Wisconsin
Lawyer
Vol. 81, No. 6, June
2008
Mediating Complex Construction Claims
Large and complex construction
claims cases often involve 20
or more parties, millions of dollars in claims, complicated
factual and legal issues, intricate insurance coverage questions, and
a host of
conflicting motivations and perspectives and often occur while
construction is ongoing. Here are some broad lessons learned from
mediating complex multiparty cases.
by Roy E. Wagner & Terry
F. Peppard
Sidebar:
espite the current weakness in the
national economy, construction spending in
the United States still accounts for more than $1 trillion annually,
or more than 8
percent of the country's total gross domestic product of nearly $14
trillion.1 Many building projects, whether
fully completed or still under construction,
generate disputes. And while the law affecting the industry
continually evolves even
as project owners' and their advisors' expectations as to the
performance of
builders grow more sophisticated, the flow of construction claims
disputes continues
unabated. This is especially the case with large and complex ventures.
Resolving large and complex construction claims cases presents
significant challenges for lawyers and mediators. Such cases typically
involve up to 20 or
more parties, millions of dollars in claims, complicated factual and
legal issues,
and intricate insurance coverage questions. They also contain a witches'
brew of
conflicting motivations and perspectives. Project designers worry that
their best
laid plans have not been faithfully executed. Owners are troubled that
they have not
received the quality or timeliness they paid for. Builders are concerned
that no
one understands the difficulties they have faced from unpredictable
weather and the
need to coordinate the activities of many independent subcontractors and
suppliers,
some of whom may have been imposed on them by designers or owners.
The successful resolution of such cases through mediation
therefore
requires sophisticated insight into the norms of the construction
industry, detailed
knowledge of related legal standards, an exceptional degree of mediative
skill and
diligence, and the application of a mediation process tailored to the
unique
circumstances these disputes present. Construction claims counsel must
be prepared to
advise their clients not only how to provide for mediation in their
contracts, but whether
and when to mediate, what mediation styles to employ, what mediation
process to follow, and
who their mediator(s) should be.
Although no two construction claims cases are precisely alike,
some broad lessons can
be gleaned from previous complex multiparty cases.
Why Mediate
One of the ways in which large and complex construction claims cases
tend to differ
from other business cases is that parties involved in a building project
frequently have long
and continuing relationships that transcend the immediate situation. The
desire, even the need,
to preserve those vital relationships tends to suggest the wisdom of
using mediation instead of
a costly and disruptive trial to resolve the parties' dispute.
Roy E. Wagner, Marquette 1978, practices with von Briesen &
Roper s.c., Milwaukee,
chairing the firm's Construction Law Section. He concentrates his
practice in construction law
counseling and related claims litigation. He is also a mediator and
arbitrator in construction
cases and currently chairs the State Bar Construction & Public
Contracting Law Section.
Another difference between the construction claims case and the
typical business case
is that quite often disputes will arise among owners, design
professionals, builders,
suppliers, and subcontractors while a construction project is ongoing.
When this occurs, it may be
imperative that the parties' differences be resolved as quickly as
possible. Mediation offers
the speed and flexibility necessary to achieve such a result.
In addition, large construction claims cases may test the
financial strength of
parties who must fund completion efforts or repairs while simultaneously
prosecuting or
defending expensive litigation in which legal liability and insurance
coverage responsibility are
determined over many months or years. Because time is money in the
construction industry, an
accelerated mediation process promises relief from the fiscal stresses
that inhere in
construction claims cases.
Providing for Mediation
Only a single brief contractual sentence is required to permit the
parties to a
construction project to provide for mediation if a dispute arises. If
such a provision is included
in a contract entered before a dispute has arisen, the provision usually
is called a
"pre-dispute mediation clause." A pre-dispute mediation
agreement (or clause) can take the following
form: "If a dispute arises out of or relates to this contract, or
the breach thereof, and if
the dispute cannot be settled through direct negotiation, the parties
agree first to try in
good faith to settle the dispute by mediation before resorting to
arbitration, litigation, or
some other dispute resolution procedure."
Even when no such clause exists, the parties still may employ
mediation after a
dispute has arisen, and this agreement to mediate normally is called a
"mediation submission
agreement." A mediation submission agreement may take the following
form: "The undersigned
parties hereby agree to submit to mediation a dispute that has arisen
between them with regard
to [here briefly describe the nature of the dispute]."
When to Mediate
Traditional mediation doctrine argues that the best time to mediate a
dispute is as soon
as possible, preferably even before formal claims are filed. In
construction disputes,
including large and complex ones, this is preferred, even essential, if
the project out of which
claims arise is still underway or if the parties deem the relationships
among themselves to be
worth preserving. On the other hand, if the project is substantially
completed when disputes
surface, or if the parties' relationships are not highly valued or have
diminished in
importance, it may be best for them to acquire a sufficient quantum of
evidence through the
traditional litigation discovery process before mediating. Using the
discovery process helps to
ensure that everyone involved can, before sitting down at the bargaining
table, effectively
evaluate the nature, scope, strengths, weaknesses, and economic value of
their respective claims
and defenses.
Terry F. Peppard, U.W. 1973, is a commercial and construction
claims
arbitrator and mediator with offices in Madison. He is past chair of the
State Bar Alternative
Dispute Resolution Section and author of Arbitration and Mediation of
Business
Disputes, published by State Bar CLE Books. He also teaches
negotiation and mediation at the U.W.
Law School.
Indeed, the ideal time to mediate a large and complex construction
claims case in
which the project has been completed, or when the parties lack a
relationship they judge worth
preserving, may be immediately after the close of discovery, with only
weeks or, at most, a
few months remaining before the scheduled trial date. The parties,
their counsel, and
insurers should by then have acquired the information they need
through the discovery process, and
all concerned can focus on weighing the benefits of a mediated
resolution against the costs
and risks of trial.
