Most commercial disagreements arise while the work is still going on. A customer disputes a variation; a contractor says the specification is ambiguous; a test result is argued over; a payment is held back. The disagreement may be real and important, but the job still has to decide what happens tomorrow morning. If every dispute stops the work, the dispute process becomes a project-failure process. If disputes are ignored to keep the peace, unresolved exposure quietly accumulates.
Dispute clauses are often chosen during drafting and forgotten until something goes wrong, at which point they are read for the first time under pressure. Many businesses then follow one of two unhelpful paths: they let disagreements fester at site level for months, or they escalate straight to lawyers and formal proceedings, where costs can quickly overtake the amount in dispute.
This article explains how to match the resolution process to the decision that is actually needed, how to escalate so that authority increases rather than just seniority, how to keep undisputed work and payments moving, and when an agreed independent expert or standing neutral is worth arranging in advance. It is general information. Dispute processes depend on the contract and the law; security of payment legislation in each state sets strict timeframes for construction payment claims, and legal advice is worth getting for significant disputes. Several states have small business commissioners, and the Australian Small Business and Family Enterprise Ombudsman offers dispute support.
Match the process to the decision needed
Dispute processes differ in who decides, how fast, at what cost, with what formality and with what effect:
| Process | Who decides | Typically suits |
|---|---|---|
| Negotiation | The parties | Most disagreements, especially early |
| Mediation | The parties, helped by a neutral | Stalled negotiations where the relationship matters |
| Expert determination | An agreed expert | Narrow technical or valuation questions |
| Adjudication under security of payment laws | An adjudicator | Construction payment claims needing a fast interim answer |
| Arbitration | A private tribunal, under the agreement and law | Significant legal disputes needing a binding, private result |
| Courts or tribunals | A judge or member | Disputes needing a binding public decision or urgent orders |
The diagram many people carry in their heads, where cooperation falls as formality rises, is a simplification. Some negotiations are bitter; some arbitrations are cooperative. The useful point is that each process trades off party control, speed, expertise, cost, enforceability, confidentiality and effect on the relationship.
Choose by asking what decision is actually needed:
- A technical question, such as whether a test result meets the specification, may be settled quickly by an agreed expert. Taking it to a full formal process can cost more than the issue is worth.
- A breakdown in the working relationship may respond best to a structured conversation or mediation.
- A payment dispute in construction may engage statutory adjudication, with strict deadlines.
- A significant question of legal entitlement, such as termination or large damages, may need a binding process.
Remember that mediation helps parties reach their own agreement; it does not impose one. And cost is not only fees: slow resolution has its own cost in delay, distraction and lost cooperation.
Escalate to authority, not just seniority
A good escalation path moves a problem to people with enough authority and distance to resolve it. A common failure is sending people to a settlement meeting who cannot settle. Escalation should increase decision authority, not just the seniority of who attends.
Before any resolution meeting, know:
- the negotiation limits and who can agree to what;
- whether a settlement would set a precedent for other jobs or customers;
- the accounting and cash effect;
- whether the underlying issue is systemic.
A simple escalation ladder in the contract helps: project leads try to resolve within a short period; if not, senior managers or directors meet within a set time with authority to settle; if still unresolved, the matter goes to the agreed next step. Time limits at each rung stop issues from drifting.
Run two tracks
Separate the dispute from the delivery. Run two tracks in parallel:
Track 1: keep delivering
- Which work continues?
- What interim directions are needed?
- Which payments are undisputed and should still be made?
- What safety or operational actions cannot wait?
Track 2: resolve the disagreement
- What exactly is disputed?
- Who has authority to resolve it?
- What process does the contract require?
- What evidence is still needed?
- What is the next step if it is not resolved?
Undisputed payments should generally not become bargaining chips; withholding them can breach the contract or payment laws and destroys cooperation. Technical collaboration should not collapse because one commercial issue is open. Containing the dispute in this way takes discipline, but it protects far more value than it costs.
Speed of resolution has real economic value. An unresolved dispute affecting critical work makes the other party cautious, conserve resources for the argument and withhold discretionary cooperation. This does not mean settling weak claims to make them go away. It means counting the cost of prolonged uncertainty in the decision.
Agree an independent expert or neutral in advance
On long or complex jobs, there is a strong case for naming a neutral before any dispute exists. Large projects sometimes use dispute boards: independent people appointed at the start, kept informed through reports and regular site visits, and available to address differences while work continues. Writing on dispute resolution boards, Robert Hunt argued that the main advantage is context: a neutral who learns the project as it unfolds does not have to reconstruct it after the fact, and can give an informed view early, before positions harden. Even a non-binding recommendation can become a credible reference point for agreement.
For a small business, the scaled-down version is simple: name in the contract an agreed independent expert, such as an engineer, surveyor or quantity surveyor, for technical disagreements, and an agreed mediator or mediation service for others. Choosing them before anyone is in dispute removes an argument at the worst possible time. The after the signature article covers setting up the contract so fewer disagreements arise in the first place.
Neutrals only work if both sides trust them
A neutral’s value depends on both parties believing the process is fair. That requires:
- Independence: a person nominated by one side does not represent that side once appointed.
- Equal information: communications to the neutral are shared with both parties, and there are no private meetings with one side.
- Clear scope: the neutral is not a consultant, project manager or adviser to either party.
- An open mind: avoiding statements that suggest a view before an issue is formally raised.
- Clear effect: both parties understand whether the outcome is advisory or binding, and what happens next.
Familiarity with the job is an asset only when it comes through shared channels. A neutral who regularly discusses problems informally with one side may lose the other side’s trust, however fair they intend to be.
