Chapter V: Disputes

On any large industrial project, disputes are not a possibility. They are a certainty. Each party reads the contract through the lens of its own interests, its own experience, and its own institutional pressures. The result is an endless stream of disagreements, over scope, over schedule, over responsibility, over compensation. A well-crafted contract reduces the number and magnitude of these disagreements, but no contract, however detailed and carefully negotiated, eliminates them entirely. Anyone who tells you otherwise has not built anything.

This chapter does not offer a magic solution, because none exists. Every project is different. Every dispute carries its own unique mixture of facts, opinions, and emotions, shaped by the specific people on both sides, and sometimes multiple sides, of the table. What follows are frameworks and hard-won observations that can help you navigate disputes more effectively. They are not a formula. They are a map drawn from experience, and like all maps, they are imperfect.

The Fine Line Between Accountability and Confrontation

One of the most consistently underestimated challenges in EPC contract management is calibrating your posture toward the contractor. Push too little, and the contractor learns that commitments carry no consequences. Push too hard, too often, and you create an adversarial dynamic that poisons every interaction, slowing down problem resolution, hardening positions, and ultimately costing the project more than the disputes themselves.

The most effective owner’s representatives hold the contractor accountable firmly and consistently, but they also look for ways to give the contractor room to succeed. They understand that the contractor’s project team is, in most cases, trying to deliver. In my experience, most people don’t get up in the morning thinking “how can I screw my counterpart today”. They get up and go to work to do a good job. The dysfunction is usually in systems, resources, or management, not in bad faith.

Handshake deals are a natural feature of construction. In the field, in the trailer, over coffee: practical agreements get made every day that never appear in a formal change order or letter. These informal resolutions are not a problem. They are often the grease that keeps the project moving. The problem arises when they flow in only one direction. If the owner’s project manager is perpetually absorbing small concessions with the unspoken understanding that “you owe me one,” that bank of informal obligations will come due at the worst possible moment, typically during a dispute over something much larger, when the counterpart is not in a position for a concession, even if he/she wants to.

Park the Dispute and Move the Project

Not every dispute needs to be resolved before the project can move forward. In fact, insisting on resolution before proceeding is one of the more common ways owner’s teams inadvertently slow their own projects.

When a dispute arises that cannot be quickly resolved, consider whether it is possible to formally document the disagreement: note it in the project log, preserve the record on both sides with the estimated schedule or cost impact, and then agree to set it aside pending further negotiation. This approach allows both teams to keep their eyes on the critical path while the unresolved issue is handled through a parallel process. It requires discipline and mutual trust, but on projects with dozens of concurrent disputes, it is often the only way to keep construction progressing.

Not all disputes can be parked. Some involve scope or responsibility ambiguities that directly affect ongoing work. But where parking is feasible, it is almost always preferable to letting a dispute become a chokepoint.

Knowing When to Escalate

There comes a point in every serious disagreement when the people at the table simply do not have the authority, the perspective, or the flexibility to resolve it. Recognizing that point and acting on it is a mark of maturity in a project manager.

Escalation is not a failure. It is a tool. If the concession required to resolve a dispute exceeds your authority, escalate immediately. Do not make commitments you are not authorized to make, and do not allow a dispute to fester because you are reluctant to involve senior leadership. The longer a significant disagreement sits unresolved at the working level, the more entrenched the positions become on both sides.

When you escalate, bring a clear summary of the facts, the parties’ respective positions, the gap between them, and your own assessment of the risk of continued impasse. Bring suggested solutions that are above your authority to your senior management; do not ask them to start from scratch and find the solution for you.

When the Attorneys Enter the Room

There is a moment in many disputes when the tone of the correspondence shifts. The language becomes more formal. The email distribution list expands. Phrases appear that sound less like project communication and more like the building blocks of a legal argument. That shift is almost always the signal that one side has involved its legal counsel. Once you see it, you need to respond in kind.

Involving attorneys is a double-edged sword. Legal counsel brings expertise, rigor, and institutional weight to a dispute. But the moment attorneys become visible in the process, both parties begin positioning themselves for a potential legal confrontation, whether that confrontation ultimately takes the form of mediation, arbitration, or litigation. Correspondence is written with one eye on a future hearing. Informal channels dry up. The space for negotiated settlement narrows, and sometimes closes entirely.

This does not mean you should avoid involving your attorney. There are circumstances where legal involvement is necessary and overdue. The point is timing. Bringing in counsel too early transforms a business dispute into a legal one before you have exhausted the alternatives. Once that transformation occurs, it is very difficult to reverse.

The Case for Mediation

I have heard the argument against mediation more times than I can count: “We have been negotiating with these people for months. We know their positions. They know ours. Bringing in a mediator is just going to cost us another week and another hundred thousand dollars to hear the same arguments we have already heard.” I understand the frustration behind this view. I disagree.

A good mediator does not simply replay the arguments both sides have already made. A good mediator does something more difficult: they make both parties genuinely reckon with the cost and risk of not settling.

Disputes that drag on through months of negotiation tend to develop a kind of institutional momentum. Each side has spent time, money, and credibility defending its position. The team that has been litigating the dispute internally, arguing it in emails, defending it to senior management, believing in its righteousness, is not, in most cases, capable of stepping back and asking whether being right is worth what continued conflict will cost. The mediator provides the external perspective that neither side can provide for itself.

A skilled mediator surfaces the consequences of impasse: the cost of arbitration or litigation, the distraction from ongoing operations, the reputational exposure, the time. He or she helps each party separate the legal merits of its position from the business reality of the situation, and that separation is often what makes settlement possible. It is not weakness to settle. It is judgment. Better business decisions are usually made with rational, and not emotional, thoughts. A good mediator helps you think rationally.

