From picking the right decision makers to getting the cash, dispute resolution is a minefield - it pays to have clear provisions in place before a project even begins
When finalising a construction contract, the dispute resolution clause can be overlooked. Agreeing the detail of how the project will be delivered can take precedence. However, the possibility that an expensive and time-consuming dispute could arise should never be disregarded. Consequently, provisions for resolving potential disputes should be carefully considered from the outset. It is also important to remember that parties to a construction contract will have the right to refer a dispute to adjudication at any time.
A successful mediation can resolve a dispute in a day. in tough times, getting the cash you are owed quickly can be crucial
Notwithstanding this, when considering the dispute resolution clause the first step is to determine the forum that will be most suitable to resolve a dispute. The key is to keep the dispute resolution clause as simple as possible with maximum flexibility, so it is a useful tool to resolve issues on the project, whatever these may be.
Options include litigation, arbitration, expert determination, adjudication and forms of alternative dispute resolution such as mediation. Which forum will be suitable will depend on a number of factors:
- Ongoing relationship. If parties want to maintain their future working relationship, it is important to take an amicable approach to resolving disputes. Negotiation or mediation should be considered at least as a first step.
- Time. Adjudication is a quick way to resolve a dispute, with an enforceable decision within 28 days. Arbitration and litigation can take months or even years to conclude. A successful mediation can resolve a dispute within a day. When times are tough, getting the cash you are owed quickly can be crucial.
- Complexity. Adjudication can resolve matters very quickly but may not be suitable where the issues involved are complex. Adjudication is rough and ready justice.
- Cost. Litigation and arbitration are expensive and these costs may be disproportionate when dealing with simple and low-value disputes. Costs can quickly accumulate in all but the most straightforward adjudications.
- Privacy. It may be critical for a business to ensure disputes involving confidential or sensitive information remain private. Arbitration and adjudication proceedings are private, although in certain circumstances privacy may be lost, for example if the decision is appealed. Mediation is a completely private process and any settlement agreement can also be confidential between the parties.
- Number of parties. Construction disputes often involve multiple parties and the court process has adequate procedures in place to deal with multiple parties and to make a decision on the dispute that will bind them all.
- Decision maker. Disputes may involve complex technical issues or depend on the legal interpretation of a contractual clause. It is imperative that whoever decides your dispute is the best qualified to do so. The quality of judges in the Technology and Construction Court is consistently good, whereas the expertise and experience of arbitrators and adjudicators can vary.
- Prospects of success. Strategy is everything when resolving disputes and careful consideration needs to be given to the strength of your position at the outset. Some forms of dispute resolution such as litigation and arbitration may result in you paying the other side’s costs if you are unsuccessful.
When drafting the dispute resolution clause, ensure it is clear, unambiguous and not overly complex. If a dispute arises, you do not want the additional complication of arguing how the contract has provided for such disputes to be resolved.
Also, be wary of multi-tiered/escalation dispute resolution clauses. If a stage fails to resolve the dispute, the parties move on to the next stage. These clauses often provide that parties must mediate first before a party can litigate or arbitrate. These clauses can lengthen the time it takes to resolve a dispute. Therefore, when using these types of clauses, make sure that compliance with each stage is not too onerous.
It is also important to ensure that all those involved in the project are aware of the mechanism for resolving disputes. A number of cases have demonstrated that the court will strive to uphold the dispute resolution method agreed by the parties - so it is crucial to get this right at the outset.
Andrew Jones is a partner in the construction and engineering team at SNR Denton