Published on 02nd May 2023
Construction projects can involve numerous parties, complex contracts, and a variety of technical issues. With so many moving parts, it's no surprise that disputes can arise. When they do, an effective and timely resolution is critical to avoid costly delays, damaged relationships, and potential litigation. Two primary methods of resolving construction disputes are arbitration and litigation. While each has its advantages and disadvantages, deciding which is best for a specific dispute can be challenging.
In this blog post, we'll explore the pros and cons of each method for construction dispute resolution, and provide guidance on factors to consider when deciding between them.
Construction disputes are disagreements or conflicts between stakeholders of a construction project. The dispute can be between any two or more stakeholders like owners, contractors, subcontractors, and suppliers.
The reasons for the disputes can be many. Generally, misunderstandings, violations of construction contracts, project delays, changes in work scope, design changes or faulty design, and payment issues are the reasons for the disputes. Furthermore, breach of contract is another major reason for construction disputes.
When disputes remain unresolved for long, they may lead to cost overruns in the form of delayed projects, year-long legal proceedings, and higher compensation.
This is, by far, one of the most common disputes in the construction industry. Contractors, subcontractors, suppliers, and project owners may often disagree with each other regarding the terms of payment.
Payment disputes may arise due to the value of work completed or over the quality of the work. Even the timing of payment is often a cause for disputes among the parties involved in the project.
This dispute arises when the owner and general contractor disagree over the scope of the work to be done. Project owners often demand changes in the scope of the project during its construction phase. This leads to disputes as the new changes might not be mentioned in the contract. Having different interpretations of the project's scope may also cause disputes to arise between the contactor and the project owner.
This dispute arises when the construction schedule suffers delays or disruptions. This might happen for a multitude of reasons, including weather, unforeseen site conditions, or labor shortages. Schedule disputes can result in cost overruns and ultimately the project may witness delayed commissioning.
When the project owner and contractor disagree over the project's design or specifications. This might happen due to unclear design, erroneous design, or if something is missing from the design.
As the name suggests, this dispute arises when the project owners and contractors don’t agree on the overall quality of the work completed. Incomplete work, defective work, or inability to meet the required construction regulations and standards can contribute to quality disputes among the stakeholders of the project.
Safety disputes occur when there are disagreements over safety issues on the construction site. This can happen if the contractor does not follow the required safety standards or if there are unsafe conditions on the site. Safety disputes can lead to injuries, legal action, and a damaged reputation for the parties involved.
Negotiation is one of the most common dispute resolution methods. Here, the parties or their representatives attempt to reach an agreement without the participation of any third party. The meetings are private and often confidential.
This is often the first step for resolving disputes among the stakeholders in a construction project. Negotiation avoids a rigid attitude and focuses on finding solutions to both parties satisfaction. The success of any negotiation hinges on the quality of the parties' communications with one another.
Mediation is facilitated by a mediator to settle disputes. The mediator is a neutral third party assisting the conflicting parties to reach an agreement or understanding.
Mediation is also known as "brokered negotiation" or ‘assisted discussion. Unlike arbitration or litigation, the mediator just facilitates communication between the parties involved in the conflict. It does not provide any verdict or does not make any decision for the parties.
It depends solely on the parties to decide the terms of the agreement. There is no legal right or wrong involved in the process.
In many references, conciliation is similar to mediation. However, unlike mediation where the mediator meets the involved parties privately, here the neutral third party facilitates settlement in the presence of both parties.
Shuttle diplomacy is involved in conciliation where the independent third party listens to the disputants of both parties. Based on the proceedings, the conciliator proposes a resolution in writing. Thereafter, it depends upon the parties to either accept the proposed resolution or reject it. In no way, the parties are obliged to obey the outcome.
In case, the dispute moves to arbitration, the conciliator can not be appointed as an arbitrator unless both parties agree in writing.
In arbitration, the conflicting parties agree to submit the dispute to one or more independent arbitrators. It is often called privatized litigation since the proceedings and verdict are outside the domain of the legally binding and enforceable judicial jurisdiction. Yet parties involved in the conflict are bound to obey the outcome of the arbitration procedure since they mutually choose the arbitrator.
It may be important to observe that arbitration, like litigation, focuses on the parties‟ legal rights and an arbitral proceeding is sometimes not much different from a court proceeding. However, unlike litigation where everything is made public, arbitration maintains the privacy and secrecy of the matter. Entities who are not involved in the proceedings are not allowed.
Adjudication is a process similar to arbitration except for the fact that it is legally binding. Unlike arbitration which is private process of resolving disputes, adjudication is a public process and decisions are taken by a judge or a panel of judges who acts as the adjudicator. Adjudication being governed by a country's formal rules and acts, it requires more formal evidence and rule based procedures.
Litigation is a confrontational way of resolving disputes that focuses on legal rights. This is due to the adversarial nature of the litigation process, where one party confronts the other party/parties using the formal rules and laws of the jurisdictional area.
However, litigation as the final means of dispute resolution has decreased in recent years due to the extended time it takes to settle disputes or reach to a verdict. Instead, it's being used to supervise and support other dispute resolution mechanisms or to enforce their results. This helps to efficiently implement alternative dispute resolution methods.
The circumstances and context of every construction dispute can be different. Hence, the best method for construction dispute resolution depends on the specific circumstances of the dispute. Some disputes may be more complex than others and may require a more formal and lengthy process.
Other disputes may be less complex and could be resolved more quickly and cost-effectively through dispute resolution methods such as negotiation, mediation, or arbitration. When it comes to more formal dispute resolution methods, arbitration and litigation are the most popular, especially for binding and enforceable decisions.
Litigation can be a time-consuming and expensive process, and the parties have less control over the outcome, as the decision is in the hands of a judge or jury. In contrast, arbitration can be quicker, and less expensive, and the parties have more control over the process and the outcome.