Deciding to settle a construction dispute is often wrought with difficulty, requiring the decision maker to evaluate a number of factors. Nevertheless, there are no hard and fast rules that apply when advising a party whether or not they should settle a dispute. Yet the vast majority of construction disputes do settle before going to trial or arbitration. In fact, recent statistics show that approximately 95% of all civil cases, including construction disputes, settle before trial[1]. However, whether settlement is always the best choice depends on several factors to be discussed here.
Merits of Your Case
First and foremost are the merits of your claims and defenses against any claims that are asserted against you. Construction disputes are inherently fact sensitive, and the merits of a case are driven by the facts of the dispute. Simple breach of contract actions for balances of unpaid funds for the work and materials that have been provided and installed on a project make weighing the merits of the affirmative claim relatively simple. However, these types of “collection cases” stand in stark contrast to complex construction delay claims for equitable adjustment where there exist competing and numerous causes of the delays. In addition, there are complicated legal principles applicable to whether there is entitlement to compensation for the delay or simply an extension of time. Construction defect claims where technical engineering issues are involved also present a heightened level of complexity that may make such cases difficult to prove on the merits.
Determining the merits of a claim or defense typically involves considering: (1) the volume and strength of documentation substantiating the claim or defense; (2) availability of capable witnesses; (3) the strength of fact witnesses and expert witnesses; (4) compliance with contractual notice requirements; (5) legal principles that either support or weaken your position; (6) any clear admissions of fault made by a party either orally or in writing; and (7) how difficult it will be to prove your damages and the sufficiency of your documentation necessary to prove your damages.
Cost and Experts
Another major factor is the cost of litigating from beginning to end versus reaching an early settlement. One of the most difficult things to assess early on in a dispute is the actual expense of litigation due to the fact that litigation is rife with unknowns. Complex cases involving multiple millions of dollars and numerous days of delay will inevitably require substantial expense, including attorney fees and expert costs. For the most part, claims for delay, construction defects, or design malpractice traditionally benefit from, if not mandate, the analysis of experts. While it is difficult to estimate what a given dispute will cost in terms of legal fees and expert costs, it is always worthwhile to estimate such costs early on. Establishing an estimate is necessary for any cost recovery analysis.
Labor Drain
The cost of company personnel utilized to prepare and prosecute a claim and assist with claim defenses is an often-overlooked factor. But it would be short-sighted not to consider the time, effort, and impact on project personnel that a dispute requires. With complex matters, weeks and months of preparation are needed. Time spent preparing a claim for trial naturally takes away from tasks that would otherwise be used to generate income for a company. The best way to estimate a potential labor drain is to assess the number of witnesses that are critical to the case, gauge their knowledge of information, and their actual availability. Remember, it is often difficult to have former employees cooperate and dedicate the necessary preparation time, even when they have left your employment under the best of circumstances.
When to Settle and the Passage of Time
Naturally, it is always best to try and settle a dispute in its infancy. However, the reality is that most cases do not settle until the time of trial or hearings, after much preparation has taken place. This phenomenon is simply a product of the adversarial process. Generally, most litigants try to buy as much time as possible prior to settling to give the appearance that they are willing to proceed with a trial and to try and wear the other side down. The longer a dispute persists, the more difficult it may become to settle due to a party’s position becoming hardened after spending substantial sums in legal fees and related expert costs. Due to the relatively slow nature in which cases proceed, it could be three to four years before a dispute goes to trial. Even in arbitration, a much more streamlined process, it could take a year to sixteen months before hearings commence in a complicated case. While some think that the long passage of time can be a beneficial delay tactic, this strategy can backfire in those states that allow for high rates of interest on a judgment. Interest as high as 9% in some jurisdictions can lead to hundreds of thousands of dollars being added to a large judgment. The potential award of interest against you, if you are defending against a large claim, is certainly something that should not be ignored. Additionally, the passage of time often serves to make it more difficult for people to recall what occurred after several years have elapsed. Fading memories could potentially have a devastating impact on either proving your case or defending against a claim.
Forum
The settlement of a dispute can happen at any place and any time. Settlements can result from simple face-to-face meetings among the parties or, more commonly, in mediation. Mediation is often contractually required before any claim can be asserted in court or arbitration. Under such a provision, the parties are obligated to meet before a neutral third party and engage in good-faith negotiation to try and resolve their dispute. Whether mediation will be successful in large part depends on whether the parties are approaching it seriously with an open mind, understanding that this method involves compromise. If the parties do not recognize this basic principle, mediation will likely be a waste of time for everyone involved. On larger projects, a Dispute Resolution Board (“DRB”) is sometimes put in place to assist the parties in resolving disputes while the project is being built. These boards are usually comprised of three industry professionals. The composition of a DRB and the procedures they are to follow are also typically set forth in the parties’ contract.
Reaching Resolution and the Agreement
In the event an agreement is reached on settlement, it must be documented and executed by each party. Having an agreement in place gives clarity to each party’s respective obligations and, if necessary, will be of assistance in the event that one party fails to abide by the terms of the agreement and judicial intervention is required. Usually prepared by counsel, the settlement agreement should clearly confirm that the dispute is fully resolved and that the parties have waived all their potential claims against each other based upon the items that have been settled.
Financial Capacity of Your Adversary
From a practical side, it must also be considered whether your opponent has sufficient funds or is in dire financial straits and not able to pay a judgment if a successful claim is made against them. Winning an expensive litigation or arbitration is of little value if a judgment cannot be collected upon. This practical factor should always be considered.
Buyer’s Remorse
During the course of my career, I have settled a substantial number of legal disputes arising out of construction projects. On most occasions, although not completely happy with the settlement process, most clients are relieved to put the dispute to bed. However, there have been some instances where some clients have experienced buyer’s remorse and questioned whether they should have settled their case. On this issue, I would recommend that once you have reached a settlement and the terms of the settlement agreement are consummated, it makes little or no sense to dwell on the dispute any longer. Like many things in life that are difficult to deal with, a settlement once reached should not be questioned. A well-reasoned and thoughtful decision to settle should not be the subject of “second guessing.” The wiser course of action would be to take satisfaction in knowing that the dispute has been resolved and to treat the settlement process as a learning experience that may be of guidance in settling future disputes.
[1] American Bar Association, Litigation Journal, Winter 2025