Mediation Styles
Should the mediator in a large and complex construction claims case
employ a
facilitative style or instead an evaluative style, which often is
appropriate in a litigation claims
setting?2 Facilitative techniques frequently
offer the best opportunity for the parties to
preserve their valued relationships, while evaluative methods enable
them to have the benefit
of an expert parsing of the issues in the case without risking the costs
or consequences of
a public trial. Experience teaches that in large and complicated
construction cases the
parties usually want an expert evaluation of the issues as well as
traditional facilitated
negotiation. Therefore, the best approach is for mediators in such cases
to use a blend of both
facilitative methods and industry-specific evaluative methods.
The Mediation Process
Traditional practice is to follow a standardized format during a
mediation session.
This normally means beginning in a plenary (or joint) session with all
parties and counsel
present for opening statements by the mediator(s) and counsel. The
plenary session is
customarily followed by a series of private caucus
sessions3 in which the mediator(s)
confidentially
explore with each party and the party's counsel their interests, needs,
and settlement
options. Once the caucus process has produced an agreement, the custom
is to reassemble the parties
and counsel for a brief signing ceremony to memorialize the essential
terms of the
agreement reached in the mediation, with a more detailed formal
agreement to
follow.4 In a large and complex construction
claims case, however, it may be best to significantly modify the
standard mediation process to optimize the prospects for its success.
One modification is for the mediator(s) to conduct separate
preliminary caucus
sessions with each party a few days before the scheduled plenary
mediation session. This technique
has the advantage not only of allowing the mediator(s) to become
personally acquainted with
all parties and their counsel in advance of the plenary session but also
of ensuring that
all participants, including the least-involved suppliers and
subcontractors, have a chance
for their concerns to be heard. The use of preliminary pre-session
caucuses also reduces the
expensive down time otherwise experienced by parties and attorneys left
waiting for their
individual caucuses with the mediator(s) when all parties are assembled
simultaneously. By
the conclusion of these pre-session caucuses, the mediator(s) should be
able readily to
organize the information thus gleaned from the parties in a manner that
will greatly facilitate,
and abbreviate, the normal caucus process that customarily follows the
plenary session.
Another helpful modification to the mediation process is for the
mediator(s) to
conduct separate caucus sessions with each insured party and with each
insurer. This technique
gives the participants the opportunity to obtain from the mediator(s)
the evaluative input
they often desire. It allows all concerned parties to explore with the
mediator(s) both the
coverage issues and the merits of the claims and defenses affecting each
party without
compromising the conflicting positions often taken by insurers and
insureds.5
Yet another effective technique is for the mediator(s), with the
informed consent of
all parties, to assemble a blind settlement pool from financial
contributions made by each
participant without the participants knowing how much the others have
contributed.6 The blind pool method helps to
minimize the tendency toward a kind of comparison shopping among
contributors to the pool, based on the parties' various perceptions of
comparative liability or
financial wherewithal of the several members of the construction
"team," a tendency which often
prevents an effective settlement. To address this problem, all
contributions to the settlement pool
can be deposited to a trust account maintained by the mediator(s), from
which settlement
distributions are made, thus preserving the confidentiality of the
individual contributions.
The deft use of techniques such as these has been shown to be
effective in resolving
the most intractable construction cases, including those in which prior
use of more routine
mediation methods has failed.
Who Should Mediate
One of the lessons learned from mediating large and complex
construction claims cases
is that mediation often is best done by a team of two mediators.
Experienced comediators,
especially those who have proven to work well together, add value to the
mediation process
by pooling their strengths, dividing tasks efficiently, and vetting
their evaluative
assessments within the team. Experience shows that effective comediators
save the parties time, and
therefore money, by streamlining and expediting the mediation
process.7 The use of comediators with the
right mix of industry expertise and mediation process skills also gives
the parties
and their attorneys confidence that they will not need to waste time
educating their
mediator(s) about the intricacies of the construction business or
related legal principles.
The argument for comediation in large and complex construction
claims cases has
been succinctly summarized by commentators:8
- With comediation, chances are improved that settlement
negotiations can be
concluded within a normal working day."
- "The cost savings from a more efficient co-mediation process
easily outweigh the
relatively small added expense of utilizing a second mediator when
there are more than five or
six parties and the issues are relatively complex."
For these reasons, comediation is used increasingly in large and
complex
construction claims cases across the United States.
With this in mind, in today's practice environment, any
construction claims case
with seven or more parties and an amount in controversy of seven figures
or more (the
"pair-of-sevens" test) is a natural, indeed a prime, candidate
for comediation.
Selecting the Mediator(s)
A particular challenge for counsel in the large and complex
construction claims case is
to select a mediator or mediators with the best mix of industry
expertise and mediation
skills for the task at hand. The best mediators for a large and complex
construction claims case
will have the ability to understand the competing perspectives of all
participants because
they possess a broad experience in construction law, the economics of
the building industry,
claims litigation, insurance coverage, and mediation methodology. In
addition, the right
mediators will have shown the capacity to both design and execute a
successful mediation process
for large and complex cases and will have demonstrated a commitment to
distribute fairly the
inevitable discomfort of the mediation process.
Conclusion
For the reasons described above, mediation is the tool of choice for
resolving large
and complex construction claims cases. Lawyers who represent parties in
such cases can do much
to advance their clients' interests by taking account of the character
of large multiparty
construction claims and applying suitable mediation techniques.
Endnotes
Wisconsin Lawyer