You should pay attention to the dispute resolution procedures found in your construction agreement. The most common dispute resolution procedures in construction contracts include early resolution procedures, mediation, and arbitration/litigation.
Why Include Dispute Resolution Procedures in a Construction Contract?
Most construction contracts benefit from robust dispute resolution procedures because they set forth a series of intermediate steps leading up to litigation or arbitration. This generally increases the chances of resolving a dispute by the most efficient means possible. It is important to understand these procedures to ensure that the proper steps are followed if a dispute arises.
Early Resolution Provisions
Early resolution provisions can include informal meetings with team executives, pre-construction reviews, and/or dispute resolution boards. These less-formal proceedings can provide a constructive way to resolve disputes without resorting to a more formal process involving outside intermediaries.
Mediation
When early resolution procedures fail to resolve a dispute, or if the contract does not include early resolution procedures, parties often proceed to mediation as an intermediate step before engaging in a binding dispute resolution process. Mediation provides the parties each an opportunity to present their position formally to a third-party mediator who weighs the merits of each side’s position and then serves as a disinterested intermediary to help the parties reach a negotiated resolution.
Binding Dispute Resolution
When early dispute resolution procedures or mediation fail, binding dispute resolution provides a means to definitively decide the outcome of a dispute under a construction contract. Construction contracts will either call for arbitration or litigation as the final means to resolve the dispute.
Arbitration can be desirable as it is often quicker than litigation. Common clauses call for arbitration with arbitration associations who have construction specific rules such as JAMS or AAA. The parties can select an arbitrator with industry expertise as the decision maker. And proceedings can proceed confidentially. Disadvantages to consider include the cost to pay the arbitrator and association hosting the arbitration. Other concerns include a limited right to an appeal and the inability to request a jury trial.
Litigation, on the other hand, has the benefit of generally broader discovery rights, right to a jury trial, and broader appellate rights should issues be improperly decided at the trial court level. But disputes will almost always take more time and often more money to resolve via litigation rather than arbitration.
Prevailing Party Clauses
Another important consideration under dispute resolution provisions includes clauses for recovering attorney’s fees, expert fees, and/or costs (“Prevailing Party Clause”). A Prevailing Party Clause has the advantage of allowing an award of attorney’s fees, expert fees, and/or costs to the prevailing party if a dispute proceeds all the way through arbitration or trial. Absent a Prevailing Party Clause, parties can recover attorney’s fees only if specifically authorized by statute.
What are the Downsides to Prevailing Party Clauses?
While a Prevailing Party Clause can provide an effective deterrent to litigation of unmeritorious claims, it also can cause parties to continue to litigate even though it doesn’t make financial sense too. These provisions can also make disputes harder to resolve as parties start to add the amounts they have incurred into their claim over time. Additionally, no guarantee exists regarding the extent of attorney’s fees a judge or arbitrator will award. A judge or arbitrator can limit such fees to what he or she deems reasonable.