Construction Disputes Explained: How Contractors Lose Millions (And How to Avoid It) | Ken Rubinstein

Rishi Srivastava (00:41)
Today, our guest is Ken Rubinstein. Ken, welcome.

Kenneth Rubinstein (00:45)
Thank you, Rishi.

Rishi Srivastava (00:46)
Litigation stories plus practical contractor lessons. That’s the theme today. First section here is on your background plus why dispute happens. You grew up around cost estimating and construction management. What did that teach you early about how projects actually go off the rails?

Kenneth Rubinstein (01:08)
So as you know, I grew up, my parents have a cost estimating construction management firm in New York. So I was involved very early in construction. And one of the things I saw very often is that a task expands to fill the time a lot. So it’s great to have a schedule, and you can think that you’ve built cushion in, but whatever cushion is built into the schedule is almost always going to get absorbed.

Rishi Srivastava (01:22)
Mm-hmm.

Kenneth Rubinstein (01:31)
The other thing is that it’s great to have a schedule, but Mike Tyson liked to say that everybody’s got a plan until they get punched in the face. And the schedule is great, but I’ve yet to see a construction project where everything happened when it was supposed to.

Rishi Srivastava (01:39)
Mm-hmm

It’s very hard to set to the schedule too because when you’re – estimating that schedule, a lot of it is guessing too, the conditions.

Kenneth Rubinstein (01:56)
Yeah, we have these schedules and they look very detailed and they look very focused in your you’re saying 16 days to complete drywall. It’s really you can have a lot of experience, but it varies from person to person, from crew to crew based on the materials, based on the specifications. There’s so many variables that can go wrong and they can change.

Rishi Srivastava (02:17)
Yeah, construction

is not manufacturing. is, you know, so much noise and uncertainty in the field.

Kenneth Rubinstein (02:26)
Yeah, I one of the things we deal with all the time is whether in contracts or in the actual field, you talk about the weather and we’re seeing the owners now are saying that they’ll only give additional time for abnormal weather conditions. Well, I’m based in New England and I can tell you that it’s going to snow in February and I can tell you that we’re going to have a storm at some point in February. The problem is I can’t tell you which day. I can’t tell you whether it’s going to be on the third when we have scheduled for the plumbers to be

Rishi Srivastava (02:38)
Mmm.

Kenneth Rubinstein (02:54)
coming in or whether it’s going to be on the 25th when by which point maybe we’re on to the painting. But so should I get an additional time? mean those issues come up all the time.

Rishi Srivastava (03:06)
Yeah. After nearly 30 years in construction disputes, what’s the moment where a normal job quietly turns into a claim?

Kenneth Rubinstein (03:16)
reality is it’s all about relationships. If there’s good communication and everybody knows what’s going on and you’ve kept the owner apprised, usually things can be worked out. Because at the end of the day, you have the facts and you have the contract. And so if you have a well-written contract and everybody’s apprised of the facts, it doesn’t need to turn into a claim because the contract says what’s supposed to happen.

Usually it turns into a claim when one party doesn’t trust the other party.

Rishi Srivastava (03:43)
So I had a guy installing curtains at my house yesterday and he’d made some mistakes and I told him, hey man, this is a mistake, let’s fix it. And he started blaming me and he was worried that this is gonna turn bad for him and he’s gonna lose his job. I said, hey dude, why don’t you tell your boss that I as a client made a mistake? But that guy,

He just left still and later I called his boss and his boss fired him.

Kenneth Rubinstein (04:12)
Yeah, well, and that creates a real challenge where you can have a contract that says one thing, but memories fade. And when you’ve got to figure out what happened, it’s great to say that, we all know what happened, but when you ask somebody and their job is on the line.

And if they remember that it was your fault or that you approved something, then they did nothing wrong and they proceed with their work. But if he remembers it as, you know what? I forgot to get the approval, then they’ll lose their job. All of a sudden, people remember things differently.

Rishi Srivastava (04:46)
Yeah. Most of the time, like I, as a client, let’s having a project getting done. I want to work with people. don’t want to, you know, different person coming and trying to fix things, you know, even if there’s a mistake.

Kenneth Rubinstein (05:01)
Yeah, ideally you get these relationships and the best clients I have likewise have customers that they’ve been with for years. So contractors who work with the same university over and over and the university brings them from one project to the next or a hospital or a commercial developer. Because if you have a relationship of trust and confidence, you like working with people that you know and you know what to expect and if something goes wrong,

you know you can work with them to figure it out.

