Arizona’s thriving economy has long been fueled by the construction industry’s essential contributions. From massive infrastructure projects to residential developments, construction is the backbone of many local businesses. As the industry expands, the legal challenges around it become increasingly complex. Construction disputes are increasing, and litigation is becoming an inevitable part of many projects.
This year, several key factors are shaping the future of construction litigation in Arizona. Economic pressures, labor shortages, supply chain disruptions, and new legislative changes are influencing both the pace of construction and the nature of legal disputes. Here’s what you need to know about how these trends are affecting the construction industry and what to expect in 2025.
Economic Pressures: Increased Construction Costs and Litigation
Rising costs have been one of the most significant issues impacting the Arizona construction industry in recent years. Inflation, which hit a four-decade high in 2022, has caused construction materials like steel, lumber, and concrete to increase. A Bureau of Labor Statistics article from November 2023 examined the overhead and profit markups in the nonresidential building construction industry, revealing steady fluctuations from 2006 to 2021. The study highlights the industry’s resilience in maintaining markups, despite economic challenges like the 2008 financial crisis and the COVID-19 pandemic.
These cost increases have led to a surge in contractual disputes across the industry. Contractors are frequently unable to complete projects at the originally agreed-upon costs, forcing them to request adjustments or risk financial ruin. Developers, on the other hand, are often unwilling to absorb these unexpected price hikes, leading to litigation over who should bear the financial burden.
Breach of Contract Cases on the Rise
Breach of contract cases have seen a notable rise as a result of these economic pressures. In many cases, one party claims that the other has failed to meet its obligations due to cost overruns or delays caused by material shortages. For example, a contractor may be sued for failing to deliver a project on time, citing increased material prices as the reason for the delay. Meanwhile, developers are countering with claims that contractors should have accounted for these potential price hikes when drafting the contract.
Change Orders: A New Battleground for Disputes
Another common issue arising from economic pressures is the litigation over change orders. These occur when contractors request to modify the scope, timeline, or cost of a project mid-construction, typically due to unforeseen circumstances like price increases or material shortages. Disputes arise when developers refuse these changes, leading to claims of breach of contract.
Courts weigh factors such as the owner’s conduct, or waiver, and whether cost increases can be deemed “unforeseeable” and, therefore, justify renegotiation.
Clear Contractual Language: A Key to Avoiding Disputes
For developers and contractors alike, navigating these economic pressures often comes down to how well their contracts are written. The more clearly responsibilities are defined upfront—including which party bears the risk of price increases—the less likely disputes will end up in litigation. This is why it’s critical for construction firms to seek legal counsel when drafting contracts or negotiating change orders.
At RSN Law, we specialize in construction contracts, construction litigation, and alternative dispute resolution, ensuring that our clients are protected against unforeseen cost increases or other economic challenges. Whether you’re facing breach of contract claims or need help renegotiating terms, our team has the expertise to help you resolve conflicts and avoid costly delays.
Navigating the Arizona Construction Market
For contractors operating in Arizona’s volatile construction market, understanding economic trends is essential to staying ahead of potential legal challenges. This is particularly evident as construction companies struggle with the ongoing impact of inflation. With proper legal guidance and a proactive approach to contract management, many of these disputes can be mitigated before they escalate to litigation.
Proactive Legal Intervention is Key to Staying Ahead of Trends in Construction Litigation
As economic pressures continue to rise, disputes over project costs, delays, and change orders are only likely to increase. The best way to protect your construction business is through clear, enforceable contracts and ongoing legal support. If you’re dealing with a dispute related to increased project costs, reach out to RSN Law today for experienced legal representation in Arizona construction disputes and litigation.
Labor Shortages: Impact on Quality and Deadlines
The ongoing labor shortage has become one of the most critical issues in the Arizona construction sector. According to a 2023 report from the Associated General Contractors of America (AGC), nearly 88% of construction firms are struggling to hire enough workers. This shortage has resulted in slower project completion times and, in many cases, subpar work as contractors rush to meet deadlines with limited staff.
The consequences of this labor shortage are surfacing in the courtroom. Lawsuits claiming defects in workmanship are increasing, as are cases where contractors are accused of hiring under qualified subcontractors to fill the gaps. In many instances, these workers lack the necessary skills or certifications, leading to construction defects that later become legal issues.
Supply Chain Disruptions: Delays and Contract Disputes
The global supply chain disruptions that began in the pandemic era are still being felt across the construction industry. The unpredictable availability of materials is leading to significant project delays. Contractors often find themselves in breach of contract due to factors outside of their control, like long lead times for essential building materials.
Legislative Changes Affecting Construction Litigation
Arizona’s construction laws are continually evolving, with several legislative updates expected to impact the legal landscape in 2024 and beyond. Environmental regulations appear to becoming a larger factor in construction litigation, and more lawsuits are expected as contractors’ attempt to meet these newer standards.
Alternative Dispute Resolution (ADR): Growing Preference in Arizona Construction Disputes
As traditional litigation becomes more time-consuming and expensive, many Arizona construction contracts turn to alternative dispute resolution (ADR) methods. Mediation and arbitration are seen as cost-effective and quicker alternatives to courtroom battles. ADR provides flexibility and confidentiality, which are particularly attractive in complex construction cases where reputational risks are high.
In Arizona, the preference for arbitration or mediation is growing as a more cost-effective way to resolve construction disputes. Contractors and developers alike appreciate that the common options for dispute resolution allow for creative solutions, such as negotiated settlements. They also generally facilitate faster resolutions that keep the overall project on track.
Technology in Construction: How It’s Fueling Litigation
Construction technology has advanced rapidly, with tools like AI, drones, and project management software becoming commonplace on large-scale projects. While these technologies streamline operations and improve efficiency, they also introduce new risks, especially when they malfunction or fail to perform as expected. As a result, legal disputes involving faulty tech, data breaches, and software issues are expected to be on the rise.
As technology continues to evolve, we can expect to see even more cases where contractors, developers, and tech providers are entangled in legal battles over accountability for tech-driven mistakes.
Preparing for the Year Ahead in Arizona’s Construction Industry
As Arizona’s construction industry prepares for 2025, owners, contractors, developers, and legal professionals need to keep an eye on these evolving trends. From economic pressures and labor shortages to supply chain disruptions and legislative changes, the legal challenges are only becoming more complex. By understanding the risks and planning ahead, construction firms can mitigate the chances of costly litigation and ensure their projects stay on track.
If you’re dealing with a construction dispute or need legal advice on managing these changes, reach out to RSN Law. Our team of experienced construction litigators can help you protect your business and resolve conflicts efficiently. Call our firm today at 480-712-0035 to schedule an initial consultation or make an appointment online using our contact us page here.
RSN Law intends this article to be for informational purposes, not to be relied on a specific legal matter, and does not create an attorney-client relationship.