Trends in Alternative Dispute Resolution
By Roger J. Peters, Guest Contributor
In recent years Alternative Dispute Resolution (ADR) has become increasingly popular in the conflict resolution arena for complex construction projects. ADR includes the utilization of early neutral evaluation, mediation, arbitration and Dispute Review Boards (or Dispute Adjudication Boards, as they are known in the FIDIC General Conditions of Contract for Construction for international projects). With the skyrocketing cost of court litigation (and arbitration), parties are trying to find ways to either prevent claims from escalating into all out war or to greatly reduce the cost of resolving them.
Innovative Contract Terms
The first place where many parties start is inserting innovative contract terms that deal with how the parties will facilitate claim resolution. That usually means starting with “partnering” the project. The parties have a pre-construction meet and greet session of key players from the contractor’s and owner’s side, along with the A/E, to discuss what they believe to be critical success factors for project execution and to determine how they will deal with “bumps in the road,” if and when they arise. They then establish future partnering sessions during the life of the project, usually held at least every six months or quarterly, to make sure the parties are dealing with issues in a proactive manner.
Another common contract provision, particularly appropriate with private projects, establishes the hierarchy of problem solving among the parties to the construction contract. This usually entails starting with the respective project managers trying to resolve any dispute, then progressing to the Vice Presidential level, and ultimately up to the CEOs of the parties after all other attempts have failed. Hopefully at this point cooler heads prevail to resolve the dispute.
From there, many contracts require mandatory, non-binding mediation of any unresolved disputes as a condition precedent to the pursuit of binding dispute resolution. In fact, the AIA A201 General Conditions 2007 edition so states just that (see Article 15.3.1). While the current edition of A201 no longer requires the parties proceed to arbitration in the event mediation fails, it does require an Initial Decision Maker (IDM) to render a decision prior to the commencement of mediation, and then the parties must choose between going to court or arbitrating the dispute. A201 sets forth guidelines for the arbitration process if the parties select that venue to resolve their dispute.
Dispute Resolution Boards
In recent years it has become increasingly popular for large projects (both public and private) to include provisions establishing a Dispute Review Board (DRB), which may consist of one member but more frequently requires three members. Typically, the DRB process requires that the members be selected within a certain time frame after contract execution. Each party nominates a qualified person who may be subject to approval of the other party, and then the two parties mutually agree on a third. Once established the DRB serves in a neutral capacity and will meet either on an ad hoc basis (when the need arises to resolve a disagreement) or on a pre-agreed scheduled basis (usually quarterly) throughout the life of the project.
Matters of dispute are heard by the DRB and the ruling issued by the board is binding on the parties until the project is completed. However, if a party is in disagreement with the DRB’s ruling, it may appeal the matter within a certain period to either arbitration or litigation, depending upon the contract. But again, arbitration or court proceedings may not commence until after project completion. It should be pointed out that depending on what the contract provides, the ruling of the DRB is generally admissible in subsequent proceedings. The efficacy of this process is that it can potentially nip disputes in the bud before they escalate out of control, and the parties receive clear direction from experienced construction professionals on how to proceed to complete the work. The parties still have the ability to appeal the matter to court or litigation (if they so desire).
As mentioned above, on international projects utilizing the FIDIC contract format, the DRB is known as the Dispute Adjudication Board (DAB), which operates generally in accord with the foregoing described process. One international organization that trains and qualifies individuals for service on DABs claims a 99% success rate in avoiding post construction arbitration or litigation when the DAB process is fully implemented and followed on projects in which their members serve. Likewise, the Dispute Review Board Foundation, headquartered in Seattle, claims a recent success rate of nearly 88% when its members serve on DRBs in the US.
Early Neutral Evaluation
When all of the above fails and the parties find themselves going to war (arbitration or court litigation), it may prove beneficial for the parties to attempt an early neutral evaluation of the dispute before huge amounts of money are spent on discovery. A qualified neutral, generally an experienced construction attorney, serves in a non-binding capacity to determine what he believes are the merits of the relative positions of the parties engaged in the dispute. This may be handled similar to a “mini trial,” where the neutral evaluator reviews position statements from both sides in advance of a two or three day hearing in which the parties present what they feel is their best case on the facts known at that time. The neutral evaluator renders his non-binding opinion/award, and the parties must then determine if this outlook on the merits of their case provides them with enough incentive to either settle the matter on their own or through a mediator; or whether to roll the dice, spend the money on discovery and let an arbitration panel or court render a binding decision.
Suffice it to say from a construction neutral with nearly 40 years of experience in resolving complex construction disputes, ADR is the way to go in preventing and minimizing the expense of costly construction claims. Hopefully, the foregoing will assist you in your projects.
About the Author
Roger Peters is an experienced mediator and arbitrator for construction and construction defect disputes. This includes nearly forty years of resolving disputes on projects throughout the United States, the Caribbean and the Pacific Rim. For most of those years, he was an officer and General Counsel to Dick Corporation. Roger may be reached at [email protected].
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