by Phillip L. Bruner and Clifford L. Meacham
April 26, 2012

Discover how to minimize expenses by including a dispute resolution plan in construction contracts. 

Developing a construction dispute resolution plan that includes a staged implementation of multiple resolution methods can help construction business owners avoid long-term impacts and minimize expenses associated with disputes that arise during and after construction. The dispute resolution plan can then be written into the contracts for all project participants including designers, contractors, subcontractors, sureties and major suppliers.  

An owner’s modern construction contract typically implements the owner’s chosen dispute resolution plan in the contract dispute clause. This usually requires using multiple dispute resolution methods in staged sequence until the dispute has been resolved. For example, structured negotiation takes place between senior principals, a skilled mediator facilitates mediation, then experts (selected by the parties) hear binding arbitration.  

Owners should not tie themselves to dispute resolution clauses that result in unresolved disputes piling up through the end of the project that only can be resolved after years of litigation.   

Dispute resolution methods routinely employed in the construction industry today include:

  • Structured negotiation—Disputes are submitted to the parties’ on-site project representatives after a prompt exchange of documents and, if not resolved, the disputes go to the parties’ respective senior officers.
  • Project neutral—This person assists the parties in developing and implementing dispute resolution methods appropriate to the dispute and then serves as an evaluative resource, expert or mediator as needed to facilitate the settlement.
  • Initial decision maker—Under AIA contract documents, this person makes initial decisions (subject to appeal) about disputes as they arise.
  • Dispute review board—The parties select the board members, and the members issue non-binding decisions on submitted disputes. Major highway and civil projects use this method, and only a few percent of these disputes go to litigation.
  • Expert determination—This process involves contemplating the parties’ selection of one or more experts to render non-binding opinions on technical issues (rather than legal) issues, such as quality of work, differences in site conditions, etc.
  • Mediation—A skilled professional helps the parties find a consensus and reach a settlement.
  • Adjudication—The parties select an adjudicator to determine non-binding decisions that must be followed until project completion and can be appealed only after completion.
  • Mini-trial and mini-arbitration—During these non-binding procedures, the disputing parties present abbreviated evidence and arguments to their selected decision-makers. 
  • Binding arbitration—This method has been used by the construction industry since 1888. The parties’ selection of the arbitrators will be the key to successful arbitration. The arbitrators should be construction law experts and skilled in efficiently managing the arbitration pre-hearing and hearing process. 

For those construction owners who still believe that court litigation remains the best method for resolving construction disputes, they should heed the advice that Warren E. Burger, former chief justice of the United States, had given the American legal profession:

“…My own experience persuades me that in terms of cost, time and human wear and tear, arbitration is vastly better than conventional litigation for many kinds of cases. … The acceptance of this concept has been far too slow in the United States.”

A construction case is one type of case particularly suited for resolution by binding arbitration. Although some owners may fear arbitration because present arbitration statutes allow few grounds for appeal, parties may agree on broad grounds for appeal and opt for appeals to be heard by an arbitration appeal panel.  

With the selection of arbitrators expert in construction law and industry practices and skilled in arbitration management, arbitration can be both a cost-effective and fair process to resolve construction disputes.