Rishi Srivastava (05:31)
Yeah.

Yeah. Also a little bit of smile goes a long way. You even if you had, you have made a mistake or I have made a mistake being kind to each other, we can work together instead of going on a claim and suddenly someone losing jobs or being a big arbitration.

Kenneth Rubinstein (05:48)
We’re having some work done at the house right now and the contractor something went went wrong on when they were installing the front entryway and

Rishi Srivastava (05:56)
huh.

Kenneth Rubinstein (05:57)
I know this client, I know this contractor very well. They’re actually a client of mine. And so, yes, something, I came home and the front entryway did not look like it was supposed to. One of the molding on one side was higher than the other. But I knew that it was a conversation we’d be able to have.

And I knew that we’d be able to sit down and figure it out and figure out what the next step. So I wasn’t aggravated. You know, if I have to worry that he’s going to be blaming me, then I start off thinking I’ve got to blame him. And now I’ve got an edge in my voice and he doesn’t like being talked to that way. So he’s got an edge in his voice and it turns into a conflict or claim. Whereas if we just what happened in this case is I went to Justin. I don’t think it’s supposed to look like that. I had confidence.

he was going to do the right thing and mistakes happen and he said yeah Ken it’s not we’ll we’ll address it and so we had it was a really easy conversation and when he said you know the the carpenter should have done it all differently let me talk to him I said you know what if you need an extra day of if you need a little bit of relief for the materials I’m happy to cover the materials as long as we get this fixed

I was willing to take a softer position than maybe I could have because he was being cooperative and helpful. I mean, that’s the way that construction is supposed to go.

Rishi Srivastava (07:17)
Yeah.

The next section here is inside litigation plus arbitration, real world. Most contractors never see the inside of an arbitration room. What’s the biggest misconception they have about how these cases are decided?

Kenneth Rubinstein (07:34)
So people think that these cases, that they’re right. I would tell you that 95 % of the cases I have, both parties think they’re right. Nobody’s trying to cheat the other one. One party may be mistaken, but they think that they’re right. the good thing about that is usually if nobody’s trying to cheat the other one, you can reach a compromise. The problem is that people think that just because they’re right, that the arbitrator or

the judge is going to see it their way. And these are complicated cases that usually have multiple moving parts. There’s often multiple, it’s not so clear. You may say that the delay happened because the owner didn’t give the approval in time. The owner says that they didn’t give the approval because you didn’t give sufficient information. You feel the information that you gave was sufficient, but that you were lacking backup. And those are complicated things for a judge or an arbitrator to figure out.

Rishi Srivastava (08:00)
Mm-hmm.

Kenneth Rubinstein (08:26)
and to parse through. And so I always tell my clients that never be more than 95 % confident that the judge is going to properly get it right that today’s Friday. I you should never be more than 85 % confident that the judge will get the simplest thing right. Because they may miss, their mind may wander during the hearing. They may not realize the significance of the fact that you think is critical.

The project that you lived with for six months or a year, this arbitrator is hearing over period of five days. And they’re just not going to have the knowledge you do. So people don’t realize that even what they see as cut and dry is not that simple and is not that clear.

Rishi Srivastava (09:03)
Yeah,

and some of these judges, they don’t have a real construction experience too.

Kenneth Rubinstein (09:09)
Yeah, particularly if you’re not in arbitration and you’re in court. You the jury doesn’t want to be there. Nobody’s ever excited. Very few people are excited about jury duty. So this case may be your livelihood. This may be vitally important to you. But the person who’s hearing it is thinking about what they’re about, what they’re doing after work and the show that they wanted. They want to watch that night. If you have a judge.

that judge may not have probably wasn’t a construction lawyer before they went into, before they became a judge. They may have handled DWIs and small petty crimes. And now they’re being asked to figure out a delay claim. People have more confidence than they should. Now, if you have arbitration,

you at least have a better shot because you get to pick the decision maker and that person is being paid to pay attention and that person is being paid to understand so you can find someone who has background knowledge in the field. it’s really, people often don’t realize that the person who’s hearing their case doesn’t know the background as well as they think.

Rishi Srivastava (10:10)
Attention is a precious commodity.

