March 24, 2005
Try mediation on that next construction dispute
By CHRISTOPHER J. SOELLING
Special to the Journal
One party summed up the advantage of mediation over litigation as follows: "Litigation is a poor way to make money, and the construction companies hurt their relations with clients when they are constantly suing people." Indeed, the 1994 Construction Industry Survey on Dispute Avoidance and Resolution found that of 2,300 parties that responded, 84 percent used mediation.
In the Puget Sound area, the construction industry first turned to mediation in a big way during the early 1980s when several large public projects wound up in litigation. Too ungainly to try effectively, the parties used mediation, resolving several multi-million dollar disputes in a fraction of the time and expense that would have been consumed in trial.
Recently, mediation has been used to solve disputes ranging from large construction projects such as Safeco Field and the downtown Seattle library to home remodeling projects.
What is mediation?
Mediation is a voluntary process in which a neutral person helps those in a dispute negotiate effectively with each other to resolve their disagreement. The mediator does not act as a judge and has no power to force either party to settle. Instead, the mediator is a facilitator, helping the parties explore the issues and possible outcomes, ultimately leading to a resolution crafted by the parties themselves. The agreement they reach becomes a binding contract that resolves the dispute once and for all.
The completely voluntary nature of mediation differentiates it from arbitration, which is essentially a "private court." There, the arbitrator considers evidence presented under oath and issues a decision that binds the parties.
Construction mediators are nearly always lawyers. Most have significant experience in the field as well as training in mediation skills such as active listening, reframing of issues and consensus building. They combine their training and experience to help the parties solve the problem quickly and cheaply.
Mediators charge by the hour or the day, and most mediations are completed in a single day for less than $5,000, with the fee being divided among all parties participating. This is in contrast to litigation, which may cost $100,000 or more and take months to reach trial.
Most construction mediations in the Pacific Northwest follow the same format: each party submits a written submission to the mediator and the other party, setting forth the facts, the contract provisions and law that support them, as well as describing the relief they seek. The parties may also submit confidential information to the mediator alone to assist him or her in understanding the party's position, and its needs and goals to resolve the dispute.
Everyone then meets, often at the mediator's office. The parties are almost always represented by counsel, and experts often attend as well. All parties meet together for a joint session in which the mediator explains how the day will proceed.
Sometimes each side's lawyer or expert makes a substantive presentation, explaining their position. These presentations are especially helpful if the mediation occurs early, before a lawsuit has been filed, for example. It gives the parties an opportunity to more clearly understand the other side's position, to evaluate their presentation skills, and allows the party making the presentation to feel like it has been heard by both the mediator and the other side. Joint sessions may last anywhere from 15 minutes to four hours or more.
At the conclusion of the joint session, the parties move into separate rooms and the mediator meets with each party, communicating information and proposals until settlement is reached. These caucuses may last for a short while or hours, as each party explores various resolution options. Most often, a settlement agreeable to both sides results.
Mediation has many advantages. First and foremost, the parties control the terms of the resolution, rather than having the terms decided for them by a judge or jury. Their "deal" can reflect business needs like cash flow, or a discount for speedy payment, rather than simply a legal solution.
This advantage becomes even more significant when one realizes that neither judge nor jury has much discretion when in court. A jury can only determine the facts and apply law given it by the judge. The trial judge is similarly constrained, having to apply the law handed down by the court of appeals to the facts at hand. If the situation presented calls for a change in the law to provide a just result, the court of appeals must change the law, not the trial court. In contrast, the parties to a dispute can fashion any remedy that suits them. They are not bound by law, precedent or other constraints.
A second advantage is that the parties can fashion a compromise solution. Where the issues are not black and white, but the outcome is, a judicial solution will have someone winning all and someone losing all. In mediation, the parties can recognize the closeness of the issue itself and divide the "spoils" appropriately, rather than giving everything to the winner when the case is close.
A third advantage is that a negotiated resolution can be obtained quickly. In King County Superior Court, trials are scheduled to occur 18 months from when the case is filed. In other jurisdictions, the wait is even longer. With mediation, the parties can arrive at a decision within weeks of the development of the dispute. Moreover, they control the schedule, not the court.
Finally, a negotiated resolution can avoid the significant transaction costs associated with a legal resolution. The parties can avoid the costs of lawyers, of experts, of court reporters, etc., and can apply those savings to part of the solution.
A mediated solution can be disadvantageous as well. First, mediation almost always involves compromise. If a party will not compromise, or wants to "teach a lesson" to the other party, mediation will not be successful.
Mediated solutions also do not set a precedent visible to the public or to others in the industry. Accordingly, the knowledge that comes from resolution of the particular dispute remains within a small circle of people.
A mediation result can't be used to guide the industry as a whole like a court decision can because there is no mechanism for transmitting that information. Further, as mediated solutions do not involve a final decision containing citations to legal authority, third parties cannot easily understand why a particular resolution was reached.
Mediation's speed, relative low cost and ability to lead to a relationship-saving solution makes it the preferred tool in the construction industry's problem-solving toolbox.
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