Adjudication versus mediation

11 November 2011

Michael Dawson, looks at the pros and cons of the different dispute resolution processes 

Changes to the  Construction Act came into effect on 1 October 2011, enabling changes to the adjudication and payment procedures for construction contracts.At the same time, the government is simultaneously encouraging a culture change in dispute resolution to make people aware of mediation and its benefits, as proposed in the Jackson Report earlier this year.

Does mediation have any advantages over adjudication for construction disputes? The answer, in the writer’s view, is that in all cases, excluding straight forward issues such as withholding payment without following the  correct procedures, mediation holds a great many advantages overall but construction professionals require educating in its use.

Adversarial and Non-adversarial Processes

Adjudication is simply another adversarial method of dispute resolution in which one party wins and the other loses. However, unlike traditional litigation where “costs follow the award”, in adjudication the losing party only becomes liable for the adjudicator’s fees and each party stands their own costs.

Mediation however is non-adversarial and seeks to find a solution to the dispute which is acceptable to both parties, thus also attempting to preserve the business relationship. A settlement in mediation is not necessarily associated with an immediate transfer of money from one party to the other and more imaginative settlements can be achieved, for example discounts on future business, additional work carried out at no cost, staged payments or even something as simple as an apology. Similarly, the parties are free to agree their own apportionment of costs, although initially at least each party generally bears an equal proportion of the mediator’s fees.

Control of the Process

With adjudication, each party hopes that the adjudicator will arrive at a favourable decision to them, with no control over the outcome. Admittedly, a party dissatisfied with an adjudicator’s decision can still go to arbitration or litigation to resolve the matter, but this action simply perpetuates the adversarial methods, again with no guarantee of success.

With mediation, each party retains control of the negotiations and is under no compulsion to agree to a settlement if they do not wish to do so. Whilst this might be viewed as a recipe for disaster, it does not reflect the commercial acumen of the majority of parties involved in a mediation or the skill and training of the mediator. National statistics typically show that approximately 80% of mediations settle on the day with a further 10% settling in the days or weeks following the mediation, when the parties have had an opportunity to reconsider their positions in the light of the discussions held during the mediation.

Once a settlement has been agreed in mediation a formal binding agreement can be concluded on the day but, as mentioned above, a dissatisfied party to an adjudication can still take the matter to arbitration or litigation. There are no statistics currently available to confirm what proportion of adjudication decisions are subsequently challenged.

Success Rates, Timing and Preparation

Advocates of adjudication would argue that a decision is guaranteed at the end of the process, but not at the conclusion of mediation. However, if 80-90% of mediated cases are settled, where all parties are satisfied with the outcome, is this not better than an adversarial process where, almost by definition, 50% of the parties will be satisfied and 50% dissatisfied?

Adjudication advocates would also argue that the process is efficient, taking a maximum of 35 days from the Notice of Referral to the publication of the decision, but this ignores the vast amount of preparation undertaken by the parties in documenting their claim for consideration by the adjudicator. By contrast, mediation can be undertaken with as little as a Position Statement from each of the parties and can be concluded usually within a day or less, at the earliest convenient date for the parties and their representatives (if any) to attend.

Mediation can be very informal both in terms of the meeting itself and the preparation undertaken prior to the mediation. Furthermore, legal representation is not essential. However, whilst adjudication also does not demand legal assistance, most parties feel that it is essential for legally qualified persons to prepare the submissions for the adjudicator where points of law are under consideration and taking into account that a decision will be made solely on the basis of these written presentations.

Furthermore, the fact that mediations are conducted in person, rather than the documentary submission basis of adjudication, also assists the business relationship between the parties, giving each side the opportunity to assess the other and to discuss issues openly within the confines of the mediation rooms.

Confidentiality and Cost

This last point also leads to one major advantage for mediation in that the mediation agreements, signed by the parties prior to the mediation taking place, provide for complete confidentiality. This can be particularly important for some individuals and businesses who would not wish for details of discussions or settlements to be disclosed which could damage their business reputations.

Finally, mediation is substantially less costly than adjudication, with a typical adjudicator’s fee of  between £5,000 and £20,000 (depending upon complexity), since their fees are based upon the total time taken to review the evidence, decide the case and formally write their decision to withstand the scrutiny of the losing party and any challenges arising. This complexity will also be reflected in the cost to the parties (which each must bear separately) of preparing their documentary submission to the adjudicator.

A full day’s mediation with a leading mediator might cost £2,500 outside London with some cases requiring less time and therefore being less costly. In addition, each of the parties incurs the cost of their representation at the mediation, usually 1 day, again depending upon complexity.

Overall it can be seen, therefore, that whilst a settlement can be guaranteed in adjudication, unlike in mediation, there appear to be many more commercial and practical advantages to mediation which outweigh the relatively low risk of failing to agree settlement on the day itself or shortly thereafter.

This article has been prepared by Michael Dawson FRICS, MCIOB, ACII, FCILA, FUEDI-ELAE, an independent Accredited Mediator.

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