Mediation & Construction Disputes

By Roy J. Cooper, PE

Section 15.3.1 of the AIA form states: "Claims, disputes, or other matters in controversy arising out of or related to the Contract" shall be subject to mediation as a condition precedent to binding dispute resolution."

Section 12.3 Mitigation and 12.4 Mediation of the Consesusdocs form states: "If the matter is unresolved after submission of the matter to a mitigation procedure or to mediation, the Parties shall submit the matter to the binding dispute resolution procedure designated herein."

There are many different factors that ultimately influence whether or not a construction mediation session is successful. The strength of legal positions, the complexity of the technical construction issues, size of the damage amounts, the motivation of the parties, logistics of the mediation session and human factors all play a role in whether a mediation has a chance to be successful.

This article explores some of these factors including:

• Timing of the mediation session in the dispute process life cycle
• The importance of counsel that are experts in construction
• The importance of choosing a construction mediator
• Choosing an expert and preparing for mediation
• Fact witnesses - "the horse you will be riding"

When considering these factors, understand that mediation sessions come in a variety of shapes and sizes. They can include complex disputes that have damage amounts greater than $100 million involving multiple parties all presenting different cases. These types of mediations are complicated by the involvement of multiple parties, not just the owner and the contractor, who have an interest in a settlement.

Design professionals may be exposed to errors and omissions claims based on arguments presented by the contractors. Separate contractors involved in the project may also be exposed to claims asserted by the contractor bringing the suit.

Mediations can also involve very simple cases where there may only be one or two issues and the damages are straightforward. It is important to recognize that not every mediation should be entered into using the same format. Likewise, the involved parties should not enter into mediation with the same approach each time. After all, every construction project is different and every dispute is different. However, there are certain factors that should be considered for a mediation to have a chance at success.
Logistical factors are important such as in the dispute resolution process when the mediation occurs. Parties may not know enough about the facts of their case and the strengths and weaknesses of their position if mediation occurs too early. Furthermore, if mediation occurs early, there may not be enough pain and suffering in the form of legal, expert and corporate fees to soften up hardened positions and compel settlement. There are also influencing factors if mediation occurs close to trial. In most cases, once a dispute is nearing trial, there have been significant legal, expert and corporate expenses.

As mentioned above, these expenditures can compel parties to settlement. However, they can also serve as the catalyst to take the dispute all the way. The logic being, "We've spent this much, what's a little more."

While timing is important, most would agree that the most critical factors in mediation are the human ones. The competency of the mediator, attorneys, fact witnesses and experts all play an important role in a mediation's success. The emotional disposition of the key parties is often pivotal in a mediation's success or failure.

Passion and individual opinions can cloud the facts and undermine the mediation's prospects for successful resolution. Even with all the human elements, the facts of the dispute should remain the central factor, if the involved parties keep the facts in focus. Hopefully each party in the mediation has a goal to set aside emotions and feelings and settle the case. The individual contributions and perspectives of all of these parties vary significantly but are all important.
Most articles on mediation come from seasoned construction attorneys who obviously play an extremely important role in mediation and offer a valuable perspective. When dealing with complex legal, technical and damage issues, there is no substitute for a competent construction attorney. Construction attorneys are knowledgeable about the construction industry and are experienced in resolving complex construction disputes. There are many attorneys who occasionally handle construction matters. But there is a difference between a construction attorney who has a thorough grasp of construction management and engineering principals along with claim analysis methodologies and damages as opposed to the attorney who handles the occasional real estate development deal or residential home dispute.
Just as there is no substitute for an experienced construction attorney, there is no substitute for an experienced construction mediator. Law school students are often told that construction cases are some of the most complicated and document-intensive cases.

Therefore, they should not be treated like any other type of case. With so many documents and factors to sift through, it is easy for the parties to get bogged down and lose focus of the critical issues. A good mediator helps bring clarity and focus to the issues at hand.

The mediator is ultimately the person that everyone desires to turn to as the voice of reason. It is vitally important that the mediator understands the very different goals and perspectives of contractors, owners and the other involved parties, including the experts who often have a primary role in presenting on behalf of their client.

