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Therefore, strong payment application and payment procedures specifically outlined in a construction contract are a must.
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If a payment dispute arises during the construction project, it could lead to a work stoppage and a delay in the completion of the project. Although defective construction is a category in and of itself as outlined below, more times than not, payment disputes arise because the work has not been completed properly or there is a delay in approval of payment applications.
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Within this general category of disputes is a whole subset of other issues that can arise on a project, including: (1) contractors not following payment procedures (2) payment applications being rejected by an architect, owner, title company or lender (3) disputes over pay when paid or pay if paid clauses in contracts that state that a subcontractor cannot be paid until (or if) the owner pays the contractor (which are enforceable in Michigan as discussed in Berkel & Co Contractors v Christman Co, 210 Mich App 416, 418–419 533 NW2d 838 (1995)) and (4) claimed defective or incomplete work. These disputes include everything from a contractor not paying its subcontractors or suppliers to an owner not paying a contractor and everything in between. Payment disputes can arise at any point on a construction project after it starts. A small amount paid to an attorney up front may be able to save tens of thousands of dollars (or more) in legal fees if a one-sided or poorly drafted construction contract is executed. Whenever construction is being considered, no matter the size of the project, it is a worthwhile endeavor to hire a construction attorney to draft or negotiate the agreement and provide guidance as to what the legal import of certain provisions are before anything is signed, and to provide legal advice on how best to avoid disputes both during, and after, your project. Therefore, this article will briefly touch on the major categories of disputes that may arise on a construction project between owners and the parties performing the actual construction on the project. Additionally, provisions can be negotiated that can provide a mechanism for resolving any disputes in an expeditious manner so that the construction project can be completed in a timely manner. However, gaining a clear understanding of the different types of construction disputes allows the parties to the initial agreement to negotiate provisions within a construction contract that will seek to reduce many of the risks that a significant dispute will arise. Even with a strongly worded construction contract, disputes will potentially arise on a construction project.