What is dispute resolution in construction?
Dispute resolution is the process a construction contract lays out for settling disagreements over money, time, or scope, usually moving from negotiation to mediation and then to arbitration or court. Skipping a required step can hurt your position. Federal contracts follow the Contract Disputes Act instead, and most contracts require you to keep working during the dispute.
Every construction contract has a dispute resolution clause, even if nobody reads it until something goes wrong. The clause sets the order of steps, the deadlines, who decides, and where. A typical ladder runs from direct negotiation, to a decision by the architect or owner's representative, to mediation, and finally to binding arbitration or a lawsuit. Skip a required step and the other side can ask a court or arbitrator to send you back to the start.
The common steps
| Step | Who decides | Binding? |
|---|---|---|
| Negotiation between project teams | The parties themselves | Only if they sign a settlement |
| Initial decision | Architect, engineer, owner's rep, or contracting officer, as the contract names | Often final unless challenged on time |
| Mediation | The parties, with a neutral mediator helping | Only if they settle |
| Arbitration | One arbitrator or a panel | Yes, with very limited appeal |
| Litigation | A judge or jury | Yes, subject to appeal |
Private contracts based on industry forms usually follow this pattern, with the choice between arbitration and court made by a checkbox. Federal contracts are different. FAR 52.233-1 puts disputes under the Contract Disputes Act: the contractor submits a written claim to the contracting officer, certifies any claim over $100,000, and gets a contracting officer's final decision, generally within 60 days for certified claims or notice of when it will be issued. That decision can then be appealed to a board of contract appeals or the Court of Federal Claims.
Keep working while you argue
Most construction contracts require the contractor to keep working during a dispute. The federal clause says it directly: the contractor must proceed diligently with performance pending final resolution. Walking off the job over a disputed change order is one of the fastest ways to turn a money dispute into a termination for default.
A worked example
Say an electrical sub on a $6 million school disputes a $58,000 back-charge for conduit the GC says was installed wrong. The subcontract requires written notice of the dispute within 14 days, a meeting between project managers, then mediation, then arbitration. The sub sends notice on day six with photos, the approved submittal, and the inspector's sign-off. The PMs meet and split nothing. At mediation, the GC learns the inspector passed the work and the submittal was approved, and agrees to drop most of the charge. The sub kept working the whole time and kept its relationship with the GC. That is the outcome the ladder is designed for.
Common mistakes
- Missing the notice deadline. Many claims die on timing, not merit.
- Not reading the flow-down. A subcontract may bind the sub to the owner-GC dispute process, including joint proceedings. See flow-down clause.
- Thin records. Disputes are decided on daily logs, emails, photos, and cost records, not memory.
- Arguing price and entitlement at the same time with no backup for either.
- Forgetting lien deadlines. A dispute process does not stop the mechanics lien clock in most states.
Related terms
See claim, notice of claim, delay claim, back-charge, and cure notice. Smart Business Automator keeps change orders, RFIs, and daily logs linked by job, which is where dispute evidence lives.
Frequently asked questions
Is mediation binding?
No. A mediator helps the parties reach a deal but cannot impose one. A signed settlement agreement from mediation is binding as a contract.
Is arbitration better than going to court?
It depends. Arbitration is private and can be faster, and arbitrators can have construction experience, but appeal rights are very limited and fees can be high. The contract usually decides which one applies.
What is the claim certification threshold on federal contracts?
Under FAR 52.233-1, a contractor must certify any claim exceeding $100,000.
Can I stop work during a dispute?
Usually not. Most contracts, including the federal Disputes clause, require you to keep working while the dispute is resolved. Stopping can be treated as a default.
