Three ADR methods prevent legal woes, promote harmony

By Randy Bonnecaze

Disputes are all too common for contractors. Along with being unpleasant, conflicts hinder productivity and may even keep you from pursuing other business opportunities - and that hurts your bottom line. What's worse, disagreements on the jobsite sometimes wind up in the courtroom, a costly and often time consuming experience.

Fortunately, better options may be available. Alternative dispute resolution (ADR) allows you to resolve differences with owners, vendors or other parties without all of the expense and hassle of litigation. It can also reduce the number of adversarial relationships affecting your business, more directly involve you in decisions critical to your company's success, and save you time and money.

Let's look at the three most common ADR methods.

Arbitration keeps it formal. Perhaps the best known ADR technique is arbitration, a method contractors have used for years. Essentially, when litigation seems unavoidable, the two conflicting sides instead pick an arbitrator or a panel of arbitrators - independent third parties with the appropriate background and expertise - to provide an objective, fair, honest and creative solution to their dispute.

Although less formal than an actual trial, arbitration still occurs in a relatively strict setting. It is private and typically involves sworn witnesses who testify on direct and cross examination.

The arbitrator's decision may be kept confidential from the public and appeals may be less frequent than in traditional litigation.

Mediation may move faster. Another ADR option is mediation. Here the independent third party acts less as an authority figure and more as a facilitator to help the parties resolve their dispute.

Like arbitration, mediation is private - so what's discussed there should stay there. But mediation isn't a last-resort, adversarial situation. It's generally voluntary, which can help maintain, and indeed develop, business relationships.

Another big difference is the participants' ability to creatively resolve the dispute. They aren't limited to conventional remedies (such as a judgment awarded to one party or court-directed actions) for resolving the conflict. Generally, anything to which both sides agree, goes.

In addition, because of its collaborative, problem-resolution tenor and more casual nature, mediation is often faster and cheaper than arbitration. The disputing parties may control the process, so the predicament either quickly gets resolved or mediation ends and the two sides resort to other measures - possibly the more formal arbitration or traditional litigation.

Mediation is often effective because it provides a forum for the two factions to simply sit down and discuss the problem. Sometimes just getting to the table to talk provides results satisfactory to both.

Partnering may prevent problems. A third ADR method is partnering. It formally and explicitly establishes a relationship between you and another party at a construction project's beginning. (The owner is the most obvious example, but vendors and subcontractors are excellent candidates, too.) The partnering agreement should outline the methods to deal with problems if they arise.

Beginning a job in this manner can open lines of communication and promote trust. This will go a long way toward successfully planning and completing the project, as well as dealing with any troubles that develop before, during or after the job.

Partnering helps contractors reduce project costs, meet or even beat job schedules, minimize change orders, and potentially increase profitability. It does so by building the means to effectively collaborate with other parties directly into the construction process.

ADR adds value. Every dispute is different, but one of these methods can help you deal with even the most difficult situations. And by learning about and getting comfortable with ADR, you may be able to head off potential problems before they occur and better control the costs that accompany disputes you can't avoid. And that should add value to each of your jobs and your construction company as a whole.

Editor's Note: Randy J. Bonnecaze is a Certified Public Accountant (CPA) with Hannis T. Bourgeois LLP, Baton Rouge.