Construction Disputes

Mediation and Arbitration of Construction Disputes

Construction disputes can, and oftentimes do, arise in residential and/or commercial construction projects between the owner and the general contractor, the general contractor and sub-contractor(s), or between any of those parties and design or construction professionals, such as architects and engineers. 

There are many causes of construction disputes beginning with deficiencies or errors in design documents, owner’s repeated failures to respond to requests for information, ineffective project supervision and resulting project delays, construction defects and/or liens. 

The disputes can also occur due to a contractor’s failure to properly estimate, plan and execute the work, reluctance to seek clarifications, failure to timely complete work, or in design professional(s)’s omissions and errors – such as inadequate design plans and specifications. 

Construction contracts frequently specify and require specific methods of alternative dispute resolution (“ADR”), oftentimes binding AAA (American Arbitration Association) arbitration.  The construction contract process involves multiple parties and consist(s) of numerous sub-contracts.  Often these contracts take a significant amount of time to prepare and for the work to be completed due to the complex construction projects with which they deal, such as large apartment and commercial buildings, road infrastructure and long bridges. These contracts can involve many sub-contracts whereby hundreds (and sometimes even thousands) of workers are employed. 

For those reasons, the disputing parties often choose and contractually specify alternative dispute resolution procedures that are more time and cost-efficient than traditional court litigation.  The parties are generally interested in resolving their conflict(s) in a timely way, without disrupting their project schedules, good business relationships and other ongoing projects under construction. 

Settling Construction Disputes Through Mediation

Mediation is oftentimes an effective and mutually beneficial alternative dispute resolution (“ADR”) procedure for settling construction disputes.  There is facilitative mediation, where the mediator encourages the parties to settle through negotiations.  On the other hand, in evaluative mediation, the mediator provides a neutral assessment of each party’s position and seeks to help them evaluate various ways to arrive at a mutually agreeable settlement.  In any case, mediation, as an alternative dispute resolution (“ADR”) procedure, represents a particularly suitable mechanism for resolving construction disputes.  Compared to litigation, mediation enables the parties to resolve their conflicts in a more timely and cost-effective manner.

Construction contracts deal with complex projects and business relationships, often lasting for several years.  When a dispute arises, both parties are oftentimes willing to resolve it in a way that will not unnecessarily delay the ongoing project or negatively affect their ongoing business dealings.  If the project is still under construction, it makes no sense to engage in adverse litigation for years, especially if the project is stalled with no resolution in sight. 

In an informal mediation, the parties can present their positions to a mediator, a neutral third person chosen by the parties.  The mediator can be a retired judge or an experienced attorney, and, in most cases, is a skilled professional with specific knowledge and experience in the construction industry. 

While a construction project is still ongoing, parties are generally unable and/or unwilling to spend their time and resources on exhaustive and expensive litigation to resolve construction disputes.  Time, scheduling and delays are crucial in complex aspects of construction projects.  That is why mediation represents a valuable ADR procedure, which enables the disputing parties to resolve the conflict quickly and, all the while, keeping the work ongoing.  Through a series of discussions with each side separately, the parties can present their respective positions regarding the dispute.  These discussions enable the mediator to assess the possibility of settlement and then attempt to find common ground which hopefully leads to a mutually agreeable resolution and settlement agreement.  The mediation process may last a couple of days, depending on the complexity of the dispute.  In contrast, litigation takes years before a final resolution is reached . . .  and then an appeal can drag on for additional years.   

In many cases, the mediator can facilitate negotiations that lead to an agreement which, when signed by both parties, becomes a binding contract enforceable by the courts. 

For mediation to succeed, however, the parties have to take the necessary steps to help the mediator fully understand the dispute(s).  The decision-makers should be involved in the process.  Knowing the facts and circumstances that led to a dispute is crucial.  The parties to the dispute must keep their minds open and approach mediation as an opportunity to reach an agreement.  Mediation in construction disputes is more akin to negotiating with a business partner and less a conflict with an adversary.  In the end, both parties should carefully consider their settlement positions and stay positive and creative throughout the mediation process.  It should be recognized, however, that the mediation will not result in a resolution of the dispute(s) unless all parties to the dispute agree to a settlement.  The mediator cannot and will not impose a settlement on the parties. 

Arbitration – As an Alternative to a Court Trial 

Arbitration is, in effect, a trial but without court involvement.  It is another alternative dispute resolution (“ADR”) procedure which is highly effective in resolving construction disputes. 

Court litigation is generally a trial in front of a jury, “refereed” by a judge with the dispute(s)  decided by the jury of citizens who usually have little-to-no construction background.  There is no jury in an arbitration. 

In arbitration, especially binding arbitration, the parties to a construction dispute entrust the resolution of their conflict to an arbitrator or panel of arbitrators, who are usually former judges or experienced attorneys.  The legal basis for arbitration is an arbitration agreement or mandatory referral of the dispute(s) to arbitration by the trial judge to whom the case is assigned.  The parties in a construction dispute generally have an arbitration clause included in their contract, but sometimes they agree to an arbitration after the dispute has arisen.  Sometimes a mediation is held before resorting to an arbitration (if the mediation was unsuccessful in bringing about a settlement of the dispute(s)). 

Unlike mediation, however, the arbitrator(s) will decide the dispute(s) and enter a written decision which, in binding arbitration, is generally final and enforceable through the courts.  That is, of course, unless the parties choose a non-binding arbitration that results in a decision which can be rejected by either party by filing a motion for a trial de novo. 

Arbitration is generally less formal than court litigation.  Unlike strict rules of evidence in a court trial, the arbitration procedure gives the arbitrator(s) discretion in the admission of evidence.  For example, the results of discovery procedures can generally be used in an arbitration hearing – witness testimony and expert opinions can be admitted through deposition testimony or by summary of counsel, based on expert reports and deposition testimony shared with the opposing party/ies.  That is a significant advantage of arbitration – which enables the parties to resolve their conflict in a more timely and cost-effective manner. 

Finally, the confidentiality of an arbitration is one of its additional attributes.  Construction contracts generally envision and seek to bring about an uninterrupted business relationship between contracting parties.  Generally, ongoing business relationships require timely resolution of disagreements without undue delay or publicity regarding the disputes that oftentimes occur during the construction project.  Since an arbitration is not open to the public, that proves to be another valuable characteristic of this alternative dispute resolution procedure. 

Conclusion

As presented above, mediation and arbitration have numerous benefits over litigation in resolving construction disputes.  Both of these methods are informal and less expensive than litigation. 

Besides, there is a significant opportunity for dispute resolution since both parties have oftentimes voluntarily chosen the mediator or arbitrator(s) and have given them their trust and confidence in assisting the parties in reaching a fair resolution of their construction disputes.  Last, but not least, the confidentiality and time-effectiveness that both of these ADR procedures provide oftentimes enable the parties to continue the construction project without delay.