Construction Update

Douse Disputes Fast With Alternative Dispute Resolution

When smoke-jumpers parachute onto remote Western slopes, time is of the essence. They know that a small brush fire, caught early, is easy to quench. But as a blaze grows, the difficulty of controlling it grows exponentially.

The same holds for disagreements that arise during a construction project. If they’re not resolved they become more resistant, like fires. Positions harden and so do people. Relationships erode. And at the end of the road lie courts or administrative agencies.

Litigation can drain your resources, so it’s worth exploring alternatives.

To begin with, Smokey Bear stressed prevention. A well-crafted construction contract can pre-empt some claims entirely. Then, when disputes flare, contractors can minimize their impact by jumping on them quickly. Work together with the owner, ideally — but jump in any case.

An Alternative to Suing

A recognized set of procedures and techniques has evolved to help businesses and individuals resolve disputes early and avoid the potentially high costs of litigation or government intervention. Together these methods are called alternative dispute resolution, or ADR.

ADR methods can help construction companies and owners resolve disputes throughout the project cycle, from design to completion and recovery of fees.

These resolution techniques can be classified in three stages:

1. Preventive practices are high-yield investments. When parties to a contract take the time to anticipate problems, they can put a system in place to stop them before they start. Your calm outlook, open mind and reasonable attitude will encourage cooperation all around.
2. Containment keeps a fire from spreading. How? By quarantining it. That’s the function of contract clauses that limit exposure and liability, and others that provide for continuation of work during disputes.
3. Resolution. Whether it’s a contract provision or an agreement later on, it’s essential to spell out the manner in which claims will proceed. A clause can specify a time period for informal negotiation, followed by another for resolution through mediation, and so on. Unambiguous procedures save time and money.

Ideally, the contract itself should provide for each of these stages. But even if it doesn't, owners and contractors can agree after the fact to cooperate along similar lines. Both have good reason to do so, because both benefit from efforts to contain and resolve disagreements, preserve good relations and avoid legal action.

ADR Resolution Methods

Mediation and arbitration are the two ADR methodologies most commonly used. Both involve a neutral third party, selected and paid by the parties to the dispute. Professional organizations and government agencies maintain rosters of qualified experts — often active industry professionals — who serve in this capacity.

Unlike trials, mediation and arbitration proceedings are private. And unlike a judge, the mediator or arbitrator is chosen by the parties themselves.

In mediation, this neutral third party acts to facilitate communication, help the parties talk through settlement possibilities and maintain a fraternal tone. The underlying assumption is a desire to cooperate, not wage war. The parties have voluntarily agreed to seek a meaningful solution.

Arbitration is more formal. It doesn't require the same standards of evidence and procedure as a trial, but the arbitrator — the neutral third party — acts as a judge. Depending on the parties’ prior agreement, the arbitrator’s decision may be merely advisory, or it may be legally binding and, in most cases, not subject to appeal.

Partnering, another ADR option gaining in popularity, refers to a formal relationship designed to head off problems (on one project or over time) between two cooperating businesses. This approach defines communication lines between the parties early — and puts a premium on resolving disputes at the lowest possible managerial level.

Claims Management

The early smoke jumpers were fast. They were so good at reaching fires quickly and putting them out that they didn’t get experience with big fires. They were devoured by a huge one in Montana’s Bitterroot Wilderness in 1949 in America’s worst firefighting tragedy.

ADR techniques can avoid, contain or reduce many disputes — but not all of them. Sometimes the woods catch fire, and a lawsuit is the only way out.

A construction firm in court needs strong lawyering — and strong claims management. As this issue’s lead article explains, construction claims, which must hold up until they’re resolved (even in the courtroom) deserve expert attention.

For more information about our services to the construction industry, Contact:
Mark Lund, Parter-in-Charge of Construction Services at 713.297.6907.

The articles in this newsletter are general in nature and are not a substitute for accounting, legal, or other professional services. We assume no liability for the reader's reliance on this information. Before implementing any of the ideas contained in this publication, consult a professional advisor to determine whether they apply to your unique circumstances.