Construction disputes – Ways to resolve

When a construction dispute is not resolved, employers and contractors are in general cautious to proceed with litigation for many reasons, where then they will be left with no other option but to arbitrate, that adds lot of burden on local arbitration institutions and in return country legal system. This is a worldwide issue of course. The construction market pace is not in line with standard procedures set for resolving disputes via arbitration.

Having said that, it brought, a noticed diversion in applying ADRs (Alternative Dispute Resolution) to construction disputes rather than arbitration, as a quick relief, due to many factors including cost and time duration attributed to the standard applicable process in arbitration while litigation process is kept as last option to pick in case arbitration is hindered at any stage or both parties are in agreement to proceed with litigation directly (rare scenario).

A question pops in minds then, what type of ADR is suitable to resolve your dispute? Negotiation, Mini Trial, Conciliation or as called Facilitation (in some jurisdictions), Neutral Third Party, Mediation, DAAB, Adjudication or Arbitration? What criteria to choose, advantages and disadvantages of each, duration of the process, market practice and direction, partners’ relations… etc.

With less knowledge in current market on suitable ADR applicable to resolve certain construction dispute, it becomes difficult to a lawyer or contract administrator to apply, especially if the dispute involves extension of time claims, liquidated damages, unsettled variations, delayed payments, prolongation cost, loss of profit, …etc.

This juncture then is a bottleneck that, if resolved, would help in resolving almost 50% of current construction disputes that unnecessarily go to arbitration or litigation bearing in mind that any agreement set via any ADR is not generally binding in nature (unless agreed by parties) except for arbitration, therefore, we urge all parties, once agreed on applicable ADR, to consider the binding in nature approach based on the outcome of the process and third party determination.

Think about applying expert determination approach rather than expert opinion!!

Let us discuss in depth, Adjudication for example is a mini standard process similar to court litigation however, would consume 60 to 75 days to conclude, and applicable mainly to disputes arose in nature on legal issues rather than technical issues where, on the other hand, a mediator would review the dispute in details, meet both parties and encourage them to propose and reach to an amicable settlement. Mediation is Applicable to disputes of technical nature with less legal involvement. Mediation process could be as short as 30 days and would go up to 90 days to conclude a reasonable determination.

Neutral Third Party is common in this part of the world where third party consultants would determine the dispute settlement and provide a reasonable settlement.

Conciliation is considered when the dispute is on a combination of legal and technical matters not complicated in nature and could go from 45 to 60 days to settle.

Negotiation is the simplest ADR method; a negotiator facilitates and proposes a suitable reasonable determination on certain construction dispute in an amicable manner, it is applicable to non complicated disputes (mainly technical in nature) and could consume 30 to 45 days to settle.

A question pops in mind though, who shall really manage and lead construction disputes? A lawyer or contract administrator with legal background? Notice the current market diversion before jumping to an answer!!

What if a reasonable legal and technical collaboration is established?

And before all, prevention is always better than cure, how to properly draft the midnight clause in construction agreements?