Contractor default involves a contractor or property owner failing to perform or comply with the terms of an agreement. These defaults potentially lay heavy losses at everyone’s doorstep. The only way to minimize costs and avoid a Texas courtroom is to have an understanding of contractor default.
Project conflict and default
Situations arise when general contractors and property owners come in conflict over a party not fulfilling agreed-upon obligations. These are sensitive matters that can end up being costly. It can add months to a project’s completion time on top of the thousands either party will dish out to argue the claim.
Manage the default: Negotiation, arbitration and mediation
For the best of all parties, avoiding full-blown litigation should be the goal. Negotiation can put all parties on the same page. It can lead to agreements that get projects back on track.
If negotiation doesn’t lead to resolution, there’s mediation or arbitration. This is where property owners and contractors meet with a neutral third party. You go into this proceeding agreeing that all parties will accept the discussion of the arbitrator.
When the aforementioned options are no longer viable, litigation could be on the horizon. Parties need to prepare for the eventuality and should do so early. Contractors should:
- Respond to allegations
- Provide a convincing argument as to why there was or was not a default
- Provide a convincing argument that he or he has shown a good faith effort to correct the matter
Property owners and general contractors are expected to:
- Present notices to any party in default
- Explain the steps that have been taken to remedy the breach of contract
- Locate new contractors if the defaulting party isn’t complying
- Determine the costs of damages
- Provide compromises that show defaulting contractors were given the opportunity to correct the default and complete the project
Every contractor, property owner and project manager in Texas should have some understanding of construction default regulations. Knowledge of the applicable construction laws can help prevent defaults and will help you manage defaults without damaging your reputation.