September 06, 2019 Articles

It’s Complicated: Mediating Multiparty Construction Disputes

The author discusses challenges arising in the mediation of construction disputes involving numerous parties, and shares approaches a mediator should consider to enhance the prospects of successful resolution.

by Scott St. Marie

A frequent hallmark of construction dispute mediations is the presence of several parties with layered exposure or entitlement on the claims at issue. Most typical is probably the owner-general contractor-subcontractor(s) scenario, with two, three, or four parties directly involved.

But what about the construction mediation where the number of parties is well beyond the norm? Like 12 parties? Or 17? Or 25? What special factors deserve consideration when the parties are truly numerous?

The tendency for multiparty involvement in construction mediation stems from the nature of the tiered relationships on even the most straightforward construction projects, with an owner/developer, general contractor/construction manager, and then layers of trades often occupying two or more contractual tiers below that. This does not even begin to account for the design side of the project equation, which usually has multiple design specialties occupying still more tiers.

This article discusses some of the special issues that attend construction mediations with numerous parties, and suggests some methods that the mediator can use to cut through obstacles and reach the goal of a negotiated resolution.

Use Premediation Moves to Speed Up Progress

The inherent cumbersomeness of many-partied construction mediation cannot be eliminated. At the mediation itself, there are too many parties to talk to, and too little time. The mediator can use a number of premediation measures to help minimize the inevitable delays at the mediation.

Those measures start with the preliminary conference, a standard feature of current mediation practice. At the preliminary conference, the mediator should strongly encourage the parties to submit candid mediation briefs, which address both the strengths and weaknesses of the opposition and the briefing party. Confidentiality requests should be respected but not encouraged; confidentiality positions typically slow the progress of negotiation, because parties are reluctant to concede ground in the face of facts and positions they are already well aware of.

Note, however, that the construction mediator should consider the real need for confidentiality that arises from the caught-in-the-middle nature of construction contracting relationships. Thus, the general contractor must articulate a full-blown defense to an owner’s claim for defective work, while arguing the validity of those same claims vis-à-vis its subcontractors. Similarly, the owner must vigorously defend against the general contractor’s claims of contractual breach due to design defects, while pressing the validity of those claims against the owner’s design professionals. Maximizing the chances for successful resolution in the face of these contradictory positions may require the judicious use of confidentiality measures.

At the preliminary conference, the mediator should urge each of the parties to conduct a premediation settlement analysis and develop a settlement position in advance of the mediation. At the least, the analysis should take into account the best and worst alternatives to a negotiated agreement—the familiar BATNA (best alternative to negotiated agreement) and WATNA (worst alternative to negotiated agreement) first articulated in the early 1980s by Roger Fisher and William L. Ury in their book Getting to Yes: Negotiating Agreement Without Giving In. Fisher, R., Ury, W. and Patton, B. 2nd ed., Houghton Mifflin (1991).

The mediator during the preliminary conference should also consider proposing, as a best practice, that the parties each perform a probability analysis. This analysis assigns a range of probabilities to the likelihood of ultimate liability (or recovery) in a range of amounts, together with the predicted costs of funding the dispute through its outcome.

The parties should be told to expect that the mediator will follow up with them before the mediation in one-on-one conversations, for a discussion of their settlement analyses and positions. This makes clear to the parties that the mediator will be checking in about their homework.

The mediator should also consider scheduling the submission of premediation briefs well in advance of the mediation date. Early submission serves two purposes: (1) It helps the mediator get fully up to speed before the individual conversations referred to above, and (2) it serves as a prompt for each party’s development of its settlement analysis.

In this way, much of the preliminary dance in multiparty negotiations can be well underway before the actual mediation takes place.

Consider Teamwork

Team building can be an important facilitator in mediations with numerous parties. This means identifying the parties who are in the right position to carry on negotiations with other parties and who are motivated to do so. These team players become de facto agents of the mediator in exploring with other parties the potential resolution of sub-issues. This process frees the mediator up to pursue dialogues which have a greater potential for resolution of other sub-issues or sub-disputes.

