What Is Dispute Resolution in Construction Contracts?
A dispute resolution in construction contracts is vital because it prevents potential legal action.3 min read
A dispute resolution in construction contracts is vital because it prevents potential legal action. Construction disputes take place because one party may breach the contract in some manner, or a simple miscommunication between parties could arise. Conflict may also occur due to the following reasons:
- Contract delays
- Failure to enforce the agreement
- Incomplete or unsubstantiated claims
Conflict does not always stem from a breach of contract, but it could lead to contract breaches or one party terminating the agreement. To reduce the likelihood of disputes, each party within a contract should take certain steps to protect themselves before a project starts.
Further, you should enhance each aspect of a construction process at each interval. Construction dispute resolution starts with the contract itself and the inclusion of dispute clauses. Other preventive steps to take include:
- Reading and understanding the contract
- Negotiating potential clauses that are unclear and problematic
- Diligence pertaining to pre-construction work in the form of estimates, hiring subcontractors, schedules, and ordering certain items
You should also ensure that all schedules are grounded in reality, and you should include provisions regarding potential delays.
Dealing with Issues
Further, you should document potential challenges and issues that may occur during the execution phase of a project. For instance, daily reports are a crucial factor in documenting problems. You should also contend with issues as they come up and avoid postponing them. Spot risks ahead of time, and rely on specialists when necessary. Lastly, create systems that enhance predictability at each process stage, and you should offer transparency to all parties involved.
From the start, you should maintain an open mind and not assume a strategy is better than another when it comes to certain projects. Many companies in the construction or surety industries have various methods in resolving disputes, and one solution does not usually fix all problems. For example, the construction industry is considered as one of the most conflict-ridden fields, and the industry comprises a great deal of litigation. Some parties use arbitration, but other parties may view arbitration negatively.
Traditionally, litigation is a long and costly process, which is why you should try to avoid the legal route whenever possible. Alternative dispute resolution (ADR) has been a factor within the construction industry that prevents contract disputes from ending up in a courtroom.
ADR may include the following:
- Expert Determination
- Court Proceedings
Every possible alternative should be considered based on the nature of the conflict, and more than one method of dispute resolution may apply. It’s worth noting that additional details in contracts reduces the chances of a dispute occurring. If you don’t know which conflict method to use, note that such strategies as binding mediation, mediation, and arbitration offer less formal and faster dispute resolutions.
A negotiated clause is important because it makes room for potential conflict resolution between an owner and contractor. Under the clause, all parties involved will try to reach a satisfactory conclusion before moving ahead to further steps of a project. The adjudication process is another strategy where a third party may intervene and render a decision on conflicting parties. Under the Housing Grants, Construction and Regeneration Act of 1996, all parties within a contract should refer disputes to adjudicators.
Adjudication has become what’s called “pay first, argue later.” Adjudication parties may apply to the Technology and Construction Court to enforce the decisions of an adjudicator. Adjudication decisions are legally binding, unless the decision is amended during litigation or arbitration.
Expert determination is applied when disputes take place within a specialized nature, such as construction, and it is one of the most informal forms of conflict resolution. Expert determination is also applied in instances of vague valuation disputes. Further, experts involved in the dispute will render a legally-binding decision that all parties must adhere to. Benefits of expert determination include:
- Fast method of resolving a valuation dispute
- Less expensive than other dispute resolutions
With that, disadvantages come in the form of:
- Experts used are not fully associated with the legal process, and involved parties may have a harder time challenging expert decisions
- Expert reports will not be enforced without arbitration or court involvement
If you need to find out more about dispute resolution in construction contracts, submit your legal inquiry to our UpCounsel marketplace. UpCounsel’s lawyers will guide you in any matter pertaining to conflict resolution and will be by your side if the conflict ends up in a court proceeding. Additionally, our lawyers will help you add viable dispute resolution clauses that will protect your interests in a construction contract.