In the construction industry, disputes are almost inevitable. Projects are complex, timelines are tight, and unforeseen issues can disrupt even the best-laid plans.
When disagreements arise, many parties turn immediately to arbitration or litigation for an answer. However, this may not be the best option. There are other resolution methods that are less costly, less formal, quicker and more flexible. These alternative dispute resolution processes are often better suited for the resolution of construction disputes.
Alternative Dispute Resolution (ADR)
This article highlights ADR processes that focus on the facilitated negotiation of construction disputes—helping parties reach solutions together—rather than procedures that are premised upon a third-party making a decision and imposing it upon the affected parties.
ADR methods that focus on a facilitated resolution are generally:
- Less formal, less expensive, less time-consuming
- Flexible enough to resolve multiple disputes involving multiple projects and parties and the process can be tailored to the specific needs of the project or parties
- Relationship-preserving, reducing the risk of long-term conflict between project partners
- More creative in that the resolution need not be restricted to simply the payment of money – the resolution options are only limited by the imagination of the parties.
Some ADR Options in Construction
Negotiation
Negotiation, with or without a neutral facilitator or legal representation, allows parties to engage in informal discussions with a view to resolving disputes amicably. The success of negotiations depends upon open and frank disclosure of facts, documents, and relevant information.
If appropriate, the parties may obtain a joint expert opinion to guide discussions, but the emphasis is on the parties coming together to find a mutually beneficial solution. As such, negotiation empowers parties to design creative, practical solutions tailored to their circumstances.
However, where the negotiating parties are too entrenched in their respective positions, there are personality clashes between them or the negotiators do not have the requisite degree of authority, informal negotiations are likely to fail.
Project Neutral
Also known as a standing neutral or project mediator, this process involves hiring a trained ADR professional from the outset of a construction project who remains “on-call” for the duration of the projects. Sometimes having expertise in design, scheduling, budgeting, and risk management, the neutral is well-positioned to offer timely guidance.
By being involved at the early stages of the project, the standing neutral becomes familiar with the scope and schedule, and is therefore up to date at the time a dispute arises. This familiarity allows for quick and highly tailored solutions that will, in theory, reduce delays caused by disputes. Disagreements over matters such as change orders or design issues can be addressed efficiently in real time—without escalation to arbitration or litigation.
Dispute Review Boards (DRBs)
A DRB typically consists of three impartial experts: each party selects one, and together these two select a third. The experts are selected at the outset of a project and remain involved throughout. For smaller projects a single-person DRB may be mandated to provide similar advisory support. The additional cost of a DRB is warranted on very large infrastructure projects spanning a number of years.
The board members conduct site visits and meet regularly with the project team and are therefore knowledgeable about the project that is the subject matter of the dispute. Their proactive involvement fosters communication, helps detect issues early, and may minimize disputes.
The duties and responsibilities of the DRB are described in the contract documents. If a dispute is not resolved, the DRB will commonly issue a non-binding recommendation. Even if not adopted, the recommendation often serves as a valuable foundation for later settlement.
Mediation
Mediation is a process that involves hiring a neutral third party, a mediator, to assist the parties in reaching a settlement. It is a less formal and more collaborative approach to dispute resolution than litigation or arbitration.
The mediator does not make binding decisions but instead fosters a communicative environment in which parties to a dispute work together to reach a mutually acceptable resolution. A mediator with construction expertise can add considerable value to the dispute resolution process.
Mediation is an attractive method of dispute resolution because it allows the parties to retain control and flexibility over the outcome, ensuring any settlement reflects their unique needs. It is especially valuable in construction disputes, where preserving ongoing working relationships can sometimes be as important as resolving the immediate problem.[1]
The process is confidential and without prejudice to the position of the parties if the mediation does not result in a full resolution.
The terms of a mediated resolution are typically embodied in a settlement agreement and can be enforced in the event of default.
Final Thoughts
ADR reflects a shift in mindset: away from “winning” at all costs, towards collaborative problem-solving. While there will always be disputes that require a formal determination by way of litigation or arbitration, most conflicts can be resolved more constructively, more quickly and at less cost, through facilitated negotiations.
ADR options such as mediation, the use of project neutrals and dispute review boards, and informal negotiations, without or without a facilitator, provide effective pathways for achieving resolution and avoiding the adversarial and costly nature of arbitration or litigation. The resolution of constructions disputes quickly, fairly, cost-effectively and with minimal disruption is a ‘winner’ for everyone concerned.
[1] See: Unlocking the Potential of Mediation in Construction and Insurance Disputes – The ADR Institute of Ontario, and; Managing Disputes in Canadian Construction Contracts: Mediation, Arbitration, and Litigation – lastingoak.