Construction contracts are complex agreements that often concern multiple parties, including owners, contractors, subcontractors and suppliers. Disputes can arise at any stage of the construction process, from design and planning to construction and completion. These disputes can be costly and time-consuming and can have a significant impact on a project’s timeline and budget.
Alternative dispute resolution is a process that can help parties resolve construction-related disputes outside of the traditional court system.
Mediation is a voluntary process in which a neutral third party helps the parties reach a mutually acceptable resolution. It’s often used in construction contracts because it is less formal than arbitration or litigation and can be less expensive and time-consuming.
During mediation, the parties meet with their attorneys and the third party neutral to discuss their concerns and explore potential solutions. The goal of mediation is to reach a settlement that is acceptable to both parties.
Arbitration is a more formal process than mediation and involves a neutral third party who makes a binding decision. The third-party neutral is often an expert in construction law or engineering and has the authority to hear evidence and make a decision.
This approach is often used in construction contracts because it is faster and less expensive than litigation. The parties agree to abide by the arbitrator’s decision, which is final and binding. However, arbitration can be more limited in terms of discovery and may not provide the same level of due process as litigation.
Alternative dispute resolution can be an effective way to resolve disputes related to construction contracts. It is important for parties to carefully consider the advantages and disadvantages of each type of ADR and to choose the process that is best suited to their needs. Seeking legal guidance before inserting an ADR clause into a contract – or opting to resolve a dispute this way generally – is a good idea.