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Taming Construction Disputes Through Rapid Resolution

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The global construction market is in crisis.  Credit is tight or non-existent.  Development deals are stalled or stopped.  The money flow from lenders- to owners -to contractors is slower than normal.  Based on past history, these conditions lead to more claims, more disputes, and more arbitration and litigation. So, what can be done to avoid or reduce the historical equation of   “less money equals more disputes?”

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The construction industry has long served as a “laboratory” and proving ground for innovative dispute resolution prevention and resolution. Some processes have worked better than others.  There are the preventative processes such as “partnering”. There is  “enlightened risk allocation” by balancing risk and reward, and there is mandatory negotiation between executives. If prevention does not work, there are the “dispute review boards” or standing neutrals who are  “on call” to resolve disputes.  Finally, there is always mediation, arbitration and litigation. 

In fact, many disputes are effectively resolved using these techniques. However, as construction disputes move from courtrooms to conference rooms, many courtroom procedures also come along. Lawyers preparing and putting on the case, regardless of the procedure, incur over 80% of the costs of resolving disputes.

While the construction industry “laboratory” has developed alternative means of resolving disputes, it is difficult to predict which process will work best until after the dispute develops, typically after the contract is signed, and, when the parties are usually unable to agree on anything. The most effective time to design a process is immediately after the dispute develops, when the issues are clear-cut, all the players are present, all the records are available, and the parties are not too entrenched in their positions.  It is self-evident that the earlier the dispute is solved, the more money and time will be saved, and without undue disruption to the project.  But, how can the parties design an effective process--after the dispute develops-- and when the agreement is silent or calls only for traditional mediation, arbitration or litigation?


HINCHEY

The most promising method is called “real-time dispute resolution” by “rapid responders” who are capable, experienced construction professionals and lawyers.  They are prepared to meet with the parties within days. They gather the pertinent information and recommend a specifically tailored process to best suit the problem.  Most ADR providers still offer only the traditional panels of mediators and arbitrators who are only prepared to follow traditional methods, usually requiring many weeks and months to put a process into place and bring the dispute to a conclusion. In contrast, a “rapid response team” would be prepared to:

  • Make an early assessment of disputes and recommend either creative or traditional methods to resolve disputes. For example, if a dispute was keyed to an engineering issue, the neutral might recommend an engineering expert to make an ‘expert determination’ that would be either binding or non-binding.  Similar approaches would be adapted to accounting or legal issues;
  • When traditional processes are appropriate, for example, mediation, conciliation or arbitration, the neutral would be prepared to move the process forward as rapidly and efficiently as applicable law and the parties would permit;
  • Provide a panel of capable experienced construction experts to provide either non-binding recommendations or binding decisions;
  • If arbitration is appropriate, the panelists would be prepared to act decisively and courageously to move the process along, if possible, on a ‘fast track’ basis by limiting discovery of documents and the taking of depositions to what is demonstrably relevant and material to the outcome of the dispute;  deal effectively and economically with electronically stored information; take evidence by written statements; encourage the disposition of issues by motion, rather than full hearings;  and issue awards promptly.

In summary, as the U. S. and global economies worsen, more disputes are developing on troubled projects.  The construction industry is concerned that the traditional ways of resolving construction disputes are taking too long and costing too much.  In response to these concerns, there is a need for new procedures and techniques that are designed to seize upon the dispute at the earliest moment and design a tailored process to solve the specific problem--efficiently, economically and fairly.

John W. Hinchey, is a member of JAMS Global and Engineering Construction Group, and a partner at
King & Spalding, Atlanta. He can be reached at jhinchey@jamsadr.com, and the JAMS Rapid Resolution Program may be reached at 1-866-956-810.

 

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