A Program Management Approach: Dispute Avoidance (Part 4)

Previous articles:

Dispute Avoidance (Part 1)

Dispute Avoidance (Part 2)

Dispute Avoidance (Part 3)

Mediation

In the earlier section of this sub-chapter, the importance of resolving problems and disputes at the project level is accentuated.?The sub-chapter then goes on to discuss DRBs and ENEs as one "step?up" the hierarchy of ADR to resolve issues so that the project is not adversely impacted by reason of the pendency of disputes. In some situations, these processes do not resolve the dispute and resort to formal dispute resolution as established in the contract, whether by arbitration or judicial proceedings, appears to be the only means to achieve resolution. However, there is a process known as "Mediation" that has a proven track record of facilitating the resolution of disputes, even hotly contested disputes. Depending upon when, during the life of their dispute, the parties engaging in mediation could result not only in saving the huge expense of arbitration or litigation, but also benefitting the progress and cost of the project.

Mediation Process.?Mediation is a process in which a trained and qualified neutral third-party facilitator assists parties to a dispute to reach an amicable resolution. The concept of mediation is not new, indeed it is thousands of years old. In many cultures, disputants have been guided to a peaceful and harmonious resolution of their disputes through the intervention of elders, religious leaders and wise intermediaries. Indeed legislation was passed in the U.K. and the U.S. around the turn of the 20th Century providing a framework for the use of "conciliation" in the context of industrial and labor relations. The history of the use of conciliation in China and Japan goes back well before the 20th Century.

Use in Construction Industry.?The use of mediation as an ADR process in the construction industry is relatively recent and limited in its geographic reach. While the use of mediation for the resolution of construction disputes in the United States has become not only common but contractually mandated in many standard and bespoke contracts, this process is not common (if used at all) in Latin America, the Middle East, and Eastern Europe. Mediation is also utilized often in Canada, the U.K and Hong Kong. Many ADR providers have institutionalized mediation as one of their major offerings, providing access to highly trained mediators and a body of guidelines and rules that increase the likely success of the process.?

Facilitation of Discussion between Disputing Parties.?Mediation is, at its core, enhanced negotiations. Unlike DRBs, ENEs and arbitration or litigation, the third party (the mediator) does not make judgments and does not impose a decision on the parties that is binding in any way. Indeed, the role of the mediator is to facilitate discussions between the disputing parties with the goal of the parties achieving a settlement of their disputes. In other words, the control of the resolution remains in the hands of the parties. The right and ability to control the resolution of the underlying dispute even goes so far as a party having the right to walk out of the mediation without any adverse consequences other than the missed opportunity to work further and resolve the dispute.

Good Faith Premise.?Mediation also is premised upon the willingness of parties to work in good faith through their differences to reach an agreement. To do so there must be candor with the mediator and often (hopefully) with the other party. Parties would of course be reluctant to acknowledge their weaknesses or their willingness to move from their original position, and for that reason, a key principle of mediation is that all statements made by the parties are confidential and in jurisdictions where the concept of "legal privilege" exists all statements are considered privileged and thus forbidden to be repeated in any legal proceedings should the parties not achieve a settlement. In some jurisdictions, local court rules protect the confidentiality and privilege of statements made in mediation. However, in the absence of such rules, the parties should provide for the same in a written agreement.??

Clearly, the ability of a mediator to move parties from the positions that define their dispute to a mutually acceptable settlement requires expertise, training and experience.?Fortunately, a cadre of such individuals exists with unique expertise and mediation skills in the specific context of construction disputes. While mediation, in general, is known to have a very high level of success (e.g. it is commonly understood that at least 80% of all disputes submitted to mediation are resolved by the achievement of a settlement), in the construction dispute context the percentage is even higher.?

The Mediation Process.?The following process is general and describes how a majority of mediation cases proceed (though it should be noted that there is a wide variety of cases in the construction industry):

• Selecting the Mediator.?Engagement in mediation may be a contractual requirement or the consequence of a suggestion by one party or their attorney to their counterpart. Regardless, once the parties seek to engage in mediation the first important decision is the selection of the mediator. Indeed, there is no more important decision to be made other than the terms of the settlement achieved. Readers are invited to enter the term "construction mediators" in their internet search field to learn of the vast array of lawyers, engineers, former judges and other individuals who offer their services, many in affiliation with major ADR providers. However, a review of resumes is insufficient. First and most importantly, the mediator must be trusted to be effective. Therefore, the mediator must disclose any relationship that could be perceived as presenting a bias in favor of one client or the other. The parties should carefully review those disclosures and be certain that they are comfortable with the mediator's independence and neutrality. A mediator's style, temperament, language capabilities, particular technical expertise and experience are all aspects of a mediator that should be considered. The most effective way to review the suitability of a particular candidate for the role of a mediator is to speak with parties and lawyers who have had a mediation with the candidate and to evaluate, from that conversation, the potential effectiveness of the candidate under the particular circumstances of the case.
• ?Pre-Mediation Preparation.?Prior to engaging the parties in any substantive way, the mediator must establish certain ground rules that should be included in a mediation agreement. Many mediators have a standard form of mediator agreement that they will offer to the parties to simplify the situation and avoid a further dispute about the contents of the agreement providing for the process to solve the existing dispute! These ground rules include:
• ?During these meetings, or in the absence of such a meeting by written or telephonic communication, the mediator will ascertain the following:

