AbstractNegotiation is the most frequently used and economical way of resolving construction disputes. However, negotiators are not always rational decision makers. It is not uncommon to find that negotiations fail despite the tabling of notable settlement options. Having the intention to settle is paramount in achieving an amicable settlement. To improve the success rate of construction dispute negotiations, this study posits exploring negotiators’ intention to settle from the perspective of how they perceive failure. Applying construal-level theory (CLT) and the concept of psychological distance (PD), it is hypothesized that construction dispute negotiators having the proximal psychological distance of negotiation failure would raise the respective concern that mediates intention to settle. With data collected from experienced construction dispute negotiators, the results of the partial least squares structural equation modeling (PLS-SEM) supported the hypothesis. The findings of the study indicated that the negotiators’ distal perception of and low concern for failure can obscure their intention to settle. Furthermore, the results indicated that a reduced PD could enhance negotiators’ intention to settle. This finding explains why reality testing is effective in steering negotiators’ decisions along a rational course. In practice, a realistic assessment of the consequences of a negotiation failure by either the negotiation team or a neutral third party would raise attention to failure. The resulting proximal PD would lead to a stronger intention to settle. The study is novel in (1) offering a vital theoretical link between the perception of failure and the settlement intention; and (2) anchoring the functions of reality testing with the concept of PD.Practical ApplicationsThe resolution of construction disputes typically starts with negotiations. Negotiated settlements are the most economical outcome, as a high price can be paid if resource-laden resolution mechanisms are deployed. It is disappointing to see promising negotiations fail because the negotiators were not prepared for a settlement. This study addresses the practical issue of how to make the best use of construction dispute negotiations. Having the intention to settle is paramount should positive negotiation outcomes be envisaged. The concept of psychological distance explains that if one perceives failure not to be imminent, the concern for failure will be low, and thereby no pressing need to settle. This proposition was supported in this study. The practical application of the study could be the intervention strategy of reality testing, which has been proven instrumental in facilitating negotiations. Third-party neutrals, particularly mediators, have high regard for the effectiveness of reality testing. The function of realistic assessment in enhancing settlement is the result of reframing negotiators’ subjective cognition and raising the concern for failure. This study contributes to negotiation practice by offering a solid theoretical base to explain why and how reality testing is one of the most versatile tools to assist negotiations.