With most construction projects involving dozens, if not hundreds, of companies and individuals, it is no surprise that conflicts arise that are not always able to be resolved on the jobsite. But these conflicts need not always reach the court room or cost thousands (or much more) to resolve. With some planning, contractors can build faster and less expensive dispute resolution options into their project so they can spend more time keeping the project moving and less time arguing over who is right.
Even for modest-sized projects, a multi-tiered approached to dispute resolution can be helpful. As a first level of dispute resolution, consider requiring the relevant parties to attend informal or formal mediation. The benefits of even an informal mediation is that it can get stalemated parties to the table to talk again. Formal mediation adds the benefit of a neutral third-party who can help get talks moving or help antagonistic parties communicate.
Further, mediation allows each side an opportunity to hear what the other side is looking for to resolve the dispute. Not only is this valuable in reaching a compromise, but it also gives each side an idea of what the other will bring to the table in any subsequent litigation. Finally, there are many ways to implement these procedures. General contractors can require pre-suit mediation with their subcontractors to resolve one-on-one disputes but should also consider requiring subcontractors to use pre-suit mediation to resolve disputes between subcontractors or between subcontractors and sub-subcontractors or material suppliers if the dispute threatens the progress at the project.
Another alternative (or addition) to mediation can be to appoint a specific person to resolve certain kinds of dispute. For example, assume that a drywall contractor begins to do his work, but stops because he claims that a trade contractor’s work interferes with the drywall or is deficient and cannot be covered up. The trade contractor disagrees and refuses to correct the issue raised by the drywall contractor. If the contract calls for it, this disagreement could be resolved by an appointed engineer, architect, construction manager or almost any other third party. That is much more efficient solution than terminating a subcontractor from the project or bringing in a new subcontractor to perform work.
Assuming these methods of resolution fail, there remain two traditional means of dispute resolution—binding arbitration and litigation. While arbitration is touted as less costly than litigation, this is not always the case. Arbitration filing fees can be more expensive than court filing fees and in most arbitration cases the parties will still be able to conduct depositions and discovery to aid the arbitrator in reaching a final decision. The key benefits to arbitration are that it can be done in a much more condensed time frame and it is largely private. Thus, the discovery, evidence and any other items that might normally become part of the public record in litigation are kept private in arbitration. Only the final outcome will generally become part of any public record, and that is assuming that the prevailing party uses a court to affirm or enforce the arbitration award.
Litigation, like arbitration, results in a final resolution of a dispute and an enforceable judgment for the prevailing party. Unlike arbitration, though, the timelines can be stretched out by crowded court dockets and nearly ever occurrence in litigation becomes a public record. One of the primary benefits to litigation though are that there are actions that a court can take that an arbitrator cannot. For example, an arbitrator cannot enter an order foreclosing a construction lien; only a court can. Thus, the claims a contractor plans to file can play an important role in deciding whether to arbitrate or litigate.
Moreover, these dispute resolution options do not exist independently of each other. Many contracts nowadays contain pieces of each. One way to do this is to require mediation of all disputes, litigation of claims that must be heard by a court (such as lien foreclosure) and arbitration of any remaining issues. By using a layered approach, the benefits of several types of dispute resolution are preserved while providing opportunities to use them that hopefully result in resolution.
Further, technology adds a new twist on dispute resolution, particularly informal mediation or arbitration. Witnesses, evidence and information can be shared electronically or over video, making the use of specialized experts or testing more accessible. This can be another critical consideration in determining what forms of dispute resolution to require in the contract with another party and the disputes to which that resolution mechanism will apply.
Above all it is critical to include dispute resolution mechanisms in the contract at the beginning. Without, there is no way to require anything other than litigation which could set a contractor up for costly legal fights that could have been avoided through another form of dispute resolution. Think these issues through can result in projects that run more smoothly and that are not delayed when the inevitable conflict arises.
Reprinted from constructionexec.com, June 24, 2019, a publication of Associated Builders and Contractors. Copyright 2019. All rights reserved. Click here to view original.