What a useful dispute clause contains
When drafting or reviewing a significant contract, check that the dispute clause covers:
- Notice: how a dispute is raised, in writing, with enough detail to understand it.
- An escalation ladder: who meets first, then who meets with authority to settle, with a time limit at each step.
- A named expert for technical or valuation questions, and whether their decision is binding.
- Mediation as a step before any formal proceedings, and how a mediator is chosen.
- Continued performance: an obligation to keep working on the undisputed parts while the dispute is resolved, with sensible exceptions such as safety.
- Preserved rights: nothing in the process stops either party seeking urgent relief or using statutory rights, such as security of payment adjudication.
- Costs: who pays the expert or mediator, usually shared.
A clause like this takes an hour to agree at the start and can save months later.
Prepare the evidence early
Every process, from a directors’ meeting to an adjudication, depends on evidence. Keep the contract documents, approved variations, instructions, photographs, test results, diaries and correspondence organised from day one. When a disagreement arises, write a short, neutral chronology: what happened, when, what documents exist and what is still uncertain. A clear chronology often settles a disagreement on its own, because both sides can see where they actually differ. The when the job runs late article covers the records that matter most for delay claims.
Learn from your disputes
Track the causes, duration and outcomes of disputes across jobs. Repeated disagreements about the same clause, the same kind of specification or the same interface are design feedback: improve the contract template, the scope wording or the handover process. The thinking clearly about a contract problem article covers stating the issue precisely and separating legal strength from commercial sense.
A worked example
This is an illustration. A landscaping contractor is completing the external works for a townhouse development. Three disagreements arise in the same month:
- the developer says the stormwater drainage does not meet the specification;
- the developer disputes a $38,000 variation for extra retaining walls;
- the developer withholds a $62,000 progress payment that includes both disputed and undisputed work.
The contract names an independent hydraulic engineer for technical disputes and sets an escalation ladder: project leads, then directors within 14 days, then mediation.
The contractor runs two tracks. On delivery, it proposes that planting and paving continue, and asks the developer to pay the undisputed portion of the progress claim. The developer agrees after the contractor shows which items are uncontested; the contractor also notes its rights under the state’s security of payment legislation and the deadlines that apply.
On resolution, the drainage question goes to the named engineer, who reviews the design and test results within ten days and finds the system compliant except for one pit, which the contractor fixes at its own cost. The variation dispute goes to a directors’ meeting, where both attend with authority to settle. With photographs, the original drawings and the developer’s site instruction on file, they agree $29,000.
Afterwards, the contractor notes that both disputes traced back to incomplete drawings issued at tender. It adds a pre-start design review to its process for future developments.
How this applies to a small Australian business
- Read the dispute clause at the start of the job, not when a dispute arises.
- Name an independent expert and a mediator in significant contracts.
- Set an escalation ladder with time limits and real authority at each step.
- Run delivery and resolution as separate tracks.
- Keep paying and doing undisputed work.
- Send people with authority to settlement discussions.
- Know your statutory rights, including security of payment timeframes in construction.
- Use free and low-cost help: state small business commissioners and the Australian Small Business and Family Enterprise Ombudsman.
- Track dispute causes and fix them upstream.
Signals worth watching
- Disagreements sitting unresolved at site level for weeks.
- Undisputed payments held back as leverage.
- Meetings attended by people who cannot agree anything.
- Every issue going straight to lawyers.
- One side communicating privately with a supposedly neutral expert.
- The same dispute recurring on different jobs.
Common mistakes
- Choosing a process by habit rather than by the decision needed.
- Letting a dispute stop all work.
- Withholding undisputed amounts.
- Escalating seniority without authority.
- Ignoring statutory deadlines.
- Treating each dispute as isolated when it is part of a pattern.
Frequently asked questions
When should we involve a lawyer? Early enough to understand your rights and any deadlines, particularly for payment claims, termination or significant amounts. Legal advice and practical negotiation can run side by side.
Is mediation worth it for small disputes? Often yes. It is usually far cheaper and faster than formal proceedings, and state small business commissioners offer low-cost options in several states.
What if the contract has no dispute clause? Agree a process with the other party in writing when a dispute arises, and get advice on your options.
Can we stop work if we are not being paid? Sometimes, in some industries and under some laws, but the rules are specific and getting them wrong can put you in breach. Get advice first.
How do we keep the relationship intact? Separate the issue from the people, keep undisputed work and payments moving, and focus on evidence rather than blame.
Should we use the same expert on every job? Not necessarily. Choose someone with the right technical background for the work and no connection to either party. A shortlist of trusted experts by discipline is useful.
Questions to ask
- What decision does this disagreement actually need?
- Which process fits that decision, and what does our contract require?
- What work and payments are undisputed, and are they continuing?
- Who has authority to settle, and will they be in the room?
- Have we named an independent expert or mediator for this job?
- What does this dispute tell us about how we write contracts or scopes?
Bringing it together
Disagreements are a normal part of contracting; letting them stop the work is not. Match the resolution process to the decision actually needed, from negotiation and expert determination to adjudication, arbitration or court. Escalate to people with authority, within set time limits. Run delivery and resolution as separate tracks, keeping undisputed work and payments moving. Name an independent expert or mediator in advance for significant jobs, and protect their neutrality through shared information and clear scope. Then learn from each dispute so the next contract prevents it.
Source: KEVOS notes, drawing on teaching material on dispute resolution processes and standard construction contract dispute clauses, and on R. Hunt’s writing on dispute resolution boards. Examples and figures in this article are illustrations. This article is general information, not legal advice.
