Contractually Mandated Mediation: Good or Bad?

Real Estate, Land Use & Construction Law

Contractually Mandated Mediation: Good or Bad?

Nov 9, 2009 | Real Estate, Land Use & Construction Law

Astronomical ClockMediation 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?

Image by Judepics


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