Most experienced
commercial transaction and construction attorneys strive to negotiate a concisely written and
well-drafted contract that addresses all scenarios and issues that creative and
highly contemplative professionals can conjure. Although contracts are
extremely important in construction projects, “you can’t generally contract your
way out of a problem,” states Michael Loulakis, a founder of Capital Project
Strategies, LLC and a nationally recognized expert on project delivery systems
in complex public sector design-build projects and public-private partnership
programs. Loulakis adds, “the contract certainly matters. But particularly when
the losses are big, litigators prosecuting the contractors often find effective
ways to argue that facts and circumstances trump the contract.” However, “the difference between the best
construction projects and the worst construction projects is not the written
words of the contracts but how the parties have committed to engage
collaboratively and with trust to complete the project,” notes Robynne Thaxton, an
attorney and consultant with Thaxton Parkinson PLLC and Progressive
Design-Build Consulting, LLC and one of the leading experts in construction law
and alternative procurement on a national basis.[i] In large, complex
construction projects, the need for parties to collaboratively resolve disputes
is highlighted by the judicial acceptance of the “Doctrine of the Contextual
Contract”[ii] to interpret construction contracts. “As construction’s
increasing technological and managerial complexity came to be recognized, some
common law courts began turning away from strict interpretation of language within
the four corners of a contract and moving toward recognizing in the enforcement
of contracts the construction industry’s own experience, customs, practices and
implied conditions and duties and the factual context underlying the contract.
Courts [began the journey] along the road from ‘text’ to ‘context.’”[iii] Thus, the precise
wording of the contract has become less important and industry practices and
other conditions provide insight for resolving disputes. Consequently, despite
the specific language of any construction contract and the clear allocation of
responsibilities and risks, early dispute evaluation and resolution are
critical to a successful project.
The completeness of the
project design and the information known at the time of pricing and contract
execution will vary depending on the contract delivery method, thus, by nature,
certain delivery methods are more susceptible to contract disputes than other
delivery methods. But, alternative
dispute resolution (“ADR”) provisions should exist in every construction
contract (regardless of the delivery method) to facilitate early dispute
evaluation and resolution. As Loulakis states, “I do not think the delivery
method should influence the inclusion of alternative dispute resolution
processes in contracts. You still need a robust alternative dispute process in
large construction projects to resolve disputes.”
As a result,
“sophisticated owners and construction managers on large complex projects
devote significant precontract planning to develop and incorporate into
contract documents various escalating ADR dispute-filtering methods tailored to
addressing disputes by type and size.”[iv] Ten of the most widely
accepted alternative dispute resolution methods used in the construction
industry are (1) informal discussion and partnering, (2) structured
negotiations, (3) standing project neutral, (4) initial decision-maker, (5)
standing dispute review board, (6) expert determination, (7) evaluative
mediation and conciliation, (8) adjudication (initial decision binding until
completion of project; “pay now, argue later”), (9) minitrials and
mini-arbitrations, and (10) arbitration.[v]
Although not technically
a dispute resolution method, Thaxton recommends that one of the best dispute
prevention practices in construction is a robust project-level issue detection
process. She recommends that the project team maintain a risk log and a trends
log, which acts as an early warning system, permits the parties to anticipate
and monitor issues, gives the parties permission to participate in the
resolution of the issues and permits the parties to resolve issues that may
impact the project before the issuance of a change order. “Creating such logs
permits the parties to collaboratively monitor the issues and partner to agree
on the process to cooperatively resolve such issues,” states Thaxton.
Another dispute
resolution practice used as an engine for successful construction projects is a
robust structured step resolution process customized to incorporate many of the
most widely accepted alternative dispute resolution methods. Thaxton advocates
a step resolution process that starts with a binding resolution of outstanding
issues at the lowest authorized project level, which could be at the
construction foreman, construction superintendent or project manager level and
comparable project-level members of the owner and design team. If an issue
exceeds any authority level, the issue moves to the next level of project
professional for resolution, before proceeding to the executive level and then
to the next levels in the step resolution process, which could involve
referring the matter to a Dispute Review (or Resolution) Board (“DRB”). Thaxton notes that “often the threat of taking
an issue to the DRB will resolve the issue.”
