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ADR Methods in the Construction Industry

by | Aug 24, 2022 | blogs | 17 comments

alternative-dispute-resolution

Alternative Dispute Resolution (ADR) refers to any method of resolving disputes without litigation. ADR provides a confidential and alternative method to resolve disputes avoiding going to court. Many construction companies and employers find ADR useful and effective to resolve challenging issues in construction projects.

 

ADR is commonly used in the construction industry due to disputes arising during the construction process. The most common causes of construction disputes include the following: 

 

  • Errors in claim submission
  • Different site conditions
  • Conflict over construction delay
  • Poor administration 
  • Poor construction quality 
  • Conflict over non-payment of claims

 

There are variety of methods of ADR including Adjudication, Mediation, Arbitration and Expert Determination all of which are faster and more cost effective than traditional court proceedings. 

1. Adjudication 

This involves an independent third party considering the claims of both sides of an argument and making a decision. The adjudicator would usually be an expert in the subject matter and can act individually.  

 

Adjudication in construction is a formal and fast effective way to resolve a dispute. Adjudicators are usually experienced constructions professionals or Chartered Quantity Surveyors who understand all aspects of construction projects including the measurement and validation of construction work and time. 

 

The construction adjudication process usually takes between 28-56 days and can be used for any construction disputes even up to the value of millions of pounds.

 

Pros

Cons
  • Cheaper than suing
  • Quicker to reach a decision
  • You have control over who will be appointed allowing you to choose an industry expert
  • More flexible than court proceedings
  • Decisions are binding
  • Although cheaper than using courts, it is not cost free as you still have to pay a legal adviser to prepare witness evidence and submissions to make a case
  • Drains valuable time from your managers
  • May not be suitable for some claim if they are highly complex or of a high value

2. Mediation

Mediation is an established process used in the construction industry to resolve disagreements, using an impartial third-party mediator to help parties find a mutually acceptable decision. 

 

Mediation is typically used for lower value disputes or where there is a desire to preserve the relationship between parties. This allows you to dispute the disagreement without prejudice and come to a fair agreement between both parties rather than to have a decision imposed onto you. 

 

Mediation focuses on what both parties need, looking less at the rights of each party and more about what they actually want to achieve. 

 

Effective mediation requires a mutual commitment from the involved parties to reach a mutually beneficial decision. Mediation can be instigated by: 

 

  • A mediation clause – which contracts have in place to state that mediation must take place before taking a dispute to court
  • An agreement to mediate – Parties agree to use mediation using a referral letter
  • Court recommendation – If your dispute has gone to court they can recommend or order that both parties use mediation to settle their dispute

 

Pros

Cons
  • Very fast, taking an average of 1-2 days
  • The mediator will be independently appointed and will not advise or provide judgement
  • The parties themselves arrive at a final solution 
  • Allows both parties to hear the opposing view in a non-confrontational environment
  • It is not compulsory 
  • The mediation agreement cannot be guaranteed
  • Can be challenging if either party withholds information
  • Unwillingness from either party to cooperate can result in a waste of time and money

3. Arbitration 

Arbitration is essentially a lawsuit without the involvement of courts. Arbitration appoints a neutral third party who is empowered to decide the outcome of the dispute. This can be one person or a panel of 3 arbitrators (tribunal). 

 

If arbitration is the decided method of conflict resolution, both parties will agree to be bound and comply with the arbitrator’s decision. 

 

This will involve submitting a demand for arbitration, letting the appointed arbitrator to collect evidence and hear arguments from both parties. They then issue an award (decision) which can be confirmed at the time or later vacated by the court if one party petitions. Once confirmed it will be awarded as the final judgement of the dispute. 

 

Pros

Cons
  • Parties work together peacefully to structure the resolution, avoiding the issue escalating any further. 
  • Faster and more cost-effective than court proceedings
  • Can be scheduled around the availability of the parties
  • The process is private and confidential
  • Binding arbitration offers limited opportunities for appeal
  • Questionable fairness – if arbitration is mandatory by contract, then parties will not have the flexibility to choose the arbitrator. 
  • Can be unbalanced in favour of large employers when challenged by someone who does not understand the process
  • No jury could lead to unfairness and bias
  • Finality – no appeals
  • Can be more expensive
  • Is unpredictable as it does not follow formal rules of a courtroom trial

4. Expert determination 

Expert witness reports can aid in the understanding of a construction dispute and develop a good strategy to resolve the issue fairly. 

 

An expert can be a single joint expert, party expert or shadow expert. The duty of an expert is to assist and provide guidance to a court to provide essential expert knowledge of a particular construction issue, deciding on the technical matters involved in a dispute and providing evidence from their experience in the field to help reach a decision. 

 

Pros

Cons
  • Cheaper than arbitration
  • Faster to reach a decision than other methods of ADR 
  • Less likely to damage commercial relationships
  • Confidential 
  • Shorter timescales 
  • Power to carry out investigations 
  • Suited to technical disputes which require an expert opinion 
  • No statutory backup if things do go wrong
  • Limited grounds for an appeal unless the decision has been made under fraud or dishonesty

 

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