WE HAVE A GREAT CONTRACT, SO WHY ARE WE STILL DEALING WITH CLAIMS IN COURT? (Part 2 of 3)

Part 2 of a 3 part series on risk management

Posted by: Josh Quinter (jquinter@kaplaw.com)

My previous post in this series addressed the most obvious reason why a construction company's contract is not keeping it out of court: the contract simply isn't good enough. It bears repeating that no contract is perfect; and even the best contracts, which allocate risk as opposed to eliminate it, can't prevent every possible lawsuit. Because the contract itself cannot completely insulate a company from litigation, the next logical question becomes whether there is anything else that can be done.

Another issue to consider is among the most basic (as opposed to the most obvious). Leadership – in both the individual and collective sense – has a huge impact on risk management and, as a result, the bottom line. While there are too many facets of leadership to cover in one blog post, mention of a few parts of the foundation of good leadership will go a long way to setting the type of culture necessary to help avoid claims and litigation. Note, however, that I did not say avoid disputes. Parsing these two concepts out is both intentional and important since disagreements are both inevitable and healthy if approached the right way.

Abraham Lincoln.pngOne of the keys to avoiding litigation is to establish a culture which emphasizes being positive, problem solving, and putting customers first. The companies that avoid litigation don't just talk about these things. The companies that avoid litigation live these things every day. These values are embedded in the company's culture because the leaders in the group emphasize them and lead by example. These core principals guide everything they do. As a result, trust is established and the people they work with begin to emulate those same characteristics.

Here are some of the leadership traits that can really help create a culture which avoids litigation while encouraging growth:

(1) Develop a company ethos and vision with input from all quarters, write it down, and distribute it to everyone to promote accountability.

(2) Emphasize relationships at all levels.

(3) Do the right things, even when no one else is looking.

(4) Lead, don't manage; and understand there is a difference. Good leadership gives people enough room to operate.

(5) Communicate clearly and often; and be sure you listen at least as much as you talk.

(6) Encourage taking risks, be understanding of mistakes the first time and fix them, and then learn from the mistakes.

Leadership sets the tone for any organization. While there are exceptions to every rule, every well run organization, especially those that stay out of court, have good leadership. That leader may be a company executive or a good foreman. The best companies have integrated leadership with good people at multiple levels in the organization though. If your company is having trouble staying out of court, consider whether a change in how the company is led (not necessarily the same as changing the person serving as a leader) might help solve the problem.

In the final post of this 3 part series, I will discuss managing risk and litigation avoidance through good project management.

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