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How can an ADR clause affect a construction dispute?

On Behalf of | Jan 12, 2024 | Business Law |

Disputes related to construction projects and alleged construction defects can do real damage to businesses and professionals. The process of navigating a construction dispute is often quite costly and can take months or possibly more than a year if the matter goes to trial.

Additionally, public records about the conflict, particularly if a lawsuit ends up litigated in civil court, can damage the reputation and future prospects of those working in the highly-competitive construction industry. Therefore, construction firms and contractors often negotiate to include special clauses in their contracts. For example, alternative dispute resolution (ADR) clauses are common in modern construction contracts.

How could an ADR clause affect a construction defect claim or similar dispute?

The parties cannot go to court immediately

The goal of an ADR clause is to prevent frivolous litigation. By requiring an attempt to resolve the matter outside of court, ADR clauses can help preserve working relationships between businesses while also protecting the reputation of the parties embroiled in the dispute.

An ADR clause might leave the choice of the style of dispute resolution to the party bringing the complaint. Both mediation and arbitration are forms of alternative dispute resolution that can work for those embroiled in a construction dispute. Ideally, either mediation or arbitration can lead to compromises that allow the parties to settle the matter as amicably as possible.

They can sign an agreement after successfully arbitrating or mediating the matter and avoid going to court. However, not all attempts at ADR are successful. In some cases, the parties cannot reach a compromise that they both feel is appropriate. They may then need to take the matter on to court to have a judge rule on the issue. If someone tries to litigate in violation of an ADR clause, that could lead to the courts dismissing the lawsuit in some cases.

The vast majority of business lawsuits end up settling outside of court or being dismissed, and ADR clauses may help businesses by increasing their likelihood of settling an issue without litigating it. Including the right terms in construction contracts can limit the likelihood of a dispute arising and facilitate a more amicable resolution to a dispute if a disagreement does occur.