Why Owners and Contractors Should Consider a “Third-Party Neutral” To Resolve Disputes Prior to the Completion of a Project
A Third-Party Neutral During Construction Primer
What Is a Third Party Neutral?
A Third-Party Neutral, or Project Neutral, is typically understood to be a mediator or arbitrator in legal proceedings tasked with forming a resolution or passing judgment on disputes between two or more sides. However, an increasingly beneficial deployment of a Third-Party Neutral in the construction industry is as an expert that can evaluate and mediate disputes in real-time during a construction project rather than in a formal mediation or arbitration venue. A Third-Party Neutral that is engaged during a construction project is tasked with equally representing the interests of the owner and the contractor to find common ground and a fair resolution to a variety of typical construction disputes prior to legal proceedings.
Why Should a Third-Party Neutral Be Considered?
Construction disputes on a project are not uncommon. Typically, the larger the scale of the project, the greater the opportunity for disputes in both the number of incidents and total cost. Therefore, timely resolution of disputes is in the best interest of all parties that have a vested stake in the successful completion of the project.
Typical issues that result in significant damages and litigation are borne out of conflicts and disagreements in the interpretation of common instruments of service. For example, disputes in contract language, change order entitlement, schedule delays, request for information (RFI) and submittal prosecution, and interpretation of construction documents are typical points of contention that often result in litigation and significant damages. Disputes that are resolved at a much later date than the date of occurrence result in a greater cost to resolve than when compared to finding a resolution in real time. When the dispute is resolved well after its occurrence, associated costs develop for delays on dependent work, carrying costs, costs to litigate and pursue, or defend a claim as well as the personal time to facilitate a claim well after the project has been completed.
Many of the typical conventions that are written into contract agreements and general conditions provisions for a project task the architect with being the arbiter of construction disputes. In our experience, the architect is not well positioned to manage the resolution of construction disputes for several reasons. Most of the financial interest in the project is borne by the owner and contractor and often the architect is contractually retained by the owner and is not an impartial third party. Other times the architect's construction documents or construction administration services are entangled in the dispute. Additionally, the Architect of Record’s primary focus is the successful execution of the construction documents and ensuring they meet the professional Standard of Care.
Because the construction expert is shared between the primary parties and is retained for the sole purpose of facilitating a resolution acceptable to both parties, the negotiation of terms is foreshortened.
Qualifications of a Third-Party Neutral
Qualifications for a Third-Party Neutral require the ability and experience to understand each side of the dispute, the ability to interpret the contracts and construction documents of the project that provide the parameters of performance each side is required to meet, the depth of knowledge to negotiate a fair and equitable resolution to the disputes and superior communication skills.
Since the resolution of disputes is occurring during the construction project, the requirement of a formal legal proceeding is removed. Therefore, a seasoned construction expert can readily understand the issues in a dispute and offer a solution based on their experience. In addition to a wealth of construction experience, a Third-Party Neutral is required to be an excellent listener and communicator. Disputes arise from one party witnessing a perceived inequitable action occurring, while the objective of the Third Party Neutral is to understand each side's position and foster an acceptable resolution between the parties by applying, and adequately explaining why the Third Party Neutral is rendering a proposed resolution and its merits based in the information it has gathered from both sides.
Typically construction expert witnesses who regularly review and support defective construction design errors, omissions, and contractual default claims, are well-equipped to quickly understand complex problems and have experience representing owners, contractors, and designers. Construction expert witnesses are often experienced contractors, engineers, and architects who are solely focused on the resolution of disputes during legal proceedings and are under the retention of legal counsel advocating for one party against the other. The application of the expert’s knowledge and experience in real-time allows for the avoidance of prolonged disputes and the associated additional costs.
When Should a Third Party Be Engaged?
A Third-Party Neutral can be retained at any time during a construction project, however, the earlier a Third-Party Neutral is retained, the more quickly and efficiently disputes can be resolved. A Third-Party neutral may be retained prior to the start of a construction project with the intent of never needing the services and only incurring costs for the services when necessary. Oftentimes the resolution of claims early in a project will establish expectations for all parties for the balance of the project. The conclusions reached by the Third-Party Neutral will result in the avoidance of future disputes and allow the project to proceed with minimal disruption.
The hazard of engaging a Third-Party Neutral later in a project is that the dispute may already be well on its way to legal action and require untangling multiple issues that have compounded over time and are less easily resolved.
Conclusion
A Third-Party Neutral offers benefits to both owners and contractors to resolve construction disputes early in projects and avoids significantly greater damages that may result beyond the original dispute. Opinions rendered by a Third-Party Neutral may act as a means to set expectations for both the owner’s and the contractor’s performance on a project and mitigate additional disputes. A Third-Party Neutral will also apply their knowledge and experience in rendering a proposed resolution that is based on commonly accepted practices in the construction industry.
- Eric Brodfuehrer AIA, NCARB, LEED AP is a Senior Director for Ankura Consulting specializing in Expert Witness testimony for construction disputes and claims and Capital Project Management.
© Copyright 2024. The views expressed herein are those of the author(s) and not necessarily the views of Ankura Consulting Group, LLC., its management, its subsidiaries, its affiliates, or its other professionals. Ankura is not a law firm and cannot provide legal advice.
