Construction Contract Dispute Resolution: One Size Does Not Fit All

For the most part, these form contracts work perfectly well as most, if not all, provide for the same basic information:  the scope of the work, the time of completion, who will perform the work, how much the work will cost, who will pay for the work, and when will they pay.

Contractors pay close attention to those primary provisions, but often do not give the same consideration to the remainder of these form contracts. This is understandable as form provisions such as those providing for indemnity, insurance, or consequential damages are often filled with legalese that would challenge the most hardened insomniac. Regardless of their relative unreadability, these provisions are important, as they will bind the contractor during the project and after completion.

One often overlooked provision in form contracts is the one that provides for how the parties agree to resolve their disputes, should they arise. This provision is often titled, “Dispute Resolution.”  Many form contracts, such as those available from AIA and AGC, use a three-tiered approach to dispute resolution. First, the parties attempt to resolve the dispute themselves in good faith.  Failing that, the parties then turn to an interest-based process such as mediation. If mediation does not resolve the dispute, the parties then turn to either the courts or to some variation of arbitration.

Whether or not this three-tiered approach is appropriate for a particular project requires consideration of a number of factors including project size, project complexity, familiarity of the parties, risk distribution, and length of construction. After weighing all factors, the three-tiered provision may prove to be inefficient and overly-burdensome for a small-scale project; or it may prove too simplistic to address the technicalities of a large commercial construction job.

Arbitration may be the best method to resolve technical disputes or issues of law, as arbitrated issues are typically decided by attorneys with knowledge of these technicalities and legal issues. But arbitration may not be the best choice if a quick resolution to the dispute is required. While still usually faster than the courts, Arbitration is no longer the simplified, shorter, and cheaper option of years past.  Arbitration today often includes discovery, depositions, and motions practice, all of which increase the length and cost of the process.  Further, choosing arbitration presents an additional set of factors to consider:  how many arbitrators will there be? How is the arbitrator chosen?  Who will pay for the arbitration?  Under what body of law and procedures will the arbitration proceed?  Perhaps appointing the architect or engineer for the project as decision maker is the best method to resolve disputes without impacting the critical path.

In the end, the dispute resolution process must be able to work both during the construction and after substantial completion. What works best for one project may not for another. Therefore, it is in a contractor’s best interest to give thoughtful consideration to dispute resolution provisions in form contracts, even if doing so requires taking a nap break.