Mediation increasingly used to settle construction disputes

(This article originally ran in Finance and Commerce, Minneapolis, MN, another Dolan Media publication).

In the world of professional football, a disputed call is often cleared up with the use of instant replay.

If only it were that simple in the world of construction.

Take the competing interests of owners, general contractors, architects, insurance companies and subcontractors; mix them together in a major construction project; and it's almost inevitable that disputes will occur.

But a construction dispute doesn't have to be a multimillion dollar expense or a deathblow to a previously strong professional relationship, a mediation expert says.

John Harens, a partner in the firm of Moore, Costello & Hart, says mediation is a cheaper, faster and more harmonious alternative to litigation when it comes to settling construction conflicts.

I'm a pretty big fan of arbitration versus litigation, but I think mediation is a much, much better process of how you get there, said Harens, an experienced mediator who advises clients on construction law. More and more, construction cases are resolved in the alternative dispute resolution process than ever before. Just the expense associated with litigating complex multi-party cases makes mediation a very attractive process.

Construction disputes are especially expensive to litigate because they often involve multiple issues and multiple parties. Moreover, Harens said, they tend to be document intensive, which means you will have a lot more paper shuffling.

There are various strategies for avoiding disputes, including having larger design budgets with more extensive details and specifications and eliminating the natural tension between architect and contractor through the use of design-build project delivery, Harens said.

Others try to avoid disputes by adding contractual language such as no-damage for delay provisions, time limits for making claims and abbreviated statutes of limitations.

Despite those efforts, construction project disputes are just going to happen, and mediation is usually the best and cheapest way to deal with them, Harens said. He cited a South Dakota case that involved 16 parties and took three days to settle.

I probably met with all 16 parties five or six times each in three days, he said. For $125,000, they settled that dispute. Whereas if they had gone to court, most people were saying it would have cost $2 million just on the process.

Even better than the cost savings, he said, is that the parties left the room with their relationships intact.

They all got in the same room, shook hands when the case was over and walked out, he said. I didn't have anybody yelling and screaming at each other; nobody was angry at each other.

Harens also thinks mediation allows for in-kind deals as well as cash settlements.

In mediation, you can do all kinds of things, he said. You can say, 'I'll go out and fix the waterproofing if you'll give up that claim against me for tearing up the sod and the irrigation system.'

You're never going to get a jury to say, 'You do the waterproofing over, and I'll do the sod work.'

One of the disadvantages of mediation, however, is that it isn't always guaranteed to work. Decisions are nonbinding, and sometimes parties have second thoughts about the agreement that was reached.

But even if mediation fails, it's often the first step toward resolving a project dispute.

Out of those 1,500 cases that I've mediated, I can think of only four or five that ever went to trial, Harens said.

C.J. Schoenwetter, an attorney with Bowman and Brooke and an arbitration expert, said it's important for the disputing parties to get together and speak candidly with each other through alternative dispute resolution such as mediation or arbitration.

Most construction contracts now have provisions calling for alternative dispute resolution.

Essentially, all of these forms of (alternative dispute resolution) are what the parties make of them, said Schoenwetter, who concentrates on general commercial, construction and employment law. It's all done by agreement. The parties can get creative and select a process that will help them resolve their disputes with one another.

Arbitration reduces the risk of class-action lawsuits and lessens the risk of huge damage awards from runaway juries, according to Schoenwetter. Moreover, he said, there are limited grounds for appeal in arbitration, and it's more confidential than litigation.

It's a private and confidential matter, Schoenwetter said. That way, you are not airing your dirty laundry in public. If you're concerned about your goodwill in the public's eyes, arbitration or mediation is very useful in that respect.

Harens advises contractors to do their homework before going before a mediator. That includes selecting a qualified mediator with some knowledge of the industry, setting goals and identifying the names and duties of the players in the dispute.

It's also important to have a decision-maker at the table.

You'd be surprised how many times people show up in mediation with the decision-maker on the phone, he said. If I were a contractor going to mediation, I would turn my project manager and superintendent loose, but I sure wouldn't let them run the show. The true decision-maker is the guy that has to stay because he has a more global view of the project.

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