Understanding different methods of dispute resolution

Dispute resolution processes

The resolution of disputes arising from construction projects can be a complicated, expensive, and lengthy process. The exact process, or sequence of processes, is set within the terms of the agreement for professional services. This article is intended to help you and your design firm understand the different dispute resolution processes, which include—among others—dispute review boards, mediation, arbitration, and litigation. Although AIA’s contract documents also include the Initial Decision Maker (IDM) as a part of the dispute resolution process, this article will not cover the IDM process because AIA separately published an article explaining the IDM process.

Parties should discuss whether it is advantageous to align the selected dispute resolution methods across the multitude of agreements throughout the project. Further, the ability and extent of parties to join other project participants in their dispute can vary with each of the procedures set forth below, so that issue should be discussed with counsel prior to execution. 

Dispute review boards

A dispute review board (DRB) is a procedure whereby “all disputes arising on the project [are] submitted for nonbinding determinations. Board members designated by the parties [at the beginning of the project and] typically have both substantive and procedural expertise.” *1 DRBs are typically more effective when all project participants agree to the method such that multiparty claims can be resolved together. Some characteristics of DRBs include: 

• Prompt resolution of disputes: DRB members convene at the beginning of a project, regularly visit the project, and meet with project personnel. With this information, DRBs can efficiently resolve disputes as they arise during the project, rather than allowing those disputes to linger. 
• Potential for multi-phased approach: In the absence of an agreement based upon the DRB’s recommendation, the parties can give the DRB the authority to decide their dispute in either a binding or non-binding manner. *2
• Efficient use of resources: Although the parties compensate the DRB for their time, including time spent conducting site visits and meeting with project team members, it is typically a wise investment because it saves both time and money should a dispute arise. Senior project members can also be required to attend meetings, which may aid in project collaboration and communication. 

Note that some jurisdictions and contracts have their own administrative procedure, which can be different than DRBs. Additionally, the concept of sovereign immunity may impact the ability to use DRBs because, in situations where sovereign immunity may be present (such as a governmental entity), alternative dispute resolution may not be necessary or possible. 

Mediation

Mediation is, at its core, a meeting between the parties and a third-party neutral where they all try to settle the dispute. Most disputes are resolved either during or after mediation. Parties are usually represented by legal and insurance counsel during the mediation and all parties are required to bring to the mediation someone with authority to settle the dispute. Typically, the parties explain their positions to the mediator in group and private settings, and the mediator then works to bring the parties to a resolution. Mediation is usually the parties’ first step toward resolving their dispute and is sometimes a mandatory contract term or required by the court prior to trial. Virtually all disputes that are not resolved before litigation will be ordered by the trial judge to attempt resolution by mediation. Typically, mediation procedures are well established and understood, so parties will not have to craft unique procedures for their mediation. Some characteristics of mediation include: 

• Confidentiality: Discussions with the mediator and statements made in a group session are confidential and cannot be used as evidence in any subsequent arbitration or litigation. 
• Direct negotiations: *3 Often, companies send individuals in leadership positions to mediation. Thus, the parties can speak directly to each other and understand their opposing perspectives. Parties who mediate with an open mind and toward the goal of settling often benefit from meeting with the opposing principal(s) face-to-face to discuss their respective positions. 
• Experienced mediator: *4 Typically, the parties can retain mediators who have significant experience in the construction industry. This experience allows them to understand the complex factual and legal issues usually present in construction claims. Mediators will often meet with each of the parties separately and confidentially to understand their position and, once they do, they will use this information to help the parties understand the opposing perspective and thereby reach a resolution. 
• Flexibility: *5 Parties can select the date, location, and format of mediation. If parties wish to minimize expenses, they can set a mediation on an expedited basis with limited or no exchange of information or documents prior to the mediation. Parties can also select, perhaps with the input of the mediator, the mediation format. For example, the parties can choose how many people can attend; whether to give “opening statements” during which they each formally explain their position to the other side and the mediator; whether to submit a written statement to the mediator prior to the mediation; whether to make the mediation “binding,” which means the mediator has the authority to force the parties to settle if they are unable to do so voluntarily (sometimes referred to as “Med/Arb” or “mediation/arbitration”); and whether to set a deadline for completing the mediation. 
• Expedited resolution: *6 If the parties resolve their dispute at early mediation, they have a relatively prompt resolution. They do not have to go through months of discovery as they would with arbitration or litigation. Agreements signed at the conclusion of successful mediation often provide for the prompt payment of funds (or whatever the parties agreed upon) and a dismissal of all potential claims. Thereafter, the parties can return to their respective business operations. Also, if mediation is a condition precedent to litigation, it has the benefit of allowing parties to resolve disputes before a lawsuit is filed, which can benefit parties in many ways. 
• Saves money: *7 If the parties resolve their dispute through mediation, legal fees and consultants’ and experts’ fees stop. Mediators will often focus on this element of mediation as an incentive to drive the parties to reach a resolution. If the parties do not attempt mediation, or if it fails, they could be involved in the dispute for many more months or years.
• Virtual potential: The proliferation of virtual mediations may cause a shift in the norm. It’s quite possible for parties to mediate their dispute virtually, which can save significant time and money. More people can be available to appear virtually, thus giving parties access to more real-time information, which can foster a greater understanding of the case and increase the likelihood of settlement.  

