Maryland Bar Bulletin
Publications : Bar Bulletin : May 2013

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“Everyday on a construction site is one of problem solving and negotiation. Plans are vague or wrong. Parts don’t fit. Labor or materials don’t show up. It rains, snows, freezes earlier, later, or more than anyone expected.”

The Association for Conflict Resolution published an article on homeowner construction disputes. The premise was that disputes between homeowners and home improvement contractors are more contentious and personal than conflicts among developers and building contractors. The logic is that homeowner disputes revolve around one’s personal residence.  People are very attached to their homes. Business disputes, the article suggests, are purely dollars and cents. Logic, rather than emotion, will rule the day.

In fact, the psychological dynamics of resolving commercial construction disputes is not so simple. They too can be very personal. Attorneys become involved in construction claims after the situation has gone beyond the point where the participants can amicably resolve disagreements among themselves.

A key to resolving construction disputes through mediation or negotiation depends on the parties and their representatives.

The Nature of Change

Every construction project has change orders. They may be due to errors or omissions in construction documents; unexpected problems with site conditions; or changes in the scope of the project. There are time delays due to weather, material shortages, or unreliable labor or suppliers. Most projects experience cost overruns for materials and labor, or time delay. 

How the parties dealt with those issues as they have arisen during the course of construction will explain why the dispute has not been resolved prior to attorneys becoming involved. It sets the tone for any ADR outcome. Communication and honest dealing throughout the duration of the project are key to avoiding disputes, both during construction and at the end. A party who feels that they were bullied or taken advantage of during the project will be much harder to placate in a mediation. If financially able, they will extract their revenge.

A construction project has a shifting balance of power. At the beginning, the developer holds the cards. The developer decides which contractor to hire based on a multitude of factors, including price, trust, timing (i.e., can the contractor meet the project’s commencement and completion schedule?), the past relationship between the parties, and the skills and experience of both the developer’s team (i.e., project manager, architect) and the contractor’s team.

Once the project begins, things go awry. Every day on a construction site is one of problem solving and negotiation. Plans are vague or wrong. Parts don’t fit. Labor or materials don’t show up. It rains, snows, freezes earlier, later, or more than anyone expected. The utility companies don’t arrive. Sometimes fault can be assigned, though many times it can’t. 

During construction, the balance of power shifts to favor the contractor. Once a contractor has begun a job, it’s difficult for an owner to fire a contractor and replace him. Contractors can “extort” high cost change orders under threat of hurting the project. Replacement contractors cannot generally come in and take over a project without considerable time delay to the project and additional cost to the owner. Replacement contractors need to protect themselves from unknown problems which may pre-exist their entry into the project. They are loath to take over someone else’s broken work, especially if they are expected to warrant it.

This leaves the owner asking himself “Am I better off sticking with my current contractor, or am I better off replacing him?” Unless the owner is convinced that his contractor cannot finish the job, most of the time the owner will let him finish. It’s the least bad of the alternatives.

Relationships Past, Present, and Future

The past relationship of the parties is important. It may hold the key to resolving the current problem. Have the parties worked together in the past? What is the status of the current project which gave rise to the dispute? Success has many parents; failure is an orphan. Do the parties wish to work together on future projects? 

The Parties and Their Representatives

Everyone at the negotiating table has their own agenda. If the parties are small companies whose owners make the major decisions, the personal relationship between the disputants is everything. Is the dispute a matter of performance? Or is it a question of trust? 

If the companies are large, the project has been delegated to employees of the developer or the contractor. Employees are evaluated on their performance. Their compensation and their future with the company may be at stake. An employee might need to justify his decisions to his boss.  The need to be right, to be vindicated, can be an impediment to a successful mediation. Attorneys representing companies should be careful to understand the players and their history in the project. An employee who needs to be right can intentionally or subconsciously sabotage a mediation. On the other hand, employees with something to hide, mistakes to cover up or an indefensible position might be convinced that a private resolution of the dispute through settlement is in the employee’s best interest. Of course, an attorney must always remember who his or her client is. The attorney cannot help a wayward employee conceal relevant but embarrassing facts from his employer.

Attorneys representing warring sides in a construction dispute must understand the people as well as the issues in order to successfully resolve the dispute.

Kenneth A. Vogel, Esq. is the Maryland and D.C. representative for Construction Disputes Resolution Services, an international ADR firm. Vogel completed a graduate program in Spiritual Psychology at the University of Santa Monica.

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Publications : Bar Bulletin : May 2013

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