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December 06, 2023

Use of Neutral Evaluations to Evaluate and Resolve Construction Disputes

James W. Howard

According to an adage in the construction industry, if you are a regular participant in construction projects, it is not a matter of “if” you will become embroiled in a construction dispute; it is only a matter of “when” that dispute will come. That cynical comment that may or may not be true, however, it is a fact that disputes are a common occurrence and ever-present risk in construction. Consequently, industry participants must be prepared to responsibly address and deal with disputes, the sooner the better and without formal legal proceeding if practical.

This article discusses the use of a neutral evaluator to provide an independent assessment of an issue, claim or dispute before the parties incur the substantial costs of preparing for and engaging in costly formal dispute resolution processes such as litigation or arbitration. The neutral evaluator can be employed by some or all the parties to the dispute as an aid to negotiation; a party can also use neutral evaluation individually, whether claimant or defendant, to get independent guidance on the strength or weakness of their position in the dispute before committing to a long and costly dispute process. When faced with a material construction dispute, a vested party must consider how to resolve such dispute. Generally, the two options are to negotiate a settlement with the other party or parties and move on or pursue some formalized dispute resolution format – such format often being prescribed by the terms of the construction contract for larger projects.  Such process entails the initiation of formal processes – mediation, litigation and/or arbitration. See for example, Article 7 of A201-2017 General Conditions of the Contract for Construction, and Article 12 of ConsensusDocs 200 Agreement and General Conditions Between Owner and Constructor (Lump Sum).

If negotiation fails and a more formal dispute resolution process is initiated, the cost of pursuing a resolution escalates dramatically and the stakes for all parties ratchet up. The path such process takes and the duration for ultimation resolution of the dispute is varied and unpredictable. Obviously, the expeditious resolution of the dispute is in all parties best interest, so the purpose of the following discussion is to generate discussion as to whether a neutral evaluation might provide value to one or more parties in the dispute sometime during the dispute resolution process.

Undoubtedly, creative thinking and the unique circumstances of any given dispute might define a wide array of neutral evaluation possibilities. However, the scenarios described below are ones that seem to regularly present opportunities for a neutral evaluation and may serve to begin the evaluation process as to whether a neutral evaluation can assist in resolving a dispute.

Evaluation Prior To Initiating A Claim

The formalization of a claim carries significant consequences, not the least of which is an impact to the relationship between the parties and the potential for creating or increasing friction and hostility in the administrative environment on a project if it is still under construction. Given such ramifications, the claimant might find it prudent to test the strength of their position in advance of filing a claim by having a neutral evaluation performed by an experienced and professionally qualified party.  The depth of evaluation can be set by discussion between the stakeholder and the evaluator but should be set for the purpose of testing the merits of the claim and how likely an industry knowledgeable party might respond to the claimant’s entitlement arguments.

How an industry knowledgeable neutral assesses the merits is the appropriate framework for evaluation in anticipation of dispute resolution through commercial negotiations, arbitration before experienced construction arbitrators, and even judges in specialized courts like the US Court of Federal Claims or administrative judges at federal or state boards of contract appeals. On the other hand, how an industry knowledgeable neutral assesses the merits may not be predictive if a jury will decide the dispute or even by a judge with no construction experience. 

In the case of this neutral evaluation, it is the author’s opinion that the evaluator should not have any future role in development or pursuit of a claim should it progress forward, and the evaluator should know this in advance. Too many times, a so called “expert” has opined on a claim’s merit with the underlying goal being the capture of an assignment for developing and/or prosecuting a claim going forward. In this situation, whatever evaluation proffered is unlikely to be a true neutral evaluation.

