Quantification of transactional dispute resolution costs for the U.S. construction industry

The construction industry has been a paradoxical leader in both dispute occurrences and dispute resolution systems for many years. While this may or may not be an enviable position, the industry has managed to develop and adopt many unique ways to address the potential risks of disputes. However, the justification for implementing these procedures has been based primarily upon contractual requirements, governmental regulations, court orders, limited previous experience, or basic reactionary instinct, and not on measured cost savings. This dissertation presents an exploratory effort to collect some of the first data on the true costs of resolving disputes in the construction industry. A methodology to capture these costs through transactional dispute resolution costs is proposed and a framework for dispute risk management is also explored. Data from approximately 80 individuals, representing 57 organizations, were used in this multi-disciplinary research study focusing on the quantification of transactional costs (direct, indirect, and hidden sources) as a criterion for evaluating various dispute resolution and prevention methodologies. Quantitative questionnaires, qualitative case studies, and a comprehensive literature review are presented in an effort to identify efficient dispute resolution methodologies. The results indicate that resolving a dispute in the construction industry is an expensive endeavor no matter which dispute resolution methodology is selected. While direct inferences to the industry as a whole is limited by the relatively small sample size, the identification and quantification of transactional dispute resolution costs may provide sufficient encouragement towards both the further adoption of cost efficient dispute resolution/prevention methodologies and the reduction of the antagonistic environment for which the construction industry is known.