Construction Contract Disputes: The Pros and Cons of the Resolution Process Options

Contract disputes can be costly, time consuming and impact a party’s reputation. Once they arise, it can be difficult to know what the best way is to resolve them. Each method comes with pros and cons so they should be carefully explored to determine which method is best for the specific contract dispute. Here are some of the dispute resolution methods.

Mediation

A third-party attorney listens to both parties and helps them reach resolution to their dispute.  Mediators guide the parties to find a resolution but they they do not have authority to decide anything on their own.  Mediation Is sometimes required by a contract or it can be mutually agreed upon by the parties once a dispute arises.

Pros:

Can be less expensive and faster than litigation

Empowering: each party has ownership in crafting a resolution

Cons:

If mediation fails, the time and money are not recoverable

The agreed-upon solution is not legally binding unless a settlement agreement is reached

Negotiations

If a construction contracts contains a negotiation clause, then both parties are required to sit down and discuss the issues of concern until they reach an agreement. This option tends to work best for smaller disputes when emotions are not high and for parties who have a long-standing relationship.  Negotiations are only affective if the parties are willing to work together.

Pros:

Can be less expensive and faster than litigation

Cons:

Not legally binding

Typically not effective if either party is very upset

Arbitration

Some contracts contain arbitration clauses that require the parties involved to hire a third party who will listen to both sides of the story and come to a binding decision on their behalf.  Arbitration can be beneficial in high-stakes disputes. Both parties are allowed to review qualified arbitrators and mutually agree upon an arbitrator. Once they agree upon an arbitrator, that person hears testimony, reviews documents, and decides which side’s arguments prevail.

Pros:

Both parties agree upon an arbitrator

Arbitrator’s decisions can be legally binding

Arbitration is private – protects confidentiality

Cons:

Slow process

Costly

Limited ability to appeal

Litigation

Litigation clauses in a construction contract calls for putting a third party decision maker in place.  A judge or jury oversees the resolution, so the findings are legally binding. It can be cost-effective, but it is not as flexible as mediation and the parties do not have the opportunity to agree upon the decision-maker like they do in arbitration.

Pros:

More cost-effective than arbitration

Judge and/or jury are responsible for finding a solution

Produces a binding result

Decisions are appealable

Cons:

Less flexible than mediation or arbitration

Judge decision is often final

Public

Pros:

Selecting the best way to resolve a contract dispute is rarely an easy decision. One option is not always better than the other. Sometimes the precedent and the relief that litigation offers is the best avenue for resolving the dispute. For other cases, the lower cost and more time efficient options are better for coming to a result that both parties can agree to. Having experienced attorneys to help guide you through the various options is essential.