What Tools Are Available to Resolve Project Disputes?

Due to the nature of public construction projects where changes frequently occur, it's not surprising that there are often disputes.  Traditionally, disputes that are not resolved at a lower level may end up in an expensive lawsuit with an unpredictable outcome.

What does the contract require?  It's important that the contract include clear dispute resolution procedures for identifying and documenting claims for additional compensation that may be due to the contractor.  And it's equally as important that both the public agency and contractor know and understand what these procedures are.

Alternative Dispute Resolution:  If the claims process identified in the contract is not successful in resolving claims, there are a number of tools that can be used to help resolve contractual disputes short of a lawsuit. Collectively, these tools are often referred to as Alternative Dispute Resolution or ADR.  The tools that will be used on a project should be identified in the contract documents.

Partnering:  Partnering is a tool that is used most frequently on larger projects. In partnering, the public agency, contractor, designer, and any other key parties participate in a retreat-like meeting prior to the start of the work.  The agenda for a partnering session may include:

• Communication protocols
• Identifying potential risks and problems with the project
• Strategies to mitigate against project risks
• Developing personal relationships between team members

The partnering session is conducted in a spirit of cooperation. It’s much easier to try to “partner” with the other parties before tensions rise and relationships become frayed. The hope is that in partnering, relationships will be established to such a degree that it will help the parties to successfully navigate through the project. Often, a professional facilitator is hired for the partnering session. At the end of the partnering session, the participants sign a contractually non-binding agreement summarizing their intent to work cooperatively with one another during the project.

Disputes Review Board: Typically used for larger projects, a Disputes Review Board (DRB) is used during the project to help informally adjudicate disputes between the contractor and owner. Often, the DRB will include three members, one member is appointed by the owner, one by the contractor, and the third member jointly appointed by the other two members.  Once on the DRB, however, their loyalty is not to who appointed them, but to the project and looking objectively at disputes.  Often DRB members are retired contractors or construction managers.  During the course of construction, the DRB members meet somewhat regularly on the job site to review the progress of the project and to become familiar with brewing issues. If a dispute arises, the DRB hears from both sides and makes a decision. It is most effective if the parties have agreed that the decision of the DRB will be binding. This helps from keeping issues from moving onto more serious forms of dispute resolution, such as court.

Project Neutral:  The purpose of appointing a Project Neutral is the same as using a Disputes Review Board.  However, unlike the Disputes Review Board which has multiple members, the Project Neutral consists of just one individual agreed to by all parties.  The Project Neutral is generally a seasoned construction expert.  This individual keeps current with issues on the project, perhaps by attending monthly progress meetings.  They provide a fair and impartial opinion when disputes arise between the contractor and owner, and help the parties in coming to agreement.

Mediation: When a dispute arises, the parties choose an impartial third party mediator - often a construction attorney.  The mediator's role is to help each party understand the position of the other party, and to make recommendations for resolving the dispute.   Mediation is an informal, non-binding tool to bring both parties to the table with the mediator.  The goal is to resolve the issue short of proceeding with a lawsuit. The parties decide whether to agree to the resolution of the dispute as proposed by the mediator.

Arbitration: Arbitration is one step closer to a lawsuit and more formal than mediation. In order for arbitration to be effective, the results of arbitration should be binding on both parties, something that would be agreed upon in the actual contract between the parties. Like a mediator, an arbitrator, who is an impartial third party agreed upon by both parties, hears from both parties about their position. Unlike a mediator, however, who tends to have more separate conversations with each party, the arbitrator’s role is to consider the positions of both parties and render a decision. Arbitrators tend to “split the baby” and come up with a resolution that represents a compromise but doesn’t necessarily address the merits of each case. This is one of the risks in using arbitration. In addition, arbitration is more formal than mediation and may cost almost as much as a lawsuit. Arbitration is conducted in accordance with rules established by an arbitration association such as the American Arbitration Association.

Lawsuit: This is a step to avoid if possible. It can be very costly and may not be worth it financially if the dollar amount of the dispute is smaller (less than the amount of attorneys fees for the lawsuit). In addition, when a case goes to court, it may be heard by a judge or jury with limited construction expertise, and the result may be unpredictable.

Bottom Line: Attempt to resolve contractual disputes and problems at the lowest possible level, and communicate clearly and consistently during the contract with the other party. There’s no substitution for such communications.

Mike Purdy's Public Contracting Blog 

© 2012 by Michael E. Purdy Associates, LLC 

http://PublicContracting.blogspot.com

How Effective is Mediation in Resolving Disputes?

For an insightful, thoughtful, and well-written article on the advantages and disadvantages of of using mediation to resolve construction disputes, visit Engineering News-Record.com.

The blog entry is written by Dr. Patricia Galloway, CEO of Pegasus-Global Holdings, Inc., based in Cle Elum, Washington.

Dr. Galloway is also the Vice Chair of the National Science Board, and Past President of the American Society of Civil Engineers.

