As a rule, real estate attorneys can and do play a key role in every phase of a property’s life cycle, from securing entitlements to exiting the investment. While disputes do not inevitably arise on every development project, when they do, legal expertise can help pave the way toward a solution. Connect CRE recently asked Brad Porter, managing partner and owner of Porter Law Firm in Houston, to chart what happens next: 

Q: Construction delays were common during the pandemic. Are developers seeing fewer delays now, and how does this compare to pre-pandemic years? 

A: The construction industry experienced significant delays during the pandemic due to various factors, including supply chain disruptions, labor shortages, and health and safety regulations. As the situation has improved, developers are seeing fewer delays now compared to the peak of the pandemic. 

The comparison to pre-pandemic years varies by region and sector. Many developers report that while the situation has improved since the pandemic, it hasn’t fully returned to pre-pandemic levels. Ongoing supply chain issues, material costs, and labor availability continue to pose challenges, though not as severely as during the pandemic. 

Overall, while delays have decreased from their pandemic peaks, they still generally exceed pre-pandemic norms, but the trend is moving towards improvement. 

Q: What are some of the typical causes of delays? Are they related mainly to regulatory/approval hurdles or due primarily to other factors (e.g., material or worker shortages)? 

A: Construction delays can arise from a variety of causes. Here are some common ones: 

1. Supply Chain Issues: Delays in the delivery of materials and equipment due to manufacturing bottlenecks, transportation problems, or shortages. 

2. Labor Shortages: Insufficient skilled labor can slow down progress, especially if specific expertise is required. 

3. Weather Conditions: Adverse weather, such as heavy rain, extreme heat, or freezing temperatures, can interrupt construction activity. 

4. Regulatory and Approval Hurdles: Delays in obtaining necessary permits, inspections, and approvals from regulatory bodies can push timelines back. 

5. Financing Issues: Delays or issues in securing funding can halt progress until resolved. 

6. Design Changes: Modifications to initial designs during the construction phase can cause delays as new plans are made and implemented. 

7. Site Conditions: Unexpected or undisclosed site conditions, such as contaminated soil or archaeological finds, can require additional work and approvals. 

8. Coordination and Communication Issues: Poor project management and miscommunication among stakeholders can disrupt schedules. 

9. Contractor Performance: Delays can occur if contractors do not meet their deadlines or performance expectations. 

10. Pandemic-Related Factors: Health and safety regulations, worker illnesses, and other pandemic-related disruptions have recently introduced new delays. 

While regulatory and approval hurdles do contribute to delays, they are typically just one piece of a larger puzzle. Supply chain issues, labor availability, and other factors often play equally significant roles. The exact causes and their impact can vary greatly depending on the specific project and location. 

As a final note, it’s true that builders can sometimes be surprised by a regulatory hurdle in the middle of a project – leading to delays – but if they engage with an experienced attorney before the initiation of the project, the client and other stakeholders will be briefed on all the relevant regulatory requirements in advance, so that none of them will come as a surprise. 

Q: How can a construction attorney mitigate or minimize delays, and facilitate other aspects of the construction process? 

A: Attorneys can create and negotiate contract agreements between project stakeholders before a project is officially underway, to help ensure everyone is on the same page about who is responsible for each part of the construction process. Taking these steps can help to preclude construction disputes caused by miscommunications, unclear contracts and potential construction defects. 

Involving an attorney early in the process can also be beneficial in terms of mapping out a path to completion for the project. Once the client’s goals are understood at a high level, the attorney can look at the survey, the title and other documents to help determine if the project can be built at all. Related, a legal team can help with researching and examining use restrictions – in certain geographic locales – that might not be universally known, so that those can be dealt with before the work begins. 

Once the landscape is determined to be conducive for a successful build, the attorney might review engineering agreements, architect agreements, and possibly coordinate with related third parties who handle feasibility and project analysis. When the construction company has been selected, attorneys are heavily involved in the construction agreement, to specify which other contractors will be on the job, who is responsible for what tasks, requirements for submitting progress reports, insurance details and a payment plan for the construction crew. This step is vitally important to make sure the project gets built correctly. 

Q: What are some common pitfalls of construction agreements, and how can attorneys help in avoiding them? 

A: Construction agreements can be complex, so one of the first critical steps is to ensure all the necessary elements are included. Among other things, a key function of this document is to clarify which parties are responsible for what tasks, and who would be liable if something were to go wrong; as such, an agreement that fails to specify each of these elements can create significant problems down the road. 

The agreement should outline reporting requirements, specify which other contractors will be on the job and contain meticulous instructions for the draw schedule, and how the money is to be paid back. 

Being clear as to everyone involved in the project is key, so all parties can sign a lien waiver. The attorney will also conduct an exhaustive search of the real property records, making sure there are no mechanic’s and materialman’s liens (M&M liens), because, if a third party involved in the construction project isn’t paid, they can file a lien. 

Attorneys that specialize in construction law or commercial real estate law will have a high degree of familiarity with these agreements and know what elements need to be in place to ensure a smooth process. 

Q: Disputes can arise with contractors, with neighborhood groups attempting to halt construction or with other parties. What are best practices for preventing disputes from occurring, and how can owners and developers protect themselves when disputes do arise? 

A: Attorneys that specialize in construction see project-related disputes with some frequency, so they know the sort of minor issues that can turn into bigger problems without attention. 

Attorneys in this field will have experts who periodically go on-site to inspect the work. Additionally, attorneys will monitor the progress to ensure all necessary documents are in place, as benchmarks must be met before progress payments are made. Before any funds are released, they ensure everything is being done correctly, which is crucial for preventing certain types of disputes. 

When disputes arise, several steps can be taken. Initially, many contracts require all parties to participate in dispute-related discussions. Attorneys are often involved before this initial step, with the hope that these negotiations will lead to a successful resolution. If these initial negotiations are unsuccessful, the next step is mediation. This more formal process involves a third party, often a former judge or attorney, acting as a neutral mediator to help resolve the dispute. Ideally, a resolution can be reached through the non-binding mediation process. 

If mediation fails, the next step is likely private arbitration or a public lawsuit. Before filing, owners or developers will rely on their attorney to gather evidence through third-party experts to fully understand the project’s issues: what went wrong, why it happened, and who is responsible.