Mediation in Construction

Introduction to Mediation

Construction projects, big and small, routinely experience disputes and conflicts between various parties like owners, contractors, subcontractors, designers, and suppliers. These disputes can come up from changes in project scope, errors and omissions in design, payment issues, delays, and numerous other factors inherent in complex construction projects.

Traditionally, these disputes end up in lengthy and expensive litigation that takes years to resolve, ruins relationships, and racks up legal costs. However, in recent decades, mediation has emerged as an alternative dispute resolution process that offers a quicker, cheaper, and more positive way for parties to settle their construction disagreements.

Mediation is a voluntary, private process where a neutral third-party mediator helps arguing parties negotiate a mutually agreeable settlement. The mediator facilitates discussion and communication between the parties to identify interests, clarify issues, and find common ground. Mediation aims to achieve win-win solutions so both sides walk away satisfied, as opposed to the win-lose nature of courtroom litigation.

This article will examine common causes of construction disputes, provide an overview of the mediation process, discuss potential outcomes, and highlight the significant benefits of mediation as an effective strategy for settling construction conflicts without destroying budgets, schedules, and relationships.

Causes of Construction Disputes

Construction projects involve the complex coordination of various stakeholders, machinery, materials, budgets, and schedules. With so many moving parts, inevitably, disputes will occasionally arise, even among parties acting in good faith. Some of the most common catalysts of construction disputes include:

Changes in Project Scope

Sometimes an owner requests additions or changes in project scope after construction is already underway, needing changes in plans, schedules, and budgets. Disagreements often come up around:

• Pricing of change orders
• Responsibility for delays due to changes
• Impacts on work schedules
• Changes to completion dates
• Effects on other trades and suppliers

Party Perspectives: Owners may insist changes are minor or were necessitated by external factors. Contractors may argue differences affect timelines and justify increased payments.

Errors and Omissions

Despite best efforts, design errors, omissions, and lack of coordination sometimes slip through, unnoticed until construction, when plans are incorrect or conflicting. This leads to disputes around:

• Responsibility for correcting errors
• Payment for fixing mistakes or workarounds
• Delays and disrupted schedules
• Changes required in other plans

Party Perspectives: Designers may deny responsibility for contractor errors while builders maintain plans containing flaws.

Payment Issues

Money issues are common causes of construction disputes, including:

• Inflated or confusing contractor invoices
• Disagreements over a percentage of completion
• Slow payment or nonpayment by project owners
• Lien processes initiated over lack of payment
• Unpaid change orders

Party Perspectives: Owners may argue work billed is inaccurate or incomplete, while builders contend all invoices are owed on time.

Mediation Process

While the above issues often lead to lengthy lawsuits, mediation provides an alternative pathway to settle disputes through a structured negotiation guided by an impartial, outside mediator. Here are the typical stages of a construction mediation process:

Initiation

First, the arguing parties agree to enter mediation, either voluntarily or sometimes as required contractually. The mediator is mutually chosen based on credentials, experience, fees, and temperament. After the paperwork is signed, the mediation logistics (date, location, attendees etc.) are determined, and ground rules established. Each party usually submits a brief outlining their initial position to the mediator.

Information Exchange

Before joint sessions, the parties provide relevant documents like contracts, schedules, change orders, invoices, reports, and correspondence to help the mediator fully grasp the issues. The mediator reviews the information, asks clarifying questions if needed, and uses the data to prepare an agenda for the mediation sessions.

Joint Mediation Sessions

The main mediation takes place in joint sessions with all parties and the mediator present, either in person or virtually. Typical process:

• Mediator’s opening statement explaining the goal and ground rules
• Opening statements by each party summarizing their view
• Identification of critical issues by the mediator
• Facilitated dialogue and negotiation between parties
• Private meetings with each side to sort out sticking points
• Mediator acting as a go-between on offers, counter-offers etc.
• Documentation of final moments of agreement

The focus is open communication and understanding perspectives to find common ground. The mediator guides the process but does not impose an outcome.

Outcomes of Mediation

Mediation concludes in one of two possible ways:

Settlement Agreement

Ideally, after weighing all options and negotiating compromises, the parties reach a mutual settlement agreement. The terms are documented in a legally binding contract signed by both parties. Some key components may include:

• Payment amounts and schedule
• Timeline adjustments
• Responsibility for errors and changes
• Release of liens or claims
• Exact scope of further work

Once signed, both sides must adhere to the settlement terms and all claims related to the dispute are settled.

No Agreement

If the parties disagree despite the mediator’s best efforts, the mediation concludes without a settlement. The mediator may speak separately to each party about their impressions and suggest ways to reconsider their positions. However, if fundamental differences remain unresolved, the parties walk away without an agreement. Significantly, if mediation fails, neither side is restricted from then pursuing litigation or arbitration on the issues. That said, even a failed mediation often clarifies the true sticking points so subsequent legal processes become more focused and streamlined.

Benefits of Mediation

So why has mediation become such a preferred option for resolving construction disputes versus jumping immediately to litigation? What are the unique advantages of construction mediation that make it an effective strategy for settlement?

Speed

Mediation provides exponentially faster dispute resolution than legal proceedings. While lawsuits drag on for multiple years, typically it settles in a few weeks or months. The structured process accelerates agreement rather than delaying it amidst legal wrangling.

Method	Typical Duration
Mediation	Weeks to months
Litigation	Years

Cost Savings

By quickly settling disputes, mediation also yields tremendous cost reductions over litigation’s inflated legal fees. The only significant costs are the mediator’s hourly rate and nominal administrative expenses, divided among the parties. Costs, on average 60-80% less than court litigation.

Method	Average Cost
Mediation	$5,000 – $75,000
Litigation	$150,000 – $300,000+

Confidentiality

Mediation proceedings are confidential and held as private settlement discussions versus the public nature of courtroom trials. This avoids damaging publicity that airs dirty laundry and ruins reputations even if no legal fault is ultimately found.

Preserved Relationships

Litigation breeds animosity that destroys business relationships as parties become entrenched in their positions. Mediation facilitates understanding and cultivates compromise, paving the way for ongoing collaboration versus isolation.

Mutual Benefit

Court judgments produce a clear winner and loser, while mediation seeks fair compromises providing mutual gains for both parties. The goal is a solution that satisfies the interests of all stakeholders.

Conclusion

As construction projects increase in complexity, disputes between involved parties will remain inevitable. However, the evolution of mediation provides an invaluable tool to navigate these conflicts in a manner focused on the preservation of budgets, schedules, and relationships. By investing time in a mediated settlement, parties can avoid escalating disagreements into prolonged legal battles that exhaustively drag on at massive financial and reputational costs. Mediation produces swifter, less expensive compromise agreements that pave the way for projects to proceed and businesses to prosper. With so much to gain through mediated dispute resolution, it is no wonder mediation has become a critical strategy for construction industry conflict management.