Contractually Mandated Mediation: Good or Bad?
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Mediation is often touted as a time and cost-saving method of dispute resolution in construction matters. It is not without its critics. Don Short recently posted a discussion, "Why Bother with Mediation?". Mr. Short's basic postion: "... mediation of a construction dispute is just an impediment to getting the matter resolved in a timely and cost efficient manner." Mr. Short followed up in his piece "When Not to Use Mediation?" amplifying on the theme that time was money and that mediation clauses permitted a recalcitrant party to string the process out.
I have inserted pre-litigation and/or pre-arbitration mediation clauses into literally every single construction contract I draft. The result has been overwhelmingly positive. In my practice, I have seen very significant cases on very significant projects get resolved regularly at mediation with no lawsuit or arbitration demand filed. The number of cases resolved compared to the number of useless exercise mediations like those described by Mr. Short is likely on a ratio of 20:1 or greater. Even cases that do not settle initially often resolve soon thereafter based on the foundation established during mediation. The cases that were going to be a waste of time to mediate had warning signs all over them and we gauged our approach and investment accordingly.
Our good friend Victoria Pynchon had a slightly different view that being contractually required to mediate before the parties were ready would probably be another roadblock to eventual resolution. I agree that mediating before the parties are ready is a waste of time, money and resources and can be counter-productive. I generally have been able to negotiate exchange of appropriate information prior to mediation to facilitate meaningful conversations.
I am mindful that it is somewhat counterintuitive to make a party mediate. Utimately, mediation needs two parties that are open to discussion, risk evaluation and potential settlement talks. Sometimes that cake needs to bake in the oven far longer before the parties are ready. Generally, however, the mediation clause represents the parties agreeing that sitting down and talking to resolve issues is better than fighting in court or arbitration. More often than not, it works. Call me a cynic, but at times it feels like many lawyers only want to get to mediation when "their fee has fully matured". By that time, much of the potential benefit of mediation has evaporated and the positions of the parties may have been hardened by the emotional and financial investment of litigation. Getting lawyers and parties to mediation without such a clause often ends up taking far too long and involve ultimately wasted significant litigation expense.
This viewpoint is admittedly anecdotal and developed over my years of practice and experience. Do you see these clauses working to resolve cases efficiently or simply delaying the inevitable and costing time and money like Mr. Short? Do you believe that placing the obligation rather than allowing the parties to mutually decide to mediate facilitates resolution or acts as an impediment? Or do you think the quicker to the mediation table the better?
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Interesting thoughts Tim! My view is much like Vickie's. In short, forced mediation seems a contradiction in terms. If parties carefully read contracts and know that this is a requirement, then the mediation clause would work. If not, it falls back to an affirmative defense to a lawsuit.
I always find that voluntary entry to mediation is best.
Tim,
Always a privilege to appear on your blog. I surely do not mean to suggest that people should not agree to mediate their dispute before they arbitrate or litigate it. Though the term "mandatory mediation" is supposed to be something of an oxymoron for mediation purists, litigation IS mandatory mediation, i.e., it is the hammer that "convenes" a mediation for warring parties who do not wish to make the attempt to resolve their own conflict until the mandatory legal mechanism for resolving it becomes more burdensome that the parties' desire to "avoid" conflict.
I'm told by marketing people in the know that people's primary response to the word "conflict" is denial. WHAT conflict? I don't have conflict. Why would I need dispute resolution services?
If contracting parties truly voluntarily agreed to mediate any dispute that arises between or among them (i.e., the mediation provision is not contained in a contract of adhesion) AND they do so understanding what mediation IS (the construction industry being the most mediation-savvy industry of them all) then I do think it has a chance of resolving disputes without the tactical nuclear option of litigation.
Always yearning for a better world,
Vickie
I try to coach my clients to use the contract and its terms as a way to talk about how the project will work, how the parties will handle issues/disagreements, et c., and to really discuss using mediation up front to resolve issues.
