Alternative Dispute Resolution

Miss a Deadline? Disagree on a Specification? It Doesn’t Have to End Up in Court.

S.S. Saucerman / January 2021

Author Max Lucado once wrote, “Conflict is inevitable but combat is optional.” He was right. Disagreements have a way of finding even the most non-confrontational of people, and sometimes circumstances arise that simply make conflict unavoidable. That’s just life. 

But let’s further suppose that you’re in an occupation like (oh, I don’t know, say) wall-and-ceiling contracting, where none of your work is “buried,” and pretty much everything you create revolves around textures, finishes, colors and reading minds of scrutinizing and picky clients. I think it’s safe to assume our odds of conflict-generation just went up.

I’d Agree, but I Don’t Want Both of Us to Be Wrong
At the same time, let’s also suppose you’re a good businessperson and you want to do everything you can to limit your firm’s professional liability and legal exposure should an (inevitable?) conflict ever occur. Certainly no one (except maybe lawyers) looks forward to spending time and money in drawn-out court proceedings. And of course we’ve all heard stories of nightmarish litigative debacles stretching out for years and even bankrupting otherwise notable organizations. The risk is real, so it pays to know your options. But how do you prepare for the unknown?
    
Well the truth is, you can’t—at least not entirely. Conflict has a way of arriving without warning or fanfare, and attempting to anticipate the size, severity and scope of your next fight is as easy as giving the correct answer to your wife when she asks you, “Do these pants make me look fat?” It simply isn’t possible (yes, I’m divorced). But there are steps you can take to lessen the prospect of court altogether. You see, not all business disputes and disagreements need end up in a courtroom. There are alternative methods for resolving conflicts that allow contractors like you and me to mitigate potentially costly and lengthy legal battles, and yet still bring these conflicts to fair and final resolution. One of these methods is Alternative Dispute Resolution.
    
ADR is an innovative dispute resolution procedure that may end up being less expensive, less time consuming and less stressful than conventional court system trials—and yet still offer a fair, expedient and effective process for resolving construction-industry conflicts. You may have even already heard of it or come across ADR clauses in Division 1 “General Requirements” of specification manuals when you’re out bidding projects. However, you still may be a little foggy as to exactly what ADR entails. Well, let’s fix that.
    
In summary, ADR is a conflict-resolution process that allows for a more informal, negotiated procedure that is performed under private mediation or arbitration. It is often part of—or may go hand-in-hand with—the construction management philosophy commonly known as partnering. In short, partnering in construction is a management philosophy that attempts to improve construction project development, deployment and management through the establishment of a formal pact that binds all members of a construction team (designers, owners, general and subcontractors) to act as in true partnership with one another throughout the building project.
    
Partnering calls for the participants to enter into a formal agreement—or covenant—vowing an atmosphere of trust, comradery and good faith. And this extends to dispute-resolution as well. Enter ADR. Even better, in the partnering atmosphere, details of the project (depending on the what is agreed to by the members) including costs, value-engineering and scheduling may also be shared and discussed continually throughout the process, alleviating or “cutting off at the pass” potential misunderstandings that may sprout into litigative issues later on.

The Process
Basically, by accepting the ADR procedure, you agree to mediate or arbitrate all disputes before filing any formal legal action against another party, should a dispute occur. You may agree to submit to binding arbitration by a neutral third party (such as with that supplied by organizations like the American Arbitration Association or perhaps a law firm that specializes in mediation/arbitration procedures). You might also have to agree that any lawsuit filed before the arbitration is commenced would be dismissed, although that still may not preclude the possibility of a lawsuit down the line.
    
The kind and level of mediation/arbitration procedure to be used will often depend on the size of the contract and claim in the dispute. For instance, the parties may agree to only invoke ADR if the claim is (perhaps) under $25,000; anything else would go through the normal system. Basically, it’s up to the participants. The wording and structure of the agreement will almost certainly vary according to the size, type and cost of the project, along with many other factors. Even the personalities of the players will have an effect—driven mostly by each individual’s tolerance for risk.

