Disputes - How Should They Be Handled?
By: LARRY R. LEIBY, Esq.
The first answer to the title question is that good faith disputes should be avoided in most cases by exercising some good business judgment and reaching an economical compromise. Once you have gone that route and if you have not reached resolution, then you should attempt to mediate with a knowledgeable construction mediator. Getting the input of the neutral third party (who doesn't make any decisions) often results in enough feedback to allow the parties to see what a court, arbitrator, or decision maker beyond the parties themselves might do with the case. Failing a resolution at that level, you are usually left with litigation or arbitration. There is also the option of a private trial resolution judge, which procedure is not widely known.
Under the 1997 edition of the A-201 the architect is the initial decision maker on disputes. In fact, if the architect renders a decision and says that it is final and binding unless one of the parties seeks mediation within 30 days of the decision, then it is final and binding without a timely challenge. Thus, be aware of the potential finality of such decisions.
The new AIA A-201 forms for 2007, which will be published later this year, have some key changes in the dispute resolution sections. First, there is the opportunity for the parties to fill in the name of a chosen initial decision maker. It is important that the person selected is fair and knowledgeable about construction so that good decisions can be expected. The initial decision will be subject to final dispute resolution if timely challenged. But if the initial decision is well reasoned and based on the significant facts and law, it will likely not change in a later arbitration or suit.
The second change in the new 2007 edition of the AIA form A-201 will provide that the parties (not the architect) may decide that a decision of the initial decision maker is final if not timely challenged by making that declaration when the dispute is submitted to the decision maker. The referral of the issue by either party could be accompanied by a letter that the decision made on the issue will be final and binding unless timely challenged. Taking this approach helps to get disputes decided as the job goes along, rather than saving them up until the end of the job. Some decisions you may want to save for challenge at the end of the job by agreeing to not make them final and binding. The key is that the parties will have this choice.
Another key change to the 2007 edition of the AIA A-201 is that the final dispute resolution process will no longer be written in to be binding arbitration pursuant to the rules of the American Arbitration Association. Instead, there will be a check box arrangement where the parties may choose from 1) litigation, 2) arbitration, or 3) something else that they specify. If nothing is checked, then the default process is litigation.
This check box arrangement gives the parties several options beyond just litigation or arbitration such as:
1) Arbitration in the discretion of one of the parties only.
2) Arbitration for amounts up to a threshold and litigation thereafter.
3) Non-binding arbitration followed by litigation.
4) A private trial resolution judge.
You may or may not be aware of what a "private trial resolution judge" is. One of the criticisms of arbitration is that the arbitrators are not bound to follow the rules of evidence or the law. They are also not required to give you reasoning for their decision unless you put that requirement in your agreement to arbitrate before the arbitrator is selected. Finally, there is a very limited right to appeal an arbitration award.
One of the criticisms of litigation is that it takes too long to get a case before a judge or jury. And then when you get a judge or jury, he/she/they may not know the first thing about construction. If you select a private trial resolution judge, you can choose someone who knows construction law and the construction process, whose schedule should allow you to get the dispute resolved much quicker than through the courts. That person is also duty bound to follow the rules of evidence and the law. Finally, the decision of the private trial resolution judge is subject to the same right of appeal as a court decision.
Speaking of decisions - you will have some to make in your contracts with respect to how to handle your disputes.