Should Mediation Be Utilised More In Construction Disputes?

31/07/2017

There has been much written in the past 18 months about the use of mediation in the construction industry, or rather, the lack thereof.  In 2016, Jackie Gregory-Stevens, Ian Frame, and Christian Henjewele published a paper entitled, Mediation in Construction Disputes in England[1].  The authors investigated the issues preventing a greater use of mediation to resolve construction disputes.

The study involved 20 case studies of previous dispute resolutions, ten in-depth interviews and 357 usable responses to a structured questionnaire survey involving the English construction industry.

The findings included the following:

• mediation, as a dispute resolution method, was not widely known within the construction industry          

• this was partly due to a lack of emphasis on mediation in construction contracts          

• whilst there is still strong support for mediation, the majority of those with experience of adjudication would prefer to use mediation as the first step in resolving disputes

The article looked at these barriers, and more importantly, how they could be overcome.

Why is mediation becoming more significant in construction disputes?

Prior to The Housing Grants (Construction and Regeneration) Act 1996 (HGCRA), arbitration and litigation were the only options available to resolve construction disputes.

The HGCRA introduced adjudication as an alternative disputes method, allowing for quick resolution at a cost that did not seriously affect cash flow.

However, like arbitration before it, adjudication is becoming increasingly expensive, especially for disputes of less than £100,000.  Mediation may prove a successful alternative for these lower value disputes.

How does mediation differ from adjudication?

Adjudication, like arbitration and litigation, is a win/lose strategy.  However, in adjudication, each party bears its own costs.  Because of its adversarial nature, adjudication often results in soured relations between the disputing parties.

Mediation, on the other hand, promotes win/win solutions.  An independent third party facilitates each party finding a solution that is acceptable to them both.  As the process is non-adversarial, there is a much greater chance that the business relationship will be preserved.

Unlike adjudication, where the adjudicator hands down a decision, in mediation, the parties are in control.  Statistics show that around 80% of mediations settle on the day with a further 10% settling in the days or weeks following the mediation when the parties have had an opportunity to reconsider their positions in the light of the discussions held during the mediation.

Mediation is also completely confidential, with the procedure being conducted in person, as opposed to the documentary submission process of adjudication.

It is important to note that in some cases, mediation will not be appropriate.  To be successful, both parties to the dispute must be prepared to sit down and work out a fair solution.  If there is huge animosity present from the beginning of the dispute, mediation is unlikely to work.

Mediation may also be unsuitable for disputes surrounding complex, cross-border construction projects which may require the input of detailed documentary evidence and expert opinion/witnesses.

Why are construction disputes parties not choosing to mediate in the first instance?

The authors of Mediation in Construction Disputes in England found one of the main barriers to mediation was a lack of trust by the parties that a resolution reached would be binding and enforceable.  In addition, subcontractors and suppliers often have little knowledge of the mediation process and automatically choose adjudication as a dispute resolution method.  In contrast, main contractors and consultants had a far greater knowledge of mediation and were more likely to engage in the process.

The study concluded that:

a)    lack of detailed understanding of mediation process;

b)    lack of trust that the other party will act faithfully and the dispute will be compromised; and

c)    misconceptions that mediation is inappropriate or is not capable of solving the dispute.

Concluding comments

All signs are pointing to an increase in mediation in construction disputes.  An experienced solicitor can swiftly spot cases where mediation is clearly an appropriate first method of dispute resolution and will advise and support their clients through the process.

The savings made through mediation are two-fold: undoubtedly, there is usually a monetary saving in fees and loss of productivity time, but there is also the non-tangible saving to consider, such as less stress, more control of the outcome and preservation of the business relationship.