Overview
Litigation is an expensive option for parties who want to resolve a dispute efficiently. Fortunately, there are alternatives available. Construction projects can range from small minor works, to large multi-million-dollar projects. They can have two parties, or a myriad of investors, funders, and contractors. In any scenario, a small change early in the project can lead to substantial disputes, affecting the all-important completion date, which inevitably leads to delays, costs, and of course, disputes.
There are a few ways to prevent a dispute escalating, so long as the common goal between the parties is to resolve the dispute with minimal economic damage.
Meeting
It should come as no surprise that a fantastic method of resolving disputes is to set up a meeting between the disputing parties.
Direct communication via a face-to-face meeting can prevent any misunderstandings, providing each party the opportunity to clarify the situation. Being able to ask questions, and receive immediate answers, is an efficient method of resolving any issues.
A face-to-face meeting also allows each party to show sincerity and trust, thereby maintaining a rapport. It's a great way to de-escalate a conflict, as the parties physically being in the same room provides a human touch to an otherwise contractual conflict.
Whilst this may appear very informal, there is no reason why this approach should not be included in your ADR process.
Adjudication
For construction contracts, such as those offered by JCT, there is a compulsory specific dispute resolution mechanism called adjudication. This is a systematic process where disputing parties present their positions though submissions, and a third party, the adjudicator, will provide a temporarily binding decision.
It is a cost-effective method, partly due to the speed at which an outcome is decided. An adjudication is usually resolved within 28 days; however it can be extended to 42 days.
The adjudication itself is confidential, unless progressed through to litigation. Furthermore, the adjudicators are often experts in construction law, and should have a good working knowledge of the industry. This makes it a popular option for construction disputes.
In England and Wales, adjudication is covered by the Housing Grants, Construction and Regeneration Act 1996 (HGCRA), and is also now used in many other countries such as Australia, Ireland, Singapore, and South Africa.
Mediation
Another cost-effective mechanism is mediation. Here, each party will be placed in separate rooms, and a third-party mediator will go back and forth, helping both parties to understand the nature and scope of the claims. They will ask the individuals to consider the relevant strengths and weaknesses, encouraging the parties to move to a 'middle ground' and reach a settlement. The specifics of what is discussed with the mediator are confidential, as is the outcome of the mediation.
Compared with litigation, there are fewer steps involved in arranging and attending a mediation. As a result, the process is more flexible, efficient, and cost effective.
Whilst a mediator will assist in negotiating a settlement, ultimately, any settlement is in the hands of the disputing parties and not a third party.
Used correctly, it a good way to resolve a dispute efficiently, without incurring significant costs.
As mediation is largely based on preparing documents, making strong representations, and using negotiation, it is better to obtain legal representation, thereby ensuring a favourable outcome.
Arbitration
Unlike mediation, arbitration involves using a third-party, or panel, to decide the outcome of a dispute.
Arbitrators are usually experts in construction law, which helps them to understand the complexity of a dispute. Parties can therefore be comfortable that the arbitrator(s) will adequately consider all the facts, evidence, and statements of the case.
In terms of efficiency, arbitration is more flexible than litigation, giving parties more control. This means the processes and procedures can be more bespoke and adapted more easily.
Arbitration is also a confidential procedure, helping to maintain reputations and trade secrets.
As a dispute resolution mechanism, it is often used by large corporations to decide the outcome of high value complex disputes.
Final Thought
It is worth noting that although these methods of dispute resolution can be utilised, it is always best to review the terms of a contract, ensuring the correct mechanism is applied. We always recommend obtaining legal advice, especially in reviewing complex contracts, as this can prevent further breaches of contract, disputes and delays.
This topic was discussed in our webinar 'Marriage Guidance for Construction Relationships – A Look at ADR – Costs, Processes and Other Practicalities' in July 2024. Click hereto view the webinar and presentation.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.