1.
Define the ADR process for various types of
disputes.
Not all disputes on a
construction project are the same, and the parties can tailor the ADR process
to different situations. For example, the parties could choose to arbitrate
complex disputes and resolve minor claims through mediation. Differentiating
the ADR process between complex and minor disputes can save parties time and
money.
While Liza prefers arbitration for complex claims because
you can get a quick and final decision from an arbitrator experienced with
construction disputes, she noted that arbitration costs can add up quickly. Therefore,
if the dollar amount in dispute is relatively small, arbitration may not make
sense financially. Mediation tends to be a comparatively cheaper and faster
option.
For more minor disputes, Liza prefers
a mediation-arbitration route. First, mediation is attempted and if the dispute
does not resolve at mediation, the mediator later becomes the arbitrator, and
the mediation essentially turns into a “baseball
arbitration.” Liza said that sometimes they get a decision in their favor,
and other times they do not, but at the end of the day, they are satisfied with
receiving a quick resolution without having to spend significant legal fees.
Manuel described this as the “pride versus financial reality” dilemma on
construction projects.
2.
Consider the number of arbitrators.
Another critical aspect of
defining the ADR process in a construction contract is specifying the number of
arbitrators involved. This decision, again, should be based on the complexity
of the dispute.
Although a single arbitrator
costs less than a panel of three; however, they control the sole fate of the
outcome. A panel of three arbitrators conversely provides security against a
single rogue arbitrator rendering an unfavorable decision. Liza favors choosing
the number of arbitrators on a case-by-case basis to find the line between not
paying multiple arbitrators versus getting stuck with one arbitrator that may
not agree with you.
3.
Carefully choose the right ADR Venue.
Sergio emphasizes that
selecting the venue for resolving the dispute is crucial and advised that this
decision should be based on the venue's laws and whether the parties have
proper counsel in the venue. Sergio cautions not to pick a venue based solely
on travel convenience, because the difficulties associated with navigating a
jurisdiction that is not arbitration friendly often vastly outweigh savings on
airline fees.
4.
Keep ADR provisions consistent when there are
multiple related contracts.
Sergio recommends keeping ADR
provisions consistent throughout multiple contracts to a related transaction to
ensure that the process is fair and effective in resolving disputes. This can
also help prevent confusion and miscommunication between parties involved in
multiple contracts. From a practical point, Sergio prefers spelling out the
entire ADR provision in each contract, using the same provisions and the exact
language rather than incorporating an ADR provision by reference into multiple
contracts.
Thank you to Manuel, Sergio, and Liza for providing this insight to ensure that the ADR process is effective and efficient.
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Author Michael Filbin is an associate attorney with Cozen O’Connor in Boston, Massachusetts. Michael is a part of Cozen O’Connor’s Construction group and represents owners, developers, contractors, and subcontractors in construction-related disputes. Michael can be contacted at mfilbin@cozen.com.
Editor Douglas J. Mackin is
a construction attorney with Cozen O’Connor in Boston, Massachusetts. Douglas
counsels owners, developers, contractors, and subcontractors in all phases of a
construction project, from contract negotiation through to completion,
including disputes, litigation and arbitration. Douglas can be contacted
at dmackin@cozen.com.
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