One of the key things that needs to be
included in the contract language is that
the dispute resolution process needs
to be made a mandatory “condition
precedent” to the ability of either party
to institute legal action or arbitration.
contract make it more likely that there will be fewer such disputes
by requiring the parties to engage in meaningful dispute resolution
before resorting to litigation or arbitration.
Stepped dispute resolution
One of the keys to an effective dispute resolution contract provision
is to require the parties to meet and attempt to resolve the
dispute before they can file a lawsuit or an arbitration. Therefore,
one of the key things that needs to be included in the contract
language is that the dispute resolution process needs to be made
a mandatory “condition precedent” to the ability of either party
to institute legal action or arbitration. This means that they must
engage in the dispute resolution process before filing suit or commencing
arbitration, and if they fail to do so, the court or arbitrator
will either dismiss or stay the proceedings until the dispute resolution
process is completed. While the parties can mutually agree to
dispense with the dispute resolution procedures if they each agree
to do so, the contractual condition precedent language prevents
one party from unilaterally ignoring the process and going straight
to litigation or arbitration without engaging in the required dispute
resolution procedures.
In order to have a better likelihood of success, the dispute resolution
procedures should also be a stepped process, with at least
two sets of meetings, with the first being at the project manager
level. The provision should require the respective project managers
to meet in person to try to resolve the dispute within a certain
number of days after the written submission of a claim or dispute.
Such a face-to-face meeting at the project level can sometimes
lead to resolution of a dispute that emails or letter writing
simply cannot.
Second, if the project level meeting is not successful in resolving
the dispute within a certain time frame, such as 30 days after
submission of the claim or dispute, for example, the next step
should be a required in-person meeting at the executive level of
the respective companies within another set time period. The
intent with this type of meeting is to move it from the project level
participants, who may be very personally invested and whose emotions
may run higher, to the executive level where the participants
would be less likely to be day-to-day project participants and may
be able to take a more holistic and potentially more objective view
of the dispute.
This should also be a face to face meeting, and generally should
not have legal counsel in attendance at the meeting in order to try
to facilitate practical negotiations less focused on adversarial legal
positions. Oftentimes, executives may be able to see the bigger
picture and have more authority and flexibility to be able to come
to a resolution that could not have been reached by the project
level participants.
Mandatory pre-suit mediation
If the project level and subsequent executive level meetings are
not successful in resolving the dispute after an agreed time period,
then the next required step should be mediation. Mediation should
be identified in the contract as a mandatory condition precedent
to institution of legal action or arbitration so that mediation has
to occur first, unless both parties agree to waive the requirement.
Mediation is a structured settlement conference managed by a
professional and trained mediator whose job it is to work with the
parties to try to resolve their dispute. While the mediator cannot
make any rulings or force the parties to resolve their dispute, the
mediator will often be an attorney with experience in construction
law and special training in dispute resolution who should be able
to provide the parties with an outside view on how a judge or arbitrator
might view their dispute and can point out significant issues
with the parties’ respective claims and defenses. This is particularly
true where the parties provide in the contract for the mediation to
be administered under the construction industry mediation rules
of organizations like the American Arbitration Association (“AAA”)
or JAMS, which have large lists of mediators specializing in mediating
construction industry disputes. In addition, most states have
laws that make what is said or presented during mediation by the
parties or mediator completely confidential, and not admissible in
court or arbitration, in order to try to encourage frank and open
settlement discussions.
It is recommended that the contract provision requiring mediation
incorporate the mediation rules of an organization such as
AAA or JAMS to facilitate the mediator selection and the procedures
of the mediation. If not, then the mediation contract
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