How are Disputes Between Owners and Contractors Resolved?

By AIA Contract Documents

December 28, 2023

Disputes can arise for various reasons during a construction project. They often involve issues stemming from a misunderstanding of the scope of work, delays on the project, cost escalations, payment disputes, and more. Efficiently resolving disputes is crucial to ensure the successful completion of the project and maintain relationships among the parties involved.

Parties may first attempt to resolve disputes and claims through a neutral, such as an initial decision maker. Under Section 15.2 of A201®-2017 General Conditions of the Contract for Construction, claims must first be referred to the initial decision maker, who is typically the architect on the project, for an initial decision. This is a condition precedent to mediation of the dispute. If an initial decision has not been timely made, then the party asserting the claim may demand mediation and binding dispute resolution without such a decision being rendered. It is important to note that unless the parties agree otherwise, A201 limits the initial decision maker’s responsibility to decide disputes between the owner and general contractor.

After the initial decision maker has rendered an initial decision, it is binding on the parties, but subject to mediation. Mediation, in general, is where a neutral third-party is hired to assist the parties in reaching a voluntary and mutually acceptable resolution. Mediation is non-binding, and the mediator does not make decisions but facilitates communication.

If the parties fail to resolve their dispute through mediation, then the claim is subject to binding dispute resolution. AIA Contract Documents set forth the following common methods for binding dispute resolution.

  • Arbitration: Parties may agree to submit their dispute to arbitration, where an arbitrator or a panel of arbitrators makes a binding decision after considering evidence and arguments from both sides. The process is more formal than mediation. Under AIA Contract Documents, arbitration will be conducted in accordance with the American Arbitration Association rules in effect at the time of contracting.
  • Litigation: The parties may resort to litigation. This involves filing a lawsuit and the dispute is resolved in a court of competent jurisdiction.

If the parties do not opt for one of the above options, they may specify an alternative. If the owner and contractor do not select a method of binding dispute resolution, or do not later agree to any such method, then claims are to be resolved by litigation.

The choice of dispute resolution method often depends on the contractual agreement. Parties may choose one method of dispute resolution over another for a variety of reasons, such as past experience, time and cost considerations, confidentiality, or governance policies. Typically, this decision is based on a combination of practical, legal, and strategic considerations. Ultimately, the dispute resolution method is usually a delicate balance between achieving a fair resolution, preserving relationships, managing costs, and meeting specific legal or contractual requirements.

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.