When a client comes to you with a dispute to handle, there are many steps to take. After clearing conflicts and formalizing the engagement, one of the first things to do is to investigate the options available or required for processing claims and resolving disputes.
I. What Are the Options for Dispute Resolution?
You should determine what the full range of options really is and whether there are mandatory steps that must be pursued. Is mediation available? Is it required? Is it a condition precedent to arbitration or litigation? Is it desired?
It is important to review the applicable contract (assuming one is involved) and all documents incorporated into it for claim and dispute resolution provisions. Construction contracts often include provisions making mediation a condition precedent to commencing litigation or arbitration and may include rules or procedures for the mediation or designate the mediator. If you are defending against a claim, you will be interested in whether required procedures are being followed and whether failure to do so waives the claim. For example, the widely used American Institute of Architects A201-2007 General Conditions of the Contract for Construction (“A201”) provides in Section 15.3.1:
Claims, disputes, or other matters in controversy arising out of or related to the Contract except waived as provided for in Sections 9.10.4, 9.10.5, and 15.1.6 shall be subject to mediation as a condition precedent to binding dispute resolution
Whether you are defending or pursuing a claim, even if the contract requires mediation by certain rules or with a specified mediator, you can always propose different procedures or a different mediator if you think it appropriate and possible to convince the other side. For example, the parties might prefer to select a specific mediator or a venue that is different from the one they would have under the mediation clause in the contract.
II. To Mediate or Not to Mediate?
Even if there is not a contractual requirement to mediate, mediation is always available if the parties agree to it, so you can always propose mediation to the other side. In that instance the question is, what is the best timing for making the proposal and for conducting the mediation? Maybe the matter can be resolved with negotiations between the parties without a mediator, or maybe positions are so hardened that the parties need to proceed to arbitration or litigation before they will be ready to consider further negotiations or mediation.
III. Notice Is A Virtue.
It is common for construction contracts to include requirements for providing notice of claims. Often there is a time limit for providing notice and it is not unusual for there to be a requirement to provide a certain level of detail and accompanying supporting documents. There is often a requirement that the notice be sent to a particular person or address or to submit the claim to a particular person for an initial decision. If that person has rendered a preliminary decision, there may be a requirement to object within a short time period if you disagree with the initial decision or it will become final. Examples from A201 include the following:
§ 15.1.2 Notice of Claims.
Claims by either the Owner or Contractor must be initiated by written notice to the other party and to the Initial Decision Maker with a copy sent to the Architect, if the Architect is not serving as the Initial Decision Maker. Claims by either party must be initiated within 21 days after occurrence of the event giving rise to such Claim or within 21 days after the claimant first recognizes the condition giving rise to the Claim, whichever is later.
§ 15.2 Initial Decision.
§ 15.2.1 Claims … shall be referred to the Initial Decision Maker for initial decision. The Architect will serve as the Initial Decision Maker, unless otherwise indicated in the Agreement. Except for those Claims excluded by this Section 15.2.1, an initial decision shall be required as a condition precedent to mediation of any Claim arising prior to the date final payment is due ….
§ 220.127.116.11 Either party may, within 30 days from the date of an initial decision, demand in writing that the other party file for mediation within 60 days of the initial decision. If such a demand is made and the party receiving the demand fails to file for mediation within the time required, then both parties waive their rights to mediate or pursue binding dispute resolution proceedings with respect to the initial decision.
Many construction contracts call for arbitration in place of litigation. There are often favorable statutes (including the Federal Arbitration Act) available to liberally enforce arbitration clauses, so you should carefully consider whether a clause that mentions arbitration can be construed to be a mandatory arbitration provision. In addition, it is possible for parties to agree to arbitrate after a dispute has arisen. By contrast, even if there is a mandatory arbitration clause, both parties can choose to proceed in court instead, or one party can commence litigation and see whether the other party deliberately or inadvertently ignores the arbitration clause, likely resulting in a waiver of arbitration. However, you need to carefully consider such an approach because of the increased procedural costs and delays that could result from ignoring mandatory dispute resolution provisions. A defendant in a lawsuit should check for an arbitration clause before the answer is due to avoid arguments that merely answering the lawsuit constitutes a waiver of arbitration, although often more than that is required before a court will find there was a waiver. The sooner the defendant asserts a right to arbitrate (assuming the defendant wants to arbitrate), the stronger its ability to enforce the arbitration clause.
V. Statutory Requirements.
In addition to checking for applicable contractual dispute resolution provisions, you also need to check for statutory requirements. Statutes can impose specific claim procedures and notice deadlines for claims against particular types of entities or for particular claims. For example, in several states there are statutory schemes that require a claimant to provide notice and an opportunity to cure before proceeding with a lawsuit concerning construction defects.
VI. Client Concerns and Expectations.
It is also critical to determine the client’s interest in and tolerance for various levels of dispute resolution. A few important questions to ask your client may include: Is there a business relationship that the client wants to preserve? Does this limit how far the client wants to pursue the dispute or the terms on which the client will settle?
It might be worthwhile to make a docket search in likely jurisdictions. Such a search may reveal that the client has already been made a party to litigation, even though service has not yet been completed—or service has been made, but your client failed to tell you. This information can let you know that there are pleading deadlines or that you are in the middle of a race to the courthouse to see who starts a lawsuit first and can choose to be the plaintiff or select the venue. If any key party to the dispute is near insolvency, you should perform a bankruptcy docket check to make sure that there is not an automatic stay in bankruptcy that would be violated by the assertion of a claim or a lien or the commencement of arbitration or litigation—or whether that party even has authority to negotiate or agree to a settlement.
With all of the aforementioned information on hand, you should consider with your client whether there is a strategy to resolve the matter short of more expensive litigation or arbitration. You should determine what efforts have been made to date to resolve the dispute and what prevented a resolution. You will want to determine what better or additional information about the claim the client can provide or that you can get from other sources, and also whether your client has impeded resolution by making unreasonable demands, providing deficient supporting materials, or developing unreasonable expectations. To that end, you will want to investigate whether there are personality or pride issues preventing resolution. Has the matter been at an impasse with two project managers that have a personality dispute or too much pride to admit a mistake? Perhaps engaging other persons in the settlement discussions will resolve the impasse, for example, higher levels of management or representatives with less of a personal stake in what occurred on the project.
VII. Is Everyone at the Table?
Finally, it is critical to determine who has the authority to resolve this matter for the other party or parties. You will need to explore whether to engage other parties who might have more influence. For example, sometimes a subcontractor whose claim against the general contractor has been ignored can find the owner or architect’s involvement helpful because the owner does not want to see a subcontractor payment dispute turn into a lien claim that involves the owner and its lender in litigation.
Keeping these points in mind and reviewing them at the outset can increase your ability to be more efficient, to resolve claims sooner, and to please your clients.
This article is based upon an online 1.5 credit hour program that took place on 9/17/2013, Let's Get Ready to Rumble! Best Practices for Client Intake of Construction Disputes (Online Course) that provided best practices to guide both new attorneys and seasoned litigators through the various issues that arise at client intake for construction disputes. To learn more about this program, you can go to http://apps.americanbar.org/abastore/index.cfm?section=main&fm=Product.AddToCart&pid=CET13LGROLC.