Alternative dispute resolution (ADR) has been touted as the remedy to settling contractor conflicts, such as lawsuits, in the courts. For starters, it’s significantly less costly and timely. But the greatest benefit is that there are truly no “winners” or “losers” in these disputes, as the goal is to find a common ground between the parties involved. It’s no wonder that ADR is commonly used in the construction industry. Read more about how ADR and Doeren’s construction accounting specialists can help lower your costs and avoid litigation

Will an ADR Clause Help Avoid a Lawsuit?

ADR is a technique used to assist disagreeing parties in coming to some sort of agreement, short of the traditional legal system and costly lawsuits. For decades, studies have proven ADR is not simply a fad, but a reliable, less costly process, leaving room to maintain respectable business relationships.

In spite of the statistics, many construction associations have steered clear of mandating ADR procedures in contracts. However, contractors and subcontractors have taken the initiative to individually implement ADR clauses. There are three ADR methods commonly used by contractors in the construction industry:

  1. Non-binding neutral
  2. Mediation
  3. Arbitration

Defining Alternative Dispute Resolution Methods

Non-Binding Neutral
A non-binding neutral is a person or person(s) impartial to the dispute at hand. They hear each respective party’s position, access all of the evidence and legal concerns, and conduct interviews to gather further information when needed. This process enables neutrals to advise both parties on the way to resolve the dispute.

Whereas a non-binding neutral provides an opinion on how the dispute should be settled, mediators go a step beyond to help the parties come to an agreement. This process typically involves one or a group of mediators and can be held in an informal, public setting. This can cut court costs and fees, as mediation does not require mandating circumstances or time consumption. It can take a few weeks to come to an agreement in a mediation process, versus the months and even years to settle a lawsuit

If the above non-binding and mediation processes are ineffective in your particular circumstance, arbitration is another common process that is considered to be more efficient, private and direct than a lawsuit. Different from a non-binding approach, arbitration leads to a final, binding decision that results in an “award.” Of the three most common forms of ADR, arbitration is most similar to traditional litigation. Judges can be hired to help facilitate resolution. The parties are given the power to determine the issues to discuss in litigation and even how the award is to be given, which is transferred in writing. Arbitrators overseeing construction legal proceedings are usually a panel of three experts with extensive industry-related experience.

Role of Construction Accounting in ADR

Having a solid case is critical to any dispute, and facts are the key. Financial advisors and construction CPAs can be very influential in this process, known as fact-finding. Usually performed in tandem with ADR, a “fact-finder” will either work as a neutral or partial contact, disseminating information and relaying it through reports. Their goal is to assist the parties in reaching a settlement or solution through the bare facts.

Finding the Best Neutral
It takes effort and thorough research to find a neutral (otherwise referred to as mediator or arbitrator) to navigate the issues and find resolutions to complex faults in a project. However, this step is critical in finding the right person to advise your case and reap results. The American Arbitration Association (AAA), along with several industry advisory committees, has established criteria to help you make the best selection. Your neutral should have acquired most or all of the following:

  • At least 10 years of construction industry experience
  • Mandatory AAA training for dispute avoidance and resolution
  • Strong sense of neutrality and commitment to impartiality and objectivity
  • Effective judicial skills
  • Reputation for neutrality work
  • Availability and accessibility to guide this process quickly and with ease

The AAA’s website,, offers a list of mediators and arbitrators who are trusted in the industry.

While no project will ever be perfect, many disputes can be avoided by simply creating open communication of the responsibilities and resolution options within your contracts with clients and subcontractors.

To learn more about alternative dispute resolution and how it can lower your contract litigation costs, contact our dedicated litigation support advisors in Michigan, Houston or Ft. Lauderdale.