Understanding Dispute Resolution Options in the

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Disputes and claims are common in the construction
industry.
There are a number of methods to resolve such
disputes.
Dispute resolution can be costly in terms of time,
emotional energy, business relationships, and
finances.
Therefore, it is critical to the health of your
construction firm that you understand dispute
resolution options.
This presentation will focus on the four most
common methods of dispute resolution in the
construction industry: litigation, negotiation,
mediation, and arbitration.
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• The best time to select dispute resolution methods is
during contract formation.
• Sometimes the dispute resolution procedure is developed
and agreed to later by the parties.
• Standard form construction contracts have dispute
resolution provisions, some of which allow for election of
methods (by checking a box).
• Sometimes contracts provide for several steps the parties
must take before the final dispute resolution method
(typically, litigation or arbitration) is commenced.
• These provisions can be modified by revising the
contracts before signing.
• Always review and, if necessary, negotiate the dispute
resolution provision in contracts before signing.
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• When acting as a subcontractor or supplier, you may be
bound to a dispute resolution method in the prime
contract; therefore, always review the prime contract
provisions.
• Your bond producer can help you spot dispute
resolution issues in your contracts.
• Your construction attorney can advise you on and
negotiate the provisions in your contracts.
• When agreeing to a dispute resolution process, whether
in the contract negotiation or after the dispute has
arisen, you must weigh the benefits and limitations of
each available dispute resolution method.
• All alternative methods of dispute resolution are
voluntary and must be agreed to by all parties.
• They are, therefore, often more successful methods of
resolving a dispute in a timely and cost-effective
manner.
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Litigation—traditional method of formally
resolving a dispute through the court system,
beginning with the filing of a lawsuit in a state
or federal court and continuing the process until
the court enters judgment in favor of one party
(or the parties withdraw the lawsuit).
Alternative Dispute Resolution (ADR)—any
method of resolving disputes other than by
litigation:
 Negotiation
 Mediation
 Arbitration
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Some parties insist upon their “day in court.”
Parties are represented by attorneys.
Common for construction cases to involve multiple
parties
Parties lose autonomy to shape their resolution.
Virtually unlimited discovery rights (document
requests, interrogatories, requests for admission,
depositions, expert reports and depositions) and
robust motions practice
Outcome is difficult to predict.
Judges and jurors, who often do not have expertise in
the construction industry, shape the decision.
Legal remedies are available but less creativity
involved in resolution than with ADR.
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Very expensive in terms of costs, especially costs
associated with exchanging information (in this era
of emails and electronic documents)
Requires lots of time from both attorneys and
project personnel and representative principals of
the firm.
Usually highly adversarial
Business relationships are seldom salvaged.
Even after a lawsuit is filed, parties can try to
resolve the dispute using ADR methods, any time
before a judgment is entered by the court.
Broad rights of appeal from an adverse judgment.
Litigation documents are made public.
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Negotiation
Mediation
Arbitration
 These ADR methods are listed generally in order
of increasing cost to reach resolution, formality
of the process, degree of hostility between the
parties, and extent that a third party imposes a
decision on the parties.
 Standard form industry contracts often require
the parties to attempt mediation before resorting
to either litigation or arbitration.
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Parties try to negotiate resolution of the dispute.
Least adversarial method of dispute resolution.
Focus is on problem solving and reaching a
satisfactory agreement.
Negotiations are usually unassisted by a third
party.
Parties typically are not represented by counsel,
as presence of attorneys can raise the level of
adversarial behavior.
Very low cost and typically not time-consuming
Voluntary process, with the parties controlling
the outcome
Resolution is by voluntary agreement of the
parties.
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Parties are free to fashion any solution that might
not be available to a court or arbitrator.
Parties can often maintain a continuing business
relationship during and after the negotiation.
The resolution can be confidential.
Successful negotiations depend on the parties
understanding the issues in dispute and in
approaching the negotiation with an open mind
and good faith desire to resolve the issues in
dispute.
A party representative who has authority to settle
and enter into a binding resolution should
participate.
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Non-binding ADR where disputing parties use a
neutral third party, a mediator, to help them reach
a settlement.
Parties can select a mediator, who should have
expertise in the construction industry.
Mediator does not act as a judge but “referees” a
settlement between the parties.
Low cost and less time-consuming than litigation
and arbitration (no discovery, motions, or
depositions)
Parties may select procedures for disclosure of
positions and evidence.
The disputing parties control the outcome and
fashion their own solutions to the dispute.
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Most mediations involve a one- or two-day session,
which may or may not result in settlement.
The settlement agreement between the parties should
be made into an enforceable, written contract.
Parties often maintain a continuing business
relationship during and after mediation.
Resolution is usually confidential and is written into
the settlement agreement.
Success often occurs when parties enter the process
with a good faith intention to attempt to settle the
disputes.
A party representative who has authority to settle and
enter into a binding resolution should participate.
Generally, parties should be represented by an
attorney.
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Can be less expensive and time-consuming than
litigation but . . .
In worst case, can also be as expensive and timeconsuming as litigation
Resolution occurs through the issuance of an
“award” by a single arbitrator or arbitration panel
(3 arbitrators).
Parties can select the arbitrator(s), who should
have construction expertise.
Arbitrator(s) decides the outcome after a hearing,
lasting one day to many weeks.
More structured than negotiation and mediation
Quasi-judicial in nature but more flexible than
litigation.
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Parties may, within limits, select certain
procedures and the schedule.
Discovery rights depend on the rules selected
and arbitrator discretion.
The “award” is final and binding; grounds to
appeal the award are extremely limited (such
as bias or fraud).
Proceeding is usually confidential.
Arbitration is highly adversarial.
Parties should be represented by an attorney.
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The ADR process may be administered by individuals
who serve as mediators and arbitrators or by various
organizations whose function it is to administer and
manage ADR cases.
The American Arbitration Association (AAA) is a wellrespected organization that provides such
administrative services, including assisting in
appointment of mediators and arbitrators, setting
hearings, and providing users with information on
dispute resolution options.
AAA is named as a provider of mediation and
arbitration services in construction industry standard
form contracts.
AAA maintains a national list of ADR neutrals with a
broad range of construction and surety industry
experience.
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Is the option mandatory or voluntary?
What is the financial cost of the option?
What is my time commitment?
What is the time period to conclude?
Do I have the right to select the decision-maker?
What rules and procedures will be imposed on me or
will I be able to select?
Will I have any control over the outcome or will it be
imposed on me?
Is it advisable to use my construction attorney ?
Is the result final and binding or appealable?
How adversarial is the option: is the option likely to
allow me to maintain the business relationship?
Will the final resolution be confidential?
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