Parties have always sought practical ways to resolve contract disputes when direct negotiations have failed. Many centuries ago, the use of swords was discontinued and the court system substituted as the principal forum to resolve disputes. Decades ago, binding arbitration became a partial alternative to courts. Partial, because if the losing party refused to abide by the decision, the winning party still had to turn to the courts to enforce the arbitrator’s award. In more recent times, mediation has developed as a non-binding alternative to both court and arbitration.
In Construction Law Comments – Fall 1992, we outlined arbitration, and in Construction Law Comments – Winter 1993, we outlined mediation. This article will summarize some of the other forms of alternative dispute resolution that are being used in the construction industry.
Courts have established some of these alternatives in the hope that the parties may compromise their claim without a full trial. These alternatives include:
(a) Mini-trials are abbreviated trials presented to a jury which makes a non-binding decision that allows both parties to gain insight as to the strengths and weaknesses of the competing claims.
(b) Neutral Evaluation is where a neutral panel, after hearing an informal presentation of the case, gives its evaluation to the parties with the hope that with this insight the parties may reach a settlement.
Some of the alternative methods used outside of the court system, in addition to arbitration and mediation, include:
(a) Dispute Resolution Board is a process usually established by contract between an owner and general contractor. It sets up a panel that will quickly meet when a dispute arises during construction to provide a neutral evaluation of the parties’ claims. The premise is that such evaluation will encourage quick settlement while construction proceeds and before the parties have to spend time and money to avail themselves of any other binding or non-binding procedure.
(b) Non-binding Arbitration is a process in which the parties make an abbreviated presentation, and an arbitrator makes a non-binding award with the hope that his award will spur further settlement discussion between the parties and a final resolution of the dispute.
(c) Med-Arb is a process that combines mediation and arbitration at the same time. It sets binding arbitration in motion but inserts mediation into the process at an early stage with the hope that the mediator can resolve the dispute without the need for continuation of the more time consuming and costly arbitration. Arbitration proceeds if mediation fails.
(d) Final Offer Arbitration is commonly called "baseball" arbitration. The parties present their evidence to an arbitrator and at the conclusion, each party gives its written settlement offer to the arbitrator. The arbitrator has to choose one of the two offers.
All of the above varieties of dispute resolution may be used to resolve construction industry disputes. However, the method employed is less important than the attitude of the parties towards resolution. The success of any form of alternative dispute resolution depends upon recognition by both sides that it is in their interest to resolve the dispute by spending less time and fewer dollars at an earlier stage in a non-binding process, as compared to spending more time and more dollars in a binding process such as a court trial or arbitration that may drag on interminably.
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