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The Art of Construction Mediation

NEW AAA CONSTRUCTION RULES (Revised as of 9/1/2007) Construction Industry Mediation Procedures & Construction Industry Arbitration Rules of the American Arbitration Association

Ernest C. Brown, Esq., PE National Roster of Arbitrators and Mediators
American Arbitration Association
1 (800) 832-6946

Ernest C. Brown, Esq. PE
Mediator / Arbitrator

Mr. Brown is a Construction Mediator and Arbitrator for the National Panel of Arbitrators and Mediators of the American Arbitration Association. Over his twenty five years of US and international construction dispute experience, he has resolved more than 2,500 cases, including negotiations, mediations, arbitrations, dispute review boards, jury trials and appeals. A licensed civil engineer and attorney, Mr. Brown's experience includes private and public projects, including airports, schools, bridges, highways, water and waste systems, pipelines, construction delay and disruption, surety, insurance coverage, bankruptcy and complex financial workouts.

Mr. Brown has served as legal counsel for large domestic and international projects including the Carquinez Suspension Bridge Project ($250 Million), John Wayne Airport ($340 Million), Anaheim Arena ($100 Million), Los Angeles Performing Arts Center ($40 Million), the Bay Area Rapid Transit System (BART), the Los Angeles MTA, and the Saudi Petrochemical Project ($3.4 Billion), as well as many other industrial, petrochemical, roadway, bridge and sewage treatment projects.

He has served as lead trial counsel on significant construction cases including the Central Arizona Water Project (CAP), a $146 million Federal Court Pre-Stressed Concrete Pipe Defect Claim; the John Wayne Airport, a $73-million claim; the San Francisco Crystal Springs Pipeline Failure, a $42 million claim; and the Mohave Power Plant Explosion, a disaster including six deaths and $250 million in property damage. He also spent four years as Corporate Counsel with Fluor Corporation, engaged in contracts and dispute resolution on domestic and international projects.

Mr. Brown is the author of California Public Works: Risk Management & Dispute Resolution (3rd Ed. 2003), California Infrastructure Projects (2008), and co-author of several course manuals, Architect Engineer Malpractice (Federal Publications) and Architect-Engineer Liability Under California Law (Cambridge Institute). He is a regular speaker for the American Arbitration Association, the California Bar Association, and various construction industry and public agency groups.

Mr. Brown studied Civil and Environmental Engineering at the Massachusetts Institute of Technology (1975). He completed advanced degrees in Construction Management (M.S.C.E.) and Law (J.D.) from the University of California, Berkeley (1978), and studied International Law at Harvard Law School (ILS).

Dispute Resolution Experience (Partial):

Agencies:
Bay Area Rapid Transit District
California Department of Transportation
California Department of Corrections
Central Arizona Water District
City of Sunnyvale
County of Orange
County of Solano
US Department of Defense
Los Angeles Metropolitan Transit Authority
NASA
North Hudson Authority
Oakland-Alameda County Coliseum Authority
Los Angeles Performing Arts Center
San Diego Union School District

Law Firms:
Allen, Matkins, Leck, Gamble & Mallory
Atkinson, Andelson, Loya, Ruud & Romo
Bingham McCutchen
Burke, Williams & Sorensen
Gibbs, Giden, Locher & Turner
Holland & Knight
Lewis, Brisbois, Bisgaard & Smith
Marks Golia & Finch
McInerney & Dillon
Miller Morton Caillat & Nevis
Murtaugh, Miller, Meyer & Nelson
Peckar & Abramson
Pillsbury Winthrop Shaw Pittman
Selman & Breitman
Shook, Hardy & Bacon
Thelen Reid Brown Raysman & Steiner
Watt, Tieder, Hoffar & Fitzgerald
White & Case
Wolfe, Rifkin Shapiro & Schulman
Wulfsberg, Reese Colving & Firstman

Companies
Douglas Barnhart Corporation
Chevron USA
Chicago Bridge & Iron
DPIC
DPR
Exxon - Mobil
Fluor Corporation
Foster Wheeler
Granite Construction Company
HOK
HNTB
Jacobs Engineering
Kennedy Jenks
PCL
Sierra Pacific Power Company
Turner Construction
Travelers Insurance Company
URS
US Filter

HOW TO RESOLVE YOUR CONSTRUCTION DISPUTE

Ernest C. Brown, Esq. PE

1 (800) 832-6946
National Roster of Arbitrators and Mediators
American Arbitration Association

Successful parties and their legal counsel employ mediation as an effective line of attack in resolving construction disputes.

