Mediation in Construction: How Architects & Contractors Resolve Disputes

In this episode of What The RFI, Matt Brennan delves into the often uncomfortable yet necessary topic of mediation in construction administration. He explains the mediation process and its importance in resolving disputes before they escalate to court and offers practical strategies for preparing for mediation. The conversation emphasizes the need for clear communication, emotional detachment, and thorough preparation to ensure a successful mediation outcome. Brennan also discusses the potential consequences of failing to reach an agreement during mediation and highlights proactive measures to avoid such situations.

Takeaways

• Mediation is a cost-effective alternative to court.
• A mediator facilitates communication between parties.
• Keeping emotions out of mediation is crucial.
• Preparation is key for successful mediation.
• Understanding the potential costs of mediation is important.
• Notify your insurance early in the process.
• Group-related change orders to simplify negotiations.
• Timely responses to RFIs can prevent disputes.
• Being organized is essential in construction administration.
• Proactive measures can help avoid the need for mediation.

Sound Bites

• "What is mediation?"
• "Keep emotions out of it."
• "Know your exit plan."

Chapters

• 00:00 - Understanding Mediation in Construction
• 03:00 - The Mediation Process and Its Importance
• 05:49 - Preparing for Mediation: Key Strategies
• 12:14 - Navigating Outcomes: What If Mediation Fails?
• 15:00 - Proactive Measures to Avoid Mediation

