Construction disputes have increased dramatically in number and complexity over the past few years. As a result of the high cost and delay commonly associated with traditional litigation, and with recent mandatory requirements to participate in a dispute resolution process, many parties are turning to arbitration or mediation to resolve construction disputes.
Although arbitration and mediation are both considered “alternate dispute resolution” processes, there are significant differences between the two. Arbitration is more commonly used when the parties believe there is no likelihood of negotiating a settlement or retaining a business relationship, and is appropriate if the parties need to reach a final decision. Mediation is appropriate when the parties are prepared to compromise and are motivated to reach a timely and mutually satisfactory agreement with the help of a neutral person.
Mediation sessions are typically concluded within a few days. For more complex cases, mediation briefs may be exchanged and given to the mediator in advance of the mediation session. By comparison, an arbitration will often involve considerable time for discovery of documents and may include limited examination for discovery of witnesses. The arbitration hearing often lasts much longer than a mediation.
Mediation can be much more cost effective than either litigation or arbitration, if it results in a resolution. The three main cost components of mediation include internal business costs for preparation and attendance, the cost of lawyers or other advisors to prepare and attend, and the cost of the mediator and the session room. The arbitration process is more similar to litigation and often involves a longer process, presentation of evidence, possible discoveries, legal submissions and expert reports. This inevitably leads to significantly higher costs than a mediation.
In a mediation, the parties maintain the control over how the dispute will be resolved. A mediator may assist the parties to reach a settlement, but has no authority to impose a settlement or to tell the parties how the dispute must be resolved. The parties must agree on the final outcome. In an arbitration, the final outcome is based upon the decision of the arbitrator and the parties are bound by it even if they don’t agree with it.
The biggest advantage of mediation over arbitration is that it avoids the adversarial process and, therefore, increases the likelihood of preserving the business relationship between the parties. Mediation allows discussions to take place in a neutral environment, with an objective mediator, and often accomplishes more in a single session than months of meetings and exchanging correspondence.
Mediation focuses on the business interests of the parties rather than on their legal positions. By not dwelling on the different views of how the dispute arose, the parties are able to concentrate on creating a solution to their dispute. The mediator will assist the parties in identifying the strengths and weaknesses of their case and discovering the underlying interests that are at the heart of the dispute.
To help ensure a successful mediation, keep the following in mind:
- Each party should be represented by someone having settlement authority to allow a final settlement to be reached.
- Plan to spend a concentrated period of time in the mediation and do not plan on conducting other business during or between sessions.
- Come to the table with an open mind.
- Have an understanding of the issues that is akin to that of the other party.
- Ensure there is sufficient information. Exchange mediation submissions, documents and relevant information in advance.
- Be prepared to address technical issues. Have an expert available to discuss any reports with the mediator and other party.
- Discuss internally the concept of settlement and possible options beforehand. Think about benefits that might be negotiated in addition to payment of money.
- Resist setting a “bottom line” or “top dollar” settlement number until the mediator has discussed the case with you.
- Maintain a flexible attitude about your settlement options.
- Determine objective and rational bases for your settlement proposals.
- Consider the cost of avoiding future litigation or arbitration.
- Leave extra time in case sessions are constructive but more time is needed to reach a settlement.
Provided there is a common motivation to settle the dispute on a reasonable and timely basis, there is little to lose and everything to gain by attempting mediation.
This column is provided for general information only and may not be relied upon as legal advice. It originally appeared in the March 2012 print edition of On-Site Magazine.