Most construction contracts have some form of mediation provision. I discussed that provision and some factors for consideration in my last post. In this post, I’d like you to consider alternative dispute resolution provisions that can help you resolve disputes in real time, or, in the alternative, before engaging in a more costly and formal mediation.
Keep in mind that the mediation procedure itself is not all that expensive. However, proper mediation preparation and claims analysis does take time and can be costly in terms of man hours and possibly in attorney’s fees.
Resolving disputes during the project is far more economical and allows the parties to continue their progress towards completion without gearing up for a big fight later.
Let’s start with the most common dispute resolution provision. That provision creates a person to serve as the Initial Decision Maker. The Initial Decision Maker is typically the project architect or engineer and that person is almost always loyal to the Owner. For contractors, this loyalty presents an obvious problem. For Owners, while seemingly advantageous, this can actually increase the likelihood and cost of disputes. Without an impartial Initial Decision Maker, the parties are not on even footing going into the resolution process and this creates an adversarial relationship from with large disputes can blossom.
Consider appointing a disinterested third party to serve as the Initial Decision Maker on significant projects that would be paid a consulting fee to be split equally between the parties. In this situation, a person’s bias can play a role in judgment, but you would have removed the most significant bias in that the Initial Decision Maker would not be aligned with either party. Impartiality in this role can provide significant benefits in resolving disputes and allowing the teamwork and partnering on a job to continue without hard feelings or distrust.
Another thing to consider when trying to resolve disputes during performance is the type of dispute and the qualifications of the individuals reviewing the claims. Consider contract provisions that allow the parties to suggest alternative individuals to review particular disputes in the event the Initial Decision Maker may not be the most qualified. If one party has submitted a claims for interference or delay, having an expert in schedule analysis would be more likely to resolve that claim than an impartial construction attorney who might also serve a mediator.
Bear in mind that not every dispute can be resolved during performance. But, to the extent the mean and mechanisms in the contract can assist in resolving disputes in real time, those types of provisions should be considered and the parties should work together to take advantage of such provisions when available.