all potential claims.

Should I continue working during a dispute?

Generally yes. Stopping work without authorization can be treated as default. For federal contracts, the CDA requires continued performance. Document your position, reserve rights, and continue working while pursuing resolution.

When should I involve an attorney?

Consider legal counsel for significant claims, complex issues, or before major decisions affecting claim rights. Early involvement helps ensure proper documentation and procedures. The cost is usually worthwhile for substantial disputes.

How do I handle subcontractor claims?

As prime contractor, you typically must "pass through" sub claims to the owner. This requires the sub to support the claim and often assign prosecution to you. Your subcontract should address claim handling and cooperation requirements.

Conclusion

Dispute resolution is an essential competency for construction contractors. Focus first on prevention through clear communication, thorough documentation, and proactive issue resolution. When disputes arise, follow proper procedures and consider all resolution options.

Strong documentation practices, understanding of contract requirements, and appropriate legal support position you for fair resolution when conflicts are unavoidable.

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