While every construction party should seek to avoid formal claims, sometimes they are unavoidable. Therefore, you must be prepared for those instances by having selected, prior to the execution of its agreement, the dispute resolution procedure that best fits the project and project parties. This requires a knowledge and understanding of the types of dispute resolution procedures that are available.

Frequently, a party will repeatedly specify the same type of dispute resolution procedure for each project. This is typically the result of having had experienced a “bad outcome” in the non-specified procedure. The Constructor, owner and/or design professional considers that procedure to be defective in some way because it produced a “bad outcome.” However, the unfavorable result is not the product of a defective procedure but an incompatibility between the process and project and project parties.

There are many types of dispute resolution procedures, but the three (3) most recognized are litigation, arbitration and mediation. Each of these processes will be examined because of the frequency of their use, and the high level of recognition they entertain.

LITIGATION
Litigation is the process that engages the Court system and attendant rules of procedure and evidence. Dependant upon various factors, such as the value of the dispute, the location of the project and project parties, and issues involved in the claim; project parties can call upon a Federal or State Court to resolve their dispute. Litigation affords parties the opportunity to have their “day in Court.” Litigation also affords parties structure. Strict rules guide a case from its filing to the obtaining of a judgment. Rules govern the discovery process, motion practice
and the introduction of evidence during trial. The rules set, and level, the playing field for the parties. If a party fails to play by the rules, sanctions can be imposed by the Court. Accordingly, litigation can be very a orderly process that results in a declaration of a winner and loser.

Litigation, however, has certain weaknesses. Civil Court systems are presently back logged throughout the country. A construction case can take over five (5) years to bring to trial. Litigation is also expensive. The litigation process promotes the discovery of as much evidence and information as possible, regardless of its relevance to the issue at bar. As a consequence, parties to the process see legal costs breaking six figures within a few months of the initiation of a proceeding.

Additionally, litigation does not provide parties with a trier of fact that is knowledgeable in construction. Most judges do not have a background in construction and construction contracts. In the case of a jury trial, the parties will not recognize a jury pool of its peers. Instead of construction savvy individuals, the jury will be comprised of lay people who have been conditioned by television programming that trials take 60 minutes to resolve. A boring, month long construction trial will expend the jury’s collective patience and attention before the closing of opening statements. Lastly, judge and jury decisions can be appealed leading to additional expenditures of significant time and money.

Litigation, therefore, is not for every project. Complex projects that have the potential for multiple party claims may benefit from the rules of procedure that govern the process. A project, however, that generates fees that can be easily surpassed by litigation costs may not be a good fit for the litigation process. Additionally, if you are a constructor or design professional, you may not want to specify litigation where a public works project is involved. Many States require, where litigation is the selected dispute resolution process, that public project claims be tried in the county or locale of the project. Many States also require that the claims be tried by a jury. Therefore, the Constructor and design professional’s fate is in the hands of the people who will pay the taxes to support
a decision that is rendered in favor of the design professional. Litigation is not for every project and must be considered carefully.

ARBITRATION
Arbitration is also a process that results in the rendering of a decision. Instead of a judge or jury rendering the decision, arbitration relies on an arbitrator or panel of three (3) arbitrators to determine who is right or wrong. Arbitrators can be selected by the parties from a myriad of private arbitration firms, such as the American Arbitration Association (AAA), or from a pool of individuals deemed mutually acceptable by the parties. Unlike a judge or jury, arbitrators have direct first hand knowledge of the construction industry and construction contracts. Arbitrators are former and current design professionals; constructors; construction attorneys; and consultants. Therefore, an arbitrator knows the industry and does not have to “educated” or prompted to stay awake during the proceeding.

Arbitration is designed to expedite the resolution of the claim. The process discourages extensive discovery. Parties are encouraged to exchange relevant materials and evidence a few days before the hearing, dependant upon the arbitration body used. Unfortunately, parties and their counsel are often uncomfortable the lack of traditional discovery. The arbitrator is frequently requested to allow the parties to engage in the exchange of depositions, interrogatories and documents. This expansion of the discovery rules also expands parties’ costs and the length of the case.

In arbitration, the formal rules of evidence are not employed unless specifically requested by the parties and accepted by the arbitrator. Matters that do not lend themselves to the formal rules of evidence are not weighed down by same and progress more smoothly. However, in certain instances, this can also be a detriment. Without the application of the formal rules of evidence, certain testimony and evidence that would not see the light of a courtroom are accepted
in arbitration. Statements purportedly made by individuals who will not appear before the arbitrator or be cross examined are regularly accepted in arbitration. The same testimony would probably be excluded from a courtroom as a consequence of hearsay rules.

In addition, arbitration can be as expensive and time consuming as litigation. Dependant upon the claim and the number of parties and arbitrators involved in the process, the scheduling of hearings can be a logistic nightmare. However, when an arbitration decision and time is entered, the avenue of appeal is very limited in scope. The ability of a party to further draw out the process through appeal is not as great as litigation. Arbitrator awards are generally upheld.

Arbitration, however, is not for every project. If structure is needed due to potential claim complexity, litigation and its rules may represent the better claim resolution process. If the parties are able to work with each to set their own procedures, arbitration may be more attractive. Arbitration may also benefit a project that contains processes and requirements that should be heard by someone experienced in construction. It should also be noted that the AAA has established an expedited hearing process for claims under $75,000. Under their “Fast Track” rules, an award is to be entered for all claims under $75,000 within 60 days of the filing of the Demand for Arbitration. Therefore, “Fast Track” arbitration can be specified in a contract to handle smaller claims while leaving “larger” claims for litigation.

MEDIATION
Mediation is a process where no decision is rendered by a trier of fact. “Public” declarations regarding a party’s claim or position are not forwarded by the mediator. All decisions are left to the parties. In accord with mediation, an individual knowledgeable in construction, and skilled in negotiation, “hears” the positions of each party. The mediator can be selected by the parties or the mediation service selected by the parties. The mediator works in private with the parties in an effort to reach common ground and a settlement of the claim. The parties are in total control of the information they provide the mediator, as well as the information they ask the mediator to convey to the other party. At no time will a mediator disclose any information a party does not want disclosed. A party can withdraw at any time during the process, and does not have to settle. Anything said in mediation is specifically recognized as being private.

When entering mediation, a party must consider, along with its claim position, the expenditures of time and money that can be avoided if settlement is recognized. Mediation can be an effective tool in settling claims before formal litigation or arbitration is commenced. More and more, Courts are using mediation prior to trial in an effort to resolve cases and relieve backlogs.

Despite its apparent benefits, mediation has its drawbacks. Mediation contains no teeth. If a party enters mediation without a serious intent to consider settlement there is nothing that can be done to force the party to settle. Similarly, a party who engages in the process only to gain information about the other party’s position, or because they are required to mediate, will not be penalized. Utilized effectively, mediation can produce reasonable settlements that result in a saving of significant time and money.

CONCLUSION
Each project demands the consideration of the dispute resolution procedure that best fits the parties and the project. While the prime goal of any Constructor, owner and design professional is to avoid and prevent claims, the control of claims that do arise is critical to avoiding significant expenditures of time and money. Careful and proper dispute selection is key to being able to accomplish the above.