Contract documents

May 20, 2022

Most construction projects do not generate a dispute that has to be resolved by a formal dispute resolution process, but occasionally it does happen. This article will discuss different types of dispute resolution proceedings that are commonly used to resolve construction project disputes.

Your owner-contractor or owner-architect agreements might include provisions that state the type of dispute resolution procedures that will be used if the parties cannot informally resolve an issue. Many AIA Contract Documents provide that the parties must use mediation as a first attempt at a resolution. If mediation is not successful, the parties may select a form of binding dispute resolution, including arbitration, litigation in a court of law, or some other method preferred by the parties. However, the more streamlined agreements that are geared toward residential or small commercial construction may not contain these types of provisions.

Mediation

Mediation is a process in which the parties work with a neutral third party, the mediator, to try to agree on a settlement of the issue. Mediation is not binding unless the parties agree to a settlement. If they cannot come to an agreement, the parties can then move on to a binding dispute resolution proceeding. Mediation tends to be speedier and less costly than other dispute resolution methods. It is more informal and does not typically require as much discovery, such as depositions and document submittals, that other methods require. The parties don’t submit motions and other types of pleadings that might be filed in arbitration or litigation.

Even if a lawsuit is filed in a court, many courts routinely require the parties to engage in mediation to try to resolve the matter before proceeding with the litigation on the court’s docket.

Arbitration

Arbitration is similar to mediation, in that a third-party neutral arbitrator will hear the case. For a complex case, there might be a panel of arbitrators. However, arbitration in a construction case is usually binding, which means the parties must accept the arbitrator’s decision. An arbitrator’s role is more like that of a judge than that of a mediator.

An arbitration will have rules governing the process. These are somewhat similar to the kinds of rules that courts have that govern the litigation process. Arbitration will involve document submittals and testimony. It may or may not be faster than litigation in a court. However, one benefit of arbitration for a construction dispute is that the parties may select arbitrators who are experienced and knowledgeable about construction, and thus may be better to evaluate the claim than a judge or jury who do not have construction expertise.

One thing to note, if the claim involves residential construction, is that in a few jurisdictions the courts do not favor an arbitration clause in a residential construction contract. This is because the courts are concerned that, if a homeowner agrees to an arbitration clause, they may not fully understand that the arbitration is binding and that they lose their right to litigate in court.

Litigation

If you wish to file a claim in court, the jurisdiction for a construction claim is typically the one in which the project is located. So, for example, you could be having a house built in Maryland using a contractor from Virginia. In that case, the lawsuit would usually be filed in Maryland.

If your dispute involves a small amount of money, you may be eligible to file a claim in small claims court. If that is the case, this would likely be the simplest and least costly way to resolve the issue. You do not need an attorney to go to small claims court and there is no routine discovery.

For cases where the claim exceeds the jurisdiction of the small claims court, you can file in the civil court. In that case, it would be wise to be represented by an attorney as the procedure will be more complicated and it is important to have an attorney who can advocate for you. There are many attorneys who practice construction law who are well versed in the types of issues that may arise. As we have discussed throughout this series of articles, construction is unique in many ways, so it is important to work with an attorney who understands this area.

Conclusion

Let’s hope that your project goes smoothly and that you don’t need to worry about any of this! Even so, the basic knowledge of these dispute resolution methods applies to other areas in which you may find yourself in a dispute, so it is useful information to know.

Our next article will discuss insurance and bonds. What types of insurance should your architect and contractor carry? What insurance should you have? And, what does it mean for a contractor to be bonded? Find the answers in the nest article in this series.

Susan Van Bell, Esq. was Senior Director of Content for AIA Contract Documents for over ten years. She is currently a consultant.

AIA Contract Documents has provided this article for general informational purposes only. The information provided is not legal opinion or legal advice and does not create an attorney-client relationship of any kind. This article is also not intended to provide guidance as to how project parties should interpret their specific contracts or resolve contract disputes, as those decisions will need to be made in consultation with legal counsel, insurance counsel, and other professionals, and based upon a multitude of factors.