Inside Construction Mediation

Introduction
Anyone familiar with the construction business knows it has an abundance of feisty, outspoken individuals. Their representatives often fit the same bill. Mediators who serve the industry must be thick-skinned and know how to roll with the punches without losing control of the mediation. They must also have a gentle touch, keeping a low profile in instances when the parties are on their way to making a deal on their own. Sometimes even, a mediator may have to fall on his sword and silently orchestrate the mediation from behind the scenes if that's what's required to get the job done.

Often the mediator's role is to play devil's advocate, called upon by the parties to tell each privately, or mutually, what the settlement should be. One or the other may not like what it hears. The deal the mediator proposes may be perceived as unfair, unreasonable or both. Or it may be that a party had an agenda other than "fair and reasonable" when it agreed to mediate. But take it or leave it, the parties cannot but benefit from an objective assessment of its case that each can use to maximize its gain, or minimize its loss, if they go on to another forum for a resolution of their dispute.

Three recent construction mediations demonstrate all of the above. All with stops and starts and bumps along the way. All with the trials and tribulations that make construction mediation so interesting, invigorating and challenging.

Taking Your Lumps
"I've never seen a mediation conducted this way." This from the hi-priced advocate for the general contractor in a mandatory mediation ordered by the New York State Supreme Court. Against my strong recommendation that we not follow traditional mediation format and allow me to continue doing some preliminary caucusing with the parties before each made its case to the other across the negotiating table, he demanded he have his say "right now."

[There are three kinds of two-party mediation: mandatory, mandatory-voluntary and voluntary. In the first, both parties would rather be somewhere else. In the second, one party is usually reluctant. In the third, both want to participate. Needless to say, mandatory is the toughest and least successful. But there's always a way to get the job done.]

So we all assembled, and on behalf of his client he let the developer have it right between the eyes, no holds barred. But he began his remarks with a broadside aimed at the mediator: "This is how I do mediations. This is how a mediation should be done."

And when he was done the livid, red-faced owner shouted some well chosen epitaphs that must have reverberated throughout the law offices as he and his people made a hurried exit from the conference room in the bowels of the law firm. "I was prepared to make a deal with you but now we're going to war," were his parting words.

I did not have to tell the attorney how counter-productive his onslaught had been. Both he and the contractor looked like deer caught in headlights when I rejoined them after seeing the owner's group out. The contractor, still recovering from the owner's outburst, was embarrassed by his attorney's tongue-lashing of his former customer. I departed suggesting that they re-evaluate their hard-nose stance while I thought about how to get the owner back to the bargaining table.

Just before the confrontation I had been caucusing with the owner and his people and had left them while they discussed whether to eliminate a $500,000 counterclaim I thought of dubious merit. When I told the contractor that the owner was not yet ready to have head-to-head discussions about money - but in my estimation soon would be - the contractor's attorney was not satisfied. He had convinced the contractor that he could force the owner to negotiate, there and then, on their terms. He thought he could intimidate the owner with a graphic description of the impending ferocity of their lawsuit. It was a mistake they now regretted.

When I got back to my office the contractor called and advised me that a contrite message had just been sent to the developer's attorney: "My client is prepared to go forward with a continuation of the mediation we had today. Please let me know what dates you are available. Thank you."

After the owner was given a few days to calm down and assured that the contractor had re-thought its mediation strategy and would enter into principled, non-contentious negotiations, the mediation was resurrected and a follow-up session scheduled. One step forward, one step back, anther forward - the way construction mediations sometimes play out.

Falling On Your Sword
Two weeks later at another mediation: "You were trying to divide and conquer. You tried to pit me against my people, " the attorney loudly complained. One side's perception of my caucus behavior during a voluntary -mandatory mediation (one party must mediate if the other party demands it) between an electric contractor and a New York City public agency. The other party told me they heard her displeasure through the newly constructed walls of the refurbished downtown skyscraper. Playing devil's advocate sometimes ruffles feathers, and then some.

Later, at the end of the day, in the heat of negotiations, one of the attorneys for the contractor charged the agency with criminal behavior, catching both the agency and the mediator by surprise.

"Why wasn't I told about this," the agency's lead attorney asked in outrage looking directly at me. "I've never been in a mediation where something like this was thrown at me without warning at the last minute," she added. I said that I too was surprised, but "now that you heard it why don't we try to deal with it." She would have none of that and refused to address the issue. I silently sympathized with her decision. She would not go further and the meeting broke up quickly and silently.

