The Construction Industry
- Expected versus actual environmental and site conditions
- Lack of ground investigations before design or construction work
- Lack of information on site conditions from the employer
- Risks and uncertainty due to the lack of information available and holes in design
- Changes in agreement terms and specifications, especially nearing project completion
- Complexity of the structure
- Projects trying to finish faster than the original schedule, which will incur additional costs
- Cost inflation of materials
- Lack of risk assessment before design and construction
- Not meeting the specifications and quality
- Confusing information or errors in tender documents and drawings provided for the contractor
- Errors in tender document review and cost evaluation by the contractor
- Ineffective project management and coordination of trades and tasks
- Responsibilities of parties due to delays and additional costs which can lead to disagreement of payment claims
Using Alternative Dispute Resolution (ADR)
Here are some advantages of ADR:
- Cases can be resolved in months or even weeks
- Parties are given flexibility and control over the process and the final settlement
- Interest based and not based on legalities such as rights
- Business relationships can be retained
How do you choose the right type of ADR?
Other factors for choosing an ADR type include:
- Settlement result
- What type of representation for the parties
- ADR procedures
- Cost of ADR method
- Nature of dispute
- Amount of evidence and references
- Business relationship
Types of ADR
The mediator, who is a professional third-party, is chosen by the relevant parties to assist with discussion. By the guidance of the mediator, the parties explore the strengths and weaknesses of each perspective, overcome differences, and come to a settlement that is acceptable to both parties. The mediator must be impartial and not provide legal advice or decisions. He or she is merely the facilitator. Other factors of mediation include:
- Any discussions within the mediation cannot be used in future legal proceedings.
- The settlement after the mediation cannot be enforced by the mediator.
- Parties have final control of settlement terms
- Decisions are reached by consensual and voluntary agreements
- Less pricey than litigation
- Preserve business relationships
- If the dispute is still unresolved, the case can go on for a long time and incur costs. Mediation is not appropriate for complex disputes.
- Should not be used if parties do not want to cooperate
- Settlement may not be resolved since mediators are not given the power to enforce settlement
The conciliator serves as an unbiased authority figure by discussing with each party individually to establish each parties’ goals. Conciliation is similar to mediation, but the conciliator has more intervention power as he or she can propose different settlement options. Conciliation is not organized like mediation, since mediation has a more structured program, such as “introduction, joint session, caucus, and agreement” .
- Preserve business relationships
- Parties can shape procedures of conciliation
- Time and cost effective
- Like mediation, settlements in conciliation have no binding power.
The adjudicator is a neutral third party expert. He or she has the power to request expert witnesses, evidence, or references. The adjudicator decides on the settlement, once evidence is received and statements from the parties have been evaluated. This decision is binding for a certain period until court proceedings are due.
- Interest based
- Does not hinder actual productivity
- Time consuming like arbitration
- Decision is temporary and can be challenged again in arbitration, court proceedings, or litigation.
Arbitration is a legal procedure where an arbitrator makes a final and legally binding or nonbinding decision. If the decision is binding, it cannot be appealed. If the decision is non-binding, the parties can request an appeal and trial at court. The third party arbitrator is usually an expert, lawyer, or a panel of arbitrators. The decision of an arbitrator is equivalent to a decision in litigation. However, there is more power from the parties on the nature of the arbitration process.
- Settlements are final for binding decisions
- Avoid litigation costs
- Arbitrator has little authority if one party does not settle the claim or payment
- Limited appeal rights after arbitration, even if the decision nonbinding, there might still be penalties for appealing
An independent third party expert in a particular industry is mutually appointed by the parties. He or she must be qualified under a professional institution. Expert determination is usually for valuation disputes. The process is informal and flexible. Decisions are binding and final.
- Can resolve technical and complex engineering disputes
- Low cost
- Informal procedures
- There is no control over the expert determination process
- Process is not backed by regulations or legislations
- Decisions are hard to appeal
- Expert’s final decisions cannot be enforced
Early neutral evaluation
The evaluator, who is a neutral professional, is mutually appointed by the parties. The parties communicate directly with each other, with the evaluator, in an informal evaluation setting. The parties initially produce written statements of the case. These written statements include the nature of the dispute, their views on the dispute, their evidence, and their arguments and claims that support their case. They then submit their statements to the evaluator, who will evaluate each argument and produce a written evaluation that estimates the damages and liability. Then, there will be follow up sessions of settlement discussions, which will result in a non-binding decision.
Combinations of ADR
There are also other combinations of ADR that can be used. Parties can use the advantages of each ADR and combine these advantages together for maximum effect.
Med-arbitration is a combination of mediation and arbitration. The mediation process starts first. If no settlement is to be reached, the mediator then becomes the arbitrator to make settlements legally binding.
Med-adjudication is a combination of mediation and adjudication. The mediation process starts first. If no settlement is to be reached, the adjudicator gives his or her own view of settlement after the mediation and then makes the settlement decision.
Mediation Case Studies
We found two interesting mediation cases. Cases like these are confidential, so the identities of the parties are unidentified.
The first case deals with contract law and construction. It deals with the two parties, the developer and the contractor, who are both in argument about the cost evaluation and the quality of works. Through mediation, both parties eventually settled, in which the contract will be extended for a certain period of time for the contractor to implement quality works. This case study shows that mediation can settle conflict, can keep dispute resolution costs low by reimbursing court taxes, keep business relationships, and reduce the amount of time for dispute resolution.
- http://www.lexology.com/library/detail.aspx?g=3c05af6b-1733-4e2b-a552-108163ba9319 http://www.scl.hk/file/news/20131114145606.pdf