The use of DRBs is
gaining wider acceptance in public construction projects. In some industries,
such as tunneling, DRBs are mandatory, notes Loulakis. “I do not recall any
bored tunnel project that did not call for a dispute resolution board to
resolve differences between the geotechnical baseline or geotechnical data reports
and site conditions discovered during construction.” Loulakis notes that,
although dispute resolution boards in roads and bridge projects are not as
widely accepted as in tunneling projects, 15 state departments of
transportation (“DOTs”) use DRBs,[vi] 18 DOTs authorize mediation,[vii] and
15 DOTs authorize arbitration. Importantly, some DOTs that do not have express
DRB authority have used DRBs on some of their big projects, “largely because
the industry has demanded it.” According to Loulakis, the most commonly
used DRB model in domestic construction is the Dispute Resolution Board
Foundation model.[viii]
One leading example of
implementing a robust dispute resolution process, including DRBs, in a large,
sophisticated megaproject involving tunneling is the construction of the Big
Dig. The Big Dig was a megaproject in Boston constructed from 1984 through 2007
at a cost of over $8.08 billion. The project rerouted the then-elevated Central
Artery of Interstate 93 that cut across Boston into the O'Neill Tunnel and
built the Ted Williams Tunnel to extend Interstate 90 to Logan International
Airport, constructed the Zakim Bunker Hill Bridge and funded a dozen projects
to improve the region’s public transportation system. In addition to other
issues encountered on the project, the Big Dig tunnel workers encountered many
unexpected geological and archaeological barriers, ranging from glacial debris
to foundations of buried houses and a number of sunken ships lying within the
reclaimed land.[ix]
The use of DRBs, as well as other dispute resolution methods, greatly assisted
in resolving geotechnical and other issues among several hundred prime
contracts and subcontracts required to coordinate and complete the project. The
robust dispute resolution process implemented in the construction of the Big
Dig set the framework for structuring the dispute resolution process for many
subsequent megaprojects.[x]
Given their complexities,
evolving technologies and numerous experts and professionals required to
complete complex construction projects, disputes are inevitable. However, if owners,
contractors, prime project team members, and their consultants and attorneys
engage in substantial precontract planning for management of disputes and
incorporate robust dispute resolution processes in project contracts, the
project team will be able to manage disputes
constructively, acknowledge and appreciate differences of opinion and thought,
and work cooperatively to resolve the disputes. The results of such efforts will
more likely lead to a project completed on time, on budget, and with ingenuity, innovation, and creativity
that can be applied in future large, complex construction projects.
Lisa D. Love, Esq., FCIArb., is a mediator and arbitrator with JAMS, serving on its Global Engineering and Construction Panel, and a complex commercial transactions attorney who has worked on several bridge replacement projects and other infrastructure projects in the northeast United Sates.
Disclaimer: The content is intended for general informational purposes only and should not be construed as legal advice. If you require legal or professional advice, please contact an attorney.
[ii] See Phil Bruner, Construction
Law; Its Historical Origins and 20th Century Emergence as a Major Field of
Modern American and International Legal Practice, The University of
Arkansas Law Review Symposium Fayetteville, Arkansas (March 12, 2022), citing
at footnote 10 United States v. Lennox Metal Manufacturing Co., 225 F.2d 302 (2d
Cir. 1955.
(“Even if a word in a written
agreement is not ambiguous on its face, the better authorities hold that its
context, its ‘environment’ must be taken into account in deciding what the
parties mutually had in mind when they used that verbal assemble.”) See also, Eggleston, Posner
and Zeckhauser, The Design and Interpretation of Contracts: Why Complexity
Matters, 95 N.W. U. L. Rev. 91, 94 (2000) (“[L]awyers,
judges and legislatures cannot evaluate contract rules without understanding
the contracts that these rules are supposed to regulate. Yet, the law review
literature on contracts is almost completely devoid of the positive analysis of
contracts.”).
[iv] See Phil Bruner, “Rapid Resolution ADR,” Constr. Law, Volume 31, Number 2
(Spring 2011). Reproduced with permission by JAMS.
[vi] There are a variety of ways that
DOTs are implementing the DRB process – from one-person DRBs to ad hoc DRBs
only convened when there is a dispute)
[vii] All but three of the 18 DOTs that
authorize mediation require that the mediation be mutually agreed upon before
it can be used, as opposed to making it mandatory if requested by a party.
[x] See “Resolving Megaproject Claims:
Lesson from Boston’s ‘Big Dig,’” 30 Constr. Law. 5 (Spring 2010).
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