Resolving Disputes to Save Time & Money
by Danielle Maya, Cotney Construction Law
(Editor’s Note: Danielle Maya is a partner at Cotney Construction Law and has over 20 years of experience as an attorney. Cotney Construction Law is an advocate for the roofing industry and General Counsel of Western States Roofing Contractors Association. Maya can be reached at (866) 303-5868.)
The construction industry has used private dispute resolution techniques longer than most industries. This has been a matter of necessity because formal legal remedies often are much too slow and inflexible to deal with the fast-moving pace of a construction project. In the construction business, time is money, and thus the industry places a premium on coordination and quick solutions to problems. As a roofing contractor, does your contract have a clause that requires a dispute resolution method before a party can go to court with a dispute?
Depending on the specific construction project, a project may last for months or even years, and if a dispute between the parties arises, then it can drag on for even longer. If a dispute does arise, it is important that the parties work together to resolve it as soon as it happens so that it doesn’t get out of hand and proceed to litigation. A required dispute resolution method should be in place before a dispute arises and should specifically be laid out in the contract. This will allow the parties to not only save time and money if a dispute arises, but will also allow the parties to be able to efficiently resolve the problem without destroying the working relationship.
In general, a dispute resolution provision in a construction contract sets out the steps or the methods to be utilized if a dispute arises between the contracting parties. If your contract does not include a dispute resolution provision, then any unresolved disputes will usually first look to the courts to solve the problem. Although the legal system is important in the resolution process, it is not appropriate in every case. The courts tend to be slower and are usually the most expensive method of resolving a conflict. Therefore, by including an alternative dispute resolution method in a contract such as mediation or arbitration, the parties may find their dispute handled more quickly, more satisfactorily, and with less legal costs and fees.
It is important to note the differences between two of the most common dispute resolution methods besides litigation, which is arbitration and mediation. Mediation is a non-binding process generally conducted with a single mediator who does not judge the case but facilitates discussion and eventual resolution of the dispute. On the other hand, arbitration is usually a binding process that replaces the full trial process with either a single individual or multiple individuals who serve as the judge in the dispute. Most construction contracts will include both dispute resolution methods but usually require mediation before a party can initiate the arbitration process.
Mediation may arguably be the most important dispute resolution method because of the high success rate in getting parties to settle a dispute. This method has such a high success rate because the parties are brought together in an informal environment where they can present their position freely and confidentially in front of a neutral third party. Parties also like the fact that they are directly involved in negotiating the agreement and no settlement can be imposed upon them. If the parties come to an eventual agreement, the parties themselves will put the agreement in writing and sign it so that it becomes a binding contract. If, however, the mediation is unsuccessful, you have neither prejudiced or sacrificed any legal right nor delayed significantly any settlement by the legal process.
The reason why mediation is so crucial to resolving a dispute is because if this method fails then the other methods that the parties will use, such as arbitration and litigation, are significantly more expensive. That is why it is in the best interest of both parties to try to meet in the middle and settle their differences before the bills start adding up. A dispute resolution method is a creature of contract; meaning that if it is not specifically set forth in the contract, then the parties will not be required to use the method before initiating litigation. Therefore, a dispute resolution provision should be carefully drafted and fully understood by both parties.
Mediation is a key strategy in the dispute resolution method because parties are more likely to resolve their dispute and it is the most cost effective compared to other methods. Whatever dispute resolution method you decide to use, it is crucial that you specifically include it in the contract. Otherwise, a party can bypass the method and go straight to court. Disputes are inevitable in most construction contracts but being able to resolve them without destroying the parties’ working relationship is of the utmost importance. If you do not currently have a dispute resolution provision in your contract or want to review your current contract to make sure your dispute resolution provision is adequate, then you should seek out an experienced construction attorney to assist you in drafting or reviewing this provision.