CONSTRUCTION Accounting ARTICLE -
Limit the Cost of Construction Disputes with ADR
Whether it’s coming to an agreement on a small change order or a multimillion dollar scope revision, resolving disputes is a required skill for contractors. When margins are tight and competition is intense, the added costs of litigation can be crippling.
Alternative dispute resolution — or ADR as it’s commonly called — has become a common term in the construction business. Still, not every contractor fully understands how to use it and how it can help limit the hit to his or her bottom line when one of those inevitable job conflicts comes to pass.
3 common methods
By and large, ADR offers three methods, differing in their intensity, to tackle a problem:
1. Arbitration. Thanks to its continual presence in the standard AIA construction contract forms, this is probably the best known ADR approach.
Like a trial, arbitration usually involves sworn witnesses who testify on direct and cross examination, but it’s private and less formal. The decision of an arbitrator (or panel of arbitrators) may be kept confidential from the public, and appeals may be less likely than in traditional litigation.
2. Mediation. Here an independent third party acts less as a final decision maker and more as a facilitator. In that capacity, the mediator can creatively help the parties resolve their dispute. As long as both sides come to an agreement, pretty much anything goes.
Like arbitration, mediation is private, but it’s generally voluntary, which can be beneficial in maintaining business relationships. Mediation often works simply because it gets the parties to sit down and discuss the problem. Sometimes just getting to the table to talk provides results satisfactory to both.
In addition, because the parties at odds control the process, mediation can be less expensive and more rapid than arbitration. Here the best-case scenario is a quick resolution, but if necessary you can still turn to more formal arbitration or, at worst, give in and head to court.
3. Partnering. This approach can also be an effective method for managing disputes, because it seeks to prevent them before they start. Partnering starts at the inception of a construction project with a formal and explicit agreement between you and another party to resolve disputes in a specified manner.
When you begin a job as partners, the lines of communication are open, which can build trust. And that trust can then lead to better planning, easier conflict resolution and, one hopes, faster and more efficient project completion.
Many advantages to consider
The costs of litigation are measured not only in terms of legal fees, but also productivity. You could spend countless hours putting together your case, pulling project managers and office staff away from their day to day responsibilities.
Ultimately, ADR offers many advantages to consider. It can also reduce the number of adversarial relationships affecting your construction business, more directly involve you in decisions critical to your company’s success, and save you time and money.
Find out how our expertise in construction accounting can add value to your business. Email us or call us at 1 (888) 875-9770.
related links
Construction Newsletters & Articles
Specialized Construction Services
Construction Contract Audits
Construction Resources
Auditing & Accounting
Seminars & Events |
