Construction disputes can be resolved in different forums. The three most common are litigation, arbitration and mediation. Which forum you choose, or which one is mandated in the contract can be as important as the terms of the contract. Therefore, dispute resolution should be strongly considered BEFORE the contract is signed. If no disputes arise then there is no harm in the forum selected. If a dispute does arise the forum selected may make all the difference in reaching a resolution based on all the facts and issues.
Litigation, normally, is viewed as time consuming, takes a long time to complete and is expensive. However, there are several good reasons to litigate a construction dispute. Construction projects are complex involving numerous parties which can include architects, engineers, general contractor and subcontractors. There are also lesser players such as local officials including building inspection and zoning people. Construction disputes are normally factual complex and involving a large amount of paper documents and communications including blueprints, contracts, change orders, emails, text messages and verbal communications. The legal process has rules of procedure and evidentiary rules that a court will enforce. The discovery of information is predictable and available, most of the time, in litigation. These rules favor the homeowner because (a) they ensure the issues are fully developed, (b) damages can be fully calculated and assessed, (c) contract provisions will be interpreted according to legal precedent and (d) if an error occurs in the process the owner has the right to appeal the decision to a higher court. If the owner is willing to invest the time, money and effort to litigate a dispute he is likely to obtain a resolution based on the most complete and accurate review of the issues. However, no outcome can be predicted and rarely do litigants receive full satisfaction.
Arbitration is similar to litigation because there is limited rules of discovery, you can present evidence to support your position, call witnesses, and cross-examine witnesses from the other side. Supporters of arbitration like its informal rules of procedure, and the industry knowledge of the neutral third party hearing the case. It can be less expensive and normally requires less time than litigation. However, in complex cases such as construction it can be just as expensive, if not more, and just as time consuming as litigation. Although limited rules of discovery contribute to lowering the expenses it may be inadequate in complex construction cases to fully develop the facts of the dispute. This can lead to a “trial by ambush” do to incomplete information coming into the hearing. Although the arbitrator hearing the case may have industry knowledge he may be lacking in legal and technical issues being disputed. The arbitrator is not bound to follow legal precedent or the facts which can lead to a decision that is incorrectly decided. This is the risk of arbitration because the decision is final with only limited ability to appeal. Normally ignoring contract terms, legal precedent, and under developing the facts are all detrimental to an owner.
Mediation which is simply a facilitated negotiation with a mutually agreed to neutral party who oversees the negotiation process. Mediation normally is non-binding and can occur before or early in litigation to explore resolution of a matter. It should go without saying that mediation, to be successful, requires both parties to be interested in settling and willing to be flexible in their demands.
A party to any construction contract should always understand what the dispute resolution mechanism is or the forum in which it will occur. This needs to be done before signing the contract. Prior to signing the contract, the opportunity to negotiate the resolution method is still available. After signing the contract, the parties are locked into the resolution method stated or the lack of stating the method or forum. This is one of the most important issues for parties to a construction contract because construction projects are ripe with dispute opportunities.