Michael Filbin | The Dispute Resolver
In the April 27, 2023 edition of Division 1’s Toolbox Talk Series moderated by Manuel del Valle, Sergio Andre Laclau (Partner at Mello Torres) and Liza Akins (Senior Assistant GC and Division Counsel at ARCO Design/Build) offered the following strategies for drafting effective ADR clauses in construction contracts:
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.
When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email experts@adviseandconsult.net.