1. That each party is indeed committed to the good faith effort required to resolve the dispute through mediation.
2. That the people who will attend are attending for a proper purpose. This consideration will often result in the agreement that senior officers of each party, even if not involved in the underlying dispute, will attend the entirety of the mediation. It may include an understanding that the individuals involved in the disputed issue, particularly if their conflict became personal, will take a "back seat" to a more objective official of their company. It also will include confirmation that each party's representatives will have the authority to settle the case in the mediation, best?without the requirement to seek permission from others in distant places and with limited access.
3. That all who will attend are committed to staying in the process until a settlement is achieved or the mediator declares the parties to be at an "impasse" that will not be resolved in the mediation.
4. Other logistical considerations such as the payment of the mediator's fees, the payment of room charges, the provision of food and any other costs that may be sustained. The last thing the parties should want is a dispute to arise during mediation based upon who is paying for the pizza delivered to the mediation site!

Goal of Mediation:?Winning??Many advocates of mediation accurately describe the process as a "win-win" proposition and differentiate it from arbitration/litigation where there is one winner and one loser. However, that general description of the merits of the process does not mean that a party should not come to mediation with strategies supported with preparation designed to increase the likelihood of a settlement that favors that party. As in any negotiation, the better-prepared party typically fares well.?

Logistics of the Mediation Process.?Once the mediator has been selected, a date or dates and a place will be selected to conduct the mediation process. The mediator will often meet with the parties individually in advance of the mediation date to discuss their case, to learn what the mediator can about the dynamics of the dispute, to learn about the obstacles to settlement and any other information that the mediator will be able to use in developing the mediator's own strategy to guide the parties to a settlement. This meeting presents a valuable opportunity to privately explain to the mediator why the matter has not been resolved and how the mediator could be helpful in overcoming those obstacles.?

However, it is also an invaluable opportunity to receive feedback from the mediator about the case presented from which feedback a party may reconsider its position or the way in which it presents it arguments during the mediation process. Mediators will often require that the parties exchange their positions in writing prior to the first mediation meeting or verbally during the opening of the mediation process. Care must be taken in expressing one's position to create the appropriate signals to the other party of a willingness to settle without harming the negotiating position.

Sometimes the mediator will skip the verbal presentations by both parties when that process might create more problems than facilitating solutions.?Recalling that mediation is actually enhanced negotiation, another major difference between DRBs, ENEs and arbitration is that in those processes, each party addresses and seeks to convince the third party decision-maker. In mediation, all communications are actually directed at the other party, even if communicated through the mediator.?

Confidentiality of Communications with the Mediator.?Every word uttered by a party to the mediator is confidential and may not be disclosed to the other party without express permission. Thus, by way of example, if a party is communicating with the mediator and says "to tell you the truth, we have asked for $5 million but would gladly accept $3 million", the mediator may not repeat that statement or communicate its substance without the express approval of the offering party. With that level of confidentiality, parties are able to engage in discussions with the mediator in which the mediator's role is?to assist the party in seeing past its anger, frustrations and its erroneous positions to ultimately achieve a settlement that is fair and appropriate.?

Engaging in the Process. ?The mediation process usually takes place in a neutral location such as a conference center or hotel. Assuming a two-party mediation, three rooms will be provided. One is the central room for both parties and the mediator to meet together. The other two rooms are "caucus" rooms for each of the parties. It is in the caucus room where the parties will spend the vast majority of their time as the mediator shuttles back and forth from room to room seeking to advance the parties to the point of reaching a settlement. This process requires patience and dedication as the mediator may spend an hour with Party A trying to convince them that their offer of settlement is not an adequate response to the one they received, all the time Party B's team is sitting in their caucus room waiting for something to happen!?

Achievement of Settlement.?When the mediator has guided the parties to a settlement, the mediator will typically call the parties together into the central room to congratulate them on having solved their dispute and provide a venue for former adversaries to now shake hands, bow or plant two kisses—whatever the custom—to acknowledge to each other that two businesses have indeed found a way to solve their issue. Then the mediator will lead their legal counsel into an available room to draft a settlement agreement that will be signed by the parties before they leave the mediation. Once signed, that agreement is binding on the parties.?

Reaching an Impasse.?Though not common, there are situations in which mediation is not successful. When the mediator believes that further efforts will not result in the achievement of a settlement, the mediator may declare an "impasse" at which time the mediation efforts is concluded and the parties revert to their pre-mediation positions. The agreements as to confidentiality and privilege of course remain effective and nothing said or disclosed during the mediation may be used in connection with any further legal proceedings.?

