Risk Management Articles
The Different Processes for Resolving Construction Disputes
By Paul M. Lurie, Esq.
Disputes are inevitable because of the complexity of the construction contracting and building process. Planning for efficient resolution of these disputes should be an important role of the design professional as preparer or recommender of the content of the construction documents. The following taxonomy describes the menu of choices available. It is substantially based on an article by Joseph Grynbaum, P.E. and a mediator, in the June 15, 2001 edition of his monthly newsletter, "Dispute Prevention Update."
- LITIGATION Post dispute role. May take up to three years to get to court. Court may be Judge alone or jury trial. Over 95 % of lawsuits are settled on courtroom steps, but after the expense of discovery and other pre-trial procedures. Evidence gathering process of discovery is difficult to control therefore costly and time consuming. Trial proceeding and decision are public knowledge. Exclusionary rules of evidence are applied. Appeals are allowed.
- ADR Refers to alternative dispute resolution. Usually meant to refer to the non-binding processes such as mediation and others described below which are either post dispute or pro-active. However, sometimes erroneously is used to include arbitration, a binding process.
- ARBITRATION Post-dispute role. Obligation to arbitrate pursuant to American Arbitration Association rules contained in pre-dispute AIA and optionally in EJCDC form agreements. Arbitrators may be one or a panel of three. Process is binding and decision is difficult to overturn. There are no appeals. Overall objective is to have fairer decisions made by persons knowledgeable in construction. Also to have resolution faster than a court proceeding and with less expense. Lawyers represent clients similar to court proceedings. Formal rules of evidence are generally not applied. Discovery process to gather evidence is usually more efficient than court proceedings and normally doesn't involve discovery depositions.
- MEDIATION Post-dispute role. Obligation to mediate pursuant to American Arbitration Association rules contained in pre-dispute AIA and EJCDC form agreements. Also can be agreed to without such pre-dispute agreements using mediators from sources other than the AAA. Lawyers for each party usually select neutral mediator after consulting with client. Clients take more active role in settlement decisions than in arbitration or litigation. Fee is cost-shared. Mediation process is non-adversarial, non-binding and private. Mediator may choose to give opinions on outcome or not depending on the dynamics of dispute. Information shared during mediation cannot be used as evidence for future lawsuit. Settlement agreement prepared by lawyers.
- MED-ARB Post-dispute role. Similar to mediation but parties agree beforehand to binding decision by mediator if they are unable to reach settlement during mediated session. Fee is cost-shared.
- NEUTRAL EVALUATION Post-dispute role. Disputed claims are reviewed by a neutral expert for technical recommendation. Evaluation may or may not be part of a mediation. Fees are shared.
- ONE-ON-ONE NEGOTIATION Post-dispute role. Executive team meets as needed to negotiate settlement of disputes and reach agreement(s) without outside assistance of neutral.
- DISPUTE REVIEW BOARD Pro-active role. May involve panel (3-person) or one-person selected in agreement with all parties. Panel is typically technical experts. Recommendation issued by DRB is non-binding unless agreed otherwise. Outside panel is preferred. Fees are cost-shared equally among participants. DRB should attend project kick-off if possible and continue to be active throughout project.
- STANDING NEUTRAL Pro-active role. Suitable impartial expert is selected to participate during project and facilitate dispute resolution among team. Decisions generally not binding, but may be admissible in further arbitration or litigation. Fee for neural is cost shared.
- PARTNERING WITH BOOSTER(S) Pro-active role. Similar to Partnering with DR System (below) but maintains contractual DR procedures. Team agrees to participate in further partnering booster session, say 6 months later.
- PARTNERING WITH DISPUTE RESOLUTION SYSTEM Pro-active role. Project team participates in 1-2 day partnering session and develops partnering charter and appropriate dispute resolution procedures with or without neutrals.
- TRUST-BASED AGREEMENT Pro-active role. Similar to Alliance but parties are selected on bases of competitive price bids. Individual roles are maintained. Agreement does not exclude litigation.
- PROJECT ALLIANCE AGREEMENT Pro-active role. No litigation covenant. Includes real-time dispute resolution procedure. Collaborative decision making. "One for all, all for one." Shared gain, shared pain money formula. Involves active partnering and trust-based relationship. Individual firms' roles merge.
Paul M. Lurie is a senior partner in the Construction Group of the law firm of Schiff Hardin & Waite in Chicago (ph: 312-258-5660 or e-mail: email@example.com). He is general counsel to many architectural and engineering firms and a regular contributor to STRUCTURE.