The Art of Mediating A Construction Dispute

Since its inception, the construction attorneys at the Cobb Law Group have successfully participated in mediation and arbitration on behalf of contractors and subcontractors; starting this summer, two members of our firm will be certified in conducting arbitration and mediation at either of our two offices. We will limit these to matters concerning Georgia construction law and related matters including governmental affairs. We are all very excited about this new feature of our law firm, and we are highlighting blog topics related to mediation and arbitration.

The art of mediating, and yes it is an art.

by:  Joakim Mörlin

When it comes to mediation, there are several factors that plays a big role in the outcome. There is no way to get out from a mediation successfully without thoughtful preparation, and close collaboration by the counsel, different parties, and the mediator. Yet, in so many instances the symbols of a failed mediation make a big impact on one or all involved parties. The most common errors made would include: insufficient objective evaluation of the case, failure to make a persuasive and competent case presentation in the joint session, a failure to fully support or vet the damages that is claimed, and/or a failure to estimate the transaction cost of proceeding to judgment (attorney´s fees, expert fees, discounted risk of adverse judgment, etc.)

What is good to know when choosing and using a Mediator.

There are several ways to go when it comes to choosing the right Mediator. In general, when a client chooses its mediator, it tends to be more of a personal preference, rather than a general hierarchy. With that being said, some favor picking a mediator with deep practical knowledge in the subject matter.  Often, in construction dispute situations, it is very important that the mediator understand such things as the current law on construction contracts, Georgia’s materialmen’s lien statutes, Georgia’s Prompt Payment Acts,  and construction-industry common practices.

Other parties want a more rationale mediator, that does not possess great knowledge in the subject matter, but will do a “quick study” and work for there, but this mediator type also tends to be more people oriented, and therefore can do as good of a job, because their “people skills”.  Some may favor other qualities in a Mediator, some believe that a senior, highly respected member of the bar can exercise influence over the other involved parties. And on the completely other hand, some favors objectivity and neutrality, and therefore desires someone with no connection to any of the parties.

All of these different types of Mediators works, but it is important to have in mind that just because one type works for another, it doesn’t mean that it will work for you. So it is important to find the right fit for your personal needs.  Since construction law is a sub-specialty and often involved complex contracts, legal technicalities of flow-down provisions, indemnifications, as well as complex issues, it is vital that the selection include a mediation who understand and can address all of the issues.

Timing is the KEY.

Having a mediation at the right time is one of the keys to a successful outcome. However, finding the right time for mediation requires balancing readiness and cost. Having a mediation too quickly, before the issues and factual background is appropriately assessed, can lead to extreme, but eventually unsupported, party positions. Yet, pushing the mediation close to trial could also bring several risks, the uncertainty and pressure, can exhaust resources that could have been used earlier to settle the case.

Yes, it’s easy to say that the best timing is just in between too early and too close to the trial. It is very hard to hit the perfect timing, but to get as close as possible will help bringing a successful outcome, together with strong investigation and preparation.

There are less common cases where an early mediation can be successful, and those cases typically involves multi-party cases with several insurers, and where the cost will be significant if the case goes to trial.  Similarly, smaller amounts in dispute may benefit from a quick mediation rather than pay extended attorneys fees and interrupted cash-flows.

ALWAYS, Bring a Person with Appropriate Authority

A good rule of thumb is to give the party representative full settlement authority in a mediation. Common sense will take you a long way, even in a construction mediation.  The term “with full settlement authority” can be somewhat elusive. According to the Federal Court in the Southern District of New York the meaning of this term is as follows: “the authority requirement is someone whom is the designated representative and has the authority to settle the case, but also is in a position to negotiate all subjects that can/may be expected to appear.”

In some cases, parties, uses a mediator without the appropriate authority, as their strategy. This would mean that the mediator would have to bring back the information back and push it up the right channels to get the approval. This method can be used to get additional time, and if the relevant party is in a losing position. This method may not always be appreciated by the courts, and may result in sanctions.  This, however, contravenes the goal of mediation–where each party is coming to table to discuss (and hopefully resolve) their issues quickly and efficiently.

