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Construction defect disputes helped, handled well through mediation

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Time is money; and money is money. Contractors and others involved in disputes can anticipate the loss of both, not to mention the heightened stress accompanying contentious controversies.

Whether one is a general contractor, subcontractor, materialman, owner or employee, the litigation in the construction industry has become an occupational hazard.

Fortunately, there is a viable alternative -- mediation.

The advantages of mediation are being increasingly recognized. Indeed, recent legislation makes mediation mandatory in many construction defect cases. But in all controversies it is available to the parties whether or not litigation has commenced.

Mediation is a positive and constructive means of resolving disputes and, in virtually every instance, it is beneficial to the parties. Statistics show that the vast majority of matters that are mediated become settled. This saves the parties time, money and stress, and often preserves their relationships.

Even in the minority of cases where mediation does not result in settlement, the parties benefit: They and their attorneys gain valuable information about the strength and weaknesses of their adversary's position. They are also likely to gain a realistic view of their own position; and the time and effort invested in the preparation and participation in the mediation will invariably be what otherwise would have been ultimately required anyway in pursuing litigation -- with or without mediation.

Other advantages of mediation are that it is conducted privately, proceedings are confidential and parties maintain greater control of the process, including scheduling and selecting the mediator.

Mediation is completely voluntary, in that no settlement can be made without the consent of the parties themselves; they have complete control over the result.

Mediation provides the opportunity for the parties to pursue a "win-win" solution, rather than having the outcome of their controversies be subject to the uncertainty, and often "win-lose" results of a court decision, jury verdict or even arbitration.

Consider a typical dispute involving the owner of a newly constructed hotel. His general contractor sues him for non-payment of $650,000.00 for extras. The owner denies the extras were authorized and files a cross-complaint for loss of income resulting from delayed completion and for construction defects.

The contractor denies there are defects. He claims the late completion was caused by the owner's changes from the original plans and that extras were not authorized in writing, only because they were required by changes that had been approved, or else they had to be done on an emergency basis without time to go through the usual procedure.

The contractor also files a cross-complaint against some of his subcontractors claiming that any proven defects are the work of the subcontractors.

This situation has the ingredients for expensive, protracted and aggravating litigation.

The contractor's lawyer outlines the potential benefits mediation could bring. He says the earlier the mediation the less costly the litigation would be, yet on the other hand, the chances of success in the mediation might be enhanced after the litigation is further along.

By then at least some of the discovery would be completed. But, he points out, preparing for and conducting depositions, interrogatories and document inspections would not only consume considerable time, particularly with multiple parties involved, but also, obviously, considerable expense.

An experienced mediator, the lawyer suggests, could be selected from expert panelists at the National Conflict Resolution Center.

The contractor proceeds, understanding his attorney, who says that some people think it communicates weakness to introduce the subject of settlement or mediation, but he believes that is a myth -- that competent lawyers understand it is in everyone's best interest to take steps to avoid lengthy and contentious litigation.

All parties agree, though with varying degrees of enthusiasm, to participate in mediation.

At first, it appears unlikely the case can be settled, since the position of the contractor and the owner are far apart and expressed with some stridency.

But as the day progresses, the parties gain greater understanding of their adversaries: the pressure the owner feels by the cost increases exceeding his available loan funds, and the contractor's anger in being accused of shoddy construction.

After considering various alternatives, and being made aware by the mediator of the consequences of not settling, the parties, with the guidance and encouragement of the mediator, come to an agreement.

The subcontractors will fix a few of the items they acknowledge could use some additional work, and the owner will pay the full amount for the extras because the general contractor will accept payment in installments, without interest, over a 12-month period (during which time the hotel will be up and running and generating revenues).

Everybody was satisfied, knowing that the concessions they made were fully justified by the cost, time and stress they saved by avoiding further litigation.


Solomon is a practicing attorney with Solomon Ward Seidenwurm & Smith LLP and an expert construction defect panelist with the National Conflict Resolution Center.

Related link:

National Conflict Resolution Center: www.ncrconline.com

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