PART 3: MANDATORY MEDIATION AND CONSTRUCTION MEDIATORS
A. States Should Require Mandatory Mediation Prior to Trial
Because mediation clauses may not always find their way into construction contracts in Arkansas or any other state, states should require that complex disputes, such as construction claims, go to non-binding mediation before the claims are litigated in a trial. There is no doubt that mediating these types of disputes would create judicial efficiency. At best, complex construction disputes that enter mandatory mediation would reach resolution; at worst, the parties will have narrowed down the issues even if they do not reach a mediated settlement.
The following reasons support states’ enacting statutes requiring mediation in construction disputes: (1) the uncontroversial nature of states requiring mandatory mediation; (2) judicial efficiency via fewer cases on the docket; (3) the mediating parties having control over the outcome; (4) mediation’s low cost to the parties; and (5) the non-binding effect of the mediated resolution. This essay discusses these five reasons in more detail below.
First, as of 2011, there are over 2500 mediation provisions in state statutes across the United States. California’s Civil Code requires that construction defect cases, which are usually breach of contract cases, enter into an alternative dispute resolution process involving a mediator or facilitator. Thus, because states already regulate mediation or require it in certain circumstances, it would not be controversial for states to require civil mediation prior to trial.
Second, besides giving control of the dispute to the parties and resolving a construction dispute at the lowest cost, statutorily required mediation would create judicial efficiency by clearing the docket of long, complex cases that are better resolved in mediation. In fact, in many states, judges sometimes order parties in construction disputes into non-binding mediation before trial for docket management purposes. Another reason for states to require mediation via statute involves the same rationale as having a mediation clause in a contract: the parties and their attorneys will be willing to mediate their disputes if they are required to because there is no appearance of weakness or losing face.
The parties may object to binding mediation as required by a state statute because they did not negotiate for that forum or remedy in their construction contracts. This objection is valid because, even though it benefits all parties to mediate a construction dispute prior to litigation, the parties should not be bound because they possess freedom of contract—a principle cherished in American jurisprudence. Thus, as this series discussed previously, statutorily required mediation should be non-binding, and this has two benefits.
The first benefit is that parties are not bound by the mediated settlement because they can proceed to trial if the mediation does not reach resolution. If the construction mediation does reach resolution, then the parties would go before the presiding judge and obtain an order to make the mediated settlement binding. Though this would not work well in most non-construction cases, it would work well in construction cases because all sides desire to complete the work, to obtain their final payments and retainage, and to work together on new projects in the future. The second benefit is that though the contracting parties omitted a mediation clause in their contract, they have another opportunity to control the outcome of the dispute and actively participate in a resolution with which all parties are satisfied.
The parties may also object to mandatory mediation because they are concerned about good faith participation. However, not only could the court sanction uncooperative parties pursuant to a mandatory mediation statute, the benefits of potential settlement far outweigh good faith concerns. Statutory provisions in all states that require parties to mediate construction disputes prior to litigation would benefit the parties and the courts.
B. Construction Mediators Must Be Construction Law Professionals
A mediator in a construction dispute should be a construction lawyer with considerable expertise in construction because she will mediate the case more efficiently, she will not need as much assistance from expert witnesses, she will gain the confidence of parties and their lawyers, she will be able to sort out the complicated issues and parties, and she will be able to help the parties objectively evaluate the strength of their positions. Furthermore, at the macro level, parties will appreciate the time that they save, and parties will perceive that the process was fair.
There are a number of mediators who do not believe that mediators need subject matter expertise. Indeed, the Uniform Mediation Act “does not require that a mediator have a special qualification by background or profession.” In most disputes, mediators do not need to be experts, but in complicated matters, as discussed below and in the introduction to this series, mediators involved in construction disputes should be attorneys who are experts in construction matters.
First and foremost, one of the best arguments for mediation is that it is efficient and costs a fraction of what a trial costs. The mediator without expert construction knowledge must spend an enormous amount of time sorting out the parties and issues or using expert witnesses for this purpose—this increases the cost and time of the mediation. It is commonsensical that a construction lawyer will spend a fraction of the time understanding the issues and parties when compared to a mediator without expertise in construction or construction law.
Second, a construction law expert will gain the confidence of parties and their lawyers because she will be able to sort out the complicated issues and relationships between the parties. There is no doubt that construction cases are “complex” enough that if the mediator is not an expert herself, then she has no choice but to “rely substantially on experts.”
Since lawyers usually play a major role in selecting mediators for their clients’ disputes, the first key question is: what type of mediators do the parties’ lawyers prefer? In an American Bar Association survey of construction lawyers’ mediator preferences, the most popular preference was “an attorney experienced in mediation and the field of your dispute.”
The second key question is what type of mediators do the parties prefer? Most parties in complex construction disputes that go to mediation choose a construction law professional. In one recent Texas case, the parties and their lawyers chose an arbitrator because “most of his law practice was in the construction area, primarily representing general contractors, builders, developers, designers, owners, and sub and specialty contractors.”
Third, a construction lawyer serving as a mediator will be able to help the parties objectively evaluate the strength of their positions. This important role of the mediator should not be overlooked because it is critical to mediations where parties have entrenched positions. It is telling that the AAA has special mediation rules for “Large, Complex Construction Disputes” and a short list of construction law mediators. The cutting edge California statute requiring mandatory facilitation settlement in construction defect cases also requires that the “dispute resolution facilitator shall be sufficiently knowledgeable in the subject matter.”
The AAA rules for large, complex construction disputes as well as California’s construction dispute resolution statute reinforce the idea that the mediator’s subject matter expertise in construction disputes is critical. In the Construction Lawyer, attorney Paul Lurie, a practicing construction mediator, has provided a summary of this argument:
It is a common view that subject matter expertise is not an important mediator characteristic. However, expertise in the subject matter of the dispute can be important to give credibility to the mediator when assisting the parties in evaluating the strengths and weaknesses of their positions.
A mediator involved in a complex construction dispute should be both an attorney and a construction expert because that is what works best for the parties. And it is the parties’ interests that should drive the legal process and legal representation. This measure actually achieves two macro-level goals. The parties will save time and they will be more confident that the mediation process was fair.
There is no doubt that mediation is an effective means of resolving legal disputes—the explosion of mediation across the United States testifies to this fact. Thus, the question is how can we better use mediation in complex construction contract disputes & construction defect claims in Arkansas and other states, which are some of the most complicated disputes that enter the legal system? Furthermore, who would be opposed to decreasing transaction costs due to a breach of contract, creating more judicial efficiency, or speeding up the time required to resolve construction disputes?
If construction mediation clauses are in all Arkansas construction contracts (or contracts in other states), the parties will save a tremendous amount of money because many disputes will reach resolution before they reach a trial court, and this decreases transaction costs of construction projects. If states enacted mandatory mediation statutes for complex construction disputes, then the parties will either resolve their dispute or narrow the points of disagreement, and this promotes judicial efficiency. If mediators are construction lawyers, then the mediation will progress more quickly, and the parties will be confident that the mediator actually understands the issues; thus, having a construction lawyer mediator decreases the time to resolve disputes and it causes the parties to perceive that the process was fair.
Contractors, owners, engineers, architects and states should strive to decrease the time and costs required to resolve disputes, which are inevitable. This essay proposes three measures to accomplish that goal.