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Transcript

0:00

Really? It comes down to this? Let's get into it. Welcome to What The RFI. I'm Matt Brennan and this is the podcast all about construction administration. Today, you haven't guessed it already, is all about mediation. So it's not a fun topic. Let's just be honest with it. Hopefully you never have to ever go through this. And, but it is needed, unfortunately. So last week we went into pricing. We went through the whole processes. We talked about, you know, how even pricing comes over, it comes across our desk, basically we issue a change, review the pricing, we talked about the tips, basically little things the do's and the don'ts, things to look out for, you know, look after your back and look after the intentions of the owner and then of course process it. That makes sense, pretty straightforward, you know, it's on every job, we get it. But mediation, well first of all, what is mediation? What does that entail? What does that even look like? You hear the terms, I'm going to take you to court. But what is mediation? So before anything goes to court, ideally you want to get a mediator involved. It's at a fraction of the price. It definitely saves a lot of time. Doesn't tie money up in that respect. It's just a better way of coming to a basically conclusion and an agreement to a price that you don't necessarily agree with. So what does this process even look like with a mediator? there's ideally you have a mediator, one individual, and they act as the middle man, the middle person, middle woman that coordinates between both parties. They help move the conversation along. They might be a little bit pushy to kind of keep the other party, bring some realism to the matter. Maybe even say if this goes to court, this is what you could be looking at, right? They're there just to move the conversation, keep things moving, keep the focus. And at the end of the day, hopefully come to a resolution that both parties are happy or at least someone's happy. And then we can basically move on, wrap it up and go from there. And there's a couple of ways that this process looks like. It can be either behind closed doors where one party is in one room, the other party is in the other room and the mediator is jumping literally going from room to room. It can also be virtually as well with today's world of Zoom. You know, they can literally just be in a Zoom room going from room to room and that's pretty straightforward. You know, you don't even need to be in person and honestly, why would you? It doesn't make any sense. There is the other type of mediation where you are sitting both parties and the mediator is literally sitting in between between them at the table and they are going back and forth. And it can be challenging, motions can get flaring. We're gonna get into those details as we kind of dive through this. But before we even get to there, like we're talking media, how do we even get to this point? You what mess did we create to get here? Well, let's back it up. If you issued a proposed change, right? You issued a, I wanna move this wall. You got pricing, you reviewed it. If you didn't like the pricing, well then just don't go ahead with the change. No issue. You're not going to see a mediator from that. Where it gets little dicey is if you issued a change directive at OpenCheckbook, as we've talked previously on the RFI, you've told the contractor, proceed with work, do the work, complete the work, collect all the invoices and come back to me with all the pricing. Sounds great. When it comes to Earthworks, that's kind of what you have to do. There's just too many unknowns in respect to that. You can't predict it. You can't price it out because one moment it could be bad soils and the next moment could good soils and then back to the bad soils. We don't know. So when you've issued like a change directive, that's where you unfortunately just got to wait till the work gets completed. The bills have been received, the pricing has been received. We've got quantities now. where'd all this lie, right? Where does it all come into place? Okay? And the thing is, you get this pricing and you look at it you go, not a chance. You didn't take out this many trucks to, you know, wrap up the site. I had my geotech on site. He said you only took out half the trucks. So this isn't a lie. You know, this isn't working. You know, this price is not a fan. What's going on? Well, we had trucks on the weekends too. Your geotech wasn't here. He was only here for half the time. These are the kind of the arguments that are going to trigger the pricing, why they did submit that pricing to begin with, right? And that's just what it is. That's why we're in this moment. And this is why we're having this conversation. So if you can't agree, what happens? Well, ideally, try and meet with the GC. Have that conversation. Have that open conversation, kind of saying, is it, this is how you're seeing it. Get everyone out of the room, just have that one-on-one conversation. But, you know, maybe that's not working. Okay, let's call to a meeting. Let's try and bring in the sub-trade. Bring in your consultants that are required, the ones that are reviewing this. Come together, sit around the table, bring the owner involved, and just have the open conversation. See where it goes. And maybe you can resolve it during this time. You know, other than, you know, your... your time that's being spent to this is this is a free meeting, right? Yes, you have your bill at rates and so on, but this is just again, keeping it down to the core people and hopefully you can come to resolution. And again, the rest of this podcast, you can stop right there and move on. But let's pretend you did that. You got together and there was absolutely no budget on price. It is what it is. We want it. We're going to take you to court. Okay, hold on, hold on. Let's stop you there. Let's come to it. Let's come. Let's, court's going to be an expensive piece. It's going to tie up money. Let's try and fast track this so we can issue a CO and be done with this and get everyone paid and move on. That's the reality of it. And that's where the mediator comes into the picture. Okay. So what does next steps even look like for that? Well, first off, notify your insurance, period. You probably actually should have notified your insurance. when things were starting to look kind of ugly, know, just FII insurance, we may have a claim against us. We may be going to mediation. We may have a court claim being launched towards our firm. That's where you definitely want, even on those early cracks, just giving the heads up. Maybe they've got some scenarios they've been with. Maybe they can help out and again, managed to wrap it up at the beginning or look at the outcomes from the court case and go and you don't have a chance. you may want to settle it sooner or later. Hopefully you can at least knock off a few dollars and from that respect. So notify your insurance, really, really important, 100%. And next thing is you're going to notify your consultants. Chances are they've already been part of these conversations that you've been brought in, but they are notified, they're on guard. We're going to pick a date and we're going to basically get this mediator involved and go from there. The meeting takes place. Again, whether it's closed doors, behind doors, zoom, remote, or face to face, right? You're going to have that mediation. And hopefully at the end of that session, there is a resolution. There's clear, you've come to agreement, and basically pricing can be resolved, finalized, paid off, and we can all move on and carry on the job and celebrate when it's all done. Okay? So if you do make it to this point, sorry, I had to go through it. What are some tips? What are some things that you can do to ensure that this process runs smooth and that you're at your A game and you're putting the client's best interest in mind? So first off is keep the emotions out of it. End of story, right? You're going to be, especially