Kenneth Rubinstein (10:12)
Absolutely.

Rishi Srivastava (10:13)
You’ve arbitrated more than 50 cases. What matters most? The contract language, the documents, or who tells the most believable story?

Kenneth Rubinstein (10:24)
So ultimately it’s the contract. Ultimately the contract is the number one thing. It’s the rules, it’s the framework. The documents would be second because the documents lay out what the facts are within the contract. And then who tells the most believable story is third. You want to be likable. The arbitrator is a person and people, often these cases when they’re not clear, when it’s not 100 % one way or the other,

and it rarely is, you’ve got to decide which facts you believe. Again, it all comes back to the contract to fear what the rules are, but if I’m not sure which way it goes, I’m going to lean towards the party that’s A, more believable and B, more likeable. And I would…

tell you with arbitrations it’s even more important than it is on trials because the judge is really constrained by the contract and by the statute. If the judge gets it wrong, they can be appealed.

In most instances, arbitrators can’t be appealed unless they’re exceeding their authority or they make a math error or frankly they were on the take. They were biased. So arbitrators have a lot of leeway and where one party appears to have been wronged…

It’s very often that arbitrators will bend over backwards to read the contract or read the law in a way that applies to them or that helps the party that they feel were wronged. Now, if the contract is clear and the law is clear, the arbitrator is going to find for the party who is in the right, whether they were morally at fault or not. But if there’s any leeway whatsoever, the arbitrator is usually going to go with the party that comes

across as the better or the more likeable or the more equitable party.

Rishi Srivastava (12:07)
I always like to relate to this to personal or family law. Actually, me and my ex-wife, have a little bit of custody issue going on right now and we cannot agree on the same set of facts. Whose facts are right?

Kenneth Rubinstein (12:20)
Yeah.

that’s where the credibility, mean, documents tend to have the most credibility. I can tell one story, you can tell the other, but if there’s an email that confirms that what I said is right, that’s where the documents come in. So ultimately, the contract is the rules. Documents won’t trump the contract.

But when it’s a he said, she said, and you and I are disagreeing on how the conversation went, but then there’s an email that is consistent with your rendition of the discussion as opposed to my rendition, that email is going to be very powerful.

Rishi Srivastava (13:00)
Makes sense. The $11 million warehouse automation arbitration. You mentioned $11 million dispute in Dallas over delays and missing functionality. What was the fight really about underneath the surface?

Kenneth Rubinstein (13:18)
So ultimately, was about a lack of trust and a lack of communication. There was a dispute regarding a particular functionality and whether or not the system that the contractor was installing had the ability to do that functionality. And if you went back through the party’s communications before they signed the contract, it’s clear that the owner wanted that functionality. If you look at the contract itself,

it didn’t seem to support that. And so the owner took the position that yeah, we always wanted in the contract and yes, they had to deliver that. And the contractor said that no, that was a wish list function. And we said if we can make it work, we will. Ultimately, the contract is good is going to decide. So at that point, you had an owner who was disgruntled. And more important than that, you had an executive within the owner who had his job on the line.

because he had gone to bat for the funding for the project and now all of sudden it wasn’t going to be able to do what he had sold to his bosses, it would be able to do. And when that happens, that becomes problematic because now you have somebody who is going to be letting down their bosses and like we were saying at the beginning,

His job may be on the line if he got $11 million or $10 million from his company to achieve something and they’re not going to be able to deliver. When that happens, unfortunately people often change the facts when they relate it to their boss. They don’t remember it in a way that makes them look bad.

Rishi Srivastava (14:42)
Yeah, know, safety is important, right? mean, it’s the market can be tough to find a new job if you get fired.

Kenneth Rubinstein (14:52)
Yeah.

People, always, documents are really important because we can all sit here and say that a handshake is very important and my word is my bond and it may be. The problem comes a year later when we have that conversation and you don’t remember exactly verbatim how the conversation went and you’re not 100 % sure but if you remember it this way, you were in the right and the other side was wrong. If you remember it that way,

you committed a major mistake that’s going to cost your company millions. Unfortunately, people tend to remember things in the way that’s more favorable to their own personal outcome, which is all the more reason we tell, know, in construction, daily logs, weekly meeting minutes, those can be the difference between having a claim and having an unprofitable job.

Rishi Srivastava (15:46)
Yeah. In delay claims, how do you actually prove who caused the delay when everyone blames everyone?

