Construction Professionals Should Consider Early Dispute Resolution Proceedings to Resolve Disputes

April 2023

The judicial logjam caused by the pandemic increased demand for alternative dispute resolution (“ADR”), with some studies showing as much as a 17% rise over pre-pandemic use. The pandemic has also given rise to, or at least increased the use of, new alternatives to traditional ADR.

One such alternative, Early Dispute Resolution ("EDR"), was recently featured by the American Bar Association. It is a fast-tracked hybrid between mediation and arbitration – with a readily accessible set of rules and protocols – to facilitate the resolution of complex commercial disputes at outcomes no different than resolution after full discovery and motion practice. EDR has not hit the radar of most construction professionals and is not yet commonly employed by the attorneys advising them, but it is well suited for certain construction disputes.

A key concept of EDR is that the old model of contentious dispute resolution has given way to proactive “finesse rather than fight” conflict resolution. The traditional model arose partly out of the notion that attorneys could not make an informed recommendation on the settlement value of a claim until they knew all of the facts – after full discovery and motion practice. This notion is rebutted by survey data on attorney confidence in forecasting the likely result at various stages of a dispute. The survey results from the EDR Institute indicated that attorneys who had met with their clients, reviewed some key documents, and met with a few key witnesses, only gained a marginal increase in confidence in their forecast (just 2%) when they went through full discovery and motion practice. The survey also revealed that even after full discovery and motion practice, the attorneys surveyed only expressed 64% confidence in their forecast. The survey reflects a reality that dispute resolution decisions must be made with less than full confidence, no matter how much time, effort, and money is spent. This is also a reality that clients are comfortable with, as most business clients make decisions with limited but sufficient information on a regular basis.

Clients have also given greater weight to the downsides of contentious litigation: negative publicity, consumption of client resources, distraction, and destruction of business relationships. If uncertainty is inescapable, if forecasting does not improve significantly with litigated and exhaustive discovery, and if clients are comfortable with resolution on limited but sufficient information, attorneys and clients should recognize the value in pursuing early dispute resolution often.

Litigators are no doubt familiar with the concepts of pre-litigation dispute resolution with an exchange of information, often facilitated by a neutral. The benefit of EDR is that the protocol (including heightened ethical standards) has already been developed, is available online, and can easily be adopted – similar to JAMS or AAA arbitration rules – by parties at the contracting stage up to the precipice of litigation. The established rules take the skepticism, expense, and advocacy out of creating a process and rules with opposing counsel for each new dispute.

The EDR protocols provide a four-step process that must take place within thirty to sixty days: 1) Initial Dispute Assessment; 2) Information Exchange; 3) Objective Case Valuation; and 4) Final Resolution. The protocol recommend the parties select an EDR neutral to oversee the process.  During the “Initial Dispute Assessment” stage, each party separately collects information from key witnesses and critical documents, develops a narrow list of key information needed from the opposing party, and decides whether an expert is necessary. The second stage is for the parties to participate in an “Information Exchange” of requested documents, limited depositions, interviews of key witnesses or corporate designees, and truncated expert reports or preliminary opinions if necessary. The EDR neutral can be called upon by any party to resolve any dispute.

The goal of both of the first two steps is not to seek all possible information similar to formal discovery, but instead to obtain “sufficient knowledge,” which the protocol defines as “the level of understanding of the key facts and legal issues to make an informed forecast of the value of the dispute and advise on reasonable settlement ranges for fair resolution.”  The tight time constraints are designed to force the parties to focus on the core facts of the dispute.

There are, of course, obstacles with this type of discovery process. For instance, information held by non-parties is not subject to subpoena. There is also no ready consequence for a party’s failure to disclose key harmful facts. The protocol includes provisions to address these issues if they arise. But they also acknowledge that EDR can only be successful if the parties and their counsel can be relied upon to act in good faith, which is not always the case.

In the third step, each party prepares its own “Objective Valuation” of the dispute that includes attorney fees and costs through adjudication, best and worst outcomes, reasonably likely range of recoverable damages, the percentage likelihood of winning and losing and any non-legal factors. The parties present their valuation to the EDR neutral and the other parties.  The fourth stage is “Final Resolution,” where the parties seek a negotiated settlement, facilitated by an EDR neutral, based upon their respective “Objective Valuations.” If a settlement is not reached, the parties can request the EDR neutral act as an arbitrator and render a final decision.

Many construction disputes are well suited for EDR because the parties often have past and ongoing business relationships that provide confidence the other party will act in good faith. For this reason, attorneys representing parties in construction projects or disputes should look to incorporate EDR into the dispute resolution process at various stages. 

Construction attorneys should consider EDR at the contract drafting stage. Currently, the AIA form contracts and the ConsensusDocs contemplate dispute resolution processes in the form of dispute review boards, mediation (including Guided Choice), arbitration, and litigation. While these methods each have a place in dispute resolution, none offer the option of a formal protocol in which represented parties conduct an exchange of key harmful and helpful information, overseen by a neutral, in rapid fashion at the outset of the dispute. EDR offers this option and should be included in the toolkit of every attorney representing construction professionals.

Construction parties that add EDR to their agreements should consider incorporating a binding dispute resolution process, such as the EDR neutral sitting as arbitrator over the dispute, in the event the dispute does not resolve through the EDR protocol. The parties should also look to add the same EDR process and incorporate the protocol in the agreements for all construction professionals working on the project so that all design professionals, general contractors, and subcontractors are required to participate in EDR in case of a dispute.