There are several ways that construction disputes can be resolved:
- Refereeing by the architect as the project proceeds;
- Negotiations and compromise;
- Law suits in the court system;
- Mediation; and
- Arbitration.
In this section, we will discuss the pros and cons of each option.
I. Law Suits in Court
Litigation through the courts system is how disputes are resolved when all other approaches fail, either due to lack of agreement or lack of a commitment to an alternative dispute resolution procedure (“ADR”). Most construction disputes are resolved in the state court system. However, a case may proceed in the federal court system if it arises out of a federal government project or the parties are from different states and the amount in controversy exceeds $75,000.
Believe it or not, the primary advantage of the court system is its predictability. Rules of procedure and evidence are well established and, save for human error, do not change from case to case. In many situations, the parties’ lawyers will even have familiarity with the judge likely to handle the case, or the demographics from which juries will be drawn. In contrast, many ADR proceedings get bogged down in ongoing debates about how the case will proceed, to what extent discovery will be permitted, and what evidence will/will not be permitted.
An additional advantage of the court system is that the judge works at taxpayer expense. In contrast, ADR proceedings typically require the parties to shoulder the cost of the professional(s) making the decisions, and often also the administrative body handling the nuts and bolts of the case as well. This can add thousands of dollars of expenses to even the simplest disputes.
Disadvantages to court proceedings that often lead parties to consider ADR include:
Expense: Court cases sometimes (no, not always) cost more to litigate than arbitrations. Often this is the result of the discovery process, which is usually limited and sometimes wholly eliminated from arbitration. But beware of false savings: If you need discovery to help prove your case, agreeing to ADR could be shooting yourself in the foot.
Time: No matter what the outcome at the trial level, court cases are subject to appeal. In some jurisdictions this can add years to the path to the finish line. In Virginia, however, proceedings in the federal and state court systems generally proceed relatively quickly compared to other jurisdictions. For example, in the federal trial courts in the Eastern District of Virginia (located in Alexandria, Richmond, Newport News and Norfolk), it usually takes less than a year to get from the filing of suit to completion of the trial. Many of the Virginia state courts seek to emulate their federal counterparts in the time it takes to file and try cases. Appeals in both the state and federal systems in Virginia are generally resolved in a year or less.
Flexibility: Most court cases can result in no remedies beyond ordering one party to write the other party a check, or else face legal collection actions (liens and garnishments). Arbitrators, in contrast, have it within their power to craft more creative solutions, such as compelling one party to perform certain work for the other. Arbitrators are also less likely to trip up parties on technicality arguments based on overbearing contract provisions, whereas courts are obliged to enforce contracts by their letter.
Expertise: Some lawyers deride juries as “the seven dumbest people in your county”, because typically anyone with knowledge specific to your field of inquiry will be stricken from the jury panel by one side or the other prior to trial, out of fear of the biases they may bring to the table. In arbitration, the decision makers are typically schooled in the field. (But beware, experiences can lead to bias.)
II. Arbitration
Run the list of disadvantages of court litigation, and you will learn why many parties prefer arbitration.
But also be aware of the disadvantages of arbitration. These can include:
Expense: AAA filing fees, quarterly administrative fees, and arbitrator compensation charges can add up to a tidy sum. For example, the cost of the hourly rates of three lawyers or other professionals over an extended arbitration, added to each parties attorneys fees, can well exceed the cost to proceed in court.
Time: It is not unusual to experience frustration with slow turnaround times with the AAA. In cases involving panels of arbitrators instead of single arbitrators, scheduling is often complicated by the sheer number of calendars involved, forcing case hearings far off into the future, and resulting in frequent adjournments and breaks in the action.
Bias: It is often difficult to discern from the resumes of proposed arbitrators what experiences and biases a given panelist may bring to your case. Perhaps the “seven most disinterested people in your county” would truly serve you better, since they are more likely to decide the case based solely on the evidence presented (believe it or not).
The Bum’s Rush: If you need access to another party’s documents and witnesses to help prove your case, then arbitration’s shunning of discovery may prevent you from winning a claim you rightfully should have won.
No Appeal: If the arbitrators commit errors in reaching their decision, the instances in which that error can be challenged in court are relatively rare and you can get stuck with a truly bad decision.
III. Mediation.
When cases seem destined for litigation, mediation can help. Think of mediation as an extended settlement conference emceed by a referee, preferably one trained in the art of fostering compromise. Mediation is a wonderful tool, but it can be overused. Many contracts now require mediation as a precondition of filing a suit or an arbitration claim. Mediation works best when both parties want to be there. When one has no desire to settle, mediation becomes nothing more than an additional cause of delay and expense in the dispute resolution process. Also, before heading to mediation, ask yourself: Do I really need to pay someone to tell me that I should compromise? Have I tried to settle this myself first?
IV. Compromises
Projects move more smoothly, relationships last longer, and parties generally remain more profitable, when both sides give ground and reach reasonable compromises. Of course, any time you can reach a fair agreement on your own, you should. That is the fastest, cheapest, and best approach.
Under many contract documents, project architects are often interposed as referees for disputes, particularly with regard to change order requests or interpretations of the plans or other contract requirements. Architects’ decisions are typically subject to appeal, usually by arbitration (under AIA or AGC form contract documents, as are typical). This means that their rulings are better understood as suggestions than as binding outcomes. Parties should understand that the architect’s judgment will often carry great weight with the decision makers in any later litigation, whether in court or in arbitration. But beware: Architects know where their bread is buttered, and they will tend to take the owner’s side. Even more, they will tend to “CYA”, often leaving the contractor to absorb the costs of fixes required by deficiencies in the project plans.
The greatest advantage of compromise is that it often ends a dispute without the rancor that accompanies arbitrations and law suits. Since both sides have agreed to the outcome, both sides can hold their heads high leaving the room, and it is not at all unusual for these parties to deal with each other again in the future. Litigation often ends in burnt bridges, and no one can afford but so many of those over the course of a career if he wishes to build long term success.
The materials on this website are meant for informational purposes only and nothing contained in this site is to be construed as legal advice. If you need legal advice, you should contact an attorney directly. Do not act upon the information on this site without seeking professional guidance. Information on this website about specific matters or success in previous cases is not meant to be a prediction or guarantee of similar results in any other case. Each case consists of factors and applicable law unique to that case and you should consult an attorney.
