6 tips for effective mediation when construction contract disputes develop

When a dispute arises during a construction project, it can prove extremely problematic for the people involved, from contractors, subcontractors and engineers to designers, architects and project managers.

One of the key ways in which contract disputes are widely dealt with globally, including in the construction sector, is by way of mediation. Mediation helps limit tension between two parties, reduces the time spent on resolving legal disputes, allowing everyone to focus on the construction project.

It’s worth highlighting that there are certain things that should be considered to get the most out of the mediation process. Ian Carson, head of business disputes at Harper James shares his top tips for effective mediation in contract disputes:

1) Choose the right mediator

If there’s a dispute resolution clause in the contract (which should be one of the first things you check), it might set out if a particular body has to appoint the mediator: this is the neutral third party whose role it is to assist the parties in dispute to reach a settlement.

If not, it’s a good idea to seek out recommendations from other trusted individuals in your industry. A mediator with a strong track record in the type of dispute you’re involved in is always a natural choice and word of mouth endorsements are always helpful.

2) Think about your strategy ahead of time

Thinking about what offers – and concessions – you’re prepared to make and accept in the mediation itself ahead of time is important. This might include checking in with those in charge of the finances within your organisation, if finances are at the heart of the problem in some way, and making sure you’re clear about what monetary proposals or reductions you can safely make or accept – this is often referred to as ‘authority to settle.’

Because the mediator will also expect all parties to figure out what their best and worst alternatives to a settlement might look like (i.e. if the mediation itself doesn’t result in a resolution).

3) Know what to expect on mediation day

Every mediation runs slightly differently but it’s wise to understand how it’s likely to unfold. If the mediation is taking place in person, the mediator will meet with you and your lawyer in your private room and will explain the confidential nature of the process – unless you give them permission to share specific things with the other party or parties.

You’ll be invited to attend an initial opening meeting with the other parties, and also be asked if you’d like to make an opening statement then (which you should think about in advance). After the meeting, everyone will return to their private rooms and the mediator will then begin speaking with each side separately. This gives the opportunity for the mediator to ask further questions or seek clarification from the other party/parties via the mediator.

Eventually – and ideally – offers or other settlement proposals will start being made and this can sometimes take the rest of the day and into the evening, so be prepared for a long haul.

If the mediation is taking place online then the likely format set out above will vary to a degree but the shuttle diplomacy of the mediator is likely to be the same.

4) Look at the situation objectively

The main thing to bear in mind is that the aim of the mediation is to reach a mutually acceptable outcome. Keep focusing on the benefits a settlement might bring, such as a project being able to move forward again, and avoid getting caught up in one-upmanship-style thinking.

View any offers made to you through an objective lens and be mindful of keeping any offers you make as credible: this minimises the risk of it being rejected outright and deemed as potentially triggering hostility, which can of course affect the whole tone of the day.

Your mediator might even flag this up with you and is also likely to ask you to explain the reasoning behind your proposal so that they can convey this to the other side/sides.

5) Think about the ongoing business relationship (if there is or could be one)

Mediation is widely accepted as one of the best methods of alternative dispute resolution (ADR) for increasing the likelihood of maintaining future business relationships with those you’re currently in dispute with. It’s good to have this at the forefront of your mind when entering into mediation if that’s an important consideration for your company.

6) Accept that mediation can have its limitations

Remember that ultimately, the success or failure of a mediation is determined by the way the parties involved behave and that includes coming to the process with reasonable and realistic expectations.

The mediator is there to facilitate communication between the parties but does not, generally speaking, give any kind of verdict or make any decisions on anyone’s behalf (unless it’s an evaluative or transformative type of mediation).

A mediator will often play devil’s advocate to test your case in the safety of your own room. That’s simply part of the process. It doesn’t mean the mediator is batting for the other side.

If a settlement isn’t reached, further action will have to be taken in the form of another form or forms of ADR or, in the worst-case scenario, litigated proceedings – all of which effectively means greater costs, and further delays to the project, on the possibly long road ahead.

Summary

Enforceability of any agreement reached in mediation relies squarely on the parties honouring that agreement which will be set out in a written and signed agreement at the conclusion of the mediation. The mediator will have made it clear at the outset that no settlement is binding until it is signed in writing.

Mediation can offer fast and cost-effective solutions, which are important considerations in the context of construction contract disputes. The success rate is good and it improves the likelihood that positive commercial relationships can be maintained. These solutions can be broader than those available in other forms of ADR or at the end of the court process.

Ian Carson is head of business disputes at Harper James.

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