Using mediation to resolve construction disputes

To what extent is mediation being used to resolve construction disputes? David Evans, legal director, solicitor and mediator in the construction team at Blake Morgan and mediator at Oxford Mediation, considers that, while mediation is still not commonly used in construction disputes, it will likely become more popular due to the high cost of adjudication and gradually increasing awareness of the benefits and flexibility of mediation.

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What are the current trends in relation to mediation in construction disputes?

Mediation has moved on a lot over the last 15 years or so. But it is still not routinely used by construction professionals. The process has changed. Mediators are now more likely to be lawyers than ever before and very often counsel, and even leading counsel, are brought in to represent parties. Counsel (and solicitors) can feel obliged to demonstrate their value to their clients and ‘grandstand’ from time to time. Sometimes lawyers get in the way of the settlement their clients could achieve, and the mediator’s role can include making them see that.

Adjudication (like arbitration before it), is becoming very expensive, and far too expensive for the significant number of construction disputes where less than £100,000 is at issue. In my view the particular opportunity for mediators is in these lower value disputes, and I think this is the range where we will see rising numbers of mediations. However, mediation (as opposed to adjudication) is cost effective for disputes of any value, is attractive in comparison to the alternatives, and is worth trying.

How common is the use of mediation in resolving construction disputes?

Disputes are common events, but for individuals are relatively rare. Many construction professionals go through the whole of their working lives without encountering a serious dispute which can’t be settled through negotiation. So when disputes come to a head, often the first thought is (or certainly until recently was) adjudication.

In my experience, although there has been some increase in the use of mediation (largely due to the court process requiring it), it is still not commonly used in construction disputes. The level of knowledge of alternative dispute resolution (ADR) among construction professionals is poor. There is often confusion between arbitration, adjudication and mediation and a complete lack of understanding about what mediation entails. Early neutral evaluation (ENE), for example, is just not on the radar of most people in construction.

In my view the main obstacle to mediation becoming more popular is still just ignorance of the process. Thankfully the pre-action protocol is now pushing parties towards mediation before proceedings are issued. Following the protocol is intended to put the parties in a position where they may be able to settle cases early, fairly and inexpensively without recourse to litigation. Parties almost certainly will be required to disclose to the court whether alternative means of resolving the dispute were considered or agreed, so there is every incentive to follow the process.

The Technology and Construction Solicitors’ Association (TeCSA) website says:

ADR (including mediation and ENE) has now become an established part of the dispute resolution landscape and TeCSA recognises its use can lead to much more efficient resolution of disputes and significant savings of costs.

Obviously, I would agree with that—but most construction professionals won’t be looking at the TeCSA website, at least not until they have a serious dispute and their lawyers are on board.

I think the likely drivers for mediation becoming more popular in future will be the high cost of adjudication and gradually increasing awareness of the benefits and flexibility of the process.

Is mediation an effective way of resolving construction disputes?

Provided parties in dispute want to settle then mediation can be very effective. Probably around 70% of mediated construction disputes settle on the day but in many more cases the mediation process puts people on the road to settlement, so the actual settlement rate because of mediation is much higher.

During mediation it is not uncommon to see one or other party experiencing that moment where the penny drops and the likely outcomes come into focus. Maybe for the first time they actually engage with their legal team and understand the potential costs of the dispute and their risk profile.

There are occasional hugely satisfying mediations where the settlement agreement goes way beyond the issues in dispute, and both parties are in a ‘win win’ situation—an outcome a court or arbitrator could never achieve.

When is mediation most likely to be effective?

Mediation can be effective at any time, but the usual prerequisites for a successful mediation are that firstly the parties understand enough about their own positions (in terms of possible risks and likely costs) to evaluate the commercial realities. The mediator’s job often is to help them do that through the mediation process. Secondly, there must be some willingness to compromise and do a deal.

As for timing, often as early as possible is best, so that the parties don’t find themselves with the added problem of trying to negotiate away the legal and other costs they have incurred having the argument. Of course, if there is a willingness to sort things out, there is no reason why the mediation couldn’t extend (on and off) over a couple of days or weeks or more, so that any particular issues could be investigated and brought back to the negotiating table. With the parties’ consent, mediation is completely flexible and could involve more than one mediation meeting.

For the parties, understanding the opponent is important and the mediator needs to second guess what is really going on too. Some individuals must win, whatever ‘winning’ means in context. So sometimes massaging of egos can help. A concession by one party can improve the chances that the other will adopt a more reasonable approach and give serious consideration to the remaining issues in dispute.

Of course a party might be taking part in the mediation because it feels compelled (to avoid the wrath of the court) or because it wants to understand the strength of its opponent’s case—insurers are sometimes accused of this sort of fishing exercise and I have personal experience of just that.

All of these ‘personal interaction’ issues are common to disputes of more or less any value. A company managing director can be just as obdurate and personally involved as a warring neighbour arguing over a fence post.

How are construction mediations different to other mediations?

In one of the first mediations I undertook, I co-mediated with a very experienced mediator in a five-party dispute involving the employer, main contractor, a design consultant and its insurers, and a couple of sub-contractors. Multi-party disputes are said to be a common feature of construction mediations. While that may well be true, I’ve not noticed that particularly.

Construction disputes do tend to be very document heavy and usually there will be some sort of expert evidence involved. The parties will sometimes want to bring their experts to the mediation. However, unless (which may be unlikely by this point) the mediator can get the experts to agree, experts may not be able to add much to the process.

In the end, most mediations come down to commercial imperative and willingness to settle. It’s not often that the volumes of paper disclosed will produce the unanswerable point one or other party will accept. Usually, most of the documentation is superfluous to the issues which influence settlement. In that regard mediation of construction disputes is no different to other mediations.

Are there any changes that could be made to mediation to make it a more attractive dispute resolution option?

Most of the changes I’d like to see are around the culture of the construction industry. More emphasis needs to be put (by the Institution of Civil Engineers, the Royal Institution of Chartered Surveyors, and the Royal Institute of British Architects etc) on ADR training of construction professionals. Mediation ought to be one of the first things people think of when a dispute arises—similarly, the legal profession could better educate up and coming construction legal professionals.

How do you see this area developing? Do you have any predictions for the future?

I think mediators will be required by the market to be much more evaluative in future. Almost all parties in dispute want to reach a commercial settlement, but they also want to understand what the risks are and to be told informally by an independent person how strong their case is. How far a mediator should sensibly go in doing that is debatable. However, I think that evaluative mediation will become much more common.

Non-binding ENE is also emerging. I’ve been amazed by how successful ENE can be even in a very high value dispute, if parties want to avoid the argument.

I’m currently trying to promote a fixed price scheme of evaluative mediation together with non-binding ENE as a cost effective alternative to adjudication, because I think the UK market is moving slowly in that direction.

Interviewed by Susan Ghaiwal. The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.

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