Using multi-stepped negotiations in construction dispute provisions

The construction industry’s best practices include a number of methods and tools for resolving contract disputes.  There are generally three goals for resolution of construction disputes: settle at the earliest possible time; settle for the least overall project cost; and settle at the lowest possible management level.  Disputes that linger unresolved until the end of the project, invariably get much larger and more difficult to resolve, than if they were addressed closer to the event giving rise to the dispute. To achieve these goals it is important that the dispute resolution provision include two or more required steps for direct negotiations (stepped negotiations) as the first level of effort to resolve the disputes.

Stepped negotiation provisions should provide strict time limits for considering the dispute in addition to requirements that will escalate the dispute resolution to a management level above the current dispute resolvers. Imposing time limits for negotiations (typically 15 to 30 days) and providing various levels of escalation (project managers, to seniors executives, and then to CEO’s) provides two pressure points that work well together.  The pressure of time deadlines requires the individuals at that level to meet in ernest and conclude the negotiation effort in a limited amount of time.  The escalation pressure is based on the reality that if the individuals are not successful, their bosses will be asked to fix the problem they could not.

If this stepped process is taken seriously, senior executives must delegate authority down to the individuals involved in the first steps. Then if the dispute reaches them, the senior executives must take responsibility and ownership, to understand the facts and issues and seek a negotiated resolution. Beyond direct negotiations, there is of course a menu of methods using neutrals that should be included in the provision, such as: mediation; non-binding advisory decisions; dispute review boards; and ultimately a binding process of arbitration or litigation.  All of these methods however are more costly, more time consuming and can be avoided altogether if the parties succeed in the stepped negotiations process. When stepped negotiations are properly implemented, far fewer disputes will require outside assistance.