Effectively Resolving Construction-Related Disputes
By David L. Sutton, P.E., Executive Vice President of Buric
The construction industry is experiencing an amazing evolution. New and innovative technology is being infused at a rapid pace. Building information modeling (BIM) and integrated building lifecycle management are emerging processes. Sustainable development and green building are in their learning-curve phases in the industry. New government incentives, new products, new costs and new expectations bring new uncertainties, new risks and new people problems.
As these technologies permeate the industry and become the newest standards, the industry faces new sources of conflicts and disagreements.
The process of taking a project from concept to occupancy involves many stakeholders – owners, architects, engineers, suppliers, contractors, subcontractors, public agencies, legal representatives, facility managers, financial institutions and more. All parties involved in a construction project generally share the following interests in their common pursuit of a positive outcome: Timely payments, reasonable costs and on-time performance.
Although stakeholders have a common vested interest in the outcome, they have competing expectations in the execution of their respective responsibilities. Therefore, a construction project tends to be an environment consisting of adversarial entities. As a result, as much as there is certainty in taxes, the sun rising in the east and lying in politics, there are conflicts, disagreements and claims in construction.
In short: Disputes happen!
Various studies cite that up to 30 percent of all construction projects experience serious disputes or claims. Playwright Oscar Wilde once wrote, “Success is a science; if you have the conditions, you get the result.” Creating the right conditions on a project can establish the environment necessary for success. An effective way to prevent serious disputes – or at least mitigate their impact on project outcome and relationships – is to structure the project such that typical dispute sources are minimalized.
Those sources stem from conditions of uncertainty associated with the project’s risk allocation, people-related problems (experience levels, perspectives, ethics, etc.), or problems associated with the various processes undertaken on a project (incomplete scope definition, performance, contract development, etc.).
It takes tremendous foresight, research, planning, execution and even good fortune to address and eliminate all sources of potential disputes. However, short of perfection, the owner should assemble a project team that implements best practices in construction to establish the right conditions that foster success – understanding that it is a monumental aspiration and even the best plans go awry.
A construction project is a complex network of people, contracted parties, competing expectations, allocated risks, document files and numerous physical activities – to name a few of the variables. It is inevitable that conflicts will arise on any given project.
Any given conflict can turn into a serious dispute if the conditions for success are impaired. Once a claim (a request for compensation for actions considered to be outside of the contract terms and conditions) or a dispute germinates, it requires an influx of objectivity and process to move it to resolution.
If negotiations between the contesting parties fail to produce resolution, their contracts typically stipulate the formal process of adjudicating the matter. Frequently, the disputing parties have invested too much emotion in their respective positions to amicably negotiate a settlement. As Albert Einstein once noted, “The significant problems we face cannot be solved at the same level of thinking we were at when we created them.”
So, then, the choices become litigation in a court of law or Alternative Dispute Resolution (ADR) outside the courtroom.
ADR methods – albeit once considered the alternative to filing a lawsuit – are now frequently implemented throughout the court system. The most common forms of ADR are arbitration or mediation. With heavy caseloads burdening the courts, judges now often mandate mediation as a precedent effort prior to going to trial. Here’s a simple overview of the most common dispute resolution forums:
- Litigation is a trial in a court of law by which either a judge or a jury of peers is presented each party’s position and then determines the outcome.
- Arbitration is a process where an individual or a panel of individuals (very commonly, three) from the construction industry is presented each party’s position and then determines the outcome.
- Mediation is nothing more than a structured negotiation that is typically guided and facilitated by a trained mediator. The mediator does not render an outcome but works to get the parties involved to mutually agree upon a settlement.
Outcomes do not always require that one side absolutely wins and the opposing side absolutely loses. Often, either or both parties can declare success since success can be defined in many different ways.
Nonetheless, success depends upon the combined efforts of how a party addressed the dispute – both contemporaneously during the project and subsequently in the dispute resolution forum. A compelling presentation of your position in litigation or ADR is always undermined if positions, documentation and notification offered during the project are inadequate.
The legendary college basketball coach John Wooden once shared this insight about facing life’s challenges: “Be prepared and be honest.” This should be the defining approach to a party’s efforts to resolving a dispute, whether it is in its infancy as a burgeoning conflict, or in a mature stage of dispute before a resolution forum. Preparation, honesty and consistency are the key ingredients to effectively resolving a dispute – or perhaps even avoiding one altogether.
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As Executive Vice President of Buric, David L. Sutton oversees its claims and project controls groups. With more than 30 years experience in the construction industry, Sutton is an expert in large engineer-procure-construct contracts and has extensive experience in project management, CPM scheduling, claims management, surety contract management and building diagnostics.
Sutton, a registered professional engineer, has consulting experience in claims analysis of time and cost impacts, scheduling, cost engineering, labor productivity analysis and graphic development. He has served as an expert witness in trials, arbitrations and mediations.
Established in 1968, Buric supports the world’s diverse construction industry by providing construction planning and critical path method scheduling; construction claims resolution, including forensic investigation, demonstrative graphics and expert witness capability; surety contract management; building diagnostics and rehabilitation; project management and control; and architectural and engineering services.