Diggers at dawn

The construction industry is a great industry for creating disputes, and not just in the UK. As a quantity surveyor, first with contractors and then in private practice, I grew up with disputes, probably caused some of them, certainly fanned some of the flames and delighted in most of the battles. It was a wonderful training ground, both in the causes of disputes and in the appalling way that they were resolved. Little has changed since I gave it all up ten years or more ago, to become a full time mediator and trainer. Only last month I spent a day with 60 graduate surveyors, talking about collaborative negotiation and dispute avoidance, but few really wanted to know. Their presumption is that contractors/sub-contractors are out to screw them (or rather, their clients) '“ that's how they make their profit '“ and so being co-operative is a sign of weakness. Anyway, they were all in their 20s; energetic, competitive, most of them self-assured. They like the fight; they like to win, no matter what the cost.

Of course, the construction industry has tried ways to avoid the endless disputes. Even in my QS prime, partnering was our saviour, though no one really knew what it meant; still don't. People tried a bit harder to be nice to each other for a period, then something went wrong and partnering was forgotten and the old ways returned. Almost as though there was comfort in the familiar, no matter how inefficient and ineffective it was. Other routes, such as 'Design and Build', were intended to put all the responsibility on to the contractor and so render the building owner free from claims. 'Fixed price lump sum' was supposed to be just that, but how many of us smiled when the Football Association used that term regarding the delays on the Wembley contract? 'Fixed price'¦ we won't be paying anything more,' they said. 'Oh yeah!' was the universal reaction'¦ and the press are now reporting that the first of the legal actions has commenced.

There is not an area of construction activity that is protected from this dispute-orientated environment. Last year there was a report on a dispute involving a couple who had an extension built to their house. Quite a large one and built by the most reputable builder in the area. He was paid up to the last £5,000, but that last amount was withheld because the owners were dissatisfied with some, quite minor, work. The contractor pulled off site, refusing to complete the work until the monies due to him were paid. No money came, the contractor instructed solicitors and, some time later, after the case was heard and appealed, the building owners were faced with having to sell their house to pay the £250,000 total legal costs. The appeal judge was critical of the lawyers for allowing such cost to accumulate, but, to a greater or lesser extent, this is not an uncommon situation. I recently mediated in the IDRC building and their reception was filled with a recent delivery of around 30 bankers' boxes of documents '“ one side's papers for an arbitration that was destined to last several months. Obviously a big case (well, I hope so.). Good for the IDRC who rented out the rooms and facilities. Good for the arbitrators (I think there were three). Good for the lawyers. Bad for the parties and bad for the reputation of all involved. At the end of the day the excessive time spent in resolving a dispute, and the consequential cost, is not something to brag about. Many small (that is, up to £250,000) disputes that I mediate are in the awful situation of the costs exceeding the claim, so the dispute is no longer about settling a claim but about who pays the costs. Incidentally, the Construction Conciliation Group (CCG) was formed to offer fixed-time fixed-price conciliation precisely for such cases mainly because the adjudication provisions available for contractors and sub-contractors did not apply to building owners (see www.ccgroup.org.uk).

Not only does the construction industry have no regard to the size of the project for breeding disputes, but it affects the whole spectrum of activities. Client/contractor, contractor/ sub-contractor, client/consultant and any permutation of those that you care to imagine. Even better, all of them in one dispute. Final account, extensions in time, loss and expense, professional negligence, performance, defects and so on, and so on. There is no limit to the possibilities. All because the construction industry loves a fight and hates to change.

Loving a fight has been very starkly highlighted by a recent survey of the construction industry in Ireland. The statistics harvested by the survey showed that, on average, contractors spent 2 per cent of their turnover on managing disputes. Two per cent '“ on a 3 per cent margin business! Most of that on wasted management time, and very little on direct legal costs. Now the English may not enjoy a fight quite as much as the Irish, but even halving that statistic for the UK construction industry to 1 per cent of turnover means that there is an awful lot of opportunity to make more profit and avoid wasted management time by resolving disputes more efficiently. And with it comes the opportunity of legal advisers to the various parties in construction disputes, helping their clients to save money, without it necessarily reducing their fees.

The Irish construction industry is planning to run a dispute avoidance roadshow to help and encourage contractors to find more cost-effective ways of running their business. It is amazing to me that the employer and consultant organisations in the UK construction industry have not followed a similar line because the potential benefits to their members are enormous. But the CBI, the NFBTE, the Chartered Institute of Building, the Royal Institution of Chartered Surveyors, and all the other construction-linked bodies have at best given a

passing mention to the problem but none seem to have grasped the issue with any vigour or enthusiasm. Only the Chartered Institute of Arbitrators seems to be recognising the need and it is not exactly a mainstream construction body.