PREPARATION, Opposing Counsel, and the Mediator

Preparation, preparation, and preparation. That is one of the keystones to get a positive and successful outcome. It is important to work with the client and to have them understand the mediation process will lead to “justice”.  It is important to prepare and educate the client on the claims, the deeper understanding of the issue the better, the likelihood of success, and the expected transactional costs. To do this involves a full objective and introspective evaluation of the other party´s case, it is critical to understand what you what you are up against.

When pushing for a pre-hearing submission, it is generally recommended (or required) to do it early in the process, it is critical to make a clear demand of what is wanted. However, it is equally important to set a early date for the pre-mediation submissions, and to have at least some exchanges of demands/offers. As a counsel for a surety or insurer, has to prepare a pre-mediation evaluation that is used to assess the matter and set authority limits. This is a very time-consuming process, that will also create a hard negotiating position. A seemingly common mistake made by claimants in mediation is to suppress some beneficial aspects until the actual mediation session, thus preventing the counsel from factoring those pieces into the strategy to secure authority.

The claimants should always make a very clear demand in advance and include all necessary support materials in advance of the mediation session. This will help starting off the mediation session on the right side, and furthermore it is important to avoid starting the process off the wrong foot with the opposing parties, no matter the differences in opinion. However, to provide a clear demand with all necessary support materials in advance, it is important to thorough vet the claimed damages. This includes a meaningful cost/benefit analysis. Nevertheless, the counsel will on either side will argue the liability issues rather than the damages.

It is always better to deal with your weaknesses, rather than to run from them. The outcome will look better if you will confront and deal with the weaknesses, that will take away the opportunity for the opposing counsel to hammer on those weaknesses. To bring it up yourself, and to work through them will generate more positive outcomes than simply just avoid them.

Effective Support Throughout the Mediation Session

As the mediation session is closing in, there are a few approaches that can be taken into consideration to avoid simple but devastating mistakes to your construction dispute. The first approach is to adopt a matter of fact tone. This includes leaving all dramatics back at the office, personal attacks, insults, or accusations, will according to research only dramatically reduce the effectiveness of communications. Furthermore, only decrease your sides chances of walking out with what you came in for.

As a counsel, you want your case to be taken seriously. In a joint session, as a mediation, it is very important to demonstrate that your side is willing to try the case and persuade the other side of your case bona fides. By having this in mind, never assume a case will not settle in a mediation session. At times, undisclosed dynamics or part concerns will drive to an unexpected settlement.

As a rule of thumb, be realistic when demanding a entitlement. Usually, a high demand will most likely result in a low offer. When asking for too much, it will often lead to an impasse. So be reasonable, and have evidence that backs up your demand.

When the mediation session has started, it is not the right time to reveal new information. It will only make it more difficult to reach a settlement, if providing new information or evidence, because the opposing counsel will most definitely want to examine the new information before moving on to the settlement phase.

Memorialize the Agreement or Regret it.

No two construction disputes are the same. This means that not everything will be resolved by money changing hands, warranty work performed, retainage being released. Some cases might involve limited releases, intellectual property, complex definitional structures, non-compete language, non-disparagement language, continuing business relationships, timed payments, or settlement of one dispute while having ongoing unrelated business. So to assume that everything would be settled by a money offer, is irrational.

Negotiating is an art, and therefore is it important to not only understand the situation on hand, but also be able to articulate all of the matters that need to be included in the settlement. A good strategy is often to ask in a joint session what else, beyond money needs to be addressed.

A memorialized agreement is an excellent way to start off a mediation session. It could be beneficial and productive to prepare a draft settlement agreement in advance, as long that you bring something that would help you modify the agreement along the way.

The art of mediating, if done properly, is a powerful tool for reaching negotiated resolutions of very complex cases. The guide here, will hopefully help you to a more productive mediation process with a more beneficial outcome for not only the clients, but also for you, the mediator.