Using Mediation and Arbitration to Resolve Construction Disputes

By Shapiro, J. Ben | Business Credit, November/December 2002 | Go to article overview

Using Mediation and Arbitration to Resolve Construction Disputes

Shapiro, J. Ben, Business Credit

"...Trials By the Adversarial Contest Must in Time Go the Way of the Ancient Trial by Battle and Blood."

_Former Chief Justice Warren Burger

Almost every construction project leads to disputes between the general contractor, subcontractors and suppliers. Mediation and arbitration work particularly well for resolving disputes. Construction mediators and arbitrators understand the construction industry, its unique terminology and standard practices. Mediation and arbitration can resolve disputes efficiently, expeditiously and equitably.

Mediation involves the services of an individual who assists the parties in settling a dispute by direct negotiations between themselves. The mediator cannot impose a settlement on the parties, but he guides the parties toward achieving their own settlement. Mediation can take place during arbitration or litigation. All matters disclosed to the mediator are confidential and cannot be divulged in subsequent proceedings. Settlement occurs approximately 80 percent of the time when a professional mediator is involved. At the end of the mediation process, a check is exchanged for a release.

On the other hand, an arbitrator receives evidence from the parties, and he issues an award that is binding on the parties. Both mediation and arbitration are confidential. The process does not appear on a public court record or in the press.

Many contract forms contain mediation and arbitration clauses. There is an increasing popularity of mediation as a prelude to arbitration. In addition, if a subcontract incorporates by reference the "general conditions" of the prime contract, which contain mediation and arbitration provisions, then the parties to the subcontract generally must mediate and arbitrate their disputes.i A payment or performance bond, which incorporates a contract by reference, similarly incorporates the disputes resolution provision of the contract.ii In such event, a surety company can be joined in the proceedings as a party. The importance of the selection of mediators and arbitrators cannot be over-- emphasized. Great care must be taken to carefully review the background of each proposed mediator and arbitrator. A telephone conversation with others who are familiar with a potential mediator and arbitrator can be extremely helpful in evaluating their experience, competence and probable prejudices. A party to the arbitration process should try to select an arbitrator who is familiar with his trade and likely to be sympathetic toward his position.

Under Rule 11 of the American Arbitration Association's Construction Industry Dispute Resolution Procedures, an administrative conference can be conducted to specify the issues to be resolved, to stipulate to uncontested facts and to consider any other matters that will facilitate the arbitration proceedings. "The conference may address such issues as arbitrator selection, potential mediation of the dispute, potential exchange of information, a timetable for hearings and any other administrative matters." At a minimum, the parties can schedule convenient hearing dates.

Some of the most common disputes among contractors, subcontractors and suppliers involve: (1) scope of work; (2) quality of work; (3) sequencing of work; (4) pricing changed to work; and (5) delays.

Scope of Work

Differing site conditions represent a minefield of scope of work disputes. These unexpected problems can include: soil with inadequate bearing capacity to support the structure being constructed; unanticipated ground water; quicksand; muck, rock formations; excessive quantities of rock; and artificial subsurface structures or obstacles. Likewise, in renovation or restoration work, actual conditions often are concealed and may differ materially from those shown by the contract documents. In the event of either differing site conditions or concealed conditions, a subcontractor should notify the general contractor promptly, but always within the time specified in the contract, to preserve his rights for an equitable adjustment. …

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