Legal

Mediation: Putting theory into practice

31 October 2018 | By Christopher Reeves

In the third and final part of our mediation series, Christopher Reeves provides an example of a typical project that opted to bring in a mediator – and how it played out.

In the past two issues of CM, we have seen how the mediation process typically works – but what is the experience like for construction professionals? This education project demonstrates how mediation works in practice.

The school’s bursar – the client – had been warned by the architect that problems with the financial side of the project were coming to a head. Despite certification and payment of the priced items in the bill, the failure to agree loss and expense for delays, plus disagreements over variations which had rumbled on for six months, meant that the contractor was threatening to suspend works.

Two weeks later the architect issued a further payment certificate after the contractor took a leap of faith in the mediation process. The project reached practical completion. Mediation worked. But how?

It started with a phone call to the bursar from the architect, warning that the contractor was planning to go to adjudication. The architect was convinced that a fresh pair of eyes would break the deadlock, and wanted the bursar to write to the contractor, suggesting mediation. The contractor, fed up that claims which popped up in monthly applications had not been resolved and were now left for the final account, responded positively.

First, a meeting date was fixed. Importantly, the parties wanted to meet for a constructive discussion rather than have an argument. They wanted to reach an agreement and move on. Each knew there was a compromise to be found. It was about trying to “find the number” – the amount of money the contractor would accept and the architect would certify.

Playing the percentages to reach a settlement figure

Assessing risk on a percentage basis is common in mediations. The mediator can ask difficult questions about how the risk score has been arrived at and whether the parties accept there is room for doubt.

An example could be a claim for additional work where there is an argument about whether the work was deemed to be included in the contract sum (as in this case).

Assessment of the risk might look like this:

  • Claim of £50,000.
  • Contractor’s assessment of its likelihood of winning is 60%, so it scores the claim at £30,000 (£50,000 x 60%).
  • Employer’s assessment of its likelihood of defeating is 60%, which means a 40% chance of losing, so it scores the claim at £20,000 (£50,000 x 40%).

The settlement range therefore covers £10,000 (£20,000 to £30,000) and the mediation parties then try to agree a number in that range.

Beforehand, I suggested the architect send me a spreadsheet with the latest application for payment, listing all items, and a confidential section with four columns:

We then organised the spreadsheets with highest value first. They ran to over 200 items.

A lengthy, confidential telephone call with each then followed. Those items that begged more information from the contractor led to information being released. The contractor was initially reluctant to disclose supplier invoices but relented. By the meeting, the architect had approved a number of items. Progress.

The meeting took place on the site, a classroom with two “breakout” rooms. It was challenging. The contractor arrived with his QS, who had not got on well with the architect on applications for payment. Interestingly, contractor and architect did get on well at the meeting. A side meeting was arranged with them which led to both having a better understanding of where distrust and pinch points lay.

The smaller items were soon resolved on roughly a 50/50 basis. We then discussed some of the bigger items. This gave both parties a chance to think about the strengths and weaknesses of those items with some questions from me that challenged their views.

We also discussed the alternatives. Adjudication. But what if that did not resolve things? Litigation might follow. And how much would litigation cost? How long would it take? What were the best and worst case outcomes?

In the end, resolution was achieved by both parties scoring each item on the spreadsheet using a percentage system according to the likelihood of a settlement in their favour (see box). By taking the two percentage figures, we were able to come up with a settlement range.

Once the parties had identified their settlement range on the claims, they then tried to “find the number” – the amount the contractor would accept and the architect would certify – in that range. They found it. The result was a payment certificate the parties agreed which represented settlement of the dispute. Full and final.

The contractor is now on another project for the architect. Fingers crossed.

Christopher Reeves is a construction lawyer and founder of Mediation for Construction

Leave a comment