Contract Basics: Dispute Resolution Strategies
If and when you come into a disagreement during a project, there are a number of dispute resolution strategies that you can use to reach a satisfactory resolution. Typically, dispute resolution means seeking a remedy for a contract dispute outside of the court system. Why would a construction business want to pursue dispute resolution rather than litigation? Read on to find out.
What is dispute resolution, and why should you include it in your contracts?
Often, the courts have a long backlog of cases, which means that resolving a dispute through traditional litigation can take a lot of time. If you're seeking payment that you're owed for work you've done, that can mean waiting months or even years to collect your money. Also, going to court can be expensive for both the plaintiff (the party who brings the suit) and the defendant (the party that is being sued).
On the other hand, resolving disputes out of the court system can be much quicker and more affordable. Some dispute resolution processes are less formal than court proceedings because the rules are more flexible, which also means a less stressful process overall.
Including contract provisions that require a non-court method of dispute resolution, either before going to court or as the only resolution strategy, is extremely common in business-to-business contracts because of the time and money savings. If you want to get paid and avoid getting sued, then including this type of clause may be the right decision for you.
There are several different kinds of dispute resolution available depending upon the situation, but two of the most common for construction contracts are mediation and arbitration.
Mediation
Mediation is a process where a neutral third party, the mediator, assists the two conflicting parties in discussing and seeking a resolution to the dispute. The mediator is valuable in suggesting possible solutions for the parties, but he or she does not mandate a solution. Instead, the mediator's goal is to facilitate communication that helps the parties reach a mutually acceptable agreement. In a mediation, only the conflicting parties themselves can resolve the dispute.
Often, mediation is as simple as the two parties coming together with the mediator in a joint session to discuss the issue, each party's understanding of the occurrences that led to the dispute, their knowledge of the remedies and consequences, and possible solutions.
If the parties can reach a mutually beneficial agreement, then the mediator can help them create a written contract that details the agreement, which will then be enforceable in court.
Arbitration
Arbitration is a process where disputing parties agree that one or several neutral parties can make a decision about the dispute after hearing both parties' arguments and evidence. It differs from mediation because the arbitrator has the authority to decide how the parties will resolve the dispute.
The process is similar to a court trial in that both sides make opening statements and present evidence, but the entire process is quicker than a hearing with a judge. Arbitration is less formal than a traditional trial, and, in some cases, the parties do not have to adhere to state and federal rules of evidence strictly.
After hearing from both sides, the arbitrator will issue an "award," which is the decision. The arbitrator may or may not give reasons for the award. In Oklahoma, arbitration is binding, meaning that the court can enforce the decision. There are only rare circumstances under which the courts would not uphold the arbitrator's decision.
Should you include an alternative dispute resolution clause in your contracts?
As with most legal questions, it depends. Some of the most notable benefits of alternative resolution methods are that it:
Takes much less time
Is much less expensive - reduced hourly attorney's fees and expert witness fees
Places the decision in the hands of an experienced arbitrator rather than a panel of randomly-selected jurors who may or may not have knowledge and experience related to construction or business in general
Is less formal, and thus less stressful on both parties
If those benefits sound like something you want in your contracts, then perhaps dispute resolution clauses are right for you. Get in touch directly to review your contracts or discuss strategies for making your contracts work for you.