We spoke the next day but she was still licking her wounds. I was the culprit in her estimation and there would be no changing her mind about that. "You should have known they were going to make that outrageous charge," she railed. It was to no avail when I told her that I did not know they were going to make the charge and confidentiality prevented me from bringing it up or discussing it with her and her people beforehand.

Shortly thereafter the agency notified me that it had "ended its participation in this mediation. Your invoice should be sent to me at the address above." Despite the finality of this written declaration, it was not yet the time to throw in the towel.

Each of the dozen participants in the mediation had demonstrated that they had put their time in and were fully prepared for the negotiations. I had prepared bar charts for discussion. Not only the time they had expended, and would expend if we were unsuccessful, but a great deal in money and the reputation of the parties was at stake. The contractor had been terminated; a death knell for those who do business in the public sector. And there was a criminal charge against the agency hanging in the air.

It was not time to abandon ship because of an emotional outburst that abruptly short-circuited negotiations at the end of a long, productive day.

Sometimes the mediator must fall on his sword. So I put aside her request to terminate the mediation for the moment and instead responded with a letter of my own which discussed the merits of each side's positions - including the new one by the contractor - and aggressively expounded on why it would be in the best interests of the agency to continue negotiations, "with or without me." I had concluded, as I had in the next discussed mediation, that sometimes it is the best interest of the case to keep a low profile or, as in this situation, to just get out of the way. Concurrently, I advised the contractor that such an approach - my standing in the wings - might be in everybody's best interest and told him to sit tight. He agreed to wait and see what developed.

I don't know if it was the compelling arguments I made to continue negotiating or whether it was the "with or without me," that won the day but before the end of the week the contractor's attorney advised me that he had spoken for one and a half hours with the lady in question and they had agreed to meet the following week. He said a deal was in the works and was very optimistic that the contractor would be "undefaulted."

The Gentle Touch
"You're not being aggressive enough." So spoke the litigation partner who buttonholed me during the endgame of a private sector, voluntary mediation. Her adversary, a veteran of New York City construction wars, kept prodding me to "get them to put more on the table" every time our paths crossed. I was shuttling between rooms holding various groups of managers and executives I had isolated while the two opposing CEO s were negotiating alone in a separate conference room. They were making progress toward a settlement with a minimum of input from me whenever I popped in to encourage them.

The mediation was resolved by the CEOs the next morning on car phones after everyone had gone back to their home territories and I was on the Metroliner heading back to New York City. The night before I spoke with each on the phone and faxed them my proposal for settlement from my hotel room.

At the final, "last-ditch" public meeting at the end of the previous afternoon with everyone present, neither executive would budge on the $250,000 that separated them in a claim and counterclaim gap that had been more than $4,000,000 when the mediation began. Both wanted to look tough for the home crowd and neither would reach out to bridge the gap. The opposing attorneys were waiting for me to put pressure on the CEOs to "split the difference" and do the deal. But I did not want to undermine their posturing nor spoil the drama each seemed to be reveling in. Before everyone went their separate ways, however, I asked the two execs to schedule a phone call for the next day. Each was a savvy businessman who knew he was circling a good deal, the best he would get. And I knew neither would let it slip by the wayside.

The deal was made the next day without me. My settlement fax just gave them a hook to hang their egos on.

Keeping Your Eyes on the Prize
Whether the parties come to the table purely of their own volition or are told to do so by a judge or by the agreement they made up front, the mediator has to keep his eye focused, unemotionally, on the prize. Sometimes that requires the mediator to be a tough, devil's advocate, cajoling the parties to keep talking. Sometimes the mediator's role is to stay out of the way when he sees a settlement coming down the tracks. [And isn't that actually the most successful mediation? The parties, once they are on the settlement track take the train into the station on their own. The less the mediator is involved, the more it is their deal; the premium goal of any mediation.]

The mediator has to 'go with the flow' with a full arsenal of substantive and procedural assets up his sleeve and the instinct to know which to use when. But the bottom line, from the outset, is to gain the respect and trust of the parties so they allow you, whether they acknowledge it or not, whether they like it or not, to do your job as you see fit. And this will more than likely occur if the mediator treats everybody with respect and allows them to keep their dignity no matter the situation. But in the end the deal is theirs, they make the deal and they must be constantly made aware that that is their responsibility, not the mediator's. The mediator's job is to lead them to the water. They decide whether to drink or not.

Gary Morgerman
Construction Mediation Inc.
New York City
May 2004