Mediation in the Construction Industry

An International Review

Penny Brooker, Suzanne Wilkinson

• Publisher: CRC Press
• Year: 2010
• eBook ISBN: 9781134029297
• Edition: 1
• Topic: Law
• Subtopic: Construction Law
• Index: Law

The application of construction dispute procedures has changed dramatically in the last decade. This has resulted in an increased use of Alternative Dispute Resolution in many countries, and mediation in particular. Construction is one of the major industries using mediation, in the UK and in many other countries such as the US, China, Australia and New Zealand. This expansion in mediation has been helped by encouragement from governments, although it takes diverse forms in different legal jurisdictions, for example: court rules to encourage this use (as in the US and UK); the courts' own mediation schemes or programmes, or legislation-backed programmes; or the use of industry driven mediation clauses in standard form contracts.

These developments have taken place extremely rapidly. They represent significant changes to the legal environment within which the international construction industry conducts its business but, to date, there has been little research on their impact. All these initiatives have inevitably led to a developing legal jurisprudence concerned with the validity of contract clauses or with providing statutory interpretation of the rules requiring or governing practice. This has important consequences for the construction industry because legal uncertainty increases the likelihood of dispute, which is not only costly for the disputants but can be damaging to national and global economies.

This book identifies the emerging international practices within construction mediation, and seeks solutions to the many legal and commercial challenges which they pose. It presents an international collection of reviews by experts, and allows a comparative commentary on the practice of construction mediation and the legal challenges facing its development.

1
Introduction

Penny Brooker and Suzanne Wilkinson

Mediation has become an important mechanism for dispute resolution in many countries because of the benefits that are perceived to be offered to disputants over the usual established systems such as litigation and arbitration.

The application of construction dispute procedures has changed dramatically since the start of the new century and this has resulted in an expanded use of alternative dispute resolution (ADR) in many countries and mediation in particular. This expansion has been accompanied by a corresponding push from governments throughout the world to encourage its use. These developments have taken place extremely rapidly and represent significant changes to the legal environments within which national and international construction industries conduct their businesses. However, ADR and mediation development has taken diverse forms in different legal jurisdictions. For example, some national construction industries have developed the use of clauses which obligate parties to use ADR or mediation in standard form contracts (SFC). A number of governments or states have introduced legal frameworks to support or encourage mediation or more generically ADR, which might be in the form of court rules which persuade parties to consider mediation or even make its use mandatory. Other countries have taken measures to implement ADR statutes, or more specifically Mediation Acts, which delineate some parts of mediation practices. These changes have inevitably led to a developing legal jurisprudence in a number of countries concerning such areas as the validity of contract clauses or statutory interpretations of the rules requiring or governing mediation use.

The objectives of this book are to identify the emerging practices within construction mediation and to seek solutions to the many legal and commercial challenges facing mediation development. It achieves this through the production of an international collection of monographs by academic and mediation practitioners from Australia, England, Germany, China (Hong Kong), Turkey, Malaysia, New Zealand and South Africa.

Historical developments in ADR and mediation

The historical development of ADR and mediation in many countries indicates dissatisfaction with the traditional court proceedings in relation to costs, legal fees and time involved in pursuing disputes, which has stimulated interest in using alternatives. These problems are often reported to be replicated in arbitration, which is a major dispute resolution mechanism in a number of the countries in this review (see, for example, chapters from England and Australia). Problems with litigation and arbitration led to a number of national construction industry reviews being undertaken that have resulted in the promotion of adjudication as the preferred dispute-resolution procedure where the adjudicator is required to provide a speedy decision, which is often binding on the parties until the completion of the construction project. Policy steers to sponsor adjudication may have lessened interest in construction mediation and negatively impacted on its use, but this endorsement does not mean that mediation has ceased to develop or have relevance to the dispute-resolution needs of the national construction industries under review. Mediation continues to spearhead many government and industry initiatives because of the many advantages that the process is perceived to have over both the court and arbitration processes.

Nader (1988) theorises that developments in dispute resolution are ‘cyclical’ in nature and notes how the new colonial states replaced their traditional processes, which were often based on harmony ideologies, with adversarial systems of dispute resolution then subsequently the ‘Western world’ began to seek alternatives in non-adversarial ADR. This phenomenon gained momentum and many of the new states have gone full cycle and are re-embracing less adversarial mechanisms for resolving disputes (Connors 1991; Houghton 1992; Robinson et al. 1996; Brooker 1997). Common law countries have been troubled, in some cases for centuries, by problems relating to the adversarial system of litigation (Holdsworth 1924; Fuller 1972; Jacobs 1985). The complex procedural and evidential requirements usually involve a dependency on lawyers who are often held to be responsible for delay and costs (Auerbach 1984; Woolf 1995, 1996; Jolowicz 1996). Against this backdrop, countries from both common and civil law systems in this book have adopted mediation for resolving construction industry disputes.

ADR developments extend worldwide to different legal systems and this review demonstrates that the national construction industries have been, and are, instrumental in mediation development both because of the economic importance of construction to each country and the need for the industry to have efficient dispute-resolution mechanisms that do not consume management and financial resources. As Stipanowich and O’Neal (1995: 5) observe:

Never in history has so much effort been directed at improving procedures by which controversies are resolved. The quiet revolution affecting dispute resolution reflects widespread concerns with the limitation of formal adjudicatory systems and a renewed emphasis on negotiated settlement.