Termination: The Last Resort

Everything discussed in this chapter, the handshake deals gone wrong, the escalations, the attorneys, the arbitration proceedings, represents the spectrum of how disputes are managed while the project continues to move. Termination is where that spectrum takes a major turn, but still does not end, since there are peaceful (e.g. termination for convenience) and contentious (e.g. termination for default) ways to end the contract.

Termination is the nuclear option, and it should be treated as such. It is also, on some projects, unavoidable.

As an owner, you may reach a point where you have exhausted every available tool: schedule extensions, additional compensation, management changes, escalation to the contractor’s executive leadership. And still the contractor cannot deliver. The project is genuinely at risk of failure or of completion with performance so degraded that future operational problems are a near certainty. At that point, termination becomes not just an option but a responsibility.

As a contractor, you may reach the equivalent inflection point: a project where the owner has so thoroughly failed to fulfill its obligations in delivering owner-furnished equipment, in responding to submittals and RFIs, in providing access or information that your costs continue to mount, your schedule continues to slip, and your reputation continues to suffer through no fault of your own. At some point, continuing to perform under those conditions is no longer tenable.

In either situation, my strongest advice is this: do not navigate termination without experienced outside help. Bring in seasoned project managers and executives who have been through it before. Engage legal counsel with specific experience in construction disputes. The procedural requirements for a valid termination are exacting, and missteps can transform a defensible termination into a breach of contract claim.

As an owner, before you terminate, you must be able to answer yes to each of the following questions. Not probably yes. Yes.

Do you have a complete and accurate inventory of all materials and equipment, and do you know exactly which of those are physically in your possession versus still in the contractor’s shop, warehouse, or yard? Long-lead items such as piping, valves, and specialty equipment have a way of being much further from the laydown area than your project team believes. Verify this independently, not through your project manager’s assurances.

Do you have all engineering documents, drawings, specifications, the three-dimensional model, calculations, in your actual possession, not just a contractual right to them? A contractual right to documents that are physically in the hands of a terminated contractor is worth very little in the weeks after termination, when you need them to keep building.

Do you have a replacement contractor identified, vetted, and ready to mobilize? Not in conversation. Not on a shortlist. Under contract, or as close to it as your situation allows.

If you cannot answer yes to all three, you are not ready to terminate. You may be justified. You may be angry. You may be right. But you are not ready. The consequences of terminating before these conditions are met can be severe not just in legal costs, but in construction delays, carrying costs, and project outcomes that bear no resemblance to what termination was supposed to achieve.

The most important procedural distinction is between termination for default and termination for convenience. Termination for default is a declaration that the other party has fundamentally failed to perform. It is the most aggressive form of termination, and it almost invariably produces the most destructive outcomes: scorched-earth responses, accelerated legal costs, and a project that suffers further while the parties fight over who is to blame. Even when you are ninety-nine percent certain that the other side has wronged you, termination for default is rarely the optimal path.

Termination for convenience, or a heavily one-sided but negotiated settlement, almost always produces better outcomes for the project, for the owner’s organization, and for the eventual resolution of the dispute.

I saw this play out directly when my general contractor was preparing to terminate one of their subcontractors. The subcontractor had persistent problems delivering qualified craft to the field, and their rejection rate was running at roughly five times the industry norm. My contractor was right to want them gone.

But when I looked at where my contractor actually stood, I made them stop. They did not have adequate quality documentation to support a termination for default. They had not secured a replacement subcontractor. They had no plan for how work would continue the day after the termination. They were prepared to fire the subcontractor but they were not prepared to keep construction going.

I convinced them to continue working with the subcontractor while simultaneously doing four things: continuing to help the subcontractor and see if they could resolve their issues, building the documentation record that would support a defensible termination, getting the critical technical documents and submittals transferred into their own possession, and identifying and contracting a replacement subcontractor. That process took two months.

When the termination finally happened, it went smoothly. The replacement contractor mobilized without a meaningful gap. The documentation was in order. The project absorbed the transition without significant schedule impact. Two months of preparation turned what would have been a damaging, contested termination into a controlled handoff.

That is what a well-executed termination looks like. Not fast. Not reactive. Deliberate.

There is a question I return to repeatedly when termination is on the table: do you want to be right, or do you want to be successful? In construction, being right and being successful are not always the same thing, and the gap between them is measured in time, money, and organizational energy that could have gone somewhere else.

I have navigated this territory more than once, from more than one side of the table. The lessons are not easily summarized, and every situation has its own wrinkles. If you are facing something similar, I am happy to talk through it.

Arbitration and Litigation

Sometimes arbitration or litigation is unavoidable. A contested termination, an unresolved claim, a dispute that outlasted every other mechanism: when the parties cannot reach agreement on their own or through mediation, the dispute moves into a legal forum. At that point, the nature of the engagement changes fundamentally.

Once you are in arbitration or litigation, you are no longer primarily managing a construction project. You are participating in a legal process that is led by your attorneys. The project team’s documentation, correspondence, and prior decisions become evidence. Witnesses are prepared. Experts are retained. Costs that have nothing to do with construction begin to accumulate.

The practical guidance here is straightforward: do not let the legal process consume the project. Where it is possible to complete construction while the dispute proceeds in parallel, do it. Where specific issues can be settled separately by carving out and resolving while the larger dispute continues, pursue that path. Every issue you resolve reduces the scope and cost of what remains. The larger the unresolved disagreement, the longer and more expensive the process will be.

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Chapter VI will turn to commissioning and project closeout, the final phase where systematic startup sequencing, performance testing, and operator readiness determine whether the plant actually runs as designed, and where your documentation, punch lists, final acceptance, and lessons-learned processes determine whether the project ends cleanly or leaves a trail of unresolved obligations that follow both parties for years.