In 2021, a RICS survey of the global construction sector found that over 40% of professionals reported an increase in disputes after the COVID-19 crisis.
Since then, international conflicts and a soaring cost of doing business have only added to the unprecedented global challenges facing the construction industry. As a result, disputes are continuing to escalate, along with the associated costs. In an industry where collaboration is key, this increased conflict runs the risk of causing lasting damage to relationships and reputations, and seriously delaying construction projects.
Against this turbulent backdrop, property professionals are reevaluating their approach to dispute management, with a shift toward mediation and negotiation outside of court. With government calls for compulsory mediation for small claims, stakeholders across industries are closely evaluating its benefits and challenges.
Read on to explore the construction industry’s burgeoning interest in conflict mediation, dissect its complexities and opportunities, and investigate the likelihood of it becoming a mandatory measure.
Mediation, Arbitration and Adjudication
Conflict mediation is a structured process across industries, aimed at resolving disputes between parties in a collaborative and constructive manner. It involves the intervention of a third party who facilitates communication and understanding, and guides the parties towards a mutually acceptable resolution.
The mediator will normally not decide the outcome of the mediation, but will act as a neutral party facilitator. If a resolution is reached between the parties, this can be recorded in a binding settlement agreement. Mediation emphasises collaboration and relationship building, making it suitable for disputes where maintaining ongoing working relationships is important.
Arbitration is a more formal process, where disputing parties present their cases to a neutral arbitrator or panel of arbitrators who render a binding decision. Arbitration resembles a trial, with each side presenting evidence and arguments, but the proceedings are less formal than court litigation. Arbitration offers a degree of control over the process and allows parties to choose their arbitrators, but the decision made by those arbitrators is final and binding.
Adjudication sits between mediation and arbitration, in that an impartial adjudicator is appointed to resolve disputes quickly and informally with a temporarily binding decision. This can be challenged in court later through litigation or arbitration if necessary. Adjudication offers a fast resolution, but lacks the flexibility and confidentiality of mediation.
The Benefits of Mediation in Construction
Construction projects involve multiple stakeholders with diverse interests, leading to disagreements over issues such as delays, cost overruns, and quality standards. Mediation provides a platform for these parties to engage in constructive dialogue, identify underlying concerns, and work towards mutually beneficial solutions.
Unlike litigation, arbitration, or adjudication, which often result in winners and losers, mediation focuses on finding mutually acceptable solutions through collaboration and communication. This approach helps preserve business relationships between parties involved in construction projects, fostering a more cooperative atmosphere for future endeavours.
Mediation typically involves lower costs compared to other methods of conflict resolution. By avoiding lengthy court proceedings, expensive legal fees, and administrative expenses, parties can save time and resources. Moreover, parties have greater control over the scheduling and pace of mediation sessions than they would over court proceedings, allowing them to reach a resolution more quickly and efficiently. This is particularly beneficial in the construction industry, where delays can have significant financial implications.
Mediation also provides a flexible and customizable approach to dispute resolution tailored to the specific needs of the parties involved. Unlike formal legal proceedings or arbitration processes, which follow strict procedural rules, mediation allows parties to craft creative and innovative solutions that address their unique concerns and interests. This flexibility promotes greater satisfaction with the outcome and fosters a sense of ownership over the resolution process.
The Current State of Construction Disputes
With Brexit, Covid-19 and recent geopolitical events throwing challenges at the construction industry from all angles, delays and added costs are increasing, creating unprecedented levels of conflict between construction stakeholders. For example, a 2023 study by Dispute Assist found that 43% of home improvement contractors are now spending between two and five hours per month dealing with disputes with customers.
Despite this unsettling backdrop, uptake of alternative dispute resolution (ADR) methods has been slow across the construction industry. 42% of those surveyed by Dispute Assist were not part of an ADR scheme, with 28% admitting to not knowing what ADR means.
This mirrors 2021 findings by the Ministry of Justice, whose call for evidence on dispute resolution in England and Wales found that while industry experts recognise the benefits of mediation, its use in UK construction has been limited.
However, in July 2023 the Government announced plans to mandate mediation for all Part 7 small claims in the County Court, working towards integrating mediation across all small claims proceedings. These proposals could divert up to 20,000 from the court system each year, freeing up judicial resources for more complex cases.
While this call only covers a fraction of claims within the construction industry, it does suggest that the Government is paving the way for further compulsory meditation measures, meaning that construction industry stakeholders need to gain an understanding of the process quickly.
Shifting Perceptions Around Mediation
In a 2022 lecture, the Rt. Hon. Sir Geoffrey Vos pointed out a number of reasons for controversy around the concept of mandatory mediation. These included a lack of confidence in the competency and neutrality of mediation services, and the perception that parties cannot be forced to come to an agreement, perhaps only further entrenching their opposing views by being made to mediate.
More pressingly, he highlighted concerns that delaying court proceedings by mandating mediation might breach Article 6 of the ECHR – the right to a fair trial. While a 2021 Civil Justice Report has concluded that mandatory ADR would be compatible with Article 6, public perception of it as a breach of rights could negatively impact its uptake and effectiveness.
In 2023 The University College of Estate Management (UCEM) in partnership with the Royal Institute of Chartered Surveyors (RICS) produced a survey to explore the shifting perceptions of mediation amongst property professionals in the aftermath of the Covid-19 pandemic.
