How standing neutrals can prevent costly construction disputes
Incorporating “standing neutrals” into a construction project from the outset can help mitigate the risk of disruptive and costly arbitration or litigation proceedings, according to a thought piece from Logan Patience, a director at consulting firm HKA, and William Katz, a partner at law firm Carbert Waite.
A standing neutral is an alternative dispute resolution mechanism that is built into a project’s structure from the outset, and comprises either one person or a small body with legal, technical, or mixed expertise. They serve as an “on-call” dispute resolution tool while the project is active to prevent contentious matters from escalating to arbitration or litigation.
Although standing neutrals – in the form of dispute review boards – have been used in major international infrastructure projects for decades, they have been used sparingly in Canadian construction contracts. Patience and Katz believe the construction industry would be well-served to adopt the mechanism more broadly in all types of projects.
Litigation can be very expensive and time-consuming, and can significantly delay projects. Arbitration, which is intended as a more efficient alternative, can also be expensive and slow. Even mediation can require each side to retain advocates to argue positions to the mediator – which can also be expensive and time-consuming.
Project outcomes could be improved if dispute resolution mechanisms completed within days or weeks – and standing neutrals can achieve that. Although not a replacement for mediation, arbitration, and litigation, standing neutrals can intercede at an earlier stage to provide independent judgment and resolve disputes before positions fortify and claims are filed.
Standing neutrals can take the form of a dispute review board that issues nonbinding recommendations or a dispute adjudication board that issues interim binding decisions.
They stay familiar with project correspondence, drawings, monthly reports, schedules, and other issues on the job site, and will have a mix of legal and technical expertise.
Patience and Katz liken a standing neutral to a hockey referee who monitors the game as it happens, ensures it proceeds smoothly, and stays out of the way unless needed.
Although uncommonly used in Canada, standing neutrals would be particularly beneficial for public sector owners – where the monthly cost of retaining a neutral would be modest compared to a single arbitration or poor outcomes on a major project.
“There remains a place for mediation, arbitration, litigation, and adjudication,” the authors conclude. “But standing neutrals provide an often-effective means of managing conflict during major construction and infrastructure projects so that a smaller proportion of disputes needs to reach those forums.”
