Time to reconsider compulsory mediation to encourage industry collaboration?

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The Construction Leadership Council's COVID-19: Managing Contractual disputes & collaboration – Summary Guide was issued on 14 July 2020 and provides four steps to achieve collaborative solutions: (1) establish concurrent conversations; (2) reality test and optimise your position; (3) realistically offset the time and monetary costs of adversarial behaviour against the savings and benefits of a collaborative commercial dialogue; and (4) use the resources to formalise your deal.

Step (3) compares how various construction dispute resolution (DR) procedures work, what they involve and the speed and nature of outcome achieved. Notably, it describes mediation as a "very fast" process and adjudication as "quick (28 days)". These descriptions are notable because, in times of economic crisis, quick DR could avoid insolvency: 28 days might be too long. What if the other party does not want to meet, or worries that an offer to mediate might undermine its position? While parties have a statutory right to adjudicate, there is no similar right to meet or mediate.

Statutory adjudication was recommended by Sir Michael Latham in his Constructing the Team report of 1994 to end construction's adversarial culture by producing quick decisions to release cash and keep projects on track. Latham considered mediation but concluded that most disputes were better resolved by adjudication rather than settlement reached via mediation. That decision was likely a product of its era. Back in 1994, British mediation was in its infancy: mediation proposals were widely regarded as tantamount to surrender.  

What if Latham had focused on both adjudication and mediation? Would mediation now be as common as adjudication?

Extraordinary times require extraordinary action. COVID-19-induced recession could resurrect adversarial practices such as under-pricing tenders to win work and increase disputes. Might now be the time to compel disputing parties to mediate, or at least meet, early in the adjudication process (a step already taken frequently in larger adjudications)? 

While compulsory mediation is used successfully in other fields (family and employment), the Civil Justice Council ADR Working Group reported little support for it in its report of November 2018. Instead, it recommended raising awareness of mediation and creating a DR environment that encourages parties to try ADR.

A precedent exists: in Technology and Construction Court (TCC) proceedings, parties must first follow the Pre-Action Protocol for Construction and Engineering (Protocol), before commencing court proceedings. The Protocol requires a pre-action meeting, with mediation being an optional format. Of course, adjudication timescales are significantly tighter than TCC litigation, but our new found capacity for virtual meetings at reduced cost makes this option more feasible.

What might this look like?

  • A statutory (potentially temporary) requirement, based on Part 9 of the Protocol, for parties to meet (or mediate), without prejudice, within [seven] days of the notice of referral to adjudication.
  • Mediation would be facilitative, with options ranging from short telephone mediations to lengthier versions arranged through mediation providers. Such providers would soon create suitable

    fixed-price services and temporary government assistance might even be considered to cover part/all of mediators' costs for SMEs.

  • If not agreed, the mediator could be appointed automatically from an approved panel. Parties would carry on with the adjudication in the event of no settlement.
  • Any failure to meet would be recorded and dealt with by the TCC by way of costs sanctions in later adjudication enforcement proceedings.

Compulsory mediation could deliver the collaboration needed to keep the economy moving. Is the industry ready for this approach? Arguably not, but then we were not prepared for statutory adjudication and look how that turned out.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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