Considerations
Here are other items to potentially include and/or address in your ADR agreement:

  • The level of procedure to be used. Basically, if the project is straightforward and less expensive, the ADR process might be correspondingly simple. As the project grows more costly and complex (and therefore riskier), the ADR would likely grow to include more provisions that would reflect the intricacies and concerns of a larger project.
  • The method by which the impartial third party (to act as mediator/arbitrator) is chosen. Suffice it to say that this selection is quite important to the proceeding. This third party should, of course, not take sides in the dispute and be as genuinely impartial as possible. This selection process may even require the participants to interview and gather data on potential candidates.
  • In addition to the mediator/arbitrator, you may even opt for another party to act as facilitator. The facilitator’s job would be to administer the procedure itself—not oversee it as judge and jury. This may or may not be the same person who acts as the neutral party (but it’s probably a good idea to separate the two). This person would decide things such as when and how often the resolution meetings would be scheduled.
  • Of course, the methods and procedures for payment—particularly regarding disputed amounts—should be included in the agreement. After all, money is generally what these disputes are all about.
  • The ADR agreement can spell out exactly who will be involved in the proceedings. For example, if our dispute is between the contractor and owner, would the architect be part of the ADR process? What about the structural engineer? Or would you simply make the agreement to allow for any party to be included in the proceedings—regardless of connection to the project?
  • Will outside representation be allowed? For instance, will the combatants be allowed to bring in outside attorneys? Could industry experts be used to assist with one side’s case?
  • How would information be exchanged by the disputing parties? This is particularly key regarding sensitive information such as financial or legal information. Parties need to decide whether they will exchange documents—and what limits apply. This can be vital, as having additional facts on the table (provided by these documents) can be key to resolving a conflict.

The Good with the Bad
But is ADR right for me? Let’s examine some commonly purported pros and cons of the ADR process, and maybe it will aid your decision. First, let’s take a look at some positive attributes. Proponents of ADR will tell you things like these:

  • The process can drastically reduce the time window for litigation necessary to obtain resolution, possibly turning potential years of conflict into months, or even weeks.
  • Participants get to choose their poison. Procedural rules, location, time frame, arbitrator/mediator—basically anything—can be negotiated by the participants.
  • Confidentiality may increase and information exposure may be lessened because the proceedings aren’t open to public and/or press scrutiny.
  • The process is simply more informal. Even lawyers needn’t be involved (although I would still highly recommend that they are, unless the affair is truly minor), and the plaintiff/defendant can talk face to face rather than through lawyers and a judge.
  • The traditional adversarial (highly inflamed?) relationship between the combatants is somewhat tempered due to the informality of the proceedings. This can make for a more conducive environment for give-and-take between the litigants.
  • The process is less expensive. From start to finish, ADR is often far less costly than going to court.

Still, opponents and naysayers of the ADR might rebut with these comments:

  • The economy generated by ADR may potentially cause more claims to be filed—thereby negating much of the reason that ADR exists.
  • ADR may provide for only limited discovery and fact-finding on the part of the combatants. Though this is often a result of the more economical process, it can strengthen or weaken a participant’s case accordingly.
  • ADR doesn’t generally lend itself to extremely large cases or cases that have set out to set legal precedent. These types of disputes are probably still best handled in a conventional court of law.
  • If the mediator/arbitrator turns out to be “weak” or unskilled, the results may conflict with the rule of law or fact—the potential awards may indeed end up being watered down or otherwise compromised. (That’s why the selection process is so important.)
  • Huge awards are probably not so likely from an arbitrator/mediator, so if you’re after big money, you may do better in court.

Closing
And so, like so many other things in life worth consideration, you’ll need to weigh all the plusses and minuses and decide if the process is a good fit for your particular situation, tolerance and temperament. This is also an excellent time to mention that—as with all things legal and concerning everything we’ve discussed here—it is always best to consult with your own attorney or legal team before making any major legal decisions, including ADR.
    
We aren’t attempting to offer legal advice here. Rather, our goal is to simply bring awareness to the reader that there are options other than formal court proceedings out there in the world. The choice of course is ultimately yours. I do, however, believe ADR is worth checking out and may possibly provide you with a quicker, cheaper and far less stressful procedure to resolve your next business conflict.
    
Good luck!

S.S. Saucerman is a retired commercial construction estimator and project manager who worked for a large upper-Midwest general contractor. He is also an established freelance writer and author whose work spans 20 years.