Construction Litigation, and How to Avoid It. Construction Lawyer Douglas Folk Explains

Lawsuits about construction defects are a big burden to the homebuilding industry. This is especially true of class action litigation. Of course, good design and construction will substantially reduce the risk of a lawsuit. Construction attorney Douglas Folk explains the problems and pitfalls in home construction and how they can be minimized in this report.

Folk’s approach is to be involved with his homebuilder clients in negotiating the construction contracts. Arizona courts have emphasized that agreements between the various parties to a construction project must be honored. Anticipating a problem in a contract will pay a dividend later if the problem actually arises and ends up in a lawsuit. Folk points out that, in a residential construction project, “the contract is an opportunity to manage risk.” Folk’s office helps the contractor identify potential problems and cover problem resolution in the contract. Folk also works to be sure that insurance will cover the cost of resolving any foreseeable problems.

Folk suggests that an upswing in construction litigation is certainly a possibility now that construction is booming again. During the 1990s, it was common for class action lawsuits to be filed on construction projects in Arizona. “We have homebuilders putting up a hundred, or five hundred, houses in a subdivision, so it becomes a very appealing target.” Folk hopes that the lessons learned during that construction boom can be put to good use during this latest construction boom.

P. Douglas Folk

P. Douglas Folk

One current problem in the industry is that homebuilders have to rebuild their labor pool. A lot of the talented workers left Arizona during the recession, and they haven’t all returned. As a result, says Folk, there are projects where the trade contractors haven’t worked together before, and that requires some planning. That means, Folk says, that there is a potential for litigation from projects that are just starting.

The Phoenix area has had a lot of home construction over the last thirty years, and “all of the easy projects have been built.” Folk says that new development involves going into land that may have been a farm and that make it less desirable to build on. This provides many engineering challenges for an industry where the pace of new construction is building rapidly. A former cotton field will probably have soil with a high clay content, making drainage a problem. Bad drainage and poor soil preparation for building the foundation can cause problems. Then, when the house settles in, there can be cracks in the foundation or flooring.

Folk also points out that a home is a unique product, not built in a factory and mass produced to fine tolerances. Building a house involves having “all these strangers coming together with construction materials and putting up a one-of-a-kind product just for you.” Sometimes, things happen that can’t be foreseen and arise once the construction process starts.

Folk says that Arizona courts have been very conservative in their approach to resolving construction defect claims. The courts in the Phoenix area are accustomed to dealing with large lawsuits. The courts have recognized that homes are unique products, not like automobiles. So courts have refused to say that homebuilders are responsible for every bad thing that happens in a construction project.

Consumers also have a lot of options. Contractors are required to be licensed through the Registrar of Contractors. The Registrar will take consumer complaints about houses, and within a two-year period, a consumer can get an inspection at no cost from the Registrar about a perceived problem. The consumer doesn’t need an attorney to use this process. Folk says that builders are quick to come out in response to a call from the Registrar and to participate in the inspection.

Folk points out that homebuilders must plan for storms in Arizona. Even though storms are infrequent, “we get a lot of rain in a short time.” Homebuilders have to channel that runoff to go to the nearest wash rather than into someone’s front door. Consumers don’t always recognize the amount of planning that has gone into planning for the occasional storms.

Building codes also help to eliminate construction claims. Folk says that the industry learns from experience, and the authors of building codes make incremental changes in the codes every few years to incorporate things that will result in better quality construction. Folk says his clients will use the standards set out in the codes to create designs that will guard against common problems. One simple thing is positioning the house on the lot so that there is positive drainage away from the foundation. Another is designing a home to take into account the flexibility of wood frame construction.

Folk’s office has developed a go/no go checklist for clients involved in construction to help them evaluate a new project and anticipate projects and determine how much risk they want to take on in undertaking a new project.

P. Douglas Folk is a member of Clark Hill PLC in Scottsdale, Arizona. He serves business clients in architecture, engineering, geomatics, landscape architecture, construction, and other technology-driven industries as a vigorous advocate and trusted advisor. He was re-appointed by Governor Jan Brewer in 2013 to his fourth term as the public member of Arizona’s Board of Technical Registration. He is one of the authors of "Design Professional and Construction Manager Law (2007)." The Legal Broadcast Network is a featured network of Sequence Media Group.