On the other hand, I do have one case where a party's ironclad refusal to meaningfully participate in mediation prior to litigation ultimately resulted in me getting a case dismissed with prejudice. The most that usually comes out of this type of clause is a court or arbitrator staying the proceedings for a bit and telling the party's to go talk and come back. Getting that case knocked out entirely basically took someone thumbing their noses at several orders from a judge and getting spanked as a result.
I can see the point from you and Vickie too for sure. There is a strong likelihood that many of the cases I refer to would have been mediated successfully, many even early in the process. I have also mediated plenty of cases successfully prior to filing without such a clause. It has just seemed like the clause prods folks to get serious about mediation a bit earlier than they might without it.
Vickie,
Thanks so much for visiting and commenting! Funny you mention that denial concept, I have a case that just came in where the service provider thinks things are just swimmingly proceeding and meanwhile the project provided to the client is basically not functional and has never been so. That one may qualify as purposeful ignorance though ....
I think you hit on an important point that is likely practice specific - the industry in which I operate deals with these clauses a lot. Even with my homebuilder clients, I encourage them to openly discuss process of handling differences of viewpoint during contract discussions with home owners. Most owners seem to appreciate the discussion and desire to avoid litigation, and on a percentage basis it seems like the pre-contract discussions (or the style of my clients) tends to mute people's enthusiasm for battle as most of my clients have pretty limited levels of litigation.
In the end, I am probably far less of a "purist" than a pragmatist on this question, but I can also see how these various paths to a mediation can tilt the tone towards or away from a successful resolution.
"tilt the tone" - I LOVE that phrase. A friend says that because the world is implacably dual-natured, the best we can do is "lean toward the light." What you're doing -- helping your clients anticipate disputes and strategically plan for the event -- is leaning toward the light not only of effective and efficient dispute resolution in your legal practice but (scaling up) non-coercive conflict resolution in all of your (and therefore our) affairs - local, regional, national and international.
Vickie,
You hit on a core belief of mine in a very different context. I am a big believer that incremental impacts of individual decisions add up to significant change. Call it believing in the ripple effect ... that a act or decision ripples out and causes changes, even very far away from the original source. Those ripples can be good or bad, and we can only strive that ours are for the good.
In the end, the "job" is about representing clients effectively, efficiently, getting the best results possible, and helping people solve their problems. I strongly believe that doing "the job" the "right way" helps to develop and maintain credibility and effectiveness. It also hopefully carries with it some good karma and ripple effect along the way too.
thanks for sharing this!
I have seen that mediation/arbitration clauses are popular in construction contracts, but in my experience they are rather unpopular in services/goods contracts. In general, this seems to be because of the higher up-front costs to mediation/arbitration. I also imagine that in construction contracts there is more of an incentive to work together to resolve differences because of the unique and long-term nature of each construction project, as opposed to the relatively fungible short-term transactions of goods and services. In other words, it's easier to pull the litigation cord on failure to pay for a quantity of granite than it is on a fixable structural flaw in a $30 million office building.
I agree with you both! (I know, a big surprise that a lawyer agrees with anything) I think that the job is to get the best result in the most efficient manner possible. Leaning toward the light and going toward a mediated solution is often times the best way to do that.
James,
Thanks for your visit, comment and very cogent distinction. In representing materials suppliers, I generally just stick with arbitration or litigation and I mentally did not even include them when I posted before so I agree with your point. Thanks for visiting - we obviously are tracking and enjoy your blog as well!
Chris - I will have to admit that sometimes on this settlement v. litigation question, it feels like the angel/devil scene in Animal House. In the end, I try to keep it purely nuts and bolts, numerical and logical. The settlement discussions dynamic can get a little frustrating because the rate of cases getting tried seems to continue dropping and trying cases really is the fun part.
Yes, but it serves our clients better to settle if possible in most instances. This leads to repeat business and referrals and it's win win for all.