Years ago an organisation called ResoLex (www.resolex.com) devised a process called contracted mediation. This was not putting a mediation clause into a contract. It followed a process used years before on the Hong Kong airport project, where mediators were on site every day and conflicts were, in the main, resolved as they arose and before they became disputes. The ResoLex package included training the construction team (contractors, consultants and specialists) in dispute avoidance before the project commenced. What a sensible scheme! Yet few have used it, despite its common sense. Why? The main reason was that the construction industry is eternally optimistic and, despite centuries of evidence to the contrary, believe that this contract will be fine and there will be no problems. The package was seen more as an insurance policy and therefore an unnecessary extra cost. Ironically, the ResoLex package was included in the second-placed bid for the Wembley project. What a difference there would have been if it had been part of the successful bid. I suppose it is too much to expect that lessons will have been learned over Wembley that mean the vast Olympic construction projects will benefit.

Traditionally, the UK construction industry has relied upon arbitration to resolve its disputes. The cost and time of this process became so similar to that of litigation that a new form of resolution was sought. Unfortunately, at the last moment, it became adjudication rather than mediation that was considered to be the appropriate solution. Some will say that the 'success' of adjudication demonstrates that construction is not the conservative industry that I suggest. It has provided a credible alternative to arbitration and litigation, that is both quick and cheap. 'Quick and dirty' is a more common description. But there are increasing cries of dissatisfaction, not least that it is going the way of arbitration, becoming more legalistic and costly, but also that the quality of decisions is even more unpredictable than going to court or arbitration. It also has the inherent problem, like arbitration and court decisions, that it does not result in justice, only in an answer (an answer that will vary with each different adjudicator/arbitrator/judge).

Why do I suggest that none of these 'traditional' processes result in justice? It is because they result in an outright winner and an outright loser. And life is not like that. Life is about human beings seeing the same facts and events through different eyes and interpreting them differently. For a whole lot of reasons: education, age, gender, culture, nationality, ethnic origins, politics, religion and so on. It doesn't necessarily mean that they are any more right or wrong, just different. An adjudicative process, where one party wins and the other loses, cannot cope with that concept of life. Win '“ lose. Nothing else.

But there is a better way '“ mediation - and the construction industry is gradually recognising its benefits:

• Benefits that include the fact that the parties can take control of their dispute and craft a settlement that reflects the needs of all the parties. No winner/loser, rather winner/winner. Well, not always. Often it is shared pain, but it is the parties that craft the settlement and they are able to say 'yes' or 'no' to the outcome. Not something that can happen when a judge or arbitrator makes a decision. Parties can't say that their decision does not reflect their needs and so they are going to say 'no' to it.
• Benefits that mean better deals. The dynamic of introducing an independent third party into a negotiation usually results in a better deal being worked out. That third party will know, through confidential meetings, the real needs of each party, which are rarely tabled face-to-face. Mediation allows settlements that just cannot be made in court or arbitration. Ongoing business, staged payments, rewriting contracts, buy-outs, share options/sales and so on. Anything goes (so long as it is legal).
• Benefits that include the fact that it is a confidential process and so whatever happens, and whatever is said, cannot be repeated in court. Not that that is likely to happen anyway because 80 per cent of mediations settle on the day, so the next day life begins again.
• Benefits that mean relationships can be restored and business continue. So often disputes fragment and even destroy relationships; mediation often repairs them.
• Mediation brings finality. The deal is the deal. No risk about what the judge or arbitrator will decide (and every lawyer has a story about the sure-fire case that went against them because the judge had a cold or a bad lunch).
• Benefits that mean the parties really can have their 'day in court'. Mediation allows them to have their say, in their own words, with all the feeling and emotion that they have because it is their problem, their pain in a safe, unthreatening environment.
• And no one is going to try to make them look foolish. Mediation provides people with the opportunity to exit with dignity.

Mediation is such common sense. Those who use it say so. So often parties just want to put an end to the misery of disputes, to use their time in wealth-creation rather than regurgitating history and reliving old agonies. Mediation helps parties move from looking backwards at history to looking forward to solutions that suit them and that put an end to the arguments. And the great thing is that the parties have nothing to lose, and usually everything to gain. Even if the dispute does not settle on the day of mediation, most settle soon afterwards because the momentum for settlement has been created.

But what of the lawyer? Litigation (and arbitration) is big business, and involves significant fees. But mediation gives client satisfaction and the chance of repeat business. So it might be quick and cheap but it is a great investment for the future'¦ for everyone!

Useful information

• www.mata.org.uk (for more information on mediation and the lawyers role).
• www.mediate.co.uk (for property and construction mediators).

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