Technical Mediation.?"Technical Mediation" is a little-known and little-used subset of mediation. It is a process that may be useful when the underlying dispute concerns issues of engineering or other technical considerations where the parties' positions are firmly based upon strongly-held opinions on such technical issues. When engineers disagree, for example, when a steel connection will fail, it is difficult to resolve that dispute through a process that requires a level of compromise. How does a professional engineer with a sincere belief that the connection will fail in a defined situation "compromise" that belief and agree to a status that the engineer still believes will fail??Technical Mediation was designed to address that situation.

• In a Technical Mediation, an expert in the field of the disputed issue serves as the Technical Mediator.?The mediator's role is to conduct a collegial and professional conversation between the experts for both parties to the dispute without the interference and pressure of the stakeholder clients and their lawyers present. Engineers engaging in discussion of a highly technical issue with a respected expert serving as the facilitator are more likely to "let their guard down" and allow for other points of view than they will if their client is sitting and their side and the client's lawyer is staring at them to remind them that they are in a legal proceeding, not in college.
• The goal of the mediation is for the party experts to reach a consensus as to a solution to the technical problem that will be effective and, at the same time, cost-effective.?In one such technical mediation the expert who had opined that the only solution to certain building defects was to raze the building and built it again eventually agreed that a certain regime of repairs would result in a complete resolution of the underlying issues, albeit at a far lesser expense than demolition and rebuilding.
• The Technical Mediation will conclude with one of two results; (a) a report of the consensus reached by the experts, which report will be delivered to both parties or (b) a report of the failure to achieve a consensus combined with the expert's opinion as to the best solution to the underlying issue which also will be delivered to the parties. By prior agreement, the parties should have addressed whether or not the mediator's opinion in (b), above, may be offered as evidence. In most cases, the mediator's opinion is only for the benefit of the parties and not as evidence in legal proceedings.
• If a consensus report (a, above) is issued the parties may engage in regular mediation with another mediator to resolve the financial ramifications of the consensus solution absent an agreement between them.
• Technical Mediation may occur within a mediation or independent of it. (7)

Arbitration

Arbitration is within the family of ADR processes as it is an alternative to dispute resolution in the courts. In some jurisdictions it is a very important alternative as judicial processes can drag on for more than a decade, local courts do not provide a high level of confidence in the integrity of the process or the quality of justice and the costs of participation in judicial proceedings over the long term can be very high.??

Arbitration Benefits.?Among the virtues of arbitration are (a) selection of arbitrators from within the industry whose experience and expertise provide significant confidence in the quality of the dispute resolution process (b) expedited resolution of disputes within far shorter time frames than litigation and (c) reduced costs in comparison with legal proceedings. All that said, arbitration is not a substitute for the earlier mentioned ADR processes as:

• Arbitration is still a formal process that has, over the years, taking on more of the appearance of formal litigation with lawyers doing much of what they do in a trial, parties exchanging documents, electronic records and other evidence through formal "discovery" practices, experts testifying under oath, exhibits being entered on the record, etc.
• While arbitration reaches resolution faster than most courts, significant construction disputes can take a very long time to work through the full process.
• As in court, the parties turn over their dispute to third parties (the arbitrators) who issue an "award" based upon the merits of the case. Once submitted to arbitration, absent an intervening settlement through direct negotiation or mediation, the parties lose control of the resolution of their dispute.
• Because arbitration is so well known in the industry, this sub-chapter will not provide a detailed description of arbitration, nor will it attempt to address the variations in arbitration that occur depending upon the jurisdiction or venue of the arbitration.
• In the context of construction, and particularly tall buildings, important issues concerning arbitration are as follows:
• As many tall building projects involve multiple stakeholders from different countries, resorting to local courts is not an attractive option to those from other jurisdictions. Arbitration provides a valuable alternative. There are many ADR providers that offer rules and support in jurisdictions around the world so that the concerns of stakeholders that they are not in an arbitration held in a locale where they perceive a disadvantage are addressed. These jurisdictions include the United States (typically New York or Miami), London, Stockholm, Singapore, Dubai, Hong Kong, Paris, and many others.
• The underlying contracts between the stakeholders must provide for arbitration.
• If the parties desire that related issues between different project stakeholders be heard in one "consolidated" arbitration, the contract must provide for that result.
• The underlying contract documents should provide adequate descriptions of the arbitration process to be employed, including either refer to a particular body of published rules or a bespoke version that covers the same topics adequately.
• The underlying contract documents should provide the language of the arbitration, the locale of the hearings, any limit on the length of the arbitration proceedings, any provision for or limitation of the rights of parties to access to the other's records, and the number of arbitrators to be selected.?

Summary and Conclusion

The super tall building is perhaps the best example of a project that would benefit from participation in processes to eliminate delay and unknown costs resulting from the lack of timely problem solving and the escalation of unresolved problems into disputes requiring formal arbitration or litigation. The processes described in this sub-chapter offer stakeholders the opportunity to effectively intervene before problems evolve into disputes and to solve those disputes that escape resolution all for the benefit of the project.

(7) Peckar, Robert S. "Technical Mediation-A New Model for Resolving Complex Construction Disputes." Dispute Resolution Journal of the American Arbitration Association. May-July 2005. Pages 22-23.