Drawbacks of Mediation on Public Works Projects

Don Owen is a Washington State based consultant who provides construction management and construction litigation support services to public owners, contractors, and attorneys. On July 2, 2008, the Seattle Daily Journal of Commerce newspaper ran an article written by Mr. Owen on some of the potential drawbacks of the mediation process.

Mr. Owen suggests that often the primary driver for settlement during mediation is how much it will cost each side if the mediation is not successful and moves to a lawsuit, rather than the merits of each position.

Mr. Owen has posted an expanded version of the article, The Mathematics of Mediation, on the website of his consultant business, Donald Owen & Associates, Inc. You can read the article by clicking here. On his website, he has also posted other articles he’s written on construction management.

Resolving Contract Disputes

Short of a lawsuit, there are a number of tools that can be used to help resolve contract disputes, especially on a construction project. Collectively, these tools are often referred to as Alternative Dispute Resolution or ADR.

Partnering: Partnering is an attempt to head off disputes before they become problems. Typical public works construction projects that are awarded to the low bidder often breed adversarial relationships between the owner and the contractor. This occurs because the contractor has bid the project, often without a lot of time to really become familiar with the project. If the contractor believes their bid to have been too low, they may look for opportunities to increase their profit margin by requesting payment through change orders. In addition, a low bid situation is really a forced marriage between the contractor and the owner and communications may suffer.

In partnering, the owner, contractor, designer, and any other key parties get together for a retreat, perhaps a half-day or full day prior to the start of the work to discuss the protocols they will use to communicate with one another. They identify potential risks and problems with the project and how they plan to mitigate against those risks, all in a spirit of cooperation. It’s much easier to try to “partner” with the other parties before tensions rise and relationships become frayed. The hope is that in partnering, relationships will be established to such a degree that it will help the parties to successfully navigate through the project. Usually, a professional facilitator is hired for the partnering session to help the parties identify issues and discuss communications. At the end of the retreat, the participants, which includes key individuals from each party, sign a joint document describing how they will communicate with one another in a spirit of cooperation. This document isn’t contractually binding, but represents their good faith intentions.

Disputes Review Board: Typically used for larger projects, a Disputes Review Board is used during the project to help informally adjudicate disputes between the contractor and owner. If the Board includes three members (typical), one member is appointed by the owner, one by the contractor, and the third member is jointly appointed by the other two members. During the course of construction, the Board members meet somewhat regularly on the job site to review the progress of the project and to become familiar with brewing issues. If a dispute arises, the Board hears from both sides and makes a decision. It is most effective if the parties have agreed that the decision of the Disputes Review Board will be binding. This helps from keeping issues from moving onto more serious forms of dispute resolution, such as court.

Mediation: Through the use of a third party mediator who helps the parties understand the position of the other party, the parties in a dispute are often able to agree to a resolution of the dispute. The mediator is an impartial third party chosen by both parties to the dispute. The mediator helps each party understand the position of the other party, makes recommendations, and the parties ultimately decide whether they can agree to a resolution of the dispute. Mediation is an informal, non-binding tool to bring both parties to the table with an impartial third party and try to move forward toward a resolution.

Arbitration: Arbitration is one step closer to a lawsuit and more formal than mediation. In order for arbitration to be effective, the results of arbitration should be binding on both parties, something that would be agreed upon in the actual contract between the parties. Like a mediator, an arbitrator, who is an impartial third party agreed upon by both parties, hears from both parties about their position. Unlike a mediator, however, who tends to have more separate conversations with each party, the arbitrator’s role is to consider the positions of both parties and render a decision. Arbitrators tend to “split the baby” and come up with a resolution that represents a compromise but doesn’t necessarily address the merits of each case. This is one of the risks in using arbitration. In addition, arbitration is more formal than mediation and may cost almost as much as a lawsuit. Arbitration is conducted in accordance with rules established by an arbitration association such as the American Arbitration Association.

Lawsuit: This is a step to avoid if possible. It can be very costly and may not be worth it financially if the dollar amount of the dispute is smaller (less than the amount of attorneys fees for the lawsuit).

Bottom Line: Attempt to resolve contractual disputes and problems at the lowest possible level, and communicate clearly and consistently during the contract with the other party. There’s no substitution for such communications.

Negotiation and Mediation

We all deal with negotiation and mediation everyday, whether it's part of our work with contracts, or in our personal life. So what's the difference between negotiation and mediation?

Negotiation is communicating as an advocate to reach an agreement. It's trying to convince another party that your position is the one they should adopt.

Mediation, on the other hand, is helping people who are advocates to reach an agreement by acting as a neutral facilitator, translator, idea stimulator, confidante.

Both are important in contracting. On the one hand, negotiating to get the best terms for your agency. On the other hand, mediating between two disputing parties.

If you find yourself in need of either negotiation or mediation assistance, feel free to contact me.

Thanks to Rhonda Hilyer of Agreement Dynamics for the definitions of negotiation and mediation.