The contractor often feels an intense emotional attachment to the case because the company's reputation - potentially built over several generations, if not the company itself - often bears the name of the principals that are at stake. The field superintendents and engineers are out to prove their innocence. Their jobs may actually depend on a successful resolution of the dispute. In contrast, the owner also cares deeply, but for different reasons.
Public owners have a duty to protect the public's interest; do not underestimate the dedication and sense of responsibility that public owners have in their roles as stewards of public funds. However, on the private side, personal funds can be used to contribute to the settlement. The mediator cannot get inside the head of the parties and effectively communicate with them if there is not an understanding of these human dynamics.

As briefly discussed, construction disputes can be complex with numerous interconnected issues. A mediation's success can almost be predicted by the strength of the mediator. Some mediators mediate any and every kind of dispute. To some, a contract dispute is simply a contract dispute, whether it is a construction contract or a marriage contract. These mediators may not be interested in hearing and truly understanding what the parties lived through on the project. There has usually been some real personal pain that has been experienced and the parties want to make sure that the mediator knows about it.

Other mediators less experienced in construction are willing to hear presentations by the parties on the facts and damages which is good; however, technical construction and cost issues are complicated. There are some very talented people involved on a day-to-day basis with construction projects. Usually by the time an issue enters the dispute stage, the dispute has not been able to be resolved in the field. The reason it is in front of the mediator in the first place is that there are numerous technical differences and human dynamics that just cannot be sorted out that easily. One does not need to look far to find some extremely detailed and well thought out work on topics such as schedule delay analysis and measuring loss of productivity. If a mediator does not understand these kinds of technical engineering and claims analysis principals, there is no way that he or she can provide an accurate assessment of each side's presentation of the facts.

All claims are ultimately about money and the claim calculations use a variety of methods. Some damage calculation methods are more acceptable than others while some are simply just unacceptable. Claims can and sometimes are intentionally inflated. Claims can be inflated by employing a damage model that is inappropriate. Claims also rise to unreasonable levels because mistakes are made. There is no doubt that there will be issues of damages that are at the center of the dispute. A mediator should have some understanding of how contractors allocate costs as well as the various damage methods for computing components such as loss of productivity, escalation, field office overhead and    home office overhead. If a mediator asks questions which reveal a fundamental lack of understanding of the project, there is going to be a problem. Mediation sessions lead by mediators without the experience and technical background are less likely to achieve satisfactory results.

On the other hand, an effective mediator understands the complex technical nature of construction disputes and damages and can help the parties separate the issues that matter from the ones that do not. Time in mediation that is not spent explaining concurrent delay or the legal history of the Eichleay formula to the mediator is time that can be spent productively working toward settlement. Most important though is the credibility that a seasoned construction mediator brings to the table. Skilled mediators are able to bring clarity to the issues and soften unreasonable positions.
Experts like to know everything about anything that happened on a project, or at least they should. Given the opportunity, many experts would analyze a case to endless degree. Not out of greed for fees, but because they want to be impeccably prepared and do the best job for their client that they potentially can. Some experts cannot do anything less than everything. When engaging an expert, the owner and counsel should consider precisely what role the expert should fill. If there is no time or budget to uncover every rock and chase down every fact, make sure you have an expert who knows his or her role and can function within that role. Some experts simply cannot adapt a modified approach to the assignment.


Consider the following scenario: There is a project that has had its share of issues, but nothing that the owner believes is out of control or will lead to a claim. In the meantime, the contractor has been preparing for litigation from day one. The contractor has taken numerous photos, sent many RFIs, marked up plan sheets with colored pencils and built files. At the end of the project, several claim binders are presented to the owner and filings are made. The courts put the dispute on the "rocket docket" and have promptly ordered mediation. The owner's team gets going on the analysis with the limited time available. Long hours are worked, issue files are assembled, positions evaluated and presentations prepared. The owner has about two months to put all of this together compared to the contractor who has had two years. While the owner may have an adequate grasp of the issues, they are not ready for litigation.

