Every project has its hiccups, but those hiccups can quickly turn into full-blown disputes. No one wants to end up in court over unpaid invoices, delayed deliveries, or contract miscommunications. That’s why it’s crucial to have an ADR process laid out in your contracts from the start. A well-crafted contract sets the stage for resolving problems without all the legal red tape.

Most dispute resolution clauses will require ADR methods before either party can file a lawsuit. And for building supply businesses, having a solid dispute resolution plan ensures your business can resolve issues faster, save money, and maintain good relationships with your clients.

What’s in a Dispute Resolution Clause?

A dispute resolution clause outlines how disagreements will be handled. It often requires the parties involved to waive their right to take the dispute to court and instead resolve it through methods like mediation, arbitration, or dispute resolution boards.

As a building supplier, you’ll want to make sure the ADR clause is fair and practical for your business. You don’t want to agree to something that could tie your hands later, especially if you’re dealing with clients who have more negotiating power or bigger legal budgets.

ADR Clauses: What to Watch For

Many ADR clauses in construction contracts are standardized, so it’s easy to know what you’re signing up for. Common sources include the American Institute of Architects (AIA) and ConsensusDocs. These standardized clauses can be beneficial, as they’ve been used repeatedly in the industry and have predictable outcomes. Still, it’s a good idea to review them closely to make sure they protect your interests as a supplier.

But no matter how standardized, ADR clauses impact how quickly you can get disputes settled—and how much it’s going to cost. Always keep that in mind when reviewing a contract. Here are the common ADR methods you might encounter:

1. Mediation

Mediation is one of the least formal methods of resolving disputes. In mediation, a neutral third party (the mediator) steps in to help both sides reach an agreement. The mediator’s job isn’t to make decisions or take sides—they’re just there to facilitate negotiations.

For building suppliers, mediation can be a way to settle disputes without damaging client relationships. If you’re having a payment dispute with a contractor or project owner, mediation lets both parties hash things out behind closed doors. Plus, everything said in mediation is confidential, meaning nothing can be used against you if mediation fails and the dispute moves forward to arbitration or court.

Keep in mind that mediation is non-binding. That means if an agreement isn’t reached, you may still need to escalate the dispute, but at least you’ve given both sides a chance to settle without going to court.

2. Arbitration

Arbitration is a step up in formality from mediation and can feel a lot like a private trial. Here, a neutral arbitrator—often a retired judge or attorney—steps in as the decision-maker. The arbitrator listens to both sides, reviews evidence, and ultimately makes a binding decision.

While arbitration can be faster than traditional litigation, it’s not always cheap. Arbitration fees, legal representation, and the need for expert witnesses can rack up costs. The big upside is that arbitration is final. Once the arbitrator rules, that’s it—no appeals. So if you’re looking for a quicker resolution than a drawn-out court case, arbitration might be a decent option.

For building suppliers, arbitration may be your best option if mediation doesn’t work, especially if you need a binding resolution. However, arbitration can carry risks if the decision doesn’t go your way, and you might be stuck with a ruling you don’t like.

Dispute Resolution Boards (DRB)

A Dispute Resolution Board (DRB) is an emerging option that’s gaining traction on larger, more complex projects. These boards consist of one to three industry experts who stay informed about the project and can step in to resolve issues as they arise.

For suppliers, DRBs can be beneficial because they involve people who understand the nuances of the construction industry. They know the language, the timelines, and the common problems, which means they’re better equipped to resolve disputes fairly. But DRBs can be costly and time-consuming to set up, so they’re typically reserved for high-dollar, multi-year projects.

Why ADR is Beneficial for Building Suppliers

As a building supply business, you’re dealing with numerous clients, invoices, and deadlines. Having ADR options in place means fewer disruptions and a higher chance of resolving disputes without involving the courts. Here’s why ADR works in your favor:

• Speed: ADR methods like mediation and arbitration generally move faster than court cases. When your business relies on cash flow and quick project turnarounds, you don’t want to be stuck in litigation for years.
• Cost Savings: Court battles are expensive. Between legal fees, court costs, and the potential loss of business during lengthy disputes, ADR can save you a lot of money in the long run.
• Privacy: Lawsuits are public, which means anyone can dig into your dispute. Mediation and arbitration are confidential, which helps protect your reputation and keeps sensitive business information out of the public eye.
• Expertise: With ADR, you often get to work with industry experts who understand construction. That can lead to better outcomes since they’re familiar with the ins and outs of projects and the issues suppliers face.

ADR vs. Mechanics Lien Rights

One question building suppliers often have is whether ADR impacts their mechanics lien rights. Here’s the tricky part: it depends on how the contract is written and how the courts view the relationship between ADR and lien laws.

Mechanics liens are a powerful tool for suppliers to secure payment. If a contractor or project owner hasn’t paid you for materials, filing a lien can help force the issue. But, if your contract requires mediation or arbitration, there’s a risk that these proceedings could interfere with your lien deadlines.

Lien deadlines are strict. In most states, you only have a limited window of time to file a lien, and that clock doesn’t stop ticking just because you’re in mediation or arbitration. So, you need to be careful. If you wait too long and miss your deadline, your lien rights could be gone for good.

Fortunately, most courts have ruled that suppliers can file a lien to protect their interests while still participating in ADR. But you should always double-check the laws in your state and talk to an attorney if you’re unsure.

Final Thoughts: Protect Your Business with Smart ADR Clauses

ADR can be a game-changer for building suppliers. By resolving disputes faster and more privately, you can protect your cash flow, avoid long court battles, and keep your business running smoothly. But make sure any ADR clauses in your contracts are working for you—not against you. Review them carefully, understand the implications for your lien rights, and don’t hesitate to seek legal advice when needed.

At the end of the day, hope is not a strategy. Having a solid ADR plan in place means you’ll be ready when disputes arise, so you can focus on what matters: growing your business.