There are two basic rules regarding construction mediation: It is completely voluntary and the mediator's discussions are absolutely confidential. It is also a huge money-saving tool. It offers great savings over the discovery and trial process. It satisfies our desire to end disputes with a handshake, not a fist fight. It turns adversaries into future friends, colleagues and allies.

And, when practiced well, it is an art.

There is a MAJOR flaw in many parties' approach to mediation. They often assume that the necessary people, knowledge and documents will be readily available during the mediation proceeding. Unfortunately, during the course of many mediations, the parties and/or their legal counsel realize that an essential party, document, or other piece of key information is not available. It can leave a gaping hole in the settlement process and keep the parties from reaching an otherwise acceptable agreement.

In that case, a great deal of time and effort can be wasted. If a postponement occurs, the parties may discover another missing party, document or item of information. Mediation is an art and a terrific innovation for the construction industry. But counsel and the parties must fully understand its underlying philosophy and purpose, carefully prepare their mediation case, and then wholeheartedly engage in the settlement process.

THE MEDIATION PROCESS

Construction mediations are generally conducted over one or two full days.

1. Prior to the Mediation, counsel for the parties will submit a very brief (5-8 pages) on the main points of the dispute. It is extremely helpful if these materials include the critical documents, such as copies of letters, documents, checks, meeting notes or other helpful materials that will help the Mediator understand the issues.

2. The briefs should be submitted at least five days before the Mediation. If the parties have confidential information to present, they may do so informally during the Mediation. It is not necessary to copy other counsel, but many mediators find it helpful to the mediation process if the parties agree to do so.

3. The Mediator will generally circulate a confidentiality sheet with various terms and conditions for the Mediation that also serves as a sign in sheet.

4. The principal parties and any person whose approval is needed for resolution must attend unless other arrangements are made in advance with the Mediator. Failure to have the ultimate decision makers personally present will quite probably result in failure of the mediation.

5. The Mediator must disclose any prior relationships with the parties as well as the law firms, especially if the Mediator has conducted a mediation for either firm or party in the past.

6. The Mediation generally proceeds as follows:

First, there will be a joint session, in which the attorneys for the parties will introduce everyone and the Mediator will explain the process to the participants.

Second, the attorneys or their principals, will present a 15-20 minute presentation on their side of the case, with all parties present. At the conclusion of that session, the Mediator will summarize his understanding of the positions of the parties. The parties may also ask the other side key questions, as might the Mediator.

Third, the parties will meet separately with the Mediator for sessions of 30-45 minutes each. These are confidential sessions. It is however, important that any particularly sensitive information be discussed in the context that the material should not be revealed to the other side.

Fourth, the Mediator will eventually advise the parties whether the matter is ripe for settlement, and if the matter can be settled, upon what terms.

Fifth, the parties and their counsel will draft a simple, enforceable settlement agreement that the parties shall sign. A more formal settlement agreement may follow, but the fundamental points must be included in the settlement agreement.

THE CHECKLIST

This checklist will assist in gathering the essential knowledge critical to resolving multi-party construction cases, especially those with insurance coverage issues:

Parties:

  • Are all parties present? (Owner, General, Subcontractors, A/E)
  • Do they have ultimate authority?
  • Are their insurance carriers (past and current) present with authority?
  • Are company owners present?
  • Will the responsible elected officials be present?
  • If not, can a Committee Chair attend?

Initial Presentation:

  • Can each side present its case in 30 minutes?
  • Are there blowups of project photographs?
  • Is there an "as built" and "as planned" schedule?
  • Are the daily reports and financial records available?
  • Are the most credible witnesses present?
  • Are the testifying experts in attendance?

Disputes:

  • Have all claimants exchanged written claims and demands?
  • Are all claims detailed and supported by reports and documents?
  • Has each defending party responded to the claims in writing?
  • What are the a) original contract amounts, b) agreed adjustments, c) paid amounts, d) outstanding claims, e) asserted backcharges, f) punchlists, and g) retentions?

Pleadings:

  • Are the basic pleadings in place?
  • Have all parties answered?
  • Are there absent parties?
  • Are all parties served?
  • Are there any jurisdictional issues?
  • Is there a bankruptcy stay on any party?

Claim Analysis:

  • Are full copies of the contracts available?
  • Who had primary responsibility?
  • What subcontracts assigned that responsibility?
  • What are the contract defenses?
  • