Regardless of the field you’re in, disputes are common in the construction industry. According to Arcadis’ 14th Annual Construction Disputes Report 2024, the total value of construction disputes in North America reached $43 million in 2023. Perhaps more alarmingly, the average resolution time was 14.4 months.
Arguably, one of the trickiest aspects of business is managing invoice disputes. If you don’t resolve the issue quickly, the client relationship can turn sour and potentially cost you future work. On the other hand, writing off disputed invoices as part and parcel of business can damage your company’s bottom line.
Let’s explore how you can protect yourself and the business in the event of these disputes.
No matter how efficient your work order management and service delivery, disputes can and do arise occasionally. When they do, you need to be prepared. Here are seven best practices to follow to put yourself in a strong position.
Set clear contractual terms
Every construction project has a planning phase—this is just that. Don’t rely on an informal agreement, but instead draw up a comprehensive contract.
As well as basic terms such as the scope of work and agreed timeline, include a detailed explanation of the resolution process you intend to follow in the event of a dispute.
Use clear language to set out:
- Work deadlines broken down by module.
- Payment amounts and deadlines.
- Any late payment fees or interest charges.
- Names of those responsible for dealing with any dispute.
- The steps they’ll take to resolve one if it happens.
You must manage expectations from the beginning, as you want to guarantee all stakeholders understand the process they’re agreeing to. Then, if a problem arises, you can refer to the contract as you try to find a resolution that satisfies both sides.
Implement detailed invoicing
Even for smaller jobs, itemized invoices reduce the risk of misunderstandings. Include as much detail as possible. It’s then less likely that the client will dispute the invoice as they’ll be able to immediately see what you’ve charged them and why.
Chances are you’re juggling multiple clients at any one time. If you invoice each client manually, it’s not only time consuming but can lead to entry errors. Any inaccuracy in your invoices is likely to cause disputes and delay payments.
Automate the process using a dedicated invoicing software or, alternatively, consider using an ERP software. These tools allow you to automate the invoicing process, track your budget and efficiently plan your resources and materials.
On top of this, there are also specialized ERP software for manufacturing, construction and contractors, making it easier to optimize these vital business processes and avoid disputes.
Having the right tools in place is important but, even with all these safeguards, the total amount invoiced at the end of a job can sometimes come as a shock to a client. Consider checking in with your customers regularly to keep them up-to-date with all your billable hours.
That way, they’ll have a better idea what the final cost of the project is going to be. And they’ll be much less likely to contest it when the time comes.
Practice regular communication
Staying in regular contact with clients is always a good idea, not just for the sake of reporting billable hours.
It helps to have a (digital) paper trail detailing each aspect of the project, so consider adding construction scheduling software to your tech stack. It’ll help you organize all of your tasks and correspondence, plus your whole team can access reminders to and messages with clients.
At the beginning and end of every project stage, check in with your client. Compile a full progress report and send it to them along with a feedback request. Is the work so far up to the required standard? Do they anticipate any changes for upcoming tasks? Are there any external factors that could cause complications?
Particularly if the project has been delayed due to supply issues or inclement weather, for example, keep in regular contact with the client to update them more frequently.
Chances are clients will be more forgiving of the timeline slipping if they trust that you have a plan in place to make sure you don’t fall too far behind schedule.
Establish dispute resolution procedures
Construction projects often evolve as they happen, so there are a number of reasons why a client may contest an invoice. It’s important to establish beforehand which routes you might take in different circumstances.
These could include:
- Negotiation: This should be your first port of call. Sometimes, discussing the matter and negotiating with the client is more than enough to settle on a resolution that both parties can agree to.
- Mediation: If you get nowhere with negotiation, bring in a neutral third party to help resolve the issue fairly.
- Arbitration: A more formal process than mediation, arbitration generally implies the final decision is binding for both parties (which mediation doesn’t). Usually the arbitrator will be a lawyer or another construction professional.
- Litigation: If the above all fail, you may have to resort to litigation. Understandably, many contractors are reluctant to take this step as it’s expensive and time-consuming. What’s more, it can be detrimental for client relations. If you can resolve the issue to both parties’ satisfaction without going to court, so much the better.
Keep proper documentation
Keeping paperwork accurate and up-to-date at all times is good business practice. But it will also stand you in good stead should any disputes arise as you can quickly and easily reference (and present) relevant documents.
Documents include:
- Construction agreement: Scope of work, supplier information, provisions for delays, contractor protections.
- General conditions: Legal framework for the project.
- Specifications: Inventory of the equipment to be used on-site, material requirements and list of acceptable alternatives, best practices, and necessary testing.
- Construction schedule: Sets out the timeline for the project, including for obtaining all the necessary permits.
- Cost estimate: Includes labor, materials, overheads, and contingencies.
It’s significantly easier to keep all documents for each client in one place. Create customer accounts on your accounts receivable software and link all relevant documents. It’s also worth integrating the software with your business tools your team uses, including your CRM. You’ll then have full visibility of all agreements, quotes, orders, and invoices for every client.
Deliver training and education
If you’re delivering a high standard of service, chances are you’ll naturally avoid many common disputes. That’s why one of the best safeguards against clients contesting invoices is investing in your workforce.
Encourage your staff to continuously improve their skill sets. That might mean investing in specialized certifications for them or offering on-site training schemes.
Not only can this improve client satisfaction, it can also help your business stand out in a competitive sector.
Some of the certifications you could consider supporting your employees to work toward include:
- Certified Construction Manager (CCM): Considered a standard of excellence. The certification is given to candidates with a strong knowledge of every aspect of the supervising construction projects, including time and cost management, safety and risk management, planning and design.
- Associate Constructor (AC): A certification for entry-level workers run by the American Institute of Constructors (AIC). To pass, candidates must demonstrate a solid understanding of the construction process and industry standards.
- Certified Professional Constructor (CPC): Also managed by the AIC, this is a step up from the AC certification for more experienced industry professionals.
Understand legal considerations
The legal framework that US construction contractors operate is complex. There are numerous federal and state regulations, and many of these relate to the construction process itself, including safety rules, procurement methods, contract implementation, and so on.
On top of these, it’s important to be aware of specific provisions for dispute resolution. For example, if a dispute goes to court, it will generally be heard in a civil court in the state where the project is taking place.
That said, there are certain situations where disputes will be heard in a federal court. Although this is generally only the case for federal construction projects, and is unlikely to be relevant to most contractors facing an unpaid invoice.
Even so, you must be aware of the legal ramifications of your position before you enter into negotiations to resolve a dispute.
Final thoughts
Construction projects involve a lot of variables. Some of these you can control. Others, you cannot. Despite your best intentions and every effort to provide an excellent service, there is always the possibility that a client will dispute an invoice. So you must be prepared.
Disputes can significantly impact your company’s cash flow, so you want to resolve issues as quickly as possible while maintaining a positive relationship with the client.
To make sure there’s minimal disruption, create clear contracts for each client and detailed invoices. Keep these documents well organized, using software to integrate all of your client’s contracts, payments, and communications in one place.
Your team should all be on the same page and equally committed to providing a high level of service and satisfaction to minimize the risk of disputes.
If the inevitable does happen, you’ll be well placed to handle the situation quickly and professionally.
Originally Published at – Field Promax (7 Best Practices for Construction Invoicing Dispute Management)