Arbitration

Arbitration is a procedure whereby the parties select a person or small panel of people to decide their dispute. The parties can usually select an arbitrator(s) with significant construction industry experience, which helps him or her (or the panel) to understand the dispute. Unlike a DRB, an arbitrator is not involved with the project on an ongoing basis; rather, he or she is brought in once a dispute arises, which is usually post-completion. In a sense, arbitration looks similar to a court trial. But, as set forth below, they are different in a few critical aspects. Some characteristics of arbitration include: 

• Limited discovery: Construction projects can generate a massive amount of information, witnesses, and documents. Exchanging these documents can cost a great deal of time and money. Arbitrations are designed to provide a more expeditious and less costly format to resolve disputes. The primary way that arbitrations are designed to save money is by limiting the amount of information and documents that the parties must share prior to presenting their cases to the arbitrator. If the parties share fewer documents and less information, they typically save a substantial amount of money versus going to court. 
• Confidentiality: Arbitrations are not public proceedings. The parties’ documents and written submissions, and the arbitrator’s decision, are typically shielded from the public. 
• Not necessarily bound by precedent: While arbitrators typically follow prior case law, they are not bound to do so like judges and their decisions are not binding on future arbitrators. 
• Limited right of appeal: Different arbitration services have different levels of appeal rights and varying appeal procedures. For example, the American Arbitration Association (AAA) requires the parties to describe their appeal preferences in their contract, whereas Judicial Arbitration and Mediation Services (JAMS) allows the parties to agree to the JAMS Optional Arbitration Appeal Procedure at any time. Regardless of the arbitration service, in arbitration, the parties’ rights to appeal decisions they disagree with are much more limited than in litigation. While limited appeal rights provide finality, it also means the parties have very few options if a matter is wrongly decided. 
• Not bound by rules of civil procedure and evidence: Arbitrators may have discretion whether to apply the jurisdiction’s rules of civil procedure and evidence. This may mean that evidence that is typically excluded may be submitted to the arbitrator(s). Similarly, rules governing service, subpoenas, time limitations, etc., may not be applicable in an arbitration setting. 

Litigation

Most design professionals are familiar with the concept of litigation, even if that familiarity comes from Hollywood. Litigation is a procedure whereby the parties exchange information and documents over many months or years, and then present their case to a judge or jury to decide their dispute. Some of the key characteristics of litigation include: 

• Broad discovery: Parties have wide latitude to seek information, documents, and witnesses from other parties during the “discovery” phase of litigation. Therefore, discovery can be very expensive because the parties are often forced to make multiple witnesses available for depositions, provide answers to numerous written questions under oath, and produce hundreds of thousands—if not millions—of pages of documents. 
• Public: Trials are public proceedings. Anyone can walk into a courtroom and watch a trial, and anyone can walk into a courthouse and look at the documents the parties have filed. In the same vein, most courthouses publish their case decisions online, so anyone can view the results of most trials. 
• Trier of fact unfamiliar with construction: Unlike mediation and arbitration, where the mediators and arbitrators are chosen by the parties for their experience in the construction industry, judges and jurors are more likely to be unfamiliar with the nuances of construction projects. 
• Lengthy resolution: From the time a lawsuit is filed to the time a final verdict is rendered, construction disputes can last years. If either of the parties appeal the decision, the time can double. 

Hopefully, no disputes arise on your projects. In the event a dispute arises, however, there are pros and cons to each type of dispute resolution method. Parties should weigh their options when negotiating their contract to agree on what procedure they will use and set clear expectations for any disputes that may arise. 

AIA has provided this article for general informational purposes only. The information provided is not legal opinion or legal advice. The Risk Management Program posts new materials and resources periodically. 

References

1. Arbitration contrasted with other forms of alternative dispute resolution, 7 Bruner & O'Connor Construction Law § 21:3.
2. Duels, Litigation, Arbitration, or Dispute Review Boards: The Better Choice in Complex Construction Projects,
3. Alan E. Harris, et al., ADR – A Practical Guide to Resolve Construction Disputes – Alternative Dispute Resolution in the Construction Field, 5–6 (1994).
4. Ibid.
5. Ibid.
6. Ibid.
7. Ibid.