Tackling Financial Risks Associated With Construction Projects Part 1
With many construction projects starting daily, disputes are imminent. Because construction comes with a great deal of risk, our Sarasota construction attorneys participate in our fair share of arbitrations and litigations. The intent of this article is to bring attention to some of the risky areas of finances construction professionals may encounter. In Part 2, we will discuss more risks and how to deal with them.
Financial Risks You May Encounter
Even with your best efforts, every project will not go smoothly and financial problems can stall your best efforts but finances need to be monitored and managed scrupulously to avoid derailing an entire operation. Below are some of the financial issues we see that project many times lead to some type of dispute.
Underbidding on Contracts:
Underbidding happens for various reasons including not understanding the scope of the project, performing work outside of the scope due to an owner’s request, or not knowing how much to bid on the project. You can absorb the cost or pass it on to the owner, but this could lead to financial battles if the owner doesn’t want to pay. Underbidding may land you a job but may cost you way more than you want to pay in the end. To avoid legal issues related to public contract bidding, contact a Sarasota construction lawyer.
Defaulting on a Contract:
It is not uncommon to see a project stall because of the financial issues a contractor may be facing. The contractor may experience a bankruptcy, change orders that drive up cost, or they could have cash flow issues which make it difficult to complete the project on time or to pay their subs or suppliers. Additionally, contractors with an insufficient accounting system in place will not project expenses correctly. This can result in the contractor abandoning the project. To avoid this, contractors should make sure their financial documents are in order, they need to secure financing before starting the project, and they should only take on work the can manage.
Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.