Why should mediation clauses be built into your contract?
All our team members and consultants have years of experience in construction claims and project management, seeing projects from different perspectives and in different parts of the world. All agree that in most cases, mediation is the preferred route for dispute resolution, but deciding on the process for that before there’s a dispute to resolve is key to settling disputes positively and without filing a lawsuit.
Dr. Apirath Prateapusanond, Regional Director of Tungsten Capital in Thailand, is an ardent advocate of the benefits of mediation, and building a mediation clause into construction contracts. It adds no extra cost to put this clause into a contract, but it can save a lot of money and heartache down the line.
It always seems strange to plan for an argument at the start of a project, but in our experience it’s vital for keeping the peace (not to mention maintaining relationships and keeping projects on time and on budget as much as possible).
Here are six reasons why mediation clauses should be included in the construction contract from the beginning:
1) Claims are inevitable, but negative outcomes aren’t
Requests for time extensions and additional resource are commonplace on construction projects. Even on projects that are completed on time, there are often still claims. However, we can alleviate animosity and find a solution quickly and to the satisfaction of all parties if we put appropriate measures in place.
2) Staying out of court is better for everyone
At mediation, you can discuss issues and find solutions that suit everyone as much as possible. Both parties have full decision-making input to agree costs and outcomes. Mediators will only provide assistance and advice. If the dispute is resolved in court, the judge will make final, binary decisions that might not go the way you want them to.
3) Getting things resolved quickly
When there’s any conflict in construction, it’s in the interests of both parties to resolve them as quickly as possible. This allows the contractor to continue working to complete the project or will allow the project owner to get on with putting the end result to work (perhaps it’s a hotel that needs to open to start generating revenue for example). Essentially, it stops relationships from souring and prevents money being trapped in costly disputes or idle construction sites.
4) Everyone is in the loop
By placing a mediation process into the contract, everyone has transparency regarding the agreed processes in case of a dispute. Both parties choose a mediator, usually choose someone who has experience in that construction, and can feel as though their interests are fairly represented. This is important for maintaining positive relationships.
5) Mediation costs less
Resolving a dispute at mediation will cost far less than the rigours of going to court. The legal fees, the length of time that adjudication takes, the diversion of funds into fighting the claim – it all adds up and likely means that the project itself stalls as well.
6) It’s more discreet
Resolving a claim at mediation means that both parties can keep it confidential. No one wants their dirty laundry aired in public – it’s not good for existing or future relationships. Often the terms of mediation can mean that the contents of the dispute and resolution must not be disclosed or used. This is different from arbitration in court where testimony information can be recorded and disclosed. This has resulted in a lack of privacy and a greater need for disclosure of project information and wider disputes.