If you are a part of the construction industry, you must have seen your fair share of disputes. The global average value of construction disputes increased to $54.26 million in 2020 alone, according to 2021 Global Construction Report. Disputes arise when one party fails to meet its obligations. Traditionally, parties would enter into litigation, a cost and time intensive means of dispute resolution, often wreaking havoc on the relationships between parties involved and damaging their reputation. But thankfully, over time, many alternative dispute resolution methods have been introduced to speed up the process. Here are time-tested techniques that can guide you toward early resolution and save you a lot of hassle and unproductivity.
To reduce the likelihood of a dispute arising, a negotiation clause holds an important place. In fact, this is the first logical step in case of a dispute. The clause underlines an agreement that in case of a dispute between a contractor and a project owner, both the parties involved will seek resolution before attempting any other means, such as entering into litigation. Even if a direct negotiation bears no results, it casts the actual points of disagreement in the light so the parties know where they each stand.
If communication and negotiation fail to resolve a dispute, it may be more prudent to include a third-party in the matter. Mediation results in faster dispute resolution, especially in disputes that are spiraling out of control, since an unbiased third-party ensures a more formal negotiation process without ever going to court. Mediation is one of the best alternative dispute resolution techniques, since a professional mediator can help the parties involved to meet in private and come to a mutually beneficial agreement. Note that mediators are third-party individuals who are highly experienced in the area of the dispute, with no personal stakes in the matter, and are only hired to facilitate discussions between the parties without judging or making decisions. Most mediations only take a day or two, and are thus far less costly than litigation. However, the only downside to mediation is that either party can inadvertently disclose an important aspect of their argument which can be used by the other party in court.
Arbitration is the most preferred form of dispute avoidance and resolution that is chosen by contractors to address any unresolved claim or controversy. During Arbitration, both the parties agree on a neutral arbitrator (or a panel of disinterested and jointly selected arbitrators) who has relevant experience in the matter. The arbitrator goes through all the documents, check material facts, and the relevant laws of principals, and understand the context of the situation before reaching a fair decision favoring one party or the other. While arbitration can be just as costly as legal proceedings, it is a more flexible and quicker approach than litigation. Depending on the jurisdiction, arbitration can be legally binding. Also, know that arbitrators possess limited powers of compulsion or sanction, in case a party fails to comply with the decision of the arbitrator.
Here a neutral third-party arbiter reviews evidence and argumentation, including legal reasoning set forth by opposing parties, before passing decision on a dispute. Adjudication may seem similar to mediation at a glance, but while a mediator merely assists both the parties in finding a solution to their problem, an adjudicator can actually pass legally binding decisions. If the adjudicator fails to resolve a dispute, either party can apply to a court to enforce the adjudicator’s decision. Adjudication is much more cost-effective as compared to litigation, and ensures a seamless cash flow during the construction process.
Whenever a valuation dispute requiring an expert opinion arises, expert determination is called in. This method is far less time-consuming and cost-effective, and is used to resolve technical issues, where true expertise is required to reach a decision, or for valuation disputes where liability has already been determined. For this technique to work, both the parties have to agree that the expert determination will be binding, unless the parties agree otherwise at the outset. This method is different from arbitration, since the hired expert does not have to refer back to the parties before rendering an opinion on the matter. A major drawback of this approach is that both the parties relinquish the full legal processes that are involved in litigation or arbitration.
These are a few techniques that you can use for efficient construction project management. Hiring professionals who offer construction claim consulting services is a sensible approach to improve your ability to minimize project risks and avoid commercial disputes.