Introduction to Techniques for Dispute Resolutions in the Construction Industry
In recent years, it has been noted that an increasing number of construction projects fail before they reach completion. Although there are many reasons why projects fail, the one common element is that disputes arise more often than not as a result of project failures, quickly leading to litigation in a court of law. Anyone in the construction industry at any level should be aware of the leading causes of failed projects and how to handle disputes that are a natural consequence of these failures. Following is an introduction to the various techniques recognized as acceptable forms of dispute resolutions.
A Brief Outline of Major Causes for Project Failures
At the heart of any dispute would be the underlying causes that led to a halt in construction. Since there are various parties to a construction contract, it is vital to identify all contractors and subcontractors on a job so that it can be determined where the problems arose. These would include such issues as:
- Insufficient time to complete construction.
- Insufficient funds for the scope of a project.
- Unpredictable natural and manmade disasters.
- Ineffective site management.
- Unforeseen shortages of building materials and/or other supplies.
- Changes in design.
- Fluctuation in currencies, especially when international trades are involved.
- Underbidding a job.
- Job suspension as the result of a serious accident and ensuing investigation.
And, those are just some of the reasons why many major projects come to a screeching halt. Sometimes the project is able to recover but other times these issues are the demise of a construction job. Here, it should be noted that any party contracted to perform work or other services on a construction site stands to lose a great deal of money. Some companies have even been forced into bankruptcy as a result and have even greater motivation to seek compensation for their losses.
Litigation Makes Way for Arbitration
There are times when a construction project is brought to a temporary halt due to a dispute that entered into litigation. This causes a barrier which cannot be breached until the dispute is settled. There are various methods of dispute resolution which can be employed, and this is why it is vital for any contractor to understand the various methods available to them.
Traditionally, litigation was used as the go-to resource for dispute resolution, but over the past several years, litigation is being used as a last-ditch effort. More often, contractors are seeking arbitration that is less expensive than litigation and much of the actual ‘work’ takes place outside the courtroom. In many countries, the agreed terms of the arbitration must be signed off by a judge and that may be the only time the parties to the construction claim see the inside of a courtroom. It has also been found that when a project stalls awaiting dispute resolution, arbitration can offer faster outcomes than litigation.
Alternatives to Litigation and Arbitration
As it was noted above, litigation can quickly lead to heavy legal fees in addition to lengthy interruptions in construction, which also leads to greater losses. Although arbitration is seen as a less expensive method for dispute resolution, there are other methods currently being employed which the construction industry favours.
However, arbitration mimics litigation in many respects and is thus becoming less favourable than such methods as mediation and adjudication. Unfortunately, all parties to the dispute must agree to the method employed in dispute resolution and sometimes this can delay claims the completion of a project until a satisfactory method can be agreed upon.
Litigation is Still Most Advantageous When Legalities are in Question
Although litigation is currently held to be the most expensive form of dispute resolution, it is also the most effective when matters of the law are involved. Sometimes the dispute arises over the understanding of the verbiage in a contract, which can be settled in arbitration and/or mediation. However, when one or more parties hold that the terms of the contractual agreement were violated, the dispute would need serious investigation and research before a determination can be made.
Often, litigators take their claims to court and are heard before a judge or a judge and jury. This all depends on the seriousness of a construction claim and the depth to which the claimant wishes to pursue the claims. As well as being the least cost-effective manner of dispute resolution, litigation often leads to an irreparable breakdown in business relations. If the parties involved want to simply resolve a dispute with the intention of continuing their ongoing relationship, litigation may not be the best solution, even if cost isn’t a determinant.
Time and Cost Are Not the Only Considerations
When choosing one form of dispute resolution over another, cost and time are not the only deciding factors. Sometimes one or more parties prefer not to indulge information of a more personal or private nature and so arbitration is said to be the best method.
Also, some parts of the world stipulate the methods whereby a construction dispute can be resolved, such as in Hong Kong where arbitration is legally mandated in the contract agreements and no other method for dispute resolution may be sought. However, this is an extreme not seen in many other areas of the world. For the most part, contractors, subcontractors, and clients can agree upon alternatives to traditional litigation.
Summary of Dispute Resolution
In the end, there are various ways in which the construction industry can resolve contractual disputes, and in most cases, it is up to the parties involved to agree upon the methodology to be employed. Litigation can be the best solution to matters that question whether or not any contract laws were violated but in other, less serious matters, arbitration and mediation may be the most effective and time sensitive means to resolve a dispute.
Anyone involved in the construction industry will undoubtedly be faced with a dispute at some point, so it pays to understand the various methods whereby disputes can be resolved to the satisfaction of all. The above information was provided so that you can understand that there are alternatives to costly litigation which can, and should, be utilized if at all possible.