The Construction Contract Contains a Mediation Provision—What Now?
AWCI's Construction Dimensions September 1, 2011
Both the American Institute of Architects and ConsensusDOCS have created standard construction contracts that make mediation a prerequisite to litigation and arbitration. As a result, construction disputes are increasingly going to mediation. This article will provide an introduction to mediation, will explore its advantages and disadvantages, and will address issues unique to mediation in the construction industry.
Introduction to Construction Law Mediation
AIA and ConsensusDOCS construction contracts mandate American Arbitration
Association mediation as the first step in resolving disputes. The AAA has
created well-defined procedures for construction mediation. Mediation is
initiated when one of the parties makes a request to the AAA and notifies the other
party. Next, the parties select a mediator. The AAA maintains a roster of
professionals (including the author) that is browsable online. Parties may
select a mediator or allow the AAA to appoint one.
The mediator's role is somewhat different from that of an arbitrator or a judge
in a settlement conference. First, the mediator's goal is not to force a
settlement. The mediator seeks to facilitate the flow of information and to
foster a satisfactory resolution. Second, the mediator maintains the parties'
confidentiality. He or she agrees to refrain from testifying in subsequent
proceedings, to restrict access to mediation sessions, and to keep no
stenographic record of the mediation. There is no filing fee for initiating
mediation, but each mediator has an hourly rate listed on the AAA's roster,
with a four-hour minimum charge. The parties pay equal shares of the mediation
expenses unless they agree otherwise.
Advantages and Disadvantages to Mediation
Mediation has several advantages over litigation and pre-trial settlement
conferences. First, mediation can result in more flexible remedies, whereas
judicial remedies are typically limited to money damages. Second, parties may
be more candid with mediators than with settlement judges because there is no fear
that the information will bias a later trial. Third, parties in mediation share
facts cooperatively, saving time and money compared to expensive pre-trial
discovery.
Parties who seek to save time and money often choose mediation. The AAA says
that mediated claims are typically resolved in under two months. By contrast,
the organization cites federal court statistics putting the median length of
construction trials at just under two years. Even the average mediated case
with claims above $500,000 is resolved nine months sooner than that. In my
experience, more than 80 percent of construction disputes resolve themselves at
mediation.
Federal court statistics also reveal the advantages of mediation over
litigation. In 2006, the U.S. District Court for the District of Nebraska
polled its attorneys and parties regarding their mediation and litigation
experiences. That year, attorneys who resolved disputes in mediation reported
saving an average of 104 hours per case, and attorneys and parties estimated that
they saved almost $60,000 per case. The respondents also answered questions
aimed at measuring more qualitative advantages to mediation, like whether
parties felt they had been treated fairly, and whether they felt in control of
and involved in the process. Mediation scored well in all of these qualitative
categories.
However, mediation is not without disadvantages. Clients and attorneys
accustomed to adversarial judicial proceedings may bring counterproductive
habits to mediation. They may put more effort into persuading the mediator than
the opposing party, or withhold information that could encourage
settlement.
As contract documents often mandate mediation as a condition precedent to
litigation or arbitration, parties can be forced into a mediation when one or
more parties are not yet ready to resolve the dispute. This can lead to
unnecessary delays while a fruitless mediation is conducted, which can lead to
a hardening of settlement positions.
Furthermore, mediation is a bad fit for some cases. When the outcome of a case
turns on a new legal question, mediation may not be appropriate. Likewise,
fundamental factual disputes—like the credibility of key witnesses—may also
cause mediation to fail. Finally, mediation may be impossible when the parties
have lost all trust and ability to find common ground. Such cases, however, are
rare. Typically each party has an interest in maintaining a business
relationship and in resolving the dispute quickly. Mediation is an effective
tool at achieving both.
Some Issues to Consider When Entering Mediation
A key to successful mediation is recognizing the ways it is unlike other forms
of dispute resolution. Because mediation is non-binding and need not end in
resolution, parties must approach mediation with a different mind-set than that
of litigation or arbitration. They should avoid overzealous advocacy and
instead come to mediation with the goal of solving problems creatively. A
collaborative approach not only helps ensure the mediation's success, it also
helps clients maintain their business relationships with adverse parties.
Parties should also carefully consider the type of mediator they want to hire.
While every mediator has a unique style, mediators generally break down into
two categories: facilitators and evaluators. Facilitators use diplomacy to help
parties communicate and find common ground. Evaluators provide analysis of each
sides' strengths and weaknesses. To ensure their expectations are met, parties
should investigate potential mediators' styles. Given the thorny nature of
complex construction disputes and the personalities associated with such a
"rough and tumble" industry, most experienced practitioners and
parties favor a mediator with an evaluative approach.
Conclusion
It is rare to encounter a significant construction dispute that is not mediated
at some point. Given the high costs of construction litigation, mediation is an
important tool in any contractor's toolbox.
Don Gregory, when he is not mediating, can be reached at [email protected]. This
article was prepared with the assistance of summer associate Pete Applegate.