Resolving Construction Contract Disputes: Mediation, Arbitration, and Litigation

By AIA Contract Documents

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A201®–2017, General Conditions of the Contract for Construction

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December 28, 2023

Disputes between owners and contractors can arise for many reasons during a construction project. Common issues include misunderstandings of the scope of work, project delays, cost escalations, and payment disputes. Resolving these conflicts efficiently is vital for the successful completion of the project and to maintain strong professional relationships. 

 

Understanding Construction Contract Disputes

Construction contract disputes often stem from differences in expectations, financial concerns, or project timelines. Without timely resolution, these issues can disrupt the entire project, resulting in delays, increased costs, and strained business relationships. 

 

The Role of the Initial Decision Maker in Dispute Resolution

The first step in resolving disputes under AIA Contract Documents is to involve a neutral party, typically an architect, known as the Initial Decision Maker (IDM). As outlined in Section 15.2 of the A201®-2017 General Conditions of the Contract for Construction, claims must be referred to the IDM for an initial decision. This decision is a required step before proceeding to mediation. 

If the IDM does not render a timely decision, the party asserting the claim may demand mediation and binding dispute resolution, regardless of whether an initial decision has been made. However, the IDM’s role is generally limited to disputes between the owner and the general contractor unless otherwise agreed upon by the parties. 

 

Mediation: A Collaborative Approach to Conflict Resolution

Once the IDM renders an initial decision, it is binding on the parties, but may be subject to mediation. Mediation is a process where a neutral third party facilitates communication between the conflicting parties to help them reach a mutually acceptable resolution. 

Mediation is non-binding, meaning the mediator does not impose a solution but guides both parties toward a voluntary agreement. This method is often chosen for its collaborative nature and its ability to preserve relationships between the parties. 

 

Binding Dispute Resolution: Arbitration and Litigation

If mediation fails to resolve the dispute, parties can move on to binding dispute resolution. AIA Contract Documents recognize two common methods of binding dispute resolution: 

  1. Arbitration: In arbitration, the parties agree to submit their dispute to an arbitrator or a panel of arbitrators. These professionals consider the evidence and arguments from both sides before issuing a binding decision. The arbitration process is more formal than mediation and follows the rules set by the American Arbitration Association (AAA) at the time of contracting. 
  2. Litigation: If arbitration is not selected or unsuccessful, the parties may resort to litigation. This involves filing a lawsuit in a court of competent jurisdiction, where the dispute is resolved by a judge or jury. 

 

Choosing the Right Method of Dispute Resolution

The method of dispute resolution chosen in a construction contract depends on various factors, including the parties’ prior experiences, time constraints, cost considerations, and confidentiality requirements. Typically, these decisions are made with a combination of practical, legal, and strategic factors in mind. 

Some owners and contractors may prefer to resolve disputes through arbitration for its efficiency and privacy, while others may lean toward litigation for its formal, public nature. Regardless of the method, the goal remains to find a fair and equitable solution while maintaining strong business relationships and meeting specific legal or contractual obligations. 

 

Key Considerations for Successful Dispute Resolution in Construction

Choosing the right dispute resolution method is a delicate balance between several key factors: 

  • Fairness: Ensuring the outcome is just and satisfies both parties. 
  • Cost-effectiveness: Balancing the expenses of arbitration, mediation, or litigation. 
  • Timeliness: Finding a resolution quickly to avoid project delays. 
  • Relationship preservation: Maintaining professional ties between the owner and contractor. 

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.