Benefits and advantages of mediation

The early ADR movement resulted in an abundance of literature publicising the advantages that the different processes have over the formal systems of dispute resolution. The chief benefits relate to reducing costs, achieving resolution of disputes more speedily, creating commercial outcomes, confidentiality, and utilising a non-adversarial approach. (See, for example, Bevan 1992; Stephens 1992; Folberg and Taylor 1984; Allison 1990; Connors 1991; O’Connor 1992).

The flexibility and voluntary nature of ADR is said to allow the parties to select the form of ADR that best suits their dispute: ‘It should always be remembered that the strengths of ADR is its very flexibility, and the parties can tailor the form and procedures of the dispute before them’ (Stephens 1992: 90). Goldberg et al. (1985) maintain that mediation (where a neutral assists the parties to reach a resolution), as one of the primary methods of dispute resolution, can be blended with negotiation and adjudication (where a neutral third party provides a binding decision) to produce ‘hybrid’ processes such as the Med-Arb: mini-trials or early neutral evaluation.

Mediation is only one of a vast array of ADR procedures but it has become one of the most widely promoted not only because of its relative costs in comparison to litigation and arbitration but because aided with the skills of the mediator, it is said to allow the parties to participate fully in the process and explore opportunities for commercial or ‘creative’ settlements which allow the business relationship to continue (Folberg and Taylor 1984: 7; Bevan 1992; Dixon and Carroll 1990; Stephens 1992; Brown and Marriot 1994; Brooker 2005; Brooker and Lavers 2005).

Disputes in the construction industry

Disputes in the construction industry occur for a variety of reasons. Kwakye (1997) suggests that the main areas giving rise to construction disputes are time and cost overruns, quality of workmanship, payment, contract documentation, construction information and site supervision. Ramus and Birchall (1996) add to this list by including relationships between the various parties, which, they point out, are often adversarial.

Explanations for each factor causing disputes were discussed in Wilkinson and Scofield (2010); for instance, disputes over time and cost overruns arise as a result of uncertainty about who is liable for the overruns and why they occurred. All parties in the construction process are usually trying to maximise their profits, so faced with a cost or time overrun (which obviously has a cost implication), parties will fight to protect their profits.

Arguments about the quality of workmanship arise if there is insufficient monitoring or inspection, or if parties disagree about the quality of an aspect of the project and typically these result in an adversarial dispute situation.

Timely and correct payment is important for the players in the project. Often companies are relying on correct and on-time payment in order to purchase equipment or pay their own accounts. If payments are late or withheld disputes may arise.

One of the common areas of construction dispute is contract documentation. Sometimes there are ambiguities or inconsistencies between various sections of the contract, or incorrect wording or a lack of definition. Disputes can arise when parties disagree in their interpretation. Standard conditions of contract go some way to alleviating definitional problems, since they usually contain definitions of commonly used but potentially misunderstood terms.

The administration process can also lead to disputes. For example, construction disputes can occur if variation orders are not issued, or if there is a general lack of construction information, such as clear instructions or inspection reports. Site supervision, one area of administration, can lead to disputes for a number of reasons. Sometimes there is too much supervision, which can make one party feel continuously watched and monitored. At other times there is inadequate supervision or administration, leading to associated problems such as insufficient inspections or poor instructions.

Finally, relationships between parties can be a problem. When parties find that the project is running late or is over budget, the players’ stress increases and the parties may argue about responsibilities, causing a breakdown in relationships. This breakdown may then lead to a lack of communication, mistrust and often results in adversarial relationships which can impact on the approach taken within the negotiation process or on the success of dispute-resolution strategies adopted. When lawyers are consulted, this may add further to an adversarial negotiation environment because of their legal training. (See, for example, Mnookin 2003; Menkel-Meadow 1993).

Common methods of resolving disputes in the construction industry

Wilkinson and Scofield (2010) discuss the range of dispute-resolution methods available in the construction industry. Generally, there are standard ADR methods used internationally. The most common methods are negotiation, engineer’s review, adjudication, mediation, and arbitration. Other methods such as dispute review boards (DRB) and expert witness are occasionally used or used in conjunction with the main alternative dispute-resolving methods. All these processes and procedures have been developed as an alternative to litigation. In litigation, courts become involved in a dispute, and an independent person, not always with specialist knowledge of the industry, imposes a judgment. Cases can take many months and sometimes years to resolve.

Negotiation

As discussed by Eilenberg (2003), negotiation is the first stage to resolving a dispute. When a problem occurs in construction, it is common for the parties to raise...

Table of contents

• About CIB and about the series
• Contents
• Figures and tables
• Contributors
• 1 Introduction
• 2 Construction mediation in Australia
• 3 Construction mediation in Germany
• 4 Construction mediation in Hong Kong
• 5 Mediation in the Malaysian construction industry
• 6 Construction mediation in New Zealand
• 7 Construction mediation in South Africa
• 8 Construction mediation in Turkey
• 9 Construction mediation in England and Wales
• 10 Evaluation of construction mediation
• Index