Five ways to avoid engineering litigation
Legalities: Remember, it could be worse: To avoid engineering-related litigation, consider these five alternative dispute resolution mechanisms.
An actual or threatened claim by a customer is always bad news, but the good news is very few disputes rise to the level where a court battle makes much sense. But system integrators know long-term success and growth means that, eventually, some disputes will arise that need to be resolved. A customer may have an issue with the quality of work performed, or may quarrel over whether call-back services should be billed at normal support rates or should be covered by a warranty. A subcontractor or supplier may object to delivery requirements or schedules, or may contest the scope of work included in a fixed-price order. There may be unpaid amounts that seemed to be properly invoiced.
Five ways to avoid litigation
When a disagreement must be settled, several mechanisms can be used to keep everyone away from the courthouse:
1. Direct negotiations: When the project team members have reached an impasse, a solution can often be found by escalating the discussions to the executive level. A fresh set of eyes can break through the emotional frustration associated with many disagreements. The executives may have a better opportunity to take "the long view" of the parties’ business relationship and their strategic vision for the future—not just one invoice or one deliverable.
2. Initial decision-maker: For long-term projects, it can make sense to appoint a neutral third-party at the start of the work. This person can give the parties a quick, unbiased decision on their respective positions in the event of a future dispute. Choosing someone with experience in the control systems industry can save time and allow for a more credible early decision. If either party is unhappy with the determination of the initial decision-maker, more formal proceedings can be initiated.
3. Dispute review boards: A take-off on the initial decision-maker concept, a dispute review board (DRB) is a panel (generally) made up of industry professionals and established at the start of a large-scale, long-term project. The DRB can make timely (either non-binding or binding at the parties’ option) decisions on all claims that may arise during the complex project. Since it is unbiased and experienced in the relevant field, its decisions are often accepted by the parties as a fair resolution of the dispute.
4. Mediation: Professional mediators—who are often, but not always, attorneys—have long been successful in getting parties to bridge the gap between positions and in resolving claims through voluntary settlement. Usually through a process of shuttle diplomacy, mediators can point out the strengths and weaknesses in each of the parties’ arguments in a confidential setting in an effort to reach a mutually-agreeable resolution.
5. Arbitration: Arbitration is not too different from litigation. It involves appointing a person or a panel—commonly attorneys with experience in litigation in the relevant field—that the parties agree is empowered to make a binding decision on a claim. Arbitration rulings generally can be enforced like a court order and are not appealable.
Compared to litigation, arbitration has the advantage of being more customizable—the parties can agree in advance to procedural rules and can appoint an arbitrator who knows their businesses. A judge, on the other hand, may have to handle a criminal trial or a custody dispute in the morning before turning their attention to your case in the afternoon.
The advantages of arbitration come at a cost—arbitrators do not work for free, and the time, money, and effort expended in going through the arbitration process can be very similar to litigation.
Alternative dispute resolution mechanisms have successfully resolved many disputes before the parties truly "made a federal case" out of an issue. To avoid the question of "what happens next" after a dispute arises, include language in the project agreement that sets out a specific dispute resolution process, perhaps using one of these options.
- Dispute resolution doesn’t always mean litigation.
- Alternative dispute resolution can be binding or not, and more than one may be used effectively.
- Taking a wider view often can be an option.
Do your contracts name first steps to take prior to cost of arbitration or litigation?
Faegre Baker Daniels is a law firm in the U.S., U.K. and China.