Disputes in construction projects are sometimes unavoidable, given the complexity of arrangements and competing commercial interests involved. Although formal dispute resolution processes like adjudication and litigation are well established within the construction industry, they can sometimes be expensive and unnecessarily adversarial.

Mediation offers a more flexible and collaborative alternative. It can be used effectively in construction disputes (particularly at the outset) as a potential way to preserve relationships, reduce costs and achieve commercially practical outcomes.

Another important reason to use mediation is that under the Pre-Action Protocol for Construction and Engineering Disputes, parties are expected to consider whether an appropriate form of alternative dispute resolution (ADR), like mediation, should be used ahead of litigation. So even if more formal proceedings are being contemplated engaging in mediation is one way to demonstrate compliance with the Court’s expectations, and avoiding any potential court sanctions for failing to do so.

What is mediation?

Mediation is a form of ADR in which an independent third party (the mediator) facilitates negotiations between disputing parties with the aim of reaching a settlement. In the construction industry, mediation can be used to resolve a wide range of issues, including:

• Payment disputes
• Delay and disruption claims
• Defects and design failures
• Final account disagreements, and
• Professional negligence issues.

A mediator does not determine the dispute by giving their ruling or decision. Instead, their role is to coordinate with the parties to narrow issues in dispute and further settlement discussions.

Critically, mediation is voluntary and without prejudice – if parties are not contractually bound to mediate, they are not obligated to engage.

Whilst mediation can run simultaneously alongside other dispute resolution processes, such as adjudication, it is a tool designed to reach settlement and avoid parties incurring unnecessary or further costs associated with other proceedings.

How does the process work?

Mediation is flexible and can be tailored to the needs of the parties. Most construction mediations follow a broadly similar structure:

1. Agreement to mediate

The process begins when the parties agree to mediate. Parties may choose to do this when it becomes clear that a dispute has crystallised, through contractual provisions (such as dispute resolution clauses in the contract between the parties) or following a judge or adjudicator’s encouragement to do so.

Parties will select a mediator with the relevant construction expertise to facilitate discussions and sign a mediation agreement which governs how the parties will conduct themselves throughout the process including containing binding confidentiality provisions..

2. Preparation

Ahead of a formal mediation meeting, parties should consider their legal priorities and potential areas for compromise (i.e. is there an opportunity to narrow the issues in dispute). This ensures that each party can approach the upcoming mediation pragmatically.

Parties should also consider preparing the following:

• A mediation position statement – this may be read at the outset of the mediation to clearly set out each party’s position
• A mediation bundle – including key documents such as contracts, chronologies, expert reports and technical data, which may be shared with the other party
• A draft settlement agreement – preparing this in advance can be helpful so that, if a settlement is reached, it can be recorded promptly and efficiently

3. Mediation meeting

The duration of a mediation will vary depending on the complexity of the dispute, but will typically involve:

• An opening session: the mediator will bring parties together and explain the process. Parties may set our their viewpoints and positions in this forum.
• Private sessions: the mediator will meet each party separately to explore the issues in dispute. Crucially, the mediator will not reveal information discussed in private sessions with one party to the other party without express permission. Parties can therefore speak freely during these private sessions about settlement options and the merits of their claims.
• Negotiations: the mediator will navigate the private sessions and pass on settlement offers between the parties. Parties can explore creative, commercially driven solutions that a court or adjudicator could not impose.

4. Settlement (if reached)

If the parties reach agreement, the terms are set out in a written settlement agreement and signed, making it legally binding. Parties can settle without an admission of liability.

If parties are unable to reach agreement, they may utilise other resolution procedures such as adjudication or litigation. Importantly, the mediation itself does not affect those rights.

Final thoughts

Mediation can offer distinct advantages, particularly in relation to costs, flexibility, speed and maintaining relationships. This is particularly important in the construction industry where parties often collaborate on multiple projects, and delays to projects can result in significant commercial and reputational consequences.

However, mediation does not guarantee a satisfactory resolution. It requires genuine engagement from both sides and a willingness to compromise. If mediation does not result in resolution, parties may need to invest further time and resource into resolving the dispute through court proceedings, adjudication or arbitration, where a judgment can be delivered and enforced.

In practice, mediation works best when viewed as part of a broader dispute resolution strategy. Even if a full settlement cannot be agreed, it can narrow the issues in dispute and pave the way for future resolution.

As such, an understanding of mediation – and when it is suitable – is essential for construction professionals.

This article is part of our series of Construction Introduction series. For more, see:

• A construction introduction to adjudication
• A construction introduction to BIM and IM
• A construction introduction to contracting for energy projects
• A construction introduction to building safety