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Efficient Resolution of Construction Disputes
Alternative Dispute Resolution
Arthur O'Leary, FAIA, MRIAI
 Private
versus Public Judicial Processes
Alternative Dispute Resolution (ADR) refers to the various private voluntary
dispute resolution methods available to us in addition to the state-provided
court system. Most are a practical, usually faster and less expensive,
alternative to the usual court litigation.
The public courts of justice are open to all citizens who wish to use them.
Court costs are nominal but the procedures are so ponderous and time consuming
that legal fees and related costs can easily get out of hand. Court backlogs
have become prodigious, running from several months up to five years.
Many construction industry disputes are based on misunderstandings related to
the practical and technical aspects of design or construction rather than on
strict application of complicated legal principles. Other disputes are based on
different interpretations of customs, standards, and practices in the industry.
Legally trained judges are well equipped to hear arcane legal arguments
presented to them by lawyers educated in the nuances of the law. However the
court system is not at its best when making judgments on many construction
industry matters.
Some court disputes could result in a judgment based on legal technicality where
the parties would have preferred fairness and equity.
In the typical court of law, technical construction information is presented
through the medium of expert witnesses and adversarial lawyers. When experts
disagree, the judge will have to decide which expert is correct. Any
construction expert who has testified in court will tell you that the questions
asked by counsel and judges reveal that they do not always have a complete grasp
of the subject under consideration.
It is advantageous to all involved to settle construction disputes as quickly as
possible. Sometimes this can be done without interrupting construction progress,
but this is seldom possible in the conventional court system. The construction
industry has readily embraced these alternatives that offer economy, speed, and
fairness. All of the ADR methods offer privacy and confidentiality, not usually
available in the public court system.
Negotiation
The first attempt to resolve a construction controversy is at the negotiation
level. This is where the involved parties talk it over between or among
themselves to see if they can settle their differences by friendly discussion.
This will generally involve some give and take and a spirit of compromise. This
is the process of negotiation. It is the way that most practical business people
prefer to resolve their day-to-day problems and differences. It is quick and
effective and does not require the services of uninvolved outsiders such as
lawyers and technical experts.
The term step negotiation refers to the process of negotiation starting at the
level of the people on the jobsite. If the dispute is not resolved at this level
it is referred to the next step on the corporate ladder, the supervisory level.
If this fails, it rises to be negotiated at the executive level.
If negotiation fails, there is a further step that can be taken before resorting
to more formalized and costly measures such as arbitration or litigation. It is
called mediation.
Mediation
This is a process where the parties can meet to discuss their differences with
the assistance of an intermediary acceptable to both sides. This person, called
a mediator, really a facilitator, does not have the power to make and enforce a
decision. The mediator's role is simply to help the parties negotiate and arrive
at their own conclusion.
Mediators can be lawyers, accountants, contractors, architects, engineers, or
business people, in short, anyone who understands the problem and who has the
necessary mediation skills. The mediator must be acceptable to both sides. In
some cases there will be more than one mediator if the parties feel that
additional expertise is needed. The mediator's fees and expenses are usually
split evenly between or among the parties, but could be agreed otherwise.
The mediator's function is to listen to the parties, consult with them, and help
them to reach agreement. This is done by a combination of informal joint
meetings with both parties present, alternating with private meetings between
the mediator and each side separately. In the private sessions the mediator will
point out their weaknesses to each side as well as the strengths of the other
side's position. The mediator's objective is to progressively narrow the gap
between the positions of opposing sides. A skilful mediator will usually
recognise the areas of possible compromise and will encourage the parties to
consider them. Most mediations can be accomplished within a day's time, while
complex, multi-party, or multi-faceted matters could take longer.
Mediators use a variety of techniques such as gentle persuasion, heavy handed
bullying, impartial appraisal, and explanation of harsh reality. The mediator
will try to help the parties to abandon hardened positions and to explore middle
ground, hopefully to discover reasonable compromise solutions acceptable to both
sides.
The mediator is not necessarily looking for the correct or best solution to the
problem, nor even for the fairest. The mediator will not usually recommend a
solution. The goal is to encourage the parties to voluntarily agree on a
mutually acceptable resolution.
If the mediator succeeds in getting the parties to agree, the time and expense
of more formal procedures can be avoided. A mediated settlement will leave the
parties in a friendlier state so they can continue doing business with each
other. This would be extremely valuable when the project has still to be
completed.
Even if the mediator cannot find a compromise solution to the entire
controversy, the process will accommodate partial agreement on any portions of
the dispute that can be settled. The remaining narrowly focused areas of
disagreement can thereafter be more economically arbitrated or litigated. The
parties will be more aware of their relative positions.
Any dispute can be mediated if that is what the parties jointly agree to do.
