WHAT DECISIONMAKERS SHOULD KNOW ABOUT MEDIATING AND ARBITRATING CONSTRUCTION DISPUTES

By: Steven B. Kaplan

Mediation and arbitration of construction disputes have been prevalent as methods of dispute resolution for decades. This is the result of the general consensus among construction professionals that the courts usually are not well-suited for resolving construction disputes. Most construction contracts require mediation—a non-binding, consensual settlement process—as a “condition precedent” to binding dispute resolution, whether it be by arbitration or in the courts. Many contracts—and some statutes—provide for arbitration as the binding form of dispute resolution, either at the discretionary choice of one of the parties (i.e., the owner or general contractor) or as the required procedure.

In this article (presented in two parts), I discuss the essential aspects of mediation and arbitration which the decisionmakers for construction participants—owners, contractors, subcontractors, and design professionals– should consider when confronted with resolving disputes. This discussion is not intended to serve as a “legal primer;” rather, it lays out for decisionmakers and managers the most important, practical aspects of mediation and arbitration.

PART ONE: KEY CONSIDERATIONS FOR MEDIATION

The timing of initiating the mediation process is critical—and this oftentimes occurs much too late. The sooner the parties can engage in serious discussions to resolve their troublesome disputes—before they ring up large legal fees and become entrenched in the “correctness” of their cause– the greater the likelihood of settlement. The true cost benefit of mediation is in settling disputes before the massive investment of company resources and personnel, aggravation, and expenditure of fees and costs required by arbitration or litigation. Although seldom done, there is much to be gained by mediating (and resolving) contentious disputes as they arise, rather than waiting until the end of the project to “sort everything out.”

Keep in mind that it is always better to devote your resources to working (and making money) on current projects than to resurrect and argue about past problems (with a diminishing cost benefit). The best dispute is the settled dispute.
At the outset, the parties should always select a mediator who is well-suited to resolve their specific disputes, both in terms of both experience and demeanor. Do the parties want a facilitative mediator who emphasizes managing the process and ensuring that the parties’ respective arguments are openly exchanged? Do they prefer an evaluative mediator who will share frank opinions with each party as to the merits and weaknesses of their positions? Or do the parties want to invite the mediator to actually direct them toward an ultimate settlement?

This overlaps with how the parties should fashion the mediation to suit their particular case. In addition to the conventional approach of submitting position statements and key exhibits in advance to the mediator, the parties should consider incorporating into the mediation session(s) summary presentations of their key points (such as by power point, or live remarks, or both), along with objective discussion and limited rebuttal among the respective principal managers and experts in a non-adversarial manner. Perhaps most importantly, weak arguments or positions should be abandoned early, which can be best achieved by preliminary, ex parte discussions with the mediator.

The parties also can ask the mediator to issue advisory “findings” on the key points in dispute. These can be issued verbally during the course of the mediation, or in a written summary after the presentations have been made and settlement discussions have commenced but fallen short of resolution. This also can include a written, recommended settlement evaluation by the mediator. And there is nothing wrong with re-engaging with the mediator shortly after the initial mediation session, whether in a series of private discussions or in another joint session.

Another critical consideration is that all necessary parties should be involved in the mediation, whether it be the owner, design professionals, general contractor/construction manager, key subcontractors, or vendors, and of course, insurance carriers and sureties. Participation via zoom or a similar platform has greatly facilitated the participation of the key players, for obvious reasons. And while it should go without saying, the direct participation of “individuals with sufficient authority to settle the case” means just that: e.g., if one party is demanding a million dollars, the Respondent’s insurance carrier’s representative should have that kind of authority, regardless of whether the carrier intends to pay anywhere near that sum. Nothing sets a mediation back further than when a carrier’s representative suddenly reveals late in the day that he/she only has authority up to $100K and has to talk to the boss to get authority to settle the case for $175K.

Company decisionmakers can, and should, take an active role in all of these decisions. Since mediation is always a consensual process viz. its shape and form, there is no good reason why it should be left to a default process of simply submitting position statements and exhibits, and then engaging in a series of ex parte discussions with the mediator on the appointed day. Resolving problems and claims at mediation usually comes down to the parties making informed business decisions, as opposed to evaluating the legal bona fides of the matters at hand. Experienced legal counsel will fill the vacuum as best they can, but business decisions must be made by the business decisionmakers.

If you have questions about mediating construction disputes, please call MKR&B at 860-522-1243.

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Michelson, Kane, P.C.

At Michelson, Kane, P.C., our goal is to provide our clients with the advice and representation they need in order to meet their legal and practical objectives. Our team is experienced, collaborative, knowledgeable, and friendly. Several of our award-winning attorneys play key roles in construction organizations, and even help to shape the laws that affect the construction industry in Connecticut. Let us put our experience to work for you.