Disputes are common in construction projects. In this short article, I will discuss a common dispute that I experience as a neutral mediator assigned to resolve the dispute, which is the disagreement between the contractor and client over the project. I will explain why it is important to submit construction disputes to mediation as early as possible.
To Avoid a Disagreement Over a Construction Project:
Before starting work, the contractor should work out all of the project details with the client, such as the work to be performed, the materials to be used, payment schedule, the anticipated starting and completion dates, and a list of allowance items and their budgeted amounts. The contract should clearly provide under what circumstances and how change orders are to be made and how the cost will be determined before changes are made. Contractor should retain a lawyer specializing in construction contract to write the contract and to counsel the contractor to additional items that must be in a signed contract. To avoid future construction defect claims, contractor should insist that all of the work must be done to code. Contractor and client must sign the contract before work begins.
Similarly, contractor must have signed contracts with their sub-contractors before work begins. Contractor should carefully apprise the sub-contractors of their responsibilities under all applicable contracts. During construction, the contractor and client should rigorously conduct onsite supervision and inspection. Both parties should maintain open communication. The contractor should immediately inform the client of any unforeseen or anticipated delay and explain the reasons for the delays and how the contractor will handle them.
As stated above, it is essential that the contractor immediately put in writing all changes agreed upon, no matter how small, in change orders signed by both contractor and client. Timely signed change orders are especially important because construction projects may take months or years to complete. Meantime, parties may have voluminous communication over this extended period of time, through texting, emailing, writing, and phone calls, such that one or both parties may lose track of what is agreed upon. Similarly, both parties should walk through the final product and sign the punch list.
Mediation as a Remedy to Construction Disputes:
A construction project may last for months or even years. Similarly, a contractor may warrant a finished project for years. If a dispute arises, the parties should work together in any ongoing project to resolve disputes as soon as they arise. Alternatively, if a warranty or repair work is required, the parties need to work together to resolve the dispute. Thus, a good construction dispute resolution method should be in place that is efficient but also helps to maintain a good relationship between contractor and client.
Mediation is the best option because it reduces conflicts and cost less, financially and time-wise, compared to litigation and arbitration. In mediation, an experienced professional neutral can help the parties evaluate the facts objectively and make recommendations that can quickly resolve the dispute. Litigation and arbitration on the other hand, are expensive and can take months or years, delaying construction and repairs for the client, and delaying payment for the contractor, while affecting both their business and personal reputation and well-being; and consuming their money, time and energy which could have been better used elsewhere. Saddled with litigation, arbitration, and a mechanics lien, the incomplete or completed building or project may be difficult to sell and its value decreases.
Though some construction contracts may have an arbitration clause, most parties recognize the efficiency and lower cost of mediation. Thus, they may agree to postpone litigation or arbitration, by first trying mediation. Alternatively, they may choose to concurrently pursue litigation or arbitration, with the hope that the mediation will quickly settle the dispute so that they can terminate their litigation and arbitration.
A mediation is a private and confidential dispute resolution process in which parties voluntarily participate. The parties agree to the choice of a neutral mediator. Unlike a judge, jury or arbitrator, a mediator cannot impose his or her decision on the parties. Instead, the mediator helps the parties to reach a settlement that is mutually agreeable to them. The settlement terms are final and legally binding when the parties reduce them to a written settlement agreement that they sign.
The mediator does not provide legal advice. Therefore the parties should retain attorneys who specialize in construction law to advise them in the mediation and review and approve any settlement agreement.
In litigation and arbitration, a judge, jury or arbitrator decides the outcome of the dispute. The parties can appeal the decision to the highest applicable court. By contrast, a mediation settlement has more finality. This is because the parties decide their own mutually agreeable terms in a mediation settlement agreement. This autonomy also allows the parties to come up with mutually beneficial and creative solutions that may be less punitive and costly, but that are unavailable through litigation and arbitration. In short, the parties are less likely to challenge a settlement agreement that they themselves crafted and considered mutually agreeable and beneficial.
In my experience as a mediator, I try to establish trust and confidence in my objective evaluation of the case and make recommendations that in most cases are accepted by the parties. Often when the mediation ends but the parties must continue to interact, the parties request that I be available to mediate any future dispute that might arise. So they incorporate a provision in the Settlement Agreement naming me as the mediator to call if a dispute should arise in the future. Having a mediator who is experienced with the case and on good terms with both parties would lessen acrimony and expedite settlement.
Alternatively, the parties may proactively select a mediator in advance of the project so that if and when a dispute arises, they will not waste time looking for a mediator that they can both agree upon. They can simply contact the mediator who will be prepared to promptly meet with the parties and help resolve the dispute.
Since mediation is a voluntary process, the parties can terminate a mediation and refuse to settle without giving up their rights to pursue any applicable litigation or arbitration. Even if no settlement has been reached, mediation may still be valuable because it allows the parties to exchange information, express their grievances, explore creative solutions, and hopefully, help them to more calmly and strategically focus on the issues that need to be resolved. Since mediation tends to preserve relationship and self-determination, is less costly time-wise and financially, provides for more finality and for mutually beneficial creative solutions unavailable through litigation and arbitration, most parties will try mediation first in the hope of expeditiously settling their disputes without having to spend more time, money and energy litigating or arbitrating to reach a decision that may still be challenged.