Kenneth Rubinstein (15:57)
So on a complex project, you’re going to start off having a critical path. So the contractor’s job schedule is going to lay out the critical path for the work and lay out the sequence of what’s supposed to be done when. After a job is complete, if there’s a dispute, often you go to a delay expert and you provide them with the documents. So you show them what was delayed and where. And they’ll use that to recreate what the actual schedule was.

So what you end up with is an as-built versus as-planned critical path. that can be, now the problem is, is that there’s some subjectivity to it and one expert may say that this was dependent, this element was dependent on that, whereas another expert may say no, the two could be done independently. And again, that’s where it comes back to the documents.

Rishi Srivastava (16:28)
Hmm.

Mm-hmm.

Yeah, documents are so important.

Kenneth Rubinstein (16:49)
I spend a lot of time with my clients getting them to a have proper job site documentation in terms of the daily logs Which talk about the conditions on site which talk about the manpower on site which talked about the work that was done that day Weekly meeting minutes which established the communications it talks about what’s happening on the project talks about what is late and what’s working and what’s not and it Communicates it to everybody so it also shows what was a

agreed and what was known and usually well-written weekly meeting minutes will include a statement that if a recipient disagrees with anything in those weekly meeting minutes that they’ll speak up within a certain amount of time or it’s deemed approved and that’s useful so that after the fact when somebody says yeah I was at the meeting but it didn’t happen that way you can say well we sent out the weekly meeting minutes to make sure everybody was on the same page and we asked that you let us know if you disagree

– did you send us anything in writing showing you disagreed? It’s a good way of establishing that what was documented is actually what happened.

Rishi Srivastava (17:47)
You cross-examined a quote unquote godfather of warehouse software. How do you prepare to question an expert in a field you are never worked in? You.

Kenneth Rubinstein (18:00)
So

that that was one of the most fun things I’ve ever done. Client of mine installed a warehouse management project and the person who there was an argument about whose software whether the software had caused the delay or whether the software was fully functional when it needed to be. And I was going to be cross-examining somebody who had spent 40 years in warehouse management software. This is all they do. They’re a software

Rishi Srivastava (18:18)
Mmm.

Hmm.

Kenneth Rubinstein (18:27)
engineer day in and day out. I am not a software expert by any stretch. I’m not an engineer. I can’t write code, but I had to be able to cross-examine him.

on what he does to demonstrate that the software had defects. And what you do in those instances is you dig into the documents. I consulted with, I dug into the documents, the emails, so that I could see what had happened. And based on those communications that he had with other people about the software, when he’s writing emails saying, how come there’s an error report here? How come there’s a bug there? The software, the…

XYZ isn’t ready for prime time. And I also consulted with experts on our team. I don’t know the field well enough that I would be able to go through those emails on my own and fully teach myself. But I’m humble enough to know what I don’t know.

engaged a software engineer, had him walk through and say, does this mean? This looks problematic. Gave him a stack of emails. What should I be looking at? So that I don’t have to be a mile wide.

I don’t have to understand everything about software. I need to be able to look at a specific item, get fully up to speed on that specific item, study it and know as well as I can. And so then in law, if you’re the one conducting the cross-examination, you can tailor the questions. So I would say, I’m looking at this email, it says XYZ. Did I read that correctly?

He said, yes. I said, all right, I’m showing you an email here. This says software is not ready for prime time. Did I read that correctly? He said, yes. You pull up the next email. And the key is to not try and be smarter than him in his field, but to travel that narrow path where I did have understanding and where I could have go toe to toe.

Rishi Srivastava (20:10)
I do software for living and writing bug free software is very difficult.

Kenneth Rubinstein (20:16)
And that was the counter that he was expecting, is he expected that I would say, there’s a bug, so obviously your software was bad. And he would come back and say, there’s always bugs, there’s always problems, and that’s just part of the development process. But I knew the ones that mattered and the ones that didn’t, just from my conversations. And so I could frame my questions to show that there were 50 bugs that they were dealing with in a two-week span, and that the system wasn’t able

Rishi Srivastava (20:30)
Mm-hmm.

Kenneth Rubinstein (20:43)
operate and just focusing on that not everything about the software not what’s your typical process but keep my questions very limited to the very few things I knew and so that way I was able to keep control of the discussion.

