Bargaining model of construction dispute resolution

In this paper, a bargaining game model with two-sided outside options is presented to investigate the resolution mechanism of disputes under FIDIC Conditions of Contract, Red Book. Most disputes in construction contacts stem from disaccord in contractual interpretation. When a dispute arises, each party has two options between agreement and arbitration. Under FIDIC, either party has the right of calling in the arbitrators and the arbitral award binds the parties. While the mechanism of the dispute resolution process involves a complicated negotiation process, we focus on the mechanism of dispute resolution on the claim, which the contractor asserts, and propose a model by which we analyze the criteria for the choice between agreement and arbitration in the process.