Dispute resolution transactional cost quantification: What does resolving a construction dispute really cost?

The construction industry is generally acknowledged as the world's most litigious industry with one industry study citing nearly $5 billion in annual expenses on litigation and arbitration in the United States alone. Yet at the same time, the construction industry has been a champion for creating and implementing innovative new techniques for preventing, controlling, managing and amicably resolving disputes for many years. As a result, the construction industry has available to it a wide spectrum of dispute-management methods. Despite these options, no empirical data exists on the transactional costs for resolving disputes throughout the full spectrum of dispute resolution techniques. Inevitably, resolving a dispute costs all parties money, not just the amounts paid to settle the dispute, but also the "transaction costs" of processing the dispute: lawyer fees, experts' fees, management time, etc. This paper explores a procedure for quantifying transactional costs in various dispute resolution techniques and explains how transactional cost information can be used as a dispute-management selection tool. Data from 26 projects, with total installed costs over $850 million USD, are presented to illustrate information on the transactional costs associated with different methods of dispute resolution from an ongoing research study at the University of Texas at Austin.