Dispute Resolution Methods

Two dispute resolution methods are Alternative Dispute Resolution (ADR) and Contract Litigation.

Alternate Dispute Resolution (ADR)

The Alternate Dispute Resolution (ADR) provision is used to settle disagreements without the pain and expense of litigation. It is a confidential and voluntary process in which a neutral third person assists parties involved in a dispute to resolve issues. ADR provides an alternative to litigation that is less costly and time consuming. As ADR is non-confrontational, it can also restore and help preserve business relationships. It is also confidential, unlike a court, which is usually open to the public.

The most common forms of ADR are Negotiation, Mediation, and Arbitration.

Negotiation can occur between the contracting parties in the forms of discussions and compromises. Negotiation is usually carried out without legal representation and is the most efficient and less disruptive way to obtain an agreed upon solution. Both parties should have an incentive to reach an agreement. Negotiation is not binding.

Mediation is a kind of facilitated negotiation, but with the use of an inter-mediator to bring both sides together to agree on a settlement. The role of the mediator is to find a middle-ground which both sides will accept as reasonable. Mediation is voluntary and all parties have their say. Mediation is not binding.

Arbitration is both non-binding and binding. It is more formal and is a simplified form of a mini-trail. A professional arbitrator (or panel of arbitrators) is hired and will preside as a type of judge and jury. Findings can be binding or consensual for the parties. The process is not subject to the more confirming, formal rules of common law evidence (unlike litigation).

Is ADR appropriate for all kinds of disputes?
What are the disadvantages of ADR?

Hint: To answer these questions, consider different types of dispute in terms of complexity, scale, value, and the importance of the dispute.

Disadvantages of ADR

There are a few disadvantages of ADRs that we need to consider:

ADRs are not suitable for all contractual disputes
Discussions are not always legally binding
- Except arbitration up to a specific amount of money but the cost can be high compared to other alternatives of ADR

Contract Litigation

If an owner and its suppliers and contractors properly manage the steps in the procurement process, contract litigation should not be necessary.

Contract litigation is usually the result of one or more of the following factors:

Failure to adequately define the technical and management requirements in a contract.
Selection of a supplier or a contractor that lacks the necessary expertise to fulfill the technical and management requirements in a contract.
Failure by a supplier or a contractor to fulfill contract technical and management requirements.
Failure by an owner to adequately control the technical, quality, schedule, or cost performance of a supplier or a contractor.

The costs of major contract litigation can be extremely high for both parties involved. Contract litigation will involve direct costs, can prevent management from performing their primary responsibilities, and can seriously damage the reputation of a company.

Contract litigation occurs when the parties to a contract are not successful in negotiating a settlement to contract claims with each other. Contracts that do not specify how claims of this type are resolved usually end up with a court deciding. Contracts can specify that unresolved contract issues will be settled by an arbitration panel.

The objectives for managing contract litigation work are very similar to the objectives for managing a project.

Decision to Proceed

The decision to proceed with contract litigation is usually made by the party that has a contract claim that cannot be resolved by negotiation. The decision to proceed with contract litigation commits a company to major expenditures and ties up key management personnel for extended time periods. A company should carefully consider the strengths of its case.

Three are three issues that should be considered before deciding whether or not to enter into contract litigation.

Whether the other party performed in a manner that was in clear violation of contract.
The amount of the damages that can be collected.
The cost and time required to obtain a decision.

Litigation Cost and Schedule

If the costs of litigation are close to the potential amount of damages that can be recovered in a case, it probably does not make sense to proceed.

The following costs need to be considered:

Costs of law firms that prepare for and present the case.
Costs of expert witnesses and their firms that present testimony for a case.
Costs of company personnel required to support a case.
Court or arbitration panel costs.
Travel and administrative expenses, such as, the reproduction of documents.

For more information, the following links provide a case study for ADR, examples of applications of negotiation techniques in dispute resolutions, and access to the ADR Institute of Canada.

Alternative Dispute Resolution Series. PDF & Defense Technical Information Center
Harvard's Program of Negotiation. 10 Great Examples of Negotiation in Business
ADR Institute of Canada. Website.