Dispute Resolution Processes

• Pages: 559-579

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21.01 imporTance To The conSTrucTion induST ry

of proceSSeS for reSoluTion of diS puTeS

A. Unique D ispute Resolution Needs of Cons truction Projects

The construction industry has used private dispute resolution techniques longer

than most industries. This has been a matter of necessity because formal legal

remedies 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 pre-

mium on coordination and quick solutions to problems.

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DisputeResolution

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JAMES P. GR OTON and STANLEY P. S KLAR

C H A P T E R

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B. Histori cal Devel opment o f Dispu te Resol ution in Constru ction

About one hundred 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) nonbinding 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 dis-

puted issue involved in the architect’s decision that could not be resolved

through negotiation. These two techniques complemented each other: the archi-

tect’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 media-

tion 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 suc-

cess of the project. Unresolved problems held up the payment of money, cre-

ated uncertainty as to the outcome, impaired relationships and efciency, and

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

participants 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.

A couple of decades ago, construction industry leaders took a fresh look at

the problems of adversarial relationships, disputes, and litigation and began to

invent new techniques to prevent, control, and quickly resolve disputes. Some of

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

The Business Roundtable and the Construction Industry Institute investi-

gated the basic root causes of construction problems and pioneered research