Construction Mediation & Construction Arbitration: Part 2


A. Construction Attorneys and Construction Mediators Take Note

As the introduction to this article demonstrates, even simplified construction disputes involve many parties and complex, technical issues; however, there is good news for construction mediation proponents. Construction attorneys in Arkansas and abroad should take note that the American Arbitration Association noted that construction mediation filings have been increasing on an annual basis for some time. It is not enough that owners, designers, and contractors know that mediation is an alternative that works. The new goal must be for interested parties to increase the quantity and improve the quality of mediated construction disputes. Though they will not single-handedly revolutionize construction mediation, the three proposed measures in this series will help realize this goal.

B. Mediation Clauses Should Be In All Construction Contracts

Although this subsection discusses the need for mediation clauses in construction contracts, the starting point for any discussion about mediation in construction disputes must be the contract because it binds the parties to completing the project and represents the intention of the parties. Assuming the parties are rational actors, at the time of contract formation the parties at the very least would have agreed to resolve all disputes arising under the contract as inexpensively as possible because increasing the transaction cost is always economically detrimental. As this essay has already noted, decreasing transaction costs helps the legal system as well as the economic incentives of construction contracting. In short, this is an open door for a mediation clause because no one wants to lose money due to time delays, expenditures, and litigation.
The American Arbitration Association (“AAA”) has “shown mediation to be ‘an effective way to resolve construction disputes, keeping cost and time expenditures from skyrocketing by avoiding a protracted adjudicatory process.’” Thus, if mediation works and saves time and money, then construction contracts should contain mediation clauses. The Construction Industry Arbitration Rules and Mediation Procedures, published by the AAA, currently provide that the party initiating a mediation shall provide “any specific qualifications the mediator should possess, ” Additionally, current appointment provisions state that the mediator shall be appointed through a mutual selection process from a provided list when possible. Providing the parties with a panel consisting only of construction experts would allow the parties to retain their ability to provide input in the selection of their mediator, but would provide the level of expertise in the industry needed for an effective and efficient mediation.
There are three obstacles to incorporating mediation clauses into all construction contracts, and these obstacles relate to the form of the clause, the numerous types of construction contracts in the market, and the parties and their lawyers’ perception of mediation. There are simple remedies for all three obstacles. The first obstacle is that courts will not uphold a mediated settlement unless the mediation clause is in the contract and states that the mediated resolution is binding. This problem is easily remedied with a well-worded clause if interested parties can overcome the other two obstacles.
The second obstacle is that there are so many different types of construction contracts, such as ones drafted by attorneys for the parties, adopted by the American Institute of Architects (“AIA”), or provided for in AIA A201 § 15.3. which deals with party dispute resolution and mediation.
Since many owners use the AIA standard contract, that is one means of binding the parties to mediation because the AIA standard construction contract requires the parties to the contract to enter mediation before they pursue arbitration or litigation. According to Dale Ellickson, the AIA Vice President and chair of the Documents Committee, mediation clauses are in the AIA standard contracts to give parties more control over their construction project disputes:

“The idea in wanting parties to exercise control is to do so as soon as possible in a construction project,” said Ellickson. “When disputes arise parties want to resolve them when they are discovered, rather than wait for disputes to fester and grow into entrenched problems. With mediation, parties can move to control and resolve disputes as they arise, before they really become disputes.”

More control and expedited dispute resolution will inevitably decrease delay and litigation costs. The increasing use of AIA contracts is helping ensure that construction contracts contain mediation clauses. Owners exercise considerable power over the form of the contract, and they should insist on using AIA form contracts.
The third obstacle, which is related to the second obstacle, is that when parties and their lawyers are in a construction dispute, the lawyers may think consenting to mediation suggests weakness. However, this is a reason to make sure that there is a mediation clause in the contract at formation. The lawyer’s concern with appearing weak or ineffective is eliminated because his client is legally bound to mediate the dispute. As Paul Lurie, a prominent construction lawyer and mediator, stated:

All contracts should contain clauses making mediation a condition of arbitration or litigation. When serious disputes arise, there is a tendency to want to “shoot first” in order to demonstrate a show of force. Suggesting mediation is often viewed as being contrary to the “tough” attitude that the lawyer presumes the clients expect. When the parties are compelled to attempt mediation by their agreement it is much easier to get them to cooperate in the mediation.

Owners, contractors, and design professionals are increasingly including mediation clauses in non-AIA contracts, but this needs to happen much more frequently. This first proposal, incorporating mediation clauses into all construction contracts faces a number of obstacles, but interested parties must overcome these obstacles in order to increase mediation and decrease time delay and litigation costs.

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