Less than 10 percent of construction lawsuits go to trial. There are reports that the number is actually less than 5 percent. Many reasons are obvious: The cost of litigation, its detrimental effect on the litigants’ business, and the personal toll exacted from being in court. Add to this mix the uncertainty factor. Whether a case is presented to a judge or to a jury, there are few, if any, guarantees of the outcome.
Arbitration offers a reasonable alternative to court, and the attractive features relate to a significant reduction in time and cost for the procedure. Also of serious importance is that, in arbitration, the parties select the arbitrator, so that there is assurance that he or she is experienced in construction law and has training and experience as a decision-maker.
What remains missing is control over the outcome, and that is where mediation offers a benefit unavailable elsewhere.
The nature of the beast
There are many fine arbitrators, all of whom are capable of hearing and understanding even the most complex cases and issuing an award (decision) that is reasonable. An effective mediator needs these qualities and more. Effective mediation skills are as much technique and personality as they are technical qualifications. The selection of a mediator is the most important decision you will make for the process.
Keep in mind that a mediator is not a judge or one who makes any binding decisions. Neither party can be coerced into an agreement. The parties are always free to call an end to the mediation, without penalty.
A standard procedure involves both parties making a presentation to the mediator, usually performed by counsel. For this presentation, the parties can use documents, summaries, visual aids and written position papers, but there is no witness testimony. The materials used, and arguments made, are not binding on the parties should the mediation fail to reach a result, and there is typically an agreed confidentiality stipulation to that effect. There also is no cross-examination.
The next step involves the separation of the parties, who may not see each other for the duration of the process. Instead of the confrontation at the heart of litigation and arbitration, all further communications are often solely through the mediator. The absence of confrontation is extremely important as the parties are more likely to concentrate on rational bases for settlement rather than on personal animus.
Because the mediator’s goal is to find a means of obtaining a settlement, he or she will look for the strengths and weaknesses of each side’s case in order to direct the exchange of settlement proposals. During these exchanges, the mediator will also expect the parties to make concessions, to evaluate their positions and the quantum of damages claimed, and to consider other factors to highlight the benefits of a settlement over going to court.
Note here that some alternative dispute resolution (ADR) organizations that provide mediation services have a policy that the mediator should or should not inform the parties of his or her evaluation of the case. You should know this policy before you decide which organization to contact or which mediator to use.
If the mediation is successful, the parties will enter into a binding settlement agreement. Often, the entire process can be accomplished in one day. There are many instances where the mediation takes longer and, based on the parties’ willingness, may continue off and on for weeks.
How you get into mediation
Three avenues may lead you to a mediation of your disputes: through the contract, by separate agreement or by court mandate.
When you sign your contract, you may or may not read the dispute resolution clause or you may see a clause titled “disputes” or “arbitration,” and figure that you will read it if a problem arises. This matter is so important that it deserves closer scrutiny. You may find that mediation is a contract requirement or that it is a precondition in court (the effects of an ADR clause on lien and bond rights is a separate matter and is not discussed here).
All states have statutes concerning compulsory arbitration, and many states have adopted a version of the Uniform Arbitration Act. Where interstate commerce is involved (which means practically all construction contracts), the Federal Arbitration Act applies. Mediation is not as well defined by statute. However, there is a trend in the courts to treat mediation the same as arbitration from the perspective of making it an enforceable contract right.
Regardless of any ADR provision in your contract, you are always free to propose mediation to the other side. It is always worth consideration.
Lastly, many courts now require the parties to go through a mediation procedure before a trial date is set. These court-sponsored mediations, although often effective, tend to be limited affairs with a court-approved mediator who is on tight time constraints. Even so, the parties can still opt for a more formalized mediation, with court approval.
How to present your case
The mediator is neither friend nor foe. He or she should not be concerned with deciding who is right or wrong or what is fair or unfair. A mediator’s focus is on getting the parties to reach a compromise resolution. When you are selecting a mediator, that person’s success ratio should be investigated.
Every mediator has his or her own style. It may be aggressive, where he or she will concentrate on your case’s weaknesses, or conciliatory, where he or she will show an apparent empathy for your position. You need to be prepared for either approach. To the extent possible, you will want to get the mediator to act on your behalf when he or she is with the other party. For this reason, your attorney should be experienced with mediation and its unique demands.
At its best, the mediation process should encourage you to do the worst- case/best-case analysis before you go into the meetings. In this regard, although it may sound counter-intuitive, it is not necessarily the best strategy to decide in advance what your minimum or maximum result should be. Successful mediations nearly always pass these artificial barriers.
Another important point is to prepare yourself for a long day. Impatience and frustration can lead to an unnecessary impasse as well as an unfavorable settlement agreement. For this reason, the team you assemble for the mediation is critical. Of course, you will need a decision-maker from your company. But consider whether you want to have your “detail” people with you. For example, your project manager may know the facts of the case, but may hinder your ability to compromise because of an emotional involvement in the disputes.
There also is the question of whether your expert should attend. Although the underlying facts of the disputes are initially important, facts can be a distraction. Of equal or greater importance to you may be an analysis of how convincing your fact witnesses will be in court, what kind of documentation exists for the claims and defenses, and how clear the law is on issues in the case.
Some parties, and their counsel, hesitate to use their best arguments in the mediation. The concern is that, by divulging their approach to the case, they are in a weakened position should the mediation fail. The contrary is more likely. Withholding your best arguments or documents means a weaker position in mediation. In addition, mediation is a good forum for testing out the strength of your arguments. (You can also give the mediator information in confidence, with the instruction that it not be shared with the other party.)
In all the mediations I have had as an advocate, my clients have always expressed that the No. 1 benefit of settlement is that the disputes are over. The second benefit is that the resolution was not a decision imposed by a judge or arbitrator who “did not understand the case.”