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How to Resolve Contract Disputes Proactively

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When a legal dispute arises on a construction project, contractors should take immediate, proactive steps to help resolve the claim. Key factors include balancing parties' knowledge of the incident, controlling the claims process and managing associated costs.

Traditionally, construction professionals have relied on a combination of dispute-resolution strategies, including direct negotiations between company executives, mediation or a customized neutral process, arbitration and litigation. But skilled negotiators have recognized that whichever process is chosen, to be successful, it must be designed and managed on a case-by-case basis to meet parties' needs.

It goes without saying that all dispute-resolution strategies change as control over the process is passed from the project team to the legal team and then again to the trier of fact— arbitrator, judge or jury. With each passing of the baton, the costs increase. The commitment of internal company resources and the involvement of outside legal expertise deepens as an unavoidable consequence of protracted dispute resolutions.

In all likelihood, the project team will have a strong working knowledge (albeit one-sided) of the circumstances causing the dispute. When attorneys get involved, the knowledge level automatically dips well below that of the project team, whose collective recollection of the facts declines over time as employees move on to other projects. Meanwhile, the attorneys need to build their knowledge base by reviewing paper and electronic project and accounting records and interviewing or deposing expert and factual witnesses.

The knowledge level of experienced construction attorneys ultimately will surpass that of the project-team members through analysis of more complete information provided by other participants. The inability to resolve a disputed claim with the wealth of information available at that point in time then moves the case to a trier of fact. The court often has a short attention span and offers the least specialized knowledge and experience available to resolve the dispute than any other participant in the process.

How can these competing factors—knowledge, control and cost—be balanced? If construction professionals can design, sequence, schedule and estimate the cost of complex construction projects, then, with help from experienced legal counsel, they should be able to do the same with dispute resolution. In fact, a creatively designed and well-managed claim process involving fully engaged dispute-resolution teams will help control risk and improve return on investment through a successful resolution.

When faced with a claim, construction professionals should consider these proactive steps:

• Immediately develop an objective summary of the factual and legal issues that created the dispute.

• Identify all critical records and information that parties can exchange or obtain voluntarily from other project participants to understand each other's key claims and defenses.

• Establish reasonable goals and negotiating milestones for a prompt and cost-effective result.

• Identify and address all reasonably foreseeable obstacles to reach the negotiating milestones.

• Engage resources (opposing party's senior executives, consultants, attorneys, mediators and/or arbitrators) as soon as possible to help the resolution.

• Determine a sequence and schedule for reaching negotiating milestones and a resolution.

• Estimate reasonable costs for each negotiating milestone, then budget for those costs as they emerge.

• Refine the negotiating strategy as the process evolves.

• Listen carefully to and seriously consider recommendations from experienced, well-informed neutrals (i.e., mediators) and keep an open mind about the appropriate result, regardless of benefits that might be obtained by other parties in the dispute.

Using these basic management tools and skills—the need for which may vary depending upon complexity and opposition tactics—should help guide the dispute-resolution team to a successful outcome.

Gene Commander is a construction attorney, arbitrator, mediator and managing shareholder in the Denver office of Polsinelli.

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