Take this example: In a mediation of a dispute arising from claims asserted by an owner against a general contractor, let’s assume that the general contractor has impleaded 10 subcontractors with potential responsibility for the individual claims asserted by the owner. Maybe two or more subcontractors contributed to a concurrent delay for which the general contractor is arguably responsible to the owner. Or maybe overlapping work scopes implicate two or more subcontractors equally on a claim for defective work.

Here the general contractor is a likely candidate for team building, since it is knowledgeable about the role played by each of the subcontractors, and is motivated to achieve progress that can be part of a global resolution. This motivation frequently arises from the pass-through nature of the general contractor’s exposure; typically, the general contractor is protected by contractual and implied indemnities that facilitate a transfer of exposure to the trades responsible for the work being focused upon. Thus, the general contractor has every reason to team up with the mediator in dialogues with its trades, to develop workable settlement positions.

Isolate the Tough Issues

Any construction mediation with numerous parties likely includes sub-issues and disputes presenting varying degrees of difficulty. Identifying and segregating the disputes which present deal-breaking obstacles is critically important to the overall success of the mediation.

Once the tough issues are isolated, the mediator and the parties involved can focus on what it may take to achieve resolution. Perhaps further facts are called for, or an investigation needs to be conducted. Where several parties are potentially responsible, a cost- or liability-sharing arrangement on the isolated dispute may appear practical.

Explore Partial Settlements

The goal of global resolution in a mediation of all issues between all parties is sometimes just not feasible, whether because there are intractable issues or sub-disputes or there are parties that are simply unwilling to compromise.

The mediator’s timely recognition of sub-disputes that simply cannot be resolved is an important facet of the job. Don’t waste time laboring to resolve the impossible—explore partial resolutions that can provide substantial practical benefits for the parties involved. Partial resolutions can have a healthy effect on the remaining issues and parties, because of the innate momentum inherent in the resolution itself, as well as the apprehension by remaining parties that their practical scope of exposure may expand as settling parties disappear from the dispute.

Use Confidentiality as a Tool

Confidentiality is an important facet of the mediation process, an obligation that the mediator is obliged to maintain with care. But it is also a tool.

A hallmark of many multiparty construction mediations is that a number of parties are similarly positioned with respect to exposure or, for that matter, entitlement. This similarity of position causes anxiety about the nature of discussions with other parties in the class, particularly concerning offers being put forth. The fear of embarrassment looms large for a party that might be discovered to have committed to pay multiples of the number a similarly- situated party settled for.

These anxieties about settlement offers can be dampened by treating individual discussions and offers with each of the similarly situated parties as confidential from each other. This approach has the added benefit of encouraging dialogue, because each party in the class may negotiate with confidence that other discussions will not undermine progress.

A good rule of thumb for this approach to confidentiality in the construction mediation setting is that the higher up the chain of privity, the less confidentiality for settlement offers is required. Which is to say that, in a construction defect case where the owner is the claimant, the owner can be expected to be aware of all individual offers that make up the total settlement amount; the general contractor can be expected to be aware of all individual offers from its subcontractors; and so on down the line of privity. But note that the general contractor need not be made aware of settlement amounts coming to the owner from the design team, which frequently will have a chain-of-privity relationship with the owner that is separate from the general contractor.

Once a partial or global resolution of the dispute is reached, it is important in the documentation phase to silo the individual settlements with similarly situated parties to maintain the confidentiality of individual settlement amounts. This of course means more labor to draw up individual agreements with each party, which will not be seen by the other similarly-situated parties.

Conclusion

The number of players contributing work to any construction project, whether a high-rise or a power plant, increases the chance that a mediation of disputes arising from the project will have multiple parties and multiple issues. The complexity inherent in such mediations cannot be eliminated, but the prospects for success can be heightened by the thoughtful use of the techniques explored in this article.

Scott St. Marie is a construction mediator in Brooklyn, NY.


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