During a recent webinar, “Dispute Resolution Considerations in Construction Contracts”, I was joined by my colleagues Chris Kolosov and Emily Anderson to discuss the dispute resolution alternatives available to parties involved in construction contracts.

Here are our key takeaways.

1. Choice of Dispute Resolution Method Matters: The selection of a dispute resolution mechanism—has significant implications on the speed, cost, and the predictability of the outcome of the dispute.
2. Arbitration Offers Flexibility: Arbitration provides flexibility in terms of rules, choice of arbitrators, and tailoring the process to the needs of the parties and the project.
3. Mediation Encourages Settlement: Mediation serves as a non-binding, confidential process that can facilitate early dispute resolution.
4. Technical Dispute Resolution: For disputes that hinge on technical matters, engaging an independent technical expert can be an effective way to resolve issues swiftly and cost-effectively.
5. Litigation: While litigation is often seen as the last resort due to its public nature, potential for significant time and expense, it remains the default dispute resolution mechanism when contracts are silent on the issue. Parties opting for litigation should consider the implications of jurisdiction, choice of law, and whether to include a prevailing party legal fee clause. Parties should also consider that many Federal and State courts systems maintain court-sponsored alternative dispute resolution options.

Considerations for Selecting a Dispute Resolution Method:

• Project Specifics and Stakeholder Interests: The type of project, the relationship between the parties, and their respective interests and leverage dynamics, should guide the choice of dispute resolution method.
• Efficiency: Parties should weigh the anticipated costs and time required to resolve disputes through different mechanisms. Arbitration and mediation can offer more streamlined processes but require careful planning to avoid unnecessary expenses.
• Expertise Required: The need for technical expertise to resolve disputes may favor arbitration or technical dispute resolution methods, when specific industry knowledge is crucial.
• Predictability: The dispute resolution process can impact the predictability of the outcome. For example, arbitrators may try to find a middle ground when deciding a dispute. A technical expert may be more predictable when the dispute is technical. Litigation provides the least predictable result as a judge and jury lack the technical background to resolve technical issues. There is also a greater chance that the dispute will be resolved on procedural grounds, rather than on the merits.
• Finality and Appealability: Consideration should be given to the desire for a final and binding decision versus the ability to appeal or challenge the outcome, which varies significantly between arbitration, mediation, and litigation.

Selecting the right dispute resolution mechanism in construction contracts is a nuanced decision that requires careful consideration by the project sponsor. By understanding the advantages and limitations of each method, parties can better position themselves to manage and resolve disputes efficiently and effectively.

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