Resolving construction disputes – Methods of Alternative Dispute Resolution (ADR)

Following the earlier articles about some of the reasons that construction disputes occur and the process by which construction disputes can be determined by adjudication, in part of this series we go on to explain some of the various methods of Alternative Dispute Resolution that are particularly well suited to resolving construction disputes. We set these in the context of how they interact with the “traditional” options of court proceedings and arbitration, as well as adjudication.

Pre-Action Protocol for Construction & Engineering Disputes (“Construction Protocol”)

Where litigation is contemplated, with the notable exception of claims to enforce an adjudicator’s decision, the claimant will normally be required to take the steps required by the Construction Protocol.

Unlike the General Pre-Action Protocol, the Construction Protocol requires that once the Letter of Claim and Letter of Response have been sent, in most cases the parties should hold a meeting on a “without prejudice” basis to explore whether they can resolve the dispute by way of negotiation or, if they cannot, to seek to at least narrow the key issues between them.

Whilst a party cannot be stopped from commencing court proceedings without first complying with the requirements of the Construction Protocol, the courts have wide powers to impose a sanction, by making the non-compliant party responsible for a higher proportion of their opponent’s legal costs than would otherwise be the case.

Arbitration

The other traditional means of having construction disputes determined, is arbitration. Arbitration will apply where the parties have opted for it in place of litigation. Generally, it is now pretty uncommon for construction contracts relating to works within the UK, but more common for works taking place overseas, or where confidentiality is of particular concern to the parties.

Adjudication

Adjudication provides a rapid and cost effective route to resolving construction disputes, within as little as 28 days – the imperative behind the legislation creating the right to adjudicate being to keep cash flow moving in the industry. Disputes are determined on an interim basis. Essentially, this means is that the adjudicator will decide the particular dispute that is referred to them on a temporarily binding basis, and frequently adjudication is used to determine what sums are due for a particular aspect of the project, whilst it remains ongoing, to keep cash flow moving.

Adjudication is such a key part of the landscape for resolving construction disputes that its workings and advantages / disadvantages are covered separately in my earlier article, available here.

Mediation

Mediation is a voluntary process by which the parties agree to jointly appoint an independent third party, who acts to facilitate structured negotiations between the parties, to reach a negotiated outcome. The mediator does not express their own view or determine the merits of the parties’ positions, and cannot impose an outcome. Instead, their role is to help the parties step back and understand the real differences between them which have made settlement seem impossible, whether that be points of legal interpretation, differences on the facts, or fundamental differences in any expert evidence relied on by each party.

Crucially, mediation takes place on a confidential and without prejudice basis, allowing parties to discuss what the impact would be if they make certain concessions, without negatively impacting their position in any current or contemplated litigation.

Mediations are particularly effective at unlocking disputes that involve more than 2 parties, and those disputes where one or more of the parties have the benefit of insurance. Insurers will not have personal involvement with the case, and will be looking to quantify their risks of proceeding and the advantages of avoiding further time and cost in connection with the dispute, to effectively buy off the risk.

The parties can agree to mediate before or at any stage during the course of court proceedings, and the process is summarised below.

Key stages of Mediation

1. Parties agree to mediate and book a suitable mediator.
2. The Mediator usually asks the parties to each prepare a written Position Statement and agree the contents for a core bundle of the most relevant document. This serves to identify what each party considers to be the real make or break issues in relation to the dispute.
3. At the start of the mediation, usually (but not always) the mediator will suggest that everybody comes together in a “roundtable” session. The intention is to give each party an opportunity to say their piece and clear the air, which may reveal the particular points each party is fixated on and lead to more productive discussions.
4. The mediator will then look for a breakthrough on key issues, acting as a go-between and spending time with each party in turn, discussing the key issues and considering the consequences of those issues going each way.
5. Depending on the issues at hand, the Mediator might propose that any experts in attendance, or certain individuals from each party, meet to discuss particular issues.

Whilst the court does have some power to compel the parties to mediate in certain circumstances, it will strongly encourage it in most cases. At the very least, the court will take a dim view of a party that unreasonably refuses an invitation from the other party to mediate and may impose a costs sanction.

Expert Determination

Expert evidence can have a defining role in how cases are either decided or negotiated to a conclusion.

During litigation, the Judge will make an order at an early stage specifying what expert evidence is permitted and the disciplines of expert which can be relied on. Typically a party’s expert must meet with their counterpart to discuss the issues at hand, and to assist the Judge, they will produce a list setting out those issues on which they are agreed, and those issues on which they are not.

The principles can usefully serve as the basis for how best to deal with expert evidence via non litigation routes. During adjudication for example, whilst sometimes the experts may have already had some discussions before the adjudication process starts, often each party will be putting forward very detailed expert evidence for the adjudicator to review, particularly on matters of quantum.

The fundamental importance of expert evidence as explained above has meant Expert Determination is growing in popularity as a means of resolving disputes away from the Courts.

The aim is to short circuit the process by appointing an expert in the relevant discipline as the decision maker, who is empowered to determine the dispute on a binding basis, rather than leaving it for a judge or adjudicator to consider the opposing experts’ submissions and make a decision on whose evidence they prefer.

The key to an effective expert determination clause in a contract is for it to set out the procedural practicalities of how the expert determination will work, precisely what the expert is being empowered to determine, and the consequences of that decision.

Early Neutral Evaluation

Although not yet particularly commonplace, the Technology and Construction Court (TCC) has formulated a streamlined process by which a TCC Judge can be appointed as an independent and impartial evaluator, to give the parties an assessment on the merits of all or part of a case, and what they consider to be the likely outcome if a case proceeds all the way to trial.

The process generally takes place on a non-binding and without prejudice basis, with the Judge who fulfils that role then not being involved with the rest of the case. The primary purpose is to get a strong indication from someone in the know as to how the case is likely to play out, and can be very useful in informing the parties’ positions in a further round of negotiations.

When should you Deploy ADR?

There is not a “one size fits all” approach, and the suitability of each method of alternative dispute resolution and, critically, the right to use those methods, will always depend on the particular circumstances of the matter.

The most complex disputes, including those involving multiple parties, will often use a combination of litigation, adjudication and other forms of ADR in order to first narrow the issues in dispute and then use a method such as mediation to enable the remaining gaps between them to be bridged.

The vast majority of construction disputes can be settled, without recourse to litigation. The TCC’s statistics reveal that even where court proceedings are issued, 84% of those cases got to a settlement during the litigation process, before a judgment was issued. This is a huge testament to the success of the modern ADR methods available for resolving construction disputes, and their success even when matters get as far as the court process.

If you have any questions about the topics raised in this article, please get in touch.

You may also be interested to see the related articles on common reasons construction disputes occur, about adjudication, and the final article in this series on re-setting construction contracts and conditional settlement.