Alternative action

Conflict arising from contract disputes within the building services industry can, as in every other sector, be avoided, controlled or minimised through negotiation - therefore avoiding the need for costly, time-consuming litigation. To this end, the industry is increasingly using Alternative Dispute Resolution (ADR) approaches such as mediation, adjudication and arbitration as effective alternatives to litigation.

ADR originated in the USA and is constantly evolving in order to resolve conflict in domestic and international construction contracts. Developments in the last ten years include the introduction of statutory adjudication for UK construction contracts, court support for mediation prior to litigation and the rise of arbitration in domestic contracts (but more importantly, in those involving an international dimension).

Three main methods

The main ADR approaches are mediation, adjudication and arbitration. The goal of mediation is settlement through compromise, which resolves more than 70% of mediated disputes. After acting as mediator in over 40 cases, I believe there are two main reasons for this.

The first is that mediation facilitates real communication; not only listening and speaking but also understanding. The second is that the mediator is able to work with the parties privately, with access to confidential information. This is often the only time someone can assess if a zone for compromise and agreement exists and guide the parties towards it.

Mediators do not give the parties advice or make decisions for them. However, competent mediators will be able to use their technical and commercial expertise to engage the parties in exploring the strengths and weaknesses of their position. They should help the parties examine their interests and needs, negotiate the settlement agreement and define a mutually satisfactory relationship which meets their standards of fairness.

Mediation is often effective in commercial disputes because in working out the settlement terms, the parties can be creative and go beyond the strict terms of any legal contract involved. Compared to other methods of resolving disputes, it offers the benefits of speed, privacy, flexibility and cost saving. It's not a formal process and the parties have personal control.

The goal of mediation is settlement through compromise: more than 70% of mediated disputes are resolved through this method

The next method - adjudication - is most often a statutory procedure by which any party to a construction contract has a right to have a dispute decided by an adjudicator. It was introduced to the construction industry in the UK through Part II of the Housing Grants, Construction and Regeneration Act 1996 which applies to most construction contracts made after 1 May 1998. It is intended to be quicker and more cost effective than litigation or arbitration.

The Act provides some mandatory requirements for a construction contract. These are that the contract will enable a party to give notice at any time of his intention to refer a dispute to adjudication; provide a timetable with the object of securing the appointment of the adjudicator and referral of the dispute to him within seven days; require the adjudicator to reach a decision within 28 days, or another timescale agreed by the parties. The adjudicator's decision is binding until the end of the contract and where disputed is usually upheld by the courts.

Where the parties find themselves with an intractable dispute, they have two formal options: arbitration and litigation. In domestic disputes arbitration has unique advantages, but if the parties come from different jurisdictions, it is without equal.

Arbitration is powerful formal justice, in that the award is enforceable across international boundaries. But is also less formal, as the parties can choose the arbitrator, or the organisation that will choose the arbitrator and can decide what arbitration procedure they want. Because of this, arbitration should be more flexible and cost-effective than litigation. Arbitration awards present the losing party with less opportunity to appeal and are particularly valuable in some disputes because confidentiality can be preserved.

All three ADR approaches are flexible and offer the potential to deliver effective solutions.