In this survey, half of respondents agreed that disputes had become more common and more expensive since the outbreak of Covid-19. Furthermore, the participants almost unanimously agreed that mediation was one of the easiest and most cost effective dispute solution methods. A high percentage of participants agreed that mandatory mediation as a first step in dispute resolution would be likely to reduce costs.
This research could be evidence that perceptions are shifting in the construction industry, and that stakeholders are becoming more willing to engage in mediation going forward. Moreover, respondents emphasised that a wider cultural shift toward collaboration was necessary in the industry to help avoid and resolve disputes.
Challenges Toward Mediation in Construction
In an established industry such as construction, litigation is deeply ingrained in the construction industry’s culture. Convincing stakeholders to embrace mediation may encounter resistance due to familiarity with and confidence in existing legal processes, and perceptions about the comparative effectiveness of mediation. Educating stakeholders about the advantages of mediation can be time-consuming and resource-intensive, leading many firms to favour the status quo.
Construction conflicts can be especially difficult issues to mediate, as they often involve technical, legal, and financial complexities that require specialised knowledge and expertise to resolve effectively. As such, stakeholders may have misgivings about the abilities of mediators to effectively facilitate conversations. Finding qualified and experienced mediators within the construction sector is likely to be challenging until ADR is more widely embraced and more specialist training becomes available.
Disputes over construction projects can also call for a degree of sensitivity and nuance, as they often involve multiple parties with varying levels of power and influence such as contractors, subcontractors, and property owners. Addressing power imbalances among stakeholders will likely be a particularly challenging aspect of mediation, as parties may feel reluctant to engage in open dialogue if they perceive a disparity in negotiation leverage.
Another key hurdle lies in navigating the delicate balance between leveraging mediation’s cost-saving potential and guarding against its potential misuse. The 2023 RICS survey found that a number of respondents who used mediation services used them to simply test the strength of a case before progressing it to adjudication or litigation. This type of usage could open the process to exploitation, further undermining the process’s integrity and effectiveness.
Overcoming Resistance to Mediation
Overcoming these challenges requires a multifaceted approach aimed at addressing underlying concerns and fostering trust within the industry. Calls for mandatory mediation could make the concept feel adversarial to stakeholders, so rather than forcing the issue it would be beneficial for the industry to embark on a longer program of education, training and discussion.
By demystifying the process of mediation, emphasising its potential to cut costs and streamline proceedings, and highlighting successful case studies, we can encourage parties across the industry to embrace mediation as a viable alternative to traditional litigation rather than begrudgingly accepting it as a legal requirement.
Furthermore, an established system for training and regulating construction-specific mediators and expert witnesses needs to be put in place. By ensuring the qualifications and expertise of mediators via a transparent and accessible system, parties can trust in the impartiality and effectiveness of the mediation process. Expert witnesses play a crucial role in providing objective insights and guiding parties towards informed decision-making, thereby enhancing the credibility and legitimacy of mediation outcomes. Their role in the process ought to be emphasised, and their selection clearly regulated.
Additionally, preferences for negotiation and the involvement of senior representatives can serve as valuable pathways to overcoming resistance to mediation. By empowering parties to take an active role in crafting solutions and fostering direct communication channels, negotiation can pave the way for more meaningful mediation discussions. Similarly, the engagement of senior representatives can lend credibility to the process and facilitate buy-in from key decision-makers, thereby increasing the likelihood of successful mediation outcomes.
Cultivating a Culture of Collaboration
Both the hopes and misgivings of construction professionals when it comes to conflict mediation point toward the need for a wider cultural shift. Creating a culture of increased collaboration is paramount for not only overcoming disputes, but fostering innovation, efficiency, and successful project outcomes.
Since the working world was shaken by the Covid-19 pandemic, there has been a marked shift toward collaborative working practices across industries, driven by the recognition of the benefits of shared knowledge, expertise, and resources. These practices encourage open communication, mutual respect, and collective problem-solving at every level, ultimately leading to enhanced project delivery and client satisfaction.
While a collaborative attitude is key to the adoption of mediation in the construction industry, the phenomenon works both ways: mediation can serve as a catalyst for fostering greater collaboration ongoingly. By providing a neutral platform for constructive dialogue, mediation facilitates the resolution of conflicts while preserving and developing relationships. Through facilitated discussions, parties can explore common interests, identify underlying concerns, and co-create solutions that meet the needs of all stakeholders. Moreover, mediation empowers parties to take ownership of the resolution process, engendering a sense of commitment to the outcome.
The imperative for industry-wide reform is evident in the face of escalating disputes and mounting challenges. Reflecting on the current landscape, there is a growing recognition of the need to embrace innovative strategies that prioritise collaboration, transparency, and fairness.
Conclusion
The growing acceptance of mediation in construction disputes underscores a significant shift towards more collaborative and constructive approaches to conflict resolution within the industry. Mediation offers numerous advantages over litigation and arbitration, including cost-effectiveness, efficiency, and the preservation and growth of business relationships. However, the realisation of these benefits hinges on access to skilled and experienced mediators who can navigate the complexities of construction disputes effectively.
Education and training are paramount for promoting the widespread adoption of mediation over established practices in the construction industry. While integrating mediation clauses into contracts and incentivising mediation through policy interventions can encourage its use, only a widespread and nuanced understanding of the process can avoid further conflicts over its implementation.
Moving forward, prioritising collaboration is paramount for promoting the widespread adoption of mediation in construction. By focusing on communication and mutual respect throughout the lifespan of a project, the construction industry can avoid and mitigate conflicts from the outset, and resolve them more effectively.
