by Guest Blogger – Stephen Dickinson

In my previous blogs for BRS (So, What is Mediation? and The Mediation Process), I discussed the practice and advantages of mediation as a dispute resolution process in the general sense. In this blog, I will examine the application of mediation to the major project and infrastructure sector.

Dispute Resolution in the Construction Industry

As noted in my earlier blogs, dispute resolution clauses are now commonplace in construction contracts, although many in the industry report that contracting parties still prefer to “go legal” rather than engage in alternative dispute resolution processes.

Perhaps these parties wish to “send a message” to the other party, or the broader market. Or perhaps their reluctance stems from not being familiar with the alternatives to litigation.

Broadly speaking, the most common dispute resolution techniques applied in the construction industry are:

• Prevention
• Negotiation
• Non-binding resolution (including adjudication and mediation)
• Arbitration
• Litigation

It goes without saying that dispute prevention is the ideal, however experience and human behaviour dictate that parties who are coming together (often for the first time) do not prioritise dispute prevention techniques. This is despite the various advantages of doing so (including risk management, risk sharing, establishing strong communication and developing durable working relationships), and the long list of disadvantages that disputes bring to a major project.

Although one can safely assume that negotiation between contract administrators, project managers, site supervisors and those performing similar roles remains the most common method of the dispute resolution adopted in the construction industry, disputes requiring external professional advisors are bound to occur during most (if not all) major projects.

This is where parties to a dispute face a range of alternatives (that their lawyers may or may not make them aware of).

Litigation, Arbitration and Adjudication

As most readers would be aware, some years ago most Australian States enacted Building and Construction Industry Security of Payment legislation that entitles contractors and subcontractors to issue payment claims during the life of a project, and adjudication applications where payment claims remain unresolved.

The genesis of adjudication as a statutory process can primarily be explained by national construction industry bodies becoming dissatisfied with the costs, delays and uncertainty commonly attributed to traditional legal proceedings.

Regrettably, despite the attempts of the construction industry to embrace arbitration as an alternative to litigation, there were regular complaints that similar problems were experienced in this process where arbitrators regularly adopted the role as judge and became inclined to require strict compliance with procedural rules (eg. the giving of evidence and exchange of documents and expert reports) rather than apply a less formal, prompt and cost effective process (which was the idea).

These factors, as well as the rapid growth and greater sophistication of the construction industry in our country, weighed heavily on the development of the statutory framework that is now in place across most jurisdictions.

Although adjudication has many advantages as a statutory tool, the process:

• is limited in its scope (in that it determines the value of work carried out and goods and services supplied under a construction contract)
• can create costs, delays and interruption to projects (including by consuming valuable time of key personnel)
• is likely to fracture already strained relationships

Mediation

Those negotiating and drafting construction contracts are charged with a very difficult task. Major projects are long-term in nature and involve countless variables that are difficult to predict and therefore price before work commences. Further, competitive markets and tendering processes cause contractors and sub-contractors to agree terms with lean margins and little room for contingencies.

These factors often lead to inconsistent, uncertain and unfair contract terms, and contracts that become vulnerable to variation by the conduct of the parties (consciously or unconsciously).

Add to this issues relating to time and cost overruns, disputed payment claims, quality of workmanship, goods and services, variations and site supervision (to name but a few), and you have a perfect recipe for disruptive and multi-faceted disputes.

Those that are then charged with attempting to resolve these disputes often have competing interests and will instinctively seek to protect and advance those interests, particularly if doing so means keeping a contract and saving jobs (particularly if it is their own).

Engaging an independent and suitably qualified mediator has countless advantages in this context, including:

• reducing the delay, costs and uncertainty of litigation, arbitration and adjudication
• mediation enables all issues to be canvassed, and resolved
• mediation allows for flexible outcomes that are unavailable through litigation, arbitration and adjudication
• the mediation process and any settlement terms remain confidential (this being important to project owners making payments or concessions to contractors, and contractors to sub-contractors)
• agreed outcomes can be recorded in a binding and enforceable agreement, including terms that allow for the completion of a project with improved certainty and reduced risk (eg. work and payment schedules)
• the parties (who are generally the best informed) control the process and any outcomes
• mutually developed and agreed outcomes are more likely durable
• fractured working relationships are often restored

As an extension or alternative to mediation, parties to a construction dispute may also benefit from:

• conciliation, where the facilitator works with the parties to identify the issues in dispute, consider options and develop solutions (much like a mediator), however also performs an advisory role regarding facts, legal considerations and any proposed outcome (without determining the matter)
• expert determination, where the parties present their arguments and evidence and ask the facilitator (who is commonly selected by reference to their specialist qualifications and experience) to determine the matter
• a blended process, where one facilitator performs two roles (eg. mediation followed by expert determination) or two facilitators conduct a mediation or conciliation, or deliver an expert determination (eg. a qualified mediator working with an expert in a specialised field)

Further, it may be in parties’ interests to refer certain issues to litigation, arbitration or adjudication whilst seeking to resolve all other matters by engaging in mediation (or another of these models), particularly if doing so will allow a project to be completed.

Major projects involve vastly different organisational structures, multi-layered working relationships and practical issues that are prone to dispute, all of which point to the need for tailored dispute resolution processes to suit what are always unique circumstances.