Alternative Dispute Resolution in Construction Projects


An alternative to slow and expensive litigation

The larger the construction project, the greater the potential for conflict. Where the financial impact is material, focus is quickly on delays, defects and contractual penalties. In many cases litigation may seriously imperi a project’s success. Alternative dispute resolution models are a good way to efficiently and quickly solve disputes arising out of real estate projects.

Low interest rates are driving many real estate development projects around the world. Ambitious timetables, defects and the necessity of communication between many different parties often leads to conflict. Regularly, real estate projects are facing problems that were not considered beforehand and were not provided for in the construction and other project contracts (e.g. planning contract, developers agreement, etc). Therefore, pressure on the developers is growing. Investors are demanding the highest possible quality at the lowest possible price in the shortest possible time. Contractors are therefore, from the start, in a conflict to offer the lowest possible price with a high standard of quality while still being profitable.

I. Constructive cooperation instead of disputes

This situation hardly allows constructive cooperation from the beginning. That is why it is so important to provide contractual mechanisms that enable a constructive approach in the event of a conflict and help to solve conflicts in a goal-oriented, quick and, above all, professional manner, while keeping an eye on possible further cooperation and common success.

In court, the outcome of disputes is usually unsatisfactory. One third of all civil cases in German courts are construction disputes. There are federal states (Bundesländer) where this ratio is even higher. Court proceedings concerning construction projects take a long time, are expensive and are not decided by specialized judges. The quality of technical court experts, required in construction disputes, is often unsatisfactory. Generally, the construction project has been completed when a judgment is finally handed down. Many legal proceedings concerning construction projects take three to four years, with appeals to follow.Therefore, the time and costs of civil proceedings cannot easily be calculated in advance. Consequently alternative forms of dispute resolution are recommended because all parties can continue to constructively work on the project, even in case of conflict.

II. Alternative dispute resolution methods

In Germany, the parties have the choice between several established dispute resolution methods. These are:

  • Mediation
  • Conciliation process
  • Arbitration and Adjudication and
  • Expert determination

These methods can be used depending on the individual situation and can also be combined– one does not exclude the other. We are experienced conflict managers and can advise you on which method is appropriate for your conflict (for example, expert determination in purely technical issues, mediation / conciliation process in case of communication issues, and arbitration if an enforceable (also abroad) decision would be required. The obligation to use alternative dispute resolution methods should be provided for in all construction contracts by the time the project begins. If conflicts arise, it is important to ensure that contractual partners take alternative dispute resolution into consideration before they file a complaint with the court. Thus, the parties can intervene before “scorched earth” policies are implemented as part of a legal dispute. This mitigates material financial risks. Companies actively protect their resources and make both the success of the project and successful cooperation with the project partners possible, including future projects.

Recommendation:

Unlike court cases concerning construction and real estate, alternative dispute resolution procedures are efficient, fast, interest-based, discrete and value-adding. The possibility of alternative dispute resolution should be laid down in each contract regarding construction projects. The advantages and disadvantages of each method and the wording to be included in contracts can be found in the following guide (link to the PDF download of the Hidden Secret).

real-estate-streitschlichtung-1 Download: »My Real Estate – Streitschlichtung« (1,1 MB)

Save as PDF

Tags: #Arbitration, #Dispute resolution, #Mediation, #Real Estate

Artikel versenden