Dispute Resolution Processes

• Author: Carol J. Patterson - Ross J. Altman - Stephen A. Hess - Allen Overcash
• Pages: 587-610

CHAPTER

587

. IMPORTANCE TO THE CONSTRUCTION INDUSTRY

OFPROCESSES FOR RESOLUTION OF DISPUTES

A. Unique Dispute Resolution Needs of Construction Projects

The construction industry has used private dispute resolution techniques lon-

ger than most industries. This has been a matter of necessity because for-

mal legal remedies often are much too slow and inexible in the context of a

fast-moving activity such as a construction project. Every construction project

involves a multitude of players, all with potentially conicting interests, whose

mission is to come together to plan, design, and build a completed structure,

on time and within budget. Once the building process has begun, the work

cannot be interrupted or delayed without serious cost consequences. In the

construction business, “time is money.” Accordingly, the construction industry

places a premium on coordination and quick solutions to problems.

Dispute Resolution

Processes

JAMES P. GROTON, DEBORAH BOVARNICK MASTIN

AND STANLEY P. SKLAR

19

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CONSTRUCTION LAW

588

B. Historical Development of Dispute Resolution in Construction

About 100 years ago, the industry started using a combination of two forms of

private dispute resolution that were designed to keep the project moving, reduce

conict, and provide quick and expert resolution of disputes: (1)non-binding

decisions by the project architect rendered immediately upon the appearance

of a problem, and (2) a prompt, informal ad hoc arbitration convened promptly

at the project site to provide a quick decision on any disputed issue involved in

the architect’s decision that could not be resolved through negotiation. These

two techniques complemented each other: the architect’s awareness that its

decision could quickly and easily be challenged by a prompt arbitration gave

the architect an incentive to be scrupulously fair in making decisions. As a

result, relatively few architects’ decisions needed to be challenged, and those

that were challenged were resolved quickly and expertly.

About a generation ago, for reasons that are beyond the scope of this chap-

ter, this system of early, single-issue dispute resolution broke down, and the

construction industry went through a tortured period when architects’ decisions

were frequently ignored, and resolution of individual disputes was deferred.

Although mediation provisions began to be incorporated into standard con-

struction contracts, as a matter of practice, parties rarely invoked either medi-

ation or arbitration during the progress of construction, causing the resolution

of disputes to be routinely postponed until the end of the construction period.

Unfortunately, when unresolved disputes were allowed to accumulate and

fester, their mere existence interfered with the progress and overall success

of the project. Unresolved problems held up the payment of money, created

uncertainty as to the outcome, impaired relationships and efciency, and

caused delays and disruption. These in turn added costs to the project partici-

pants and tended to generate new claims and disputes.

The postponement of dispute resolution to the end of the project also

increased the difculty, expense, delay, and uncertainty of attempting, in a

court trial, arbitration, or mediation long after the fact, to reconstruct accu-

rately all of the facts and events that occurred during the lifetime of the project

that were relevant to the resolution of the accumulated disputes. This escalated

the transaction costs of resolving disputes to the point where the prots of all

parties to the dispute, including the nominal “winner,” were often wiped out.

Construction industry leaders took a fresh look at the problems of adver-

sarial relationships, disputes, and litigation, and began to invent new tech-

niques to prevent, control, and more quickly resolve disputes. Some of the key

steps in the effort to develop new dispute resolution techniques follow.

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