It goes against an expert's nature to enter into a mediation at less than 100% prepared. However, sometimes time or client budget constraints, like those mentioned above, may dictate a good analysis and not a litigation-ready analysis. The truth is that sometimes both sides are not operating on an equal footing in terms of preparedness. It doesn't make one party right. It is just the way the project has unfolded. It is important for everyone to understand exactly where the team is in the spectrum of preparedness and set expectations accordingly. This will reduce the feeling of being ambushed or discouraged and interfering with the mediation effort so that team members can focus their energy on settlement instead of thinking about what they could have, should have, would have done differently.
The most profound words I've ever heard a mediator say involved a case where the other side had very good fact witnesses. The fact witnesses on our side were not as eloquent or compelling. After the presentations by the experts and fact witnesses, the mediator said the following in private to the client, expert and lawyer:

"Now you've got some good experts on both sides in this case. They've made good presentations here and I'm sure they will do equally as good at trial. So in the end, they just might cancel each other out. You've also got really good, well-respected counsel on both sides and the same can be said for them. So it comes down to the fact witnesses that each side will put up. In litigation your fact witness is going to be the horse you are riding. Gentlemen are you comfortable with that horse?"

The mediator knew we did not have confidence in our fact witness. It is common to believe that the successful resolution of a construction dispute depends on the quality of the attorneys and experts. To use the horse analogy, it all rides on them. Reality is often much different. It is not necessarily a conscious decision to downplay the role of the fact witnesses, especially in mediation. Attorneys and experts are the professionals; they have put the time in and do this kind of thing for a living. Therefore, they fill the positions of dominance in the presentations and negotiations. However, as the mediator suggested, it is wise to strongly consider the strength of your fact witnesses. Mediation is actually a great forum to determine how strong fact witnesses will be during a formal litigation. This goes beyond actual presentation skills and gives insight to an ability to organize the facts and work with the rest of the team.
Most experts involved in a delay case are expected to do a proper job of analyzing schedule delays. They will also be able to chart manpower and make assessments regarding impacts to labor productivity. Every now and then, you will run into an expert that is way off base, but for the most part, an expert from a reputable firm is typically technically sound. That does not mean they can make a compelling presentation or communicate the tough things to the client. The single most important skill an expert can possess in the context of mediation is the ability to assess damage methodology and calculations, determine exposure and communicate the good and bad news to the client. In the end, all claims are really about money.

Before entering mediation, there needs to be a thorough grasp of the technical issues and the damages that flow from them. This is first and foremost. Contractor's often do not tie the issues presented in their claims to the damages. Tying issues to damages can be elusive and sometimes involves a bit of art along with science. This exercise needs to be performed early on and as accurately as possible as it is the platform for an accurate exposure analysis. However, a good exposure analysis includes the "soft" factors along with the dollars and cents.

During the development of the exposure analysis, the client needs to be told the truth regarding their responsibility for the issues that have been alleged against them in the claim. This can be difficult as the client may be so close to the case that they cannot be objective about their own position. In addition, the client may have been previously told by some of its own employees that "this claim is garbage" or "we don't owe them a nickel." Breaking of bad news can be difficult as the lawyers, experts and other members of the team feel the pressure that comes with the possibility of offending a very important client. However, it is better to learn about problems while they are still in your control. It is naive and dangerous to think that the other side does not know about the weaknesses in your case. This is why an expert's ability to communicate to counsel and client is critical.

An exposure analysis should be performed well in advance of mediation. However, it should not be static. The exposure analysis should change as the team learns more about the strengths and weaknesses of its case as it approaches mediation. Cases have failed to settle because parties were working off of incorrect assumptions in the assessment of their exposure even with the benefit of additional discovery and knowledge about the case. On the other hand, cases have settled on the basis of the right assessment of exposure without the benefit of slick presentations or skilled negotiations.


This article offered a few critical factors regarding mediation. In the big picture, mediation is more than opposing sides getting together with a referee. As discussed, every involved party is critical to the successful resolution of a dispute. It is also important to consider the logistical issues such as the timing of the mediation in the dispute resolution process. While the hard costs of the case are important, the human and other soft factors must be weighed and incorporated into an exposure analysis that reasonably reflects potential outcomes if the case were to proceed to trial. Finally, no two mediations should be approached with the same strategy and should be tailored for success based on the numerous variables and parties involved.

For additional information, please contact the author, Roy Cooper at 860.704.6100.


DISCLAIMER: The opinions and information presented herein are those of the author only and are provided with the understanding that they are general in nature and do not relate to any specific project or case. Because each project and case is unique, the opinions and information presented herein cannot and should not be construed as being relevant or true for any individual case. Be aware that professionals may differ in their opinions and should not be discredited if their opinions are different from those expressed herein.