Whether you are a contractor, subcontractor, property owner, design professional, or another party involved in a significant construction project, the prospect of costly and lengthy litigation is unappealing. Of course, the very nature of construction lends itself to any number of potential disputes between multiple parties, and when conflict arises, it is usually in everyone’s interest to attempt to resolve the dispute as efficiently and expeditiously as possible. That is why many construction disputes are resolved, or are sought to be resolved, using alternative dispute resolution (ADR), primarily mediation and arbitration.
Why Consider ADR?
If a construction dispute can be resolved through arbitration or mediation, it is often quicker and less expensive than trial. Contractors or developers who are looking to salvage relationships, minimize expenses, and maintain a greater degree of control and confidentiality during such conflicts often find that the courthouse may not be the best forum for accomplishing these goals. Instead, ADR can offer appealing alternatives to traditional litigation.
While ADR is not always the right choice, parties involved in construction projects should have an understanding of what these proceedings are so that they can consider utilizing them when they are drafting dispute resolution provisions in their contracts and when they find themselves embroiled in an actual conflict.
Mediation
In a mediation, the parties collectively select a third-party to act as a mediator who will attempt to facilitate a resolution of their dispute. In Northern California, as elsewhere, there are private ADR organizations and mediators with a broad range of construction and surety industry experience.
One of the advantages of both mediation and arbitration is that it allows the parties to have their dispute heard before a neutral who will likely have a greater understanding of the specific and unique issues involved in construction disputes than would a jury or a judge who has no particular expertise.
In mediation, all parties will meet and explain their position before meeting individually with the mediator. The mediator will then try to thoroughly understand each position and will point out flaws in your case. The mediator’s goal is to convince parties to settle by showing how difficult, costly, and risky the litigation process could be.
The mediator then shares the terms offered by a party and will go back and forth between the parties until an agreement is reached. All parties will then sign an agreement, which is treated like a contract. If no settlement is reached, or if the contract is breached, then you will go to trial.
Arbitration
Arbitration has much more in common with a trial than does mediation. In an arbitration, the third-party neutral selected by the parties will review evidence and hear testimony, and the parties may engage in discovery prior to the hearing if that has been agreed to. The rules of evidence and procedure are typically more relaxed than in litigation, though that hardly means it is a free-for-all. Arbitration can be either binding or non-binding. In binding arbitration, the parties agree to abide by the decision of the arbitrator as if it was a court’s ruling, while in non-binding arbitration a party may choose to reject the findings of the arbitrator.
Agreement to Participate in ADR
A common characteristic of both mediation and arbitration is that the parties involved must agree to participate in the process. The best time to select dispute resolution methods is during contract formation. Standard form construction contracts have dispute resolution provisions, some of which allow for election of methods (by checking a box), and often construction contracts provide for several steps the parties must take before the final dispute resolution method is commenced. When acting as a subcontractor or supplier, you may be bound to a dispute resolution method in the prime contract; therefore, always review the prime contract provisions regarding dispute resolution.
Cost, speed, confidentiality, control, and flexibility are often cited as advantages of ADR, but sometimes, the nature of the parties or the subject matter of the dispute involved may minimize or eliminate these advantages. Make sure you consult with an experienced attorney to understand your options and determine the best course of action whether in contract negotiations or while facing an imminent dispute.
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This website has been prepared by Yee Law Group Inc. LLP for informational purposes only and does not, and is not intended to, constitute legal advice. The information is not provided in the course of an attorney-client relationship and is not intended to substitute for legal advice from an attorney licensed in your jurisdiction.
