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Contracts & Legal

Dispute Resolution

In Plain English

The process for resolving disagreements between parties on a construction project.

Definition

Dispute resolution refers to the processes and mechanisms used to resolve disagreements between parties to a construction contract. Methods include direct negotiation, mediation, arbitration, and litigation, typically pursued in that order. Most construction contracts specify the applicable dispute resolution procedures and their sequence.

Why It Matters in Bidding

The dispute resolution clause shapes the risk an estimator and contractor accept when they sign, because mandatory arbitration, venue, and prevailing-party fee provisions affect how costly and recoverable a future claim will be. Knowing the contract's resolution path informs how aggressively to price contingency and whether onerous terms warrant a qualification or a higher bid number.

Example

Before bidding a public project, a contractor's reviewer flags that the contract mandates binding arbitration in a distant jurisdiction with each party bearing its own legal costs, prompting a note to add risk contingency given how expensive recovering a disputed change order could become.

Related Terms

ArbitrationMediationClaimAIA Contract

Frequently Asked Questions

The clause determines how disputes over change orders, delays, and payment are decided and at what cost. Mandatory arbitration, unfavorable venue, waiver of consequential damages, or no fee-shifting all raise the risk of an unrecoverable claim, which may justify added contingency or a bid qualification noting the concern.
Most contracts escalate from direct negotiation, to mediation, to binding arbitration or litigation. Many require a condition precedent such as initial review by the architect or a project neutral. Skipping a required step can forfeit your rights, so follow the contract's sequence exactly when a claim arises.
Mediation is non-binding; a neutral helps the parties negotiate a voluntary settlement. Arbitration is typically binding, with an arbitrator issuing an enforceable decision much like a private judge. Arbitration is faster and more confidential than litigation but limits appeal rights, which contractors weigh when accepting the clause.

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