Construction Mediation & Construction Arbitration: Part 1


A. Construction Law Dispute Story Perfect for Construction Mediation

Imagine for a moment the following construction dispute, which involves a client, an architect, an engineer, a general contractor, and various subcontractors: On a large commercial project, the project owner, Technology Company, contracted with Architect Firm and Engineer Firm to design a new production facility, and Technology contracted with General Construction to build the facility. After the design completion and bid selection, General Construction completed the building six months beyond the contract completion date, and Technology sued General for $500,000 in liquidated damages. The contract between Technology and General did not contain an arbitration or a mediation clause.
General counterclaimed for $400,000 in unpaid change orders, and General filed a cross-claim against subcontractors Electrical Company, Mechanical Corporation, Plumbing Business, Roof Company, Drywall Inc., and Steel Erectors because they contributed to the late completion date. General also sued Architect Firm and Engineer Firm because these two firms were late in issuing revised drawings when General discovered errors in the original plans. All of the subcontractors above have filed for mechanics liens on the facility and filed claims against General for $20,000 each in unpaid labor overtime change orders.
The original structural steel plans contained undersized wide flange beams at column line A3. Additionally, in the main mechanical room on the roof, the structural plans required the joist girders to have double bevel welds, but to impede rotation, this moment connection on the joist girders should have been double fillet welds. Steel Erectors had to spend considerable time correcting the welds, and, although the steel mill did not charge Steel Erectors for returning the undersized wide flange beams for a slightly larger size, the beam delivery was delayed by one month. However, because of the joist girder weld problem at the roof, the Roof Company could not complete a large section of its polymer modified bitumen membrane system until two months after the original project schedule date. Due to the building not being dried in, Drywall Inc. could not provide its drywall on schedule, which in turn caused trim-out delays for Electrical Company.
The undersized wide flanged beams caused additional significant delays to Mechanical Corporation and Electrical Company because Mechanical could not install AHUs or VFDs and Electrical could not provide disconnects, sub-feeders, sub-panels, or PLC termination and testing. Further complicating the matter is that Engineer Firm’s load calculation for the beams was 70 pounds per square foot, which was adequate at column line A3. However, Architect Firm increased the static load to 90 pounds per square foot by later adding a glass curtain wall, which was issued as ASI 34 in response to General Construction’s RFI 76. As it turns out, Technology directed General to provide the curtain wall at a weekly progress meeting.
Lastly, although all of the parties followed the same project schedule, the subcontractors have argued that the Primavera P6 schedule contains a float day calculation error in the critical path. The CPM float days occurring in phase one should have been included in phase two—this might have prevented the delays because Steel Erectors would have had float time to use during the girder and beam delay period. And, although the project’s contract structure is design, lump sum bid, and build, the parties have all treated the project as a design-build arrangement since the bid selection.

B. Construction Mediation v. Construction Arbitration in this Article

Construction mediation and construction arbitration are common in AIA, DBIA, and ConsensusDocs form contracts as well as custom construction agreements in Arkansas and elsewhere in the US. Arbitration has an important place in construction law, but this series will focus more on construction mediation. For more information on construction arbitration, check out the American Arbitration Association Construction Industry article on this website at: 
Without a doubt, the construction dispute above is complex in terms of the issues, the parties, and the parties’ relationships. Although a large construction dispute contains more parties and issues than the one above, the simplified hypothetical dispute above represents a typical construction dispute. The details and witnesses would overwhelm a jury. Mediation, whether it comes from a contract provision or a state statute, is better suited for this kind of dispute—a complex dispute where everyone did something wrong, but everyone is blaming someone else. Yet, even if this case were to go to mediation prior to trial, a mediator without legal training and professional construction experience would be lost, and the mediator could not truly help each claimant evaluate the strength of his claim.
Though a mediator could generalize the issues and not see the need to have expert knowledge about the details of each dispute, such as a mediator’s simply focusing on the beam design flaw on the plans and the resulting construction delays, this will only help the mediator see the big picture issues.
The mediator, however, could not help the parties reach a resolution by discussing the merits of the claims with them. For example, only an experienced construction professional would know that Steel Erectors did not need to make any major changes in the welds. Steel Erectors could have corrected the problem by using steel plates instead of a double fillet weld correction. Also, only a construction lawyer would know to question the parties’ acting like the contract was a design-build as that applies to owner-directed changes in the scope of work. Only an experienced professional could evaluate the critical path schedule in order to understand the project schedule defects.
A construction professional would also see that most of Electrical Company’s work involved conduit and conductors for sub-feeders, which extend from the service panel on the other side of the building to the column line and mechanical room areas. Most of this sub-feeder work could have been completed without the joist girders or beams in place. The hypothetical dispute also contains numerous other claims that have much less merit than they appear to have.
Who else besides a construction lawyer would know these things or be able to help each party see the weakness in a claim? This complex construction dispute needs to go to mediation, and the mediator needs to be an experienced construction lawyer—one that has worked in construction practices and construction claims.
Although mediation in construction disputes has a successful track record, this series discusses three measures that would increase the quantity of construction disputes that go to mediation and improve the quality of those mediations.
The measures are: (1) Construction mediation clauses should be in all construction contracts, even if it is a precondition to arbitration; (2) States should have mandatory mediation for construction disputes because of the number of complex issues and the number parties normally involved; and (3) Construction mediators should be lawyers who are experts in the construction field.
These three measures will not only improve the number of construction mediations and the qualifications of the mediators, but they will also have a broader impact on the American legal system. The first measure decreases transaction costs when a breach of contract occurs. The second measure creates judicial efficiency because complex disputes involving many parties would be sorted out and resolved much faster, making room for other cases on court dockets. The third measure would minimize the time required to resolve a dispute, and cause the parties to perceive the process was fair.
Both nationally and internationally, construction mediation has been growing at a rapid rate and it has been successful—but there is room for improvement. If contractors, owners, architects, and engineers implement these measures, the whole construction industry can realize these improvements.

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