AIA’s construction agreements contain mediation clauses that provide for
mediation as a prerequisite to arbitration. All AIA agreements provide for
mediation to be conducted in accordance with the Construction Industry Mediation
Rules of the American Arbitration Association.
If, at the time of a disagreement, one or both parties do not choose to mediate
there is no point in trying to force the issue since mutual acceptance of the
mediator and the process is required. If either party involved in mediation
decides to quit during the process, that is the end of the mediation. Only
willing parties can mediate. If the parties are unwilling to talk then a
mediation will not work. When there is no mediation clause in their contract,
willing parties can agree to mediate by entering into a Submission Agreement.
Arbitration
When the parties find that they cannot voluntarily agree through negotiation or
mediation, then someone will have to make the decision for them. This can be
done in arbitration or in the public court system.
The two main drawbacks to court litigation, lack of judicial construction
expertise and slowness of the system, can be overcome by the arbitration
process. The arbitrators are chosen by the parties for their known qualities of
fairness and appropriate expertise. Panels of three arbitrators can include
three different areas of expertise, such as, for example, a construction lawyer
or accountant, a contractor or subcontractor, and an architect or engineer. In
simple matters, the parties might decide that a sole arbitrator would be
acceptable.
The hearings can be organized as quickly as the parties wish and in the desired
locale.
Arbitrations are conducted in the form of hearings where the parties can present
their claims, counterclaims, and defenses by means of witnesses, documentary
evidence, and argument. The hearings are as formal or informal as required by
the presiding arbitrators.
Arbitrators have the power to make final and binding decisions on any and all
matters that are submitted to them. Their award is legally equivalent to a
judgment of the court that would have had jurisdiction and the court will help
enforce it.
Most construction industry contracts contain an arbitration clause. All AIA
agreements provide for arbitration to be conducted in accordance with the
Construction Industry Arbitration Rules of the American Arbitration Association.
Arbitration is a voluntary process that takes the place of court litigation. No
one is required to sign an agreement to arbitrate. However, if a signed
agreement contains an arbitration clause then arbitration must be used unless
both parties agree otherwise. If one party tries to block or stall an
arbitration, the Construction Industry Rules allows the AAA to proceed with
setting up the arbitration and it will go ahead.
Any agreement that does not include an arbitration clause does not preclude the
parties from arbitrating their disputes if that is what they would prefer. They
would merely execute an additional agreement to arbitrate, a Submission
Agreement.
Use of Lawyers
In mediations and arbitrations the parties may be represented by legal counsel
or not, as they wish. Legal representation is allowed but not required. If a
party knows its case, is articulate, is reasonably persuasive, and has the
necessary time to prepare its presentation, then it could risk presenting its
own position without professional counsel. However, important cases involving
large sums or complex issues will usually have a more satisfactory outcome when
presented by a competent construction lawyer.
Participants' Control over the Outcome
In negotiation or mediation, the disagreeing parties will have the most
influence in the outcome of their dispute since their voluntary concurrence is
required at every step in the process. No outside entity will impose a decision
on the parties. The parties involved will always know their cases more
intimately than any arbitrator or judge possibly can.
In arbitration or court litigations, arbitrators or judges will impose their
views on the parties.
Role of the American Arbitration Association (AAA)
The AAA does not mediate nor arbitrate disputes. Its main functions are to
administer these processes and to maintain panels of neutral mediators and
arbitrators in all fields of business endeavor. The AAA conducts educational
activities for the training of mediators and arbitrators. AAA arbitrators and
mediators attend training seminars and abide by the AAA's Code of Ethics
requiring confidentiality and impartiality.
To initiate a mediation or arbitration, one or both parties can contact the AAA
for full information and instructions.
All architects, engineers, and contractors who administer, prepare, review, or
enter into construction or design agreements should have as a desk reference the
Construction Industry Mediation Rules and Construction Industry Arbitration
Rules. These two booklets are available at no cost from the American Arbitration
Association, 140 West 51st Street, New York, NY 10021-1203 or from the local AAA
office nearest you.
Better Communication Is the Key to Preventing and Resolving Disputes
In recent years, considerable study and experimentation has been applied to the
prevention of disputes in the construction industry. The technique of partnering
aims to eliminate disputes by promoting communication among the parties and
their key employees.
ADR, on the other hand, concentrates on the efficient resolution of disputes
once they have arisen. The ADR technique of facilitated negotiation is one where
a skilled facilitator assists the negotiating parties to better communicate
their positions and to understand the basis of each others' reasoning.
Another ADR procedure, the mini-trial, is basically a communication procedure to
educate the decision-makers of each side to better understand the basis of their
dispute.
“A Guide to Successful Construction: Effective Contract Administration” by Arthur F. O’Leary, FAIA, MRIAI or “Construction Nightmare Jobs From Hell & How To Avoid Them” by Arthur F. O’Leary and James Acret are available from
bookworkz.com or call DCD at 800-533-5680.
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