    Evaluation In Conjunction With Mediation

    In some circumstances, a neutral evaluation might arise from circumstances arising during a mediation process. A couple of examples are as follows:

    • Provide Focus On An Individual Thorny Issue. Mediator’s sometimes encounter a thorny issue that is pivotal to the settlement of a case for which the stakeholders have glaringly different perceptions on the merits of the issues. If the mediator is unable to move the parties off a position through persuasion and/or seeks to avoid a challenge to their neutrality as a mediator, the mediator might suggest obtaining a neutral evaluation of the specific issue. In this case, the neutral evaluator’s task is to objectively review the facts and render an unvarnished opinion on the probable outcome of the issue based on the merit of the facts.
    • Complete Neutral Evaluation As Part of the Mediation Process. The author has participated in mediations where a mediator has expressed frustration that one or more stakeholders to the mediation is “hung-up” on securing a “determination” on the parties positions and the progress of the mediation had stalled. In such circumstances, a mediator might suggest a neutral evaluation be conducted for the benefit of specific stake holders or all the stakeholders. In such circumstances, the mediation process would be interrupted for the neutral evaluation to be conducted and the results presented to the party or parties agreeing to such evaluation. Presumably, regardless of if some or all the stakeholders are involved in the presentation of the neutral evaluation, the mediator would participate, and the information presented can be leveraged to persuade parties to move toward a settlement when the formal mediation reconvenes.
    • Evaluation Prior to the Start of Trial or Arbitration Hearing. Most industry people agree that the costs of litigation dramatically escalate as you near the start of a trial or arbitration hearing. With the options and/or opportunities to resolve a dispute through negotiation, mediation, or a similar process exhausted, stakeholders want a strong read on where they stand on the merits of their case before opening the flood gates to fees and expenses and the pressures of trial/hearing capture the time and energy of key company personnel.

    The scope of a neutral evaluation is subject to discussion and definition by the stakeholder, and any selected the neutral evaluator. However, in most cases, the neutral evaluator would be asked to render opinions on the key positions at stake in the litigation. Such evaluation would be like the evaluations suggested above, but information obtained during the discovery process would provide a broader base for the evaluations.

    Unlike early evaluations, the neutral evaluator prior to trial might be expanded to review the reports and deposition testimony of the stake-holder’s designated experts and/or those of the opposition. Such evaluations are simply to address the reasonableness and sustainability of the positions taken by such experts.

    What Does the Neutral Evaluation Provide?

    It is appropriate to discuss what you really get when you engage a neutral evaluator.  Of course, part of the answer to this question is related to the scope of the evaluation agreed upon in defining the evaluator’s charter. It also is a function of the diligence applied to the assignment. Such level of diligence might be a function of the time allotted to the task, the price paid for the evaluation, and of course, the level of commitment of the evaluator to the tasks at hand. 

    Aside from the above noted variables, at the end of the assignment, you are left with a set of opinions offered by the evaluator. In this sense, the evaluator is subject to similar considerations used to evaluate mediators. How credible is the evaluator and their work product? Why should a stakeholder put any weight on the evaluator’s opinion? How much weight should be placed on the determinations of the evaluator?

    While there are overlaps in the considerations of mediators and neutral evaluators, it is important to make a distinction on what stakeholders should expect from these two roles. In the case of mediation, the “tale of the tape” is the ability to persuade stake holders to compromise positions that result in the settlement of the dispute. In the case of the neutral evaluator, persuasion should not be the key element of the evaluator’s considerations, but rather, the evaluator’s efforts should be directed at providing a clear, unvarnished, and direct communication of the evaluator’s determinations of the merit of the various case issues. Such communication should focus on the considerations applied to and the conclusions reached on each case issue and not on persuading the stakeholder to the evaluator’s positions.

    Selecting A Neutral Evaluator

    What should parties look for in selecting a neutral evaluator? In the opinion of this author, it comes down to the following two simple considerations. 

    First, the evaluator must have deep industry experience that provides familiarity and extensive knowledge of the types of issues in a dispute. In the experience of this author, this requirement focuses primarily on contract administration and the understanding of contracts, contract terms and industry custom and practice related to such subjects. Of course, stakeholders looking for a neutral evaluator may consider whether the evaluator should be an attorney or a construction industry practitioner. Good arguments can be made for both – perhaps the evaluator is an evaluation team comprised of a legal and an industry member. Regardless of such selection, the question must be asked, whose opinion will I give consideration and weight? 

    Second, the evaluator must have the ability and willingness to provide the parties with an unbiased, unvarnished evaluation of facts and/or issues independent of who are the opposing parties. This means no deference is offered to any party based on their size, prominence, reputation, or influence in the community.

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    James W. Howard

    Howard-Young International, Inc. Phoenix, AZ