Resolving Construction Disputes: Why Arbitration is the Answer

The situation on the country’s construction sites is tense. Ongoing delivery problems and skyrocketing prices for building materials keep those involved in suspense. Far too often, conflicts escalate and disputes arise that end up in state courts. “For those involved, this is mostly a pure waste of resources,” says lawyer Ulrich Böttger from the working group on construction and real estate law in the German Lawyers’ Association.

Böttger is one of the authors of the conciliation and arbitration rules for construction disputes, in short: SOBau. The rulebook includes various procedures for out-of-court dispute resolution, including mediation, conciliation, expert opinion and arbitration. Depending on the severity of the conflict, a suitable procedure can be chosen. “Conflicting construction partners can save time, money and nerves if they use one of the SOBau methods in the event of a conflict,” says Böttger.

Construction disputes usually involve not only one plaintiff and one defendant, but often a whole series of disputants. Subcontractors of a defendant construction company may have the same rights and obligations in a procedure as the parties to the dispute themselves. This means that not only the plaintiff and the defendant, but also all other participants have a say and want to comment on an expert opinion, for example. Due to these multi-party relationships, conflicts in construction are complex and clarification before state courts is correspondingly lengthy.

“Construction processes usually take a long time, three to four years are not uncommon. This is devastating in ongoing construction projects,” says Böttger. “Many of those involved in the construction run out of breath during this time, and the processes are often ended in the end when the parties exhaust themselves through a settlement. In many cases, arbitration would be a better option for both parties.”

Are you still arguing or are you already conciliating?

Arbitration is a particularly suitable method for resolving construction disputes. The aim is to reach an agreement between the conflicting parties with the help of an arbitrator. The arbitrator moderates the conflict and gets the deadlocked communication between the parties going again. The uncomplicated procedure, which is manageable in terms of effort, supports the parties in resolving the conflict, including by perceiving the point of view of the other side. Workable and fair solutions are worked out together.

After a party has initiated the procedure, the arbitrator actively contributes to the investigation and clarification of the facts, for example by visiting construction sites or consulting experts. In the current situation with scarce and expensive building materials, for example, the price development since the conclusion of the contract would be checked. If there are defects that are the subject of a complaint and supplements are required, these would be inspected on site. “The effort involved in determining the facts can be flexibly adapted to the volume of the disputed topic. This creates a factual basis for further action,” explains Böttger.

The core of the arbitration is the joint arbitration negotiation, which can take place directly on the construction site. The participants identify the conflict issues, discuss them in a fact-oriented manner and jointly develop solutions. Very often the parties come to an agreement in arbitration, they understand and come to an understanding. The agreements are set out in writing and then signed by the parties and the arbitrator. If no agreement can be reached, the arbitrator submits a written substantiated proposal for arbitration.

It is important that this arbitration proposal is really only a proposal, not a judgement. He has no binding power. However, it is legally sound and can also be justified accordingly. The parties can accept it and thus settle the conflict. If the proposal is not (usually) accepted within two weeks of delivery, it is deemed to have been rejected.

The parties can then continue arguing, but they can also modify the arbitration proposal and reach agreement elsewhere. However, the conciliation proposal is often felt to be correct by the parties and is therefore accepted. “We regularly recommend agreeing on arbitration in the construction contract. If a dispute then arises, the solution has already been prepared,” says Böttger. (BSZ)