Rishi Srivastava (20:57)
What’s a moment in cross examination when you can feel the case shifting?

Kenneth Rubinstein (21:02)
So that’s fun. One of the things, so when you question witnesses in a trial or an arbitration, the person who’s presenting the witness asks open-ended questions. Asks, what happened next? Tell me what happened, what was your process for doing X, Y, Z? Tell me about how the project started. And then the person tells their narrative. When you’re doing a cross-examination,

You ask close questions. Is it true that X? Isn’t it true that Y? You don’t let them go off on a tangent. You don’t let them explain.

Rishi Srivastava (21:29)
Mmm.

Kenneth Rubinstein (21:36)
You know exactly, and you’ve gotta stick to the facts, but I know the facts. One of the most fun things is you ask somebody, is it true that you said that you would approve the change order? No, didn’t. Well, I’m gonna show you a document right now. This is an email from you and it reads, I approve the change order. Did I read that correctly? Well, I guess you did. Yeah, I forgot about that. And then when you do that two or three times, you get to a point where the

they don’t want to say yes, but they know you have the documents that you’ll be able to prove it. And so then they start agreeing with you even where they don’t want to because they know if you’re asking the question you must have the goods to back it up.

Rishi Srivastava (22:13)
So do you bluff sometimes?

Kenneth Rubinstein (22:16)
You can bluff if you believe the facts are true. I have had times where I’ve said isn’t it true you approve this? No, well I’m gonna show you a document. See okay and then after the third one I My client told me they had approved it But I didn’t have a document that would show it and I said so and isn’t it true after the third one? said and isn’t it true that you approved on April 17th? and he’s

yeah, I guess I did. And that’s Aren’t you going to show me a document now? No, I don’t need to. And just moved on. But that’s the, again, your credibility is everything. if you don’t believe it to be true, you don’t want to take the risk.

Rishi Srivastava (22:44)
Yeah.

Yeah.

You

know, George Costanza in Seinfeld said to Jerry, it’s not a lie if you believe it.

Kenneth Rubinstein (23:07)
Ultimately, I’m asking the questions and if they if the person feels that it’s not accurate They should answer honestly. They should answer truthfully. It’s not about it shouldn’t be about whether I can prove it it should be whether they believe it to be true and The problem is people try and lie and get away with what they can

And so then if they’re answering dishonestly based on whether or not they think you have the proof, that’s when people trip themselves up. I tell my own witnesses when they’re going to be cross-examined, the truth is always the best story. When all else fails, it’s the easiest to remember. I’d rather my person say something that’s unfortunate for our case, but be honest, because I can, if that happens, I can reform that.

If you give a bad fact, I can rehabilitate you. But the moment you get caught in a lie, your credibility is done. We’re going to lose the case.

Rishi Srivastava (23:58)
Yeah, You know, lying is so tough. Keeping consistent lies is not easy.

Kenneth Rubinstein (24:05)
Yeah, I mean the reality is that so many things link to other things and so many things are connected that if somebody’s not being truthful, you can often get them to admit something that is factual and then show how those two don’t align. And it’s those conflicts that end up getting people in trouble.

Rishi Srivastava (24:10)
Mm-hmm.

The next section here, is on emails, texts, and exhibit A. You said cases often come down to emails and texts. What are your top rules for PMs knowing their messages could be read aloud in court?

Kenneth Rubinstein (24:41)
So I tell my clients, write your emails and texts as if you would show them to your mother and as if you would show them to the CEO. Because if you end up in court, the jury is going to judge you based on your professionalism.

And frankly, if we end up in court, you’re going to have to turn over all of your emails and texts relating to the project, first to our lawyer and then to the other side. So if you write things that are unprofessional, if you have, I had one case where my client had racy pictures that they were sending around as jokes. And then on that same email string, they were talking about the change order.

Well, when you’ve sent around unprofessional pictures, you just don’t look credible. You don’t look like a serious person. And that undermined their credibility, even though they were telling the truth on the fight over the change rule. In another one of mine,

the subcontractor hadn’t sent enough people. They needed to send at least eight to 10 workers and were sending about one to two people every day. And then on one day, none of their people showed up.

And my client came to me and said, we have the daily reports, or daily logs. We can show that their people weren’t coming. We’ve got it documented. Well, when I went through the emails, there was an email from, or a text from the project manager to the super, to the, I’m sorry, the superintendent to the foreman of the subcontractor saying, hey, a-hole, where are your effing guys?

