The Importance of a Mediation Provision in Construction Contracts

by Mark A. Cobb, Attorney at Law and Georgia Certified Mediator

It doesn’t matter whether we are negotiating construction contracts on behalf of a client or we are discussing a construction collection matter with a potential client, the conversation inevitably includes a discussion of the construction contract’s dispute resolution clause.  These provision may draw a roadmap to resolving the parties’ issues and lower all parties’ legal fees.

What is a Dispute Resolution Clause in a Construction Contract?

These provisions set out the steps and/or the methods to be utilized if the contracting parties have a dispute. Dispute Resolution Provisions may include such steps as (i) informal resolution meetings, (ii) mediation, (iii) arbitration, and (iv) litigation. Some contracts may limit the parties to one method of resolution; other contracts require that the parties begin with informal meetings to resolve their disputes, but then require mediation if the informal meetings do not result in settlement; in the event that mediation fails, then the contract may require something more binding such as arbitration or mediation. It is also important to note that we see a significant number of construction contracts which do not include a Dispute Resolution Clause at all.

Why Are Dispute Resolution Clause Important in Construction Contracts?

If your contract or subcontract does not include a dispute resolution provision, then any unresolved dispute regarding the project will find itself looking to the legal system for resolution. Although the legal system plays an important role in the resolution process, it is not appropriate in every case; furthermore, it is typically a slower method of resolution, and it is usually, the most expensive method of resolving conflict. By including alternative dispute resolution procedures such as arbitration or mediation, the parties may find their dispute handled more quickly, more satisfactorily, and with less legal costs and fees.

What Types of Construction Contracts Should Include a Dispute Resolution Clause?

Usually, we recommend that all construction contracts should include a dispute resolution provision regardless which tier is contracting. Thus, we tend to include these provisions in Owner / Prime Contractor documents, Owner / Design Professional documents, Contractor / Subcontractor Documents, and in all Material Supplier Documents.

What is Construction Arbitration?

Arbitration is a dispute resolution mechanism which is the most similar to construction litigation. It is typically significantly faster than litigation, and there may be some savings on attorney fees. One significant advantage is that the parties may choose an Arbitrator (or a panel of Arbitrators) who is an expert in Construction Law; thus, they are presenting their case to an expert in the field. Generally, the decision rendered by an Arbitrator is binding upon the parties.

What is Construction Mediation?

Mediation is another dispute resolution method. In mediation, the parties select a neutral third-party who is skilled in negotiation and resolution techniques. The mediator works with the parties to find common-ground and discuss settlement opportunities. A skilled mediator working with parties who want to resolve the situation in good-faith, can often bring the parties to settlement. The parties make the decisions regarding the terms of settlement, but the mediator facilitates this process. Mediation is not binding on any party unless the parties mutually agree to a settlement. This process is the fastest and most economical settlement method available. In addition, mediation is not limited to the same remedies which might be used in arbitration or litigation; thus, the settlement can include “outside-the-box” agreements, it can include the parties’ agreement to resume work, or repair defective techniques.

Why is a Mediation Provision Particularly Important in a Construction Contract?

Mediation techniques are useful for any type of construction claim from payment issues and materialmen lien issues to liquidated damage claims or defective design claims. Furthermore, because of the relatively fast nature of mediation, it can more-effectively resolve disputes and keep a project on schedule. Also, because of the reasonable costs associated with mediation, it can handle disputes that are small which may not justify the costs of litigation.  Finally, mediation is a confidential forum for attempting to resolve conflict; in other words, the statements made by the parties during the mediation are confidential and cannot be used against them if the mediation fails to resolve all of the issues.

What are the Advantages of Including a Mediation Provision in a Construction Contract?

Although there are multiple examples of why most construction contracts should include mediation as a part of is dispute resolution plan, but for most disputes, it is the reduction of legal fees. Yes, in a multi-million dollar dispute, the parties may be able to justify spending a lot of money on attorneys’ fees and waiting for the court to make its decisions; however, thankfully, most dispute are far less and they will never justify the costs of litigation. Thus, mediation allows the parties to work through a trained mediator to try to bring the parties to a mutual, voluntary solution.

If this Construction Contract Does Not Have a Mediation Provision, can the Parties Compel Mediation as a Method to Resolve the Dispute?

Most courts in Georgia require that the parties mediate their dispute prior to trial. Often, however, this comes after informal settlement attempts, draft lawsuits and responsive pleadings, discovery and depositions, and after motions and hearings. Thus, two significant advantages of construction mediation–speedy resolution and lower attorneys’ fees–have disappeared. Thus, unless your construction contract includes a requirement for mediation prior to filing suit, a lawsuit will likely have to be filed, and the parties will find themselves at the mercy of the civil action.

Is there an Example a Common or Standard Mandatory Mediation Provision for a Georgia Construction Contract?

In drafting construction contracts, there is not any “one-way” to draft something.  However, the following one example of a mandatory mediation provision:

Before any claim, dispute, or other matter between the Parties is submitted to litigation or arbitration, the Parties agree to mediate said claim, dispute, or matter before an experienced, professional mediator mutually agreeable to Subcontractor and Contractor. All offers, promises, conduct, and statements, whether oral or written, made in the course of the negotiation by any of the Parites, their agents, employees, experts, and attorneys shall be confidential, privileged and inadmissible for any purpose.  The mediation will occue in Atlanta, Georgia and each party shall bear the costs of mediation equally.  In the event that any attempts to resolve the claim, dispute, or matter through mediation faily, then any claims, disputes, or other matters between the Parties hereby arising out of or related to this Agreement may be submitted to arbitration as more fully set forth herein.

Does the Cobb Law Group offer Construction Mediation and Arbitration Services?

All of our attorneys (and some of our staff!) have experience mediating and arbitrating on behalf of clients; in addition, Mark Cobb, Barry Selvidge, and James Eubanks are Georgia certified mediators and can act as third-party neutrals for those seeking mediation. In addition, Barry Selvidge is a Georgia certified arbitrator. We offer these services at both of our physical offices (in Atlanta and in South Georgia).

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