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Bridging the gap in construction disputes

by Matthew Rushton on 22 Oct 2012

bridging the gap in construction disputes

The construction industry has consistently been among the most creative in its approach to resolving disputes outside the courts. But further savings of cost and time are still possible. JAMS International reviews the facts.

No one much listened to Peter Lundhus, the Danish engineer responsible for some of his country’s most breathtaking transport structures, when he expressed doubts that arbitration was the best way to resolve the disputes arising from a project to link east and west Denmark by bridge.

That build, and its subsequent fall-out, continues to serve as an example of how not to undertake dispute management in the construction sector. The arbitrations were rumbling on more than a decade later, with some contractors going bust before their cases were heard.

For his next project – the Oresund, a bridge-tunnel linking Sweden and Denmark – Lundhus laid down the law. Either you accept a multi-tiered conflict management system, he said, or I walk away. The contractors, many of whom had been involved in the Storebaelt fiasco, quickly accepted. Four years later, the bridge opened – nine months ahead of schedule, under budget and with the parties getting along famously, by all accounts.

If only it were so simple. You can be as innovative as you want with a tiered dispute resolution clause, incorporating negotiation, mediation, dispute boards and arbitration to offer a seemingly cogent dispute resolution framework. Dig a little deeper, though, and the cracks appear.

For example, what happens if the arbitration clause is limited to two parties, as is often the case? According to Jane Player, a partner at King & Spalding who specialises in infrastructure project disputes ,“It’s like having some pieces of a garment but not the whole suit. You need to have everybody who has a stake in the project around the table in order to decide how you’re going to get it back on line.”

Almost every time she works on a large project dispute, Player says, someone she’d ideally want to be involved comes out of the woodwork. Arbitration allows them to be accommodated, of course, provided the parties agree. But the flaw is clear to see: one side can use their consent as tactical leverage to block a third party from coming to the table.

It’s an all-too-common occurrence, according to those in the industry. “You like to think all sides are thinking creatively around finding a solution,” says another City mediator. “Sadly, though, there are an awful lot of operators in the legal world who continue to think more like old-fashioned litigators rather than getting everybody in a room and sensibly discussing the issues at hand.”

That sentiment rankles with many in the construction industry, who see themselves as early adopters of mediation and appreciate its now widely-accepted ability to take the tension out of escalating disputes. (As far back as 1990, for example, disputes related to the construction of the Eurotunnel were mediated by the Bank of England, and was one of the first instances of its use in UK construction projects.)

Courting costs

Yet there’s still much to be learned, experts suggest. Indeed, given the vastly complex nature of most projects, if a dispute arises, or even a single relationship sours, it almost certainly won’t be the only one.

And, perhaps inevitably, builds both large and small fall apart due to human involvement – the mismatch between expectation and delivery. Which is why, when it comes to conflict resolution, a non-confrontational approach seems to work best.

“If you can ignore who is obliged under the contract to do and pay for what, you start to get people back into a collaborative phase – from ‘I’m hardly prepared to talk to you because of what you’ve done’ to ‘I have to speak to you to get this sorted,’” says Player. “And mediation gives you a very safe environment to vent your spleen, but then move quickly on to how to explore things and get the project back on track.”

So where, then, is the logic in enlightened users of dispute resolution continuing to ask the Technology and Construction Court or London Court of International Arbitration to settle their spats in anything approaching a timely, cost-effective fashion?

And with the industry’s typical dispute requiring a more document-, time- and expert witness-heavy process than mediation, parties going before a tribunal know one thing: deep pockets are required.

“I routinely find myself in mediation where the parties’ legal fees, even in a fairly modest dispute, are upwards of GBP 500,000,” confirms Rosemary Jackson QC, a barrister at construction set Keating Chambers. “So it just doesn’t make commercial sense to spend that money on lawyers when it could go some way to bridging the gap between the parties.”

“If you can mediate for GBP 20,000 where arbitration in the same case would cost GBP 1 million, why wouldn’t you try mediation first? A lot of those in the construction industry have got a long way down the line and spent a lot of money before they finally think to mediate, so they lose some of that benefit,” Jackson adds.

“It’s still better to buy off the risk, though. If you go to court or arbitration and you win, that’s fantastic. But what if it all goes wrong on the day and you lose? Mediation is a way of putting a dispute to bed and saying ‘we’ll likely want to work together in the future so let’s use our capital to advance our core businesses.’ And if that doesn’t keep the lawyers happy, so what.”

Avoiding the blame game

While its benefits are myriad and well-documented, mediation isn’t a silver bullet in every case – two in ten don’t reach settlement, according to industry statistics.

But even a failed mediation provides intelligence which can prove crucial to ultimately resolving the dispute. “The parties come to understand what they’ve got to do in order to persuade one another, as both weaknesses and strengths are revealed,” says one mediator.

In other words, mediation that doesn’t resolve a case entirely still leaves those involved better equipped – or more realistic, as the case may be – about their chances were the case to go to trial.

The process isn’t rights-based either, whereas a court or tribunal will look only at what the warring parties should have done under the contract. Rather than assessing what was promised and delivered, mediation encourages – and actively works towards – a resolution enabling all sides to move on.

“When you’re in an adversarial system, there is a blame culture. The standard clauses used – e.g. arbitration – generate processes focusing on allocating blame and responsibility. That only drives conflict escalation,” says Jeremy Lack. “In mediation, you have a mind-set that says ‘let’s try to forget about whose fault this is because we have a collective problem to address and wish to explore optimal outcomes that can work for all the parties,’ so every problem becomes a joint problem-solving exercise,’” Lack adds. “That’s a very different psychology.”

Player likewise says litigation and arbitration often can’t answer the very questions that both sides need, because the process itself encourages a finger-pointing, battleground culture which values victory and defeat above all else – an ongoing working relationship, for instance.

“Mediation can, and thinks more along the line of: how are we going to fix this?” she adds, noting that while parties may not leave the mediation skipping into the sunset, they see it as a share of pain that’s worth taking in order to wake up the following day and know they’re pointing in the same direction.

Jackson has a similar take. “I’ve never heard anybody say ‘well, that was a complete waste of time; I don’t know why we bothered doing it,’” she explains. “In fact, clients are almost pleased with the deal they get. It might not be the deal they went in hoping for, but you compromised and moved forward.”

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Topics: Construction

Matthew Rushton

Written by Matthew Rushton