in the room, like if you're in the same place, emotions can get very heated and it happens, right? It's just what it is. Money can be a very emotional thing. The moment you touch someone's checkbook, that's where the relationships can really change, right? And they can really turn. And it just goes with anybody in our lives from personal to business. It doesn't matter. Money is just one of those weird things that really change people. And there's a really good book I was introduced to and it's called Getting to Yes by Roger Fisher. And It talks about that. It talks about going in these meetings. It talks about just keeping it to the facts, right? Don't get emotional about it. Just look at the facts, look at the data and keep pressing forward. And it is very true, right? If you're just relying on that, and I know it's tough, but if you can change that mindset, you are going to be off, well, better off in the end with it, okay? Of course, going into these meetings goes without saying is be prepared, right? You should have all your ducks and roll. You should have all your information, your paperwork, right? And simple, but very powerful. And have other pricing examples, right? Whether this is Earthworks, right? Or if this was a change on site, you know, an extra steal, something really drastically get us to this point. Have... related projects for pricing, right? And again, I know it depends on how old those projects are, pricing has changed, know, next thing you know, there's a tariff in the mix, all these things, right? But be prepared going into it, have similar numbers. You know, even again, mentorship talks to some of your old colleagues, your architectural friends, talk about people in other companies, you know, like, you know, there should be a safe place where you can go and kind of pick their brains before getting to this point. Okay? And, you know, Again, something that goes without saying, but rest well, rest well the night before this happens because it's going to be a tiring day. It's going to be a day where you are going to be worn down. That's what the whole goal is sometimes is these events is just to wear the other person down so they can just kind of accept and move on and go. And sometimes that unfortunately does not bring you a good deal at the end of the day. And ultimately going into this, You need to know your exit plan. What is the plan? Where do we hope this to see? Of course, we see that it resolving, but where do we see in the numbers? Is this a $50,000 change? Is it a $100,000 change? Or are we talking in the millions? Totally different games when the the stakes in that respect. But have an exit plan. Where are you willing to settle with it? Where are you willing to let this go? And of course, this is a conversation you will have with the owner beforehand as well. And, you know, if we're talking like a $50,000 change, right? Look at what the mediations cost. Look at what your time is the costing, right? So again, mediations, they can cost around $50,000 to $20,000. If the change is only worth $50,000, take that into account. Maybe you can meet in the middle before you get to this point. So again, anything that you can do to not get to this mediation stage, the better, right? It is probably going to be cheaper in the long run. So these are things that you just need to kind of weigh out all your options. Where do you see this going? Talk with the owner. And again, remove the stubbornness, remove the emotions because we just got to focus on the data, focus on the project. And we certainly won't want media and all that to be brought in, especially if it is a public project for that case. Okay. And if this change or sorry, this, this, you know, the request for extras, look at it. Maybe there's a bunch of them. Let's try and group it into a deal, right? Group it, group all these change orders or these requests for extras or whatever the case, all these, you know, miscellaneous, let's try and group it together into one item and deal with it. And basically kill three birds with one stone, right? That's kind of the intention or two birds with one stone. Whatever, how many extras are this is all relating to? Because sometimes it is a number of things all coming together and that's what's triggered, you know, we're going to launch a court lawsuit towards you. So those are kind of things. And you know, what if, what if mediation happens? What if nothing comes into agreement? It just is not successful. And that sucks. As A, you already spent the money into this, you've spent your time, and now unfortunately your insurance is definitely going to be triggered. And two, your lawyers are going to be triggered to bring in this. At least with the mediation, you might have been able to handle it without bringing lawyers into it. That's the nice thing about it as well. You can have lawyers present there, it depends on what it is, but usually the architect, the owner, contractor, and again the sub-consultants to basically put their way in and their comments and their backup towards it. You can do that with on your own saving thousands, thousands of dollars. Once you bring a lawyer into it, you're looking at a $450 per hour. And now we've got court costs. That's what it might have to be. Maybe you have to physically go to court and put that out. that's, like I said, that's the end of the day, right? But... Yeah, and the other thing with court is we kind of touch it on, but the reality is when it goes to court, money is just tied up. And I think those are points to bring up to your subcontractor, GC, saying, look, if you're going to take us to court, could be money could be tied up on this project for a few years. Mediation means once we've come to an agreement, money is paid out, everyone can walk away happy and move on with their lives in that respect. Court is going to tie it up. all these things to take into consideration, all different taxes to kind of, you bring to the table again before that mediation, at mediation and so on. But in the end with all this, mediation is a tool to use before you go to court. End of story, right? It does help, it does alleviate, it does cost a fraction of what the court costs as we've already kind of gone over. And ultimately, let's try and resolve this before it gets anywhere. So what do mean by this? Well, the reason we've got this going to mediation is because there's a reason behind it. If it's Earthworks, we issued a change, a CD, and fair enough, there's nothing that we could do in respect to that. sometimes mediation happens because of something that you, your firm, your consultant's been doing. Maybe you haven't been responding on time, the contractor issues a delay claim, now you're getting into fights and that kind of stuff. Again, mediation can come into that as well. But the thing is, respond on time, know, respond to your RFIs on time. Look at your shop drives, respond and return them to the contractor. Keep your logs, log all this data with it. Be organized as we've kind of talked throughout this podcast, right? Having your CA logs, noting, I don't care if you're doing an Excel or you're using a program like part three or some other kind of tracking. Be cautious of tracking it through Procore. I know I hear all every day that architects, well, they just use what the contractors use in Procore. Well, that's not your data, guys. Get back to your own data. Log it yourself because these are the times where you want to have that and be prepared. concluding to this, just be active, be proactive, and hopefully it never gets to this point. And hopefully you never have to deal with this and doing that. It doesn't put a game name on you, but yeah, do what you can, be fair and reasonable, be proactive, keep the emotions out of it, and just be true to yourself. So that wraps up this episode. Not really a fun one. We'll bring it back. We'll bring the life back into the next one, and we'll go from there. But of course, in the meantime, architects keep designing, and contractors keep making those plans reality. We'll see you on the next one.