And it just, can’t, what the subcontractor’s response was, I couldn’t get people to go to the job site because he was abusive. He would curse at people, he’d get in their face, spit would come out of his mouth. Nobody would go because he was unprofessional and abusive. And I recognize that a construction site isn’t always gonna be, isn’t always gonna be the most genteel place, but that was gonna have a real impact.

Rishi Srivastava (26:22)
Mmm.

Kenneth Rubinstein (26:37)
and a jury was not going to like us and we would have gotten hurt if that case had gone forward. I told the client, I would rather that you call the guy up and say that. But when you put it in an email and it’s visibly in an exhibit A coming from you kills your case.

Rishi Srivastava (26:55)
So that case, the profanity case, that did not go to the trial.

Kenneth Rubinstein (26:59)
It

didn’t go to trial. We ended up settling. The example I give clients all the time is years ago there was a football player named Ray Rice. And he was a running back on the Baltimore Ravens and it came out that he had punched his fiance in the head so hard that she lost consciousness. And the public was outraged and the NFL suspended him for two games. Only two games for punching his fiance in the face.

Shortly thereafter the video came out showing him doing there was nothing in the video that hadn’t been in the news accounts everybody knew that he had punched her in the face everybody knew it was hard enough that she lost consciousness but when the video came out the NFL and suspended him for the rest of the regular season and he never played another down football no one would hire him

And it’s very different when someone, when a third party recounts the story versus when you can actually see it. It’s one thing if the subcontractor were to say, the superintendent was mean to me, he yelled, he cursed, and he even wrote me an email cursing at me. That won’t be as strong as if the jury or the arbitrator can look and see your email in all caps saying, hey,

a-hole where you’re effing guys. It’s once you put it in your own words, once you put it down on paper coming from you, it’s a lot harder to come back from that.

Rishi Srivastava (28:31)
Yeah, seeing is believing.

Kenneth Rubinstein (28:32)
Yeah, exactly.

Rishi Srivastava (28:34)
What’s the most damaging kind of internal email you’ve ever seen show up as evidence?

Kenneth Rubinstein (28:41)
emails are terrible, texts are worse. People write things not thinking about it. I’ll tell you the two things I hate. One is often within an organization, people will write CYA emails. They’ll want to blame somebody else in the organization. I was ready to move forward, but I couldn’t get the, I was waiting for Josh to get me X, Y, and Z. Or an email to somebody else blaming them,

as way of protecting themselves. When I’m on the other side, I love getting those because it’s two people within the opposing party arguing which one of them is at fault. That’s the greatest thing from my perspective when I go through somebody else’s emails. But the worst email I’ve ever had is a client of mine was on a project where the owner made constant changes.

Rishi Srivastava (29:18)
Mmm.

Kenneth Rubinstein (29:26)
The project was constantly being changed. There were 133 change order requests that we had. The cost of the project ballooned by about 40%. And then the owner was asking, why was it late? And our view was, of course it’s late. You changed everything about the project. We were change ordered to death on it. There are inherent inefficiencies on that.

The problem is, and after going through the documents, I believe that that was the case. I believe that my client was right on that. The problem is, is when we went through my client’s emails, there was an email from two assistant superintendents, one who was on the job and one who was not, saying, I don’t know why we keep allowing Jimmy to put out proposals. He always bids low and tries to make it up on the change orders. You want to grab a slice?

I it was not intended as any kind. It was just two guys who were chatting and planning on grabbing lunch. There wasn’t anything formal. There wasn’t anything intended to be, intended beyond just, they don’t like Jimmy. And they were just chatting absentmindedly about somebody they don’t like. The problem is, is that was admissible.

We have to turn over all of the emails and texts relating to the project. And that was consistent with the owner’s theory that, there were a lot of change orders because you underbid the project. So what had been a strength of ours became a weakness. My client probably lost half a million dollars because of that one email.

Rishi Srivastava (30:52)
No.

Wow! know, the bids on these projects is very comparative. You have to kind of put low bids to even win these.

Kenneth Rubinstein (31:10)
Yeah, and that’s why if you have emails in your file,

that make you look bad. The other side is going to see them. I’ve seen people write personal and confidential on an email. That means nothing when it comes to discovery. I’ve seen people try and avoid fights with the other side by saying, you know, neither of us covered ourselves in glory on this project. They think if they admit some fault, then the other side will admit some fault and we can find common ground.

While I applaud the sentiment of trying to avoid the fight, the problem is you put that in email, the other side writes back, I’m glad you acknowledged that you made some mistakes, but I don’t agree that we made any. This is you trying to make us responsible for what you acknowledge was mistakes that you made on your side. And now you’ve made admissions just because you hoped that the other side would as well. Now, plain statements of objective facts. That’s all I want to see in your emails.

Rishi Srivastava (32:07)
And I mean, there is a reason phone calls are still the best way to have these kind of conversations.

Kenneth Rubinstein (32:14)
Yeah, I would much rather stuff get resolved by phone. It’s easier to avoid conflict. It’s easy. Email tone doesn’t come across in email. Jokes don’t come across in email. Sarcasm doesn’t come across in email. People take emails out of context. And frankly, if they’re having a bad day, they think they read the email in a light that maybe is more contentious than intended. You can avoid fights by

Rishi Srivastava (32:25)
Bye.

Kenneth Rubinstein (32:41)
picking up the phone and having the conversation.

Rishi Srivastava (32:43)
Definitely. The next section is here on subcontractor walk-offs plus termination. You described a case where a subcontractor refused to return to fix work. What does the contract usually require in a bona fide dispute?

Kenneth Rubinstein (33:03)
So, disputes are not unusual in construction projects. It’s not unusual that one party may think they’re entitled to payment or entitled to a change, a contractor or sub may feel that they’re entitled to a change order and the contractor or the owner saying no. Most contracts have a clause in that says if there’s a genuine dispute, if there’s a bona fide dispute, that the contractor or the sub has to keep working.

You can’t walk off, it’s a terrible idea to walk off the job because of an argument. If the contract has a clause, and all the AIA contracts, most of the standard form contracts have that clause saying that in the event of a bona fide dispute, you will keep working. But even those contracts that don’t have that, it’s the judges, the arbitrators are always gonna err on the side of the party who kept working. The one who walked away,

is usually going to be perceived as the bad guy. Now, if you’re not being paid, can you walk off the job? You might be able to, but it’s a risk. You’d better be right.

because the damages now go from being that disputed amount to the cost of bringing in a new contractor to finish the work. It’s going to take that new contractor is going to charge more money because they’re stepping into a half finished situation because they’ve got to now accelerate. They have to work on a faster schedule because there’s less time left.

and they’ve got to get up to speed. Plus, that contractor or that subcontractor knows that this is a distress situation and they’re going to charge a premium for it. Perhaps because they know litigation is coming and they want to make sure that they’re compensated fully for all of their time. But there are studies that say that when a subcontractor walks off the job or a contractor walks off the job, I’ve seen studies that say it’s somewhere between two and four times more expensive.

to bring in a new contractor to complete the work. Not 20 to 40 % more, two to four times the cost that it would have been for the original contractor to stay on the job.

Rishi Srivastava (34:59)
Why does replacing a subcontractor mid-project become 2 to 4 times more expensive, as you said?

Kenneth Rubinstein (35:05)
Well, so again, it can be anything from now you have less time. By the time that subcontractor walks off, it takes time to procure and bring somebody new on. They’re not picking up exactly where the other one left off. They have to validate the work that’s been done to that point. They have to look at it to make sure that it’s stable and that they can build upon it. They know that there’s problems. They know that they have the contractor over a barrel and that there’s an instant need.

often it’s not there isn’t time to put it out to bid. It’s not a competitive procurement situation. And frankly, the contractor often doesn’t care because they know that they’re going to charge the sub for the entire cost of the rework or the new contractor. And so they bring the joke is, is that that contractor is going to plate it in gold.

because they can because they’re not using their own money. Now they’re using what they perceive as the subs money because they’re going to sue them and get that money back out of them.

Rishi Srivastava (36:04)
You used a great tactic. Quote unquote, ask your lawyer after this call if what I’m saying is correct. How much of litigation is really psychology and leverage?

Kenneth Rubinstein (36:18)
a tremendous amount, tremendous amount. Ultimately, you’ve got to convince somebody to do something that they perceive against their own interest. Typically, if you’re trying to settle a case or resolve a dispute or even negotiate contract language, often you’ll run into people who don’t want to agree with you. I’ll use the settle a dispute.

as my example, typically these cases are about money. And if I represent the contractor and I’m fighting with the subcontractor and that subcontractor wants money from us or we’re claiming damages against them, we want money from them. And I don’t get many opportunities to talk to the principal because I have to talk to the other lawyer. And the way these work is you can certainly only have a communication with them when their lawyer is there. So what I try to do is I want to turn their lawyer

into my advocate. So credibility is key.

I want to explain there in the opportunities that I have to talk to the opposing party. That would be a mediation, a settlement conference, even a deposition. I want to state my position and I want to do so using facts that are undisputable. I had one recently where subcontractor walked off the job and they said, well, we’re not coming back until you pay us.

And I knew that they felt very strongly, they were very angry, but our contract had one of those clauses that said that in the event of bona fide dispute, you can’t walk off the job. And so I needed to lay out for them that if they didn’t come back, here’s what would happen. We would hire a new subcontractor to finish their work. That new subcontractor would be two to four times as expensive. We would then be late on the project as well, and we would have damages we would owe to the owner, and we would seek those damages against them.

of the fight being over the $20,000 they’re claiming that we owe them, the fight would be over $400,000, which is the additional costs and damages that their walk-off was about to cause. And then the key part, because I’m watching this company owner get madder and madder as I’m telling them what’s going to happen. The key part was to say, I don’t want you to take my word for it. I want you to ask your lawyer if everything I said is correct.

was. I didn’t overshoot, I didn’t bluff, I stated the contract language correctly and I pointed out, section 3.8 of the contract says so their lawyer would be able to validate very quickly that what I’m saying is correct.

So I want you to ask your lawyer. Don’t do it now in front of me, because the lawyer would feel a need to stand up for his client. But when you go back into that room, have a conversation and ask your lawyer if this is true. And I turned their lawyer into my advocate.

Rishi Srivastava (38:52)
Mmm.

Kenneth Rubinstein (38:52)
Because

at the end of the day, their lawyer is trying to keep them out of trouble. So I’m confident that when they went into that room, he would ask, that true? And the lawyer would say, yeah, the contract does say that. So your credibility is all you have in this business. People know and get used to it. You see the same people over and over. If I’ve dealt with somebody and he’s BSed a lot or he’s bluffed a lot in the past, I won’t believe a word that they’re saying.

Rishi Srivastava (38:56)
Mm-hmm.

Kenneth Rubinstein (39:17)
But if I’ve dealt with somebody and he’s always been honest with me, he’s always been truthful, what they say is going to have a lot of credibility.

Rishi Srivastava (39:25)
Yeah, so well said. The last section here is on practical closing. And this is the last question as well, If you could give one piece of advice to every contractor, CFO, or project executive to avoid ending up in litigation, what would it be?

Kenneth Rubinstein (39:48)
spend the time making sure your contract is clear.

We all hope that you sign it and then the contract goes into the drawer and we never pull it out. And that’s great. And if that can happen, that’s perfect. But if we do have to pull that contract out, you don’t want that to be the first time you’re reviewing it. You want to have made sure that the contract says what you intend, that the risk allocation is one that you’re comfortable with. And if there are risks you’re not willing to take, have that awkward conversation with your customer upfront because it’s not

Rishi Srivastava (39:56)
Thank

Kenneth Rubinstein (40:18)
going to get any better when there’s a fight. The time to have that discussion is at the beginning when you’re the low bidder, when they need you to meet the schedule, you may want to get the work. But if you wouldn’t be willing to take on that risk, have the awkward conversation now. And that clarity…

will avoid the fight. People don’t get into fights. You don’t get into litigation if the facts are clear and the contract is clear and the outcome is going to be clear. Because it’s not worth it to anybody to pay the lawyers when you know what happened or when you know what would happen if it goes to court. It’s only when there’s some level of ambiguity.

And so in your contract, make sure that it’s absolutely clear. And then as you’re going through the project, make sure that everything is documented. If somebody makes a promise, send them an email to confirm. If you relied on something somebody told you, send them an email to confirm and make a record in your log. Again, your credibility is everything. So use that to your advantage, to be clear in your communications and then follow through.

Rishi Srivastava (41:16)
Thank you for giving us your time.

Kenneth Rubinstein (41:20)
Thank you, Rishi. This has been a lot of fun.