ALTERNATIVE DISPUTE RESOLUTION PROCESSES IN CONSTRUCTION INDUSTRY
Table of Contents
I. Introduction
II. Traditional Dispute Resolution
A. Litigation
B. Alternative Dispute Resolution
1. Negotiation
2. Mediation
3. Arbitration
III. Litigation in Construction
A. Costs of Conflict Resolution through Litigation
B. Effects of Litigation
C. Duration of the Process
IV. Problems and Solutions of Mediations in the Construction Industry
A. Problems in Mediation in the Construction Industry
B. Solutions in Mediation in the Construction Industry
V. Cultural Considerations
A. Perceptions of Mediation
B. Other Cultures
VI. Conclusion
VII. References
I. Introduction
In recent years, the dispute resolution has developed alternative means of resolving conflicts between parties. Disagreeing parties traditionally tend to consult the judiciary for settling these disputes. However, contemporary resolutions of disagreements have created alternative dispute resolution (ADR) techniques to provide an option for the parties aside from litigation procedures offered by courts. Normally, implementation of ADR procedures operates outside the walls of the court with both parties determining the best way to address an issue. This process has been used in a number of areas like labour and other contractual agreements. The construction industry has also been one of the many areas where ADR procedures are implemented. In a complex industry as construction, conflicts may be considered an unavoidable circumstance. Complex issues like implied terms, delay, termination, determination of payment for the work done, as well as the costs and interests are consistently considered perennial issues in the construction industry. Any disruption from these areas tends to present problems for both parties. In the construction industry, time is considered a valuable asset. At any rate, conflict must therefore be resolved right away such that the loss of both parties is mitigated. This paper intends to provide a detailed analysis of the dispute resolution practices in the construction industry. Though there will be some areas in the discussion that will tackle the litigation option of the parties, the focus will be the use of the mediation process in resolving the dispute. Moreover, the arguments and observations made in this paper are to be supported by academic and scholarly articles related to construction and ADRs.
II. Traditional Dispute Resolution
All form of commercial activity and the players that dwell under it share a basic element. Several factors seem to be indispensable or rather constant problems for these entitiesn (2004, 32) claimed these factors to be conflict and conflict resolution. Traditionally, litigation was the sole means of determining who benefits in a dispute. However, recent trends prompt businesses to be more inclined to ADR processes and methods. This part of the paper will provide a description on the traditional means of dispute resolution and the emerging methods available for the construction companies.
A. Litigation
Court actions have been one of the most sought after recourse among parties in conflict. However, developments in businesses have changed the way companies regard litigation procedures. Primarily, the tendency of businesses to regard litigation and other court proceeding as a last recourse is motivated by financial objectives. Nevertheless, the process of litigation has been already employed by businesses and other organizations for dispute resolution for years. Essentially, companies attempting to employ litigation procedures do seek finality to some extent. However, the area of law has already built an intricate profession behind such dispute resolutionn (2004, 32) that litigation does demand much of the parties involved. For one, the laws applicable in their cases tend to brim over the possibility of acquiring an exact verdict that will ensure just results. In the same line of thinking, the use of litigation tends parties to question whether the work does equate to them having the desired results. The problem with employing litigation methods is that the outcomes of the procedure may only favour one of the parties in conflict. Despite the expended resources lashed out in the process, there is still the possibility that further loss would entail.
When litigation procedures come to the employ of the parties, those involved have the luxury of information through the help of the courts.2004, 133) This is done through the provision of warrants and subpoenas. In these kinds of procedures, information is the key in acquiring a favourable verdict. Thus, litigation cases provide the possibility of actually discovering the circumstances surrounding the conflict.
In the same extent, the use of litigation and court proceedings allows the parties involved for appeal in higher courts. In this manner, parties have a chance to petition higher courts to review the verdict if they are not satisfied. This means that using litigation measures provide a certain level of thoroughness in determining the actual decision of the case. The existence of reviews and appeals indicates that using litigation methods would provide the people involved in the case the assurance that the law is implemented and appropriately applied in their case.
Along with the presented elements above, litigation processes also provide those involved with the capability of hearing all of the claims that implicated the conflict. This means that the petitions forwarded by both parties for the consideration of the courts would be heard and decided based on the information and evidence held throughout the trial.
B. Alternative Dispute Resolution
Alternative Dispute Resolution (ADR) techniques pertain to ways of addressing conflict without courtroom interference. 2004, 32) There are certain ADR methods on which parties could chose from, basically it is suggested that they acquire a scheme that will suit their needs. There are certain factors that make company favour ADR better than that of litigation. First, and probably the mostly accounted for reason, would be the cost of the process. Litigation is considerably expensive, ADR processes appeals to those companies who does not have the luxury of squandering their resources to paying lawyers and law firms. Normally, ADR allows the parties to indicate beforehand the forum where the conflict will be resolved. Contracts often indicate the stipulations on these aspects. With this slightly non-comprehensive preparation and need for extensive discovery, the cost of the process is rather influenced. In the same light, the absence of an opportunity for appeal does provide the parties the capability to set aside these appellate costs. Secondly, the ADR processes provide an immediate determination on the outcome devoid of the possible setbacks and delays held in courts. These postponements in the case of court proceedings have been readily initiated by full dockets. Similarly, informal hearings and lenient procedural rules present in the ADR setting speed up the procedure and hurry resolution and the award. Thirdly, ADR does give the parties involved the necessary privacy and a certain level of confidentiality throughout the ADR proceedings. Unlike in courts, all of those discussed on record throughout the hearing becomes public property. This means in ADR procedures, information on the case such as the arbitral proceedings, transcript, evidence, and the final award are safeguarded from the judgmental eyes of the public. Thus, ADR procedures provide security in terms of confidentiality specifically with information that the parties hold vital to them.
The most frequent types of ADR are negotiation, mediation, arbitration among others. Out of which arbitration and mediation are the predominantly accepted. The following discussions will provide a brief description and analysis of the ADR processes indicated.
1. Negotiation
Negotiations are by far, possibly, the most uncomplicated means of resolving a dispute(2001, 18) claimed that these type of process tends to require an open conversation between the parties involved. In other instances, the parties are inclined to hire representation (lawyers) to deal with the negotiating procesn (2004, 33) similarly claimed that in this process, the outcome almost always satisfy the needs of the parties involved.
Looking at the rather straightforward approach in this dispute settlement procedure, it provides an indication that the process does not require any upsurge in the financial costs from the parties involved. However, it is also inferred from the descriptions made above that for the procedure to be effective, the parties have to voluntarily offer their full cooperation with the negotiations. Moreover, it is also implied that unless the parties see the terms satisfactory, the dispute is far from being settled. At any rate, the use of negotiation appear to be only practicable when the conflict between the parties involved are rather petty and those without established ill sentiment with each other. Otherwise, the use of this dispute settlement tool would be futile.
2. Mediation
In other instances, the parties involved attempt to use mediation as a means to dissolve the existing conflict between them. In this form of dispute settlement, the parties employ an objective individual to serve as a mediator and preside over the proceedings. The mediator is tasked to provide the parties a forum where they could dialogue directly with each other so as to address the existing problem. l, 2005, 10) In this manner, the mediator provides the required atmosphere where the parties could understand the side of each one through proper correspondence and interaction. It is in this process of understanding and empathy that the parties are able to determine the desired outcomes of each other, thus providing an established course where they could build on their agreements.
Looking at the description, it seems that the key in the effectiveness of this process is the actual choosing of the objective, unbiased, third party. Not only does this person have the commission to address the issues at hand, he/she similarly have to create a setting which will be non-offensive to both parties. He/she serves as a catalyst to provide the impetus such that the dispute resolution could advance. Moreover, it must be noted that the mediator is present in the proceedings to ensure that there is order and to preside over the discussions. The mediator does not have any access to decision making or any other executive authority in the process., 2004, 32) However, he/she does have luxury of forwarding some suggestions and deal with some questions of both parties.
The discussions above indicate that mediation techniques may be highly practical for cases where the conflict between parties are highly polarised. This means that the conflict in such cases is so deep that the parties are one step short of employing legal actions with each other. In the same way, the parties held in this situation tend to be seemingly repulsed by each other that they could not start a reasonable dialogue. Given this situation, there will be no progress unless the mediator finds a way or establish an agreeable forum where both could converge eventually. Moreover, impasses between negotiating parties could also benefit from mediations. As indicated in the previous paragraph, the mediator, though absent of any executive power, have the capability of signifying suggestions to the parties. It is in this situation that the mediator should break the stubborn walls that the parties have built such that an amicable understanding would ensue.
3. Arbitration
Another dispute settlement method is arbitration. In arbitration procedures, the parties involved agree beforehand that the outcome of the arbitration process is to be absolute. (2005, 35) This means that the awards given by the arbitrator or arbitrators will be accepted by the parties devoid of any possibility of appeal. Initially, the conflict between the parties is forwarded to an individual or a set of individuals (arbitrators) to settle on a judgement. Arbitrators are frequently selected for their proficiency in the area under discussion out of which the disagreement came about. This means that the parties are able to save time just setting aside any form establishing the particular knowledge to the deciding group. In comparison to litigation cases, the process of arbitration tends to steer clear of the extra effort of arranging to inform the judge and jury regarding matters already within the understanding of the arbitrator.
Based on the description, the arbitrators do have an extraordinary level of executive authority in such cases given that they are figures outside of the courle (2005, p. 35) claimed that the arbitration process could be binding or non-binding depending on the agreement of the parties involved. Normally, this is indicated in the contractual stipulations. In instances of a binding arbitration, the arbitrator serves as a judge based on the presented evidence and arguments provided for by the parties involved. 2004, p33) On the other hand, a non-binding arbitration process only allows for the arbitrators to forward suggestions and recommendations for the resolution of the dispute.
III. Litigation in Construction
The construction industry is a complex business where the major players are subjected to considerable risks. Such risks tend to be manifested in certain contexts like implied terms in the contract, delay, termination, and determination of payment for the work done., 2005, p. 1857) Courts are still the main recourse of companies when conflict comes about. However, recently ADR procedures have been preferred by construction companies to deal with their conflicts. 2001, p521) Nevertheless, despite the recurrent popularity of the said process, litigation has become a “de facto process” in the construction industry because of the inherent reverberating implications on issues in breachn, 2003, p, 188) The following discussions will analyse the issues regarding this phenomenon. Specifically, the reasons on which ADR measures are preferred over litigation will be taken into consideration.
A. Costs of Conflict Resolution through Litigation
Normally, companies seek litigation procedures to deal with dispute settlements. However, a more profound objective of litigation is to engender a legal precedent and to establish a resolution on a legal issun, 2003, p. 188) Ideally, this would be the appropriate thing to do. However, this would be suicide business-wise. (1999, p. 1055) Financially speaking, the process demands a great deal, and to some extent, establishes no winner between the parties involved. 2003, p. 188)
Recent studies show that there is approximately five billion dollars spent in determining construction-related litigation cases annually.2005, p. 2) They also added that this expands 10% every year. This only shows that contractors do shell out a considerable amount of money in litigation expenses alone. The costs of the stop of cash flow are not even included in this equation. Another study also indicated that normally a company would be fork out at least six thousand dollars to over a hundred thousand dollars in a single construction case. 2003, 188)
Based on the discussions in this part, it has established that a single court case in the construction industry does entail disbursing a considerable amount of wealth. The amount indicated in the cited studies merely present the actual fees; there are hidden expenses that that the “nonattorneys” demand as well. 2003, 188) This explains why there is some level of reservation from companies to take on litigation measures against other companies, especially in the construction industry. Moreover, the presence of the possibility of an appeal magnifies this reservation. This means additional hearings and in the same way additional expenses with the hours billed by the lawyers and even further incurring of negative cash flows on the part of the contractors. This may possibly be the reason why anything less than what litigation demands financially on contractors seems appealing to them.
B. Effects of Litigation
As stated in the earlier part, litigation does have a considerable advantage to the existing legal environment when companies tend to adhere to its use. Establishing a precedent means that predictability on cases will be created in the construction industry. In the same way, the way problems are dealt with and conflicts are addressed in a more standardized pattern. However, when it is posed side-by-side with ADRs, the picture appears rather disconcerting especially in the environment surrounding the construction industry. The outcome litigation offers is basically limited to a “win-lose” method. (2003, p. 189) This means that the parties involved could only prevail on their claim or suffer damages caused by a loss in the legal battle. This condition rather presents a distressing scenario for contractors with millions of their finances drained and still not acquires a considerable satisfaction with the outcome.
In addition to that, they expose themselves to the risk of divulging (willingly or not) information that the company may consider qualified. 2005, 1631) There are certain cases that companies tend to withhold information to the public to protect their business and even their reputation in the industry. After the litigation process, the divulged information thus becomes a matter of public property.
Based on the discussions on this part, the outcome that may ensue in a process of litigation does entail considerable drawbacks for contractors and companies in the construction industry. This is similarly one of the reasons why companies tend to consider ADR measures as the “most appropriate procedures” in this context. (2005, p. 2)
C. Duration of the Process
The use of litigation has considerably been criticised as rather slow and protracted to a certain extent. The old adage “justice delayed is justice denied” is apparently true in the construction industry. Earlier discussions have established that delay in construction means loss on the part of the contractor. This is because contractors fail to incur any positive cash flow in times when litigation transpires. 2003, p. 189) Other authors have indicated that the process on which litigation adheres to a “time draining endeavour.” (2005) This means that when a company does not have the financial capability to back-up litigation procedures, or if they could not afford a negative cash flow, then this dispute settlement method is not for them. Earlier writers even indicate that litigation should not be taken as an option by contractors because of the inherent pitfalls that face them. 1999)
Sustaining operations and financial stability would be rather complex for any construction company. In employing litigation and court actions, they are subjecting themselves in such risksn (2003, p. 189) indicated in her work that the having a decade-long construction case has been commonplace in recent history. The legal process upon filing a court action does, in itself, offer a considerably elongated time frame. Following a series of protocol, delays in the context of resolution does follow. Along with the costs of litigation and the consequent untimeliness of uncovering any semblance of resolution are among the main indicators why there is a level of dissatisfaction with this as a means of dispute settlement among the players in the construction industry. )
IV. Problems and Solutions of Mediations in the Construction Industry
Studies have indicated that mediation is more of a commercial process than a judicial procesn, 2001) This shows that in this process, there is more to knowing who is right or wrong. In mediation, the creativity of the mediator tends to be placed to the test. Recent articles even places credence to the cost-effectiveness of mediation than its more popular counterpart, arbitration. 2005, p. 10) The informality of the process tends to add up to the overall inclination of companies to adhere to this ADR procedure. According tal (2005, 10) both factors of time and money tend to be highly influenced by the informal nature of the process as compared to arbitration and litigation. Specifically, it is the norm in these types of process that the costs are shared by both the parties involved. This means that the fees and other underlying bills are pooled between the conflicting sides. In the same way, time is also saved because the protocols inherent in mediation techniques tend to be lighter and less strict than arbitration and litigation processes. This part of the paper will discuss the issues regarding mediation in the context of the construction industry. In the same manner, discussions relating to the adjustments made to address these issues will also be presented.
A. Problems in Mediation in the Construction Industry
There are certain problems that trigger the ineffectiveness of mediation as a dispute settlement process. One problem is that the outcome of the process offers no finality., 2001) There has been accounts where companies tend to use mediation to “stall court proceedings or as another method of discovery.” (2003, 194) This means that the resultant written settlement agreements of the involved parties are subjected to the propensity of both to actually perform the terms of the agreement. However, there is this tendency for one of the parties who in some ways felt aggrieved by the agreement who will go against it or even forward the claim to the courts. In this sense, the purpose of employing an ADR in the first place is totally defeated. With the decision to litigate despite the completed mediation, resources will be expended more than originally anticipated.
Another issue on the finality of the process is manifested in the propensity of the contractors to engage in compromise settlements before any discovery is maden, 2003, 194) This also becomes a problem in the industry as a whole because discovery on the facts is withheld to both parties. Thus, whether the conflict is triggered by an erring party and the nature of the act that brought about the conflict will be obscured with the settlement. In the same manner, these types of cases would be of little help when other similar cases appear in the future.
And lastly, issues similarly rest on the fact that the proceeds highly depends on the effectiveness rests on the abilities of the mediator. In the study ell (2005, p. 490) mediators are expected to “provide professional expertise on the content of the dispute and persuade the parties that the mediator’s opinion of the outcome would be within the range of a likely court/arbitration ruling.” The said report also indicated that this is the most prominent role on which arbitrators are expected to accomplish. However, there are instances where the mediators have personal issues that tend to influence the outcomes of the mediation process (2006, 42) indicated in his study that mediators often direct the parties involved, doesn’t display enough creativity, patience, and ignore the emotions of those involved. This is similarly supported by an earlier article ns (1999) indicating that mediations predominantly fail because of the shortcomings of the mediators. Thus in a way, mediators, with possibly the desire to be impartial and technical, tend to distance themselves with the parties involved which inevitably triggers the said problems indicated.
B. Solutions in Mediation in the Construction Industry
The presented problems on the earlier part indicate the perennial issues towards the mediation process. To an extent, these are possibly given risks for those who intend to adhere to the principles of mediation to settle their conflict. Flake and (2003) infer in their article that for mediation to work for those in the construction industry they have to look as to whether their situation does require it and even if it do fit the conditions present in their case. Preparation of the individual parties involved allows them to anticipate the possible obstructions and problems. It is this individual preparedness that allows construction companies to effectively deal with these issues on mediation effectively.
In the same manner, issues pertaining to the problems with mediators tend to be similarly left for the parties to contend to. In some instances, both parties are required to scrutinise closely their choices of arbitrators., 2006) In the same way, developments in the ADR processes have created training programmes for mediators and arbitrators such that their skills are improved. This way conflicting parties would have to contend less with the individual problems held by mediators. To illustrate, Hong Kong mediators are subjected to continuous training to improve their interpersonal skills.2006) In this manner, issues regarding their creativity, patience and emotions are addressed.
V. Cultural Considerations
Diversity of organisations has become a reality, with the current trend of globalisation and internationalisation. (Salamandra, 2002, 286) Culture in this sense does not solely denote to the ethnicity of the members of the organization. This points more to the actual beliefs and norms that the members of the organisation ato. (Parvis, 2003, 37) Considerations of cultural differences will allow ADR third parties to empathise and make the parties reach to an agreement, especially if the conflict has transpired between two different cultur 2003, 1335) This is highly probably considering that the construction industry has become a global systean (2003, 3) noted in his research that the effective conduction of mediation procedures would be ensured if the mediator and the parties involved have the same dispute resolution culture.
A. Perceptions of Mediation
International disputes have become emergent in the onset of internationalisation and globalisation of companies. (Salomon and Sharp, 2006) Thus, cultural norms and values tend to be considered in dispute resolutioni, 2000) This is not only limited in the construction industry, areas such as public policy and governance also implement this perspective. 2002) With the emergence of this factor, there is a great possibility that a diverse number of perspectives appear as well. To illustrate (2005, p. 5) indicated in their study that the American perspective of mediation tends to be perceived mainly as a money-saving endeavour. They also indicated that the Americans see the use of mediation not only saves time and provide satisfactory settlements. This shows that the said culture does hold the settlement agreements highly, though predominantly not as a sign of respect to the other party, but mostly for the effect of convenience on the part.
On another study (2006) inferred in his article that the Hong Kong culture on mediation tend to focus on the issues of responsibility. For the most part, the study has indicated that both parties and the mediator have their role to be vigilant and to take on the initiative to effectively do their parts. Specifically, the parties need to be cooperative and the mediators need to continuously improve. Another indication on the culture in Hong Kong is that construction companies tend to add an ADR (mediation or arbitration) clause on their contracts. This makes the employment of ADR inescapable and the use of litigation seemingly less.
B. Other Cultures
Mediations practices in the construction industries on other cultures tend to be polarized from the two previous discussions. To illustratell (2005) made a study on the construction industry in Africa. They inferred in their study that the process of mediation does not necessarily denote the settlement and agreement of the parties involved. They said that in the African construction industry, the culture is for mediators to acquire a considerable amount of information regarding the conflict. It is in this information that a subsequent action will be based. Sometimes, the parties tend to arbitrate and in some instances they forward their case to courts. This shows that construction companies in Africa tends to treat mediation as a tool for information dissemination and as a preliminary act on arbitration or litigation not as a means of actual dispute settlement.
VI. Conclusion
This study seeks to be an addition to the numerous literatures regarding alternative dispute resolution methods. Though the discussions above have considerably been in favour of ADR methods, the researcher still realises the importance of litigation methods in resolving disputes. The discussions above have taken a close look to both traditional and alternative dispute settlement methods available for the construction industry. It has been established that the traditional form has presented conflicting parties with expensive and time-consuming option. Thus, more and more construction companies tend to adhere to ADRs as their means of resolving disputes. In a way, ADRs is closely becoming a misnomer in the construction industry, given that it is closely becoming the primary means of addressing issues and conflicts between parties.
Based on the discussions above, it is important to realise that the players in the construction industry are first and foremost business people. Seeing that litigation does seem to less cost-effective, the tendency would be to find something better. And to some extent, they found these on mediation. As seen in the discussions above, it saves time and money and concurrently allows the party to continue with their business relationships. The construction industry is inherently contentious, dispute and conflict is commonplace. This means that there is always a possibility for enemies being made every minute. It is in this same contention that an understanding of ADR methods that provide contractors the means to maintain a business standard that will keep them at the top of their game.
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