There is an old adage that “a poor settlement beats a good lawsuit,” which surely rings true for many in the construction industry. Calling lawyers mid-project is rarely beneficial for a project’s schedule. Litigating disputes is time consuming, costly and often unpredictable. When disputes arise in the midst of project performance, stakeholders have tools in their toolbox other than litigation that can help save not only time and money, but also relationships and the project itself.

Mediation

Mediation is a dispute resolution process in which the parties work with a mediator to negotiate a settlement of their dispute. It is private, voluntary and non-binding. The mediator is a neutral party who has no vested interest in the outcome and is trained to facilitate a settlement between the parties. Mediators also usually have experience in the construction industry. Parties normally agree to mediation by mutual agreement or by contract. Mediation is faster and less expensive than litigation and can be scheduled as soon as the parties are ready to negotiate, as compared to trials, which can take years before they are scheduled and ultimately reach a decision. With few exceptions, mediation is a great option for resolving a complex dispute. 

Bond and Lien Claims

Depending on the type of project and the claimant’s role on the project, making a claim on a surety bond or recording a lien is another alternative short of litigation to bring parties to the negotiating table with an eye toward resolution. If the contractor supplied surety bonds for the project, making a bond claim will require the surety to conduct an investigation, which will place added pressure on the contractor to either perform or pay outstanding subcontractors and suppliers on a payment bond claim. When making a bond claim, claimants must read the entire bond, and comply with all prerequisites, including notice and time requirements to avoid a hasty denial based on failing to follow the strict letter of the bond. If the surety requests additional support or “proof” of a claim, claimants should be timely and responsive to the surety. Being proactive with the surety after formally making the claim can benefit the claimant as the “squeaky wheel” often gets the grease with bond claims.

On private projects, unpaid contractors may have the right to file a mechanic’s lien to recover outstanding amounts due. Each state has its own law on the timing requirements for filing the lien, work recoverable by the lien, notice of the lien and where to file the lien. Failing to strictly follow a mechanic’s lien statute can void the lien at the outset, so assistance from an experienced construction attorney is necessary. A properly recorded lien will quickly get the owner’s attention and often provides another avenue for a speedy resolution.

Early Dispute Resolution Boards

These panels typically arise on extremely large projects or Public Private Partnership) projects and consist of a standing board of industry neutrals who will hear disputes as they arise in real time to avoid undue delay. Yet even smaller projects can benefit from a board. Project participants have wide latitude to appoint the board and structure the board’s involvement as befits the project.

Many times, boards will conduct regular meetings on site and monitor the construction so that panelists are familiar with the project. The board can efficiently investigate and decide a dispute without delaying the project schedule. The success of these boards is contingent on including all project participants, so contractors are encouraged to include all stakeholders, even the lowest-tiered subcontractors, in the process.

Mini-Trials and Summary Jury Trials

Mini-trials and summary jury trials resemble a traditional trial but are more cost effective and faster, yet not binding. The mini-trial is an abbreviated trial presided over by a neutral and representatives from each party with decision-making authority to settle the dispute. The parties’ attorneys present a summary of the evidence and the arguments they expect to offer at a traditional trial. Generally, the neutral announces no decision, but after the hearing, the party representatives begin settlement negotiations, perhaps calling on the neutral for an opinion on how the court might decide the case. Because mini-trials require a greater commitment of time and resources than many other forms of alternative dispute resolution, the mini-trial is best suited for complex construction disputes. Preservation of a business relationship can also justify the time and effort of a mini-trial.

A summary jury trial resembles a mini-trial only to the extent that counsel present their cases in a non-binding, abbreviated trial. The distinguishing characteristic of summary jury trials is that a lay jury hears and decides the case. Summary jury trials are typically scheduled for one day, and the attorneys have about one hour each. The introduction of evidence is limited, and there are no witnesses. A judge conducts the proceeding and provides the jury with a short explanation of the law. The jury then presents its non-binding verdict, which provides the starting point for settlement negotiations between the parties. By participating in a summary jury trial or mini-trial, the parties become aware of the strengths and weaknesses of their positions, their likelihood of success, exposure and the potential cost of a trial on the merits. This knowledge may drive future settlement discussions.

It is never too late for stakeholders to explore alternative dispute resolution, and while these are some of the more tried and true methods, success can also come from creative and out-of-the-box arrangements. Construction counsel can provide guidance on different options for dispute resolution, and can help with presenting a dispute in the light most favorable to their client. If a lawsuit is inevitable though, parties at that time must engage experienced construction counsel, who can navigate the courts and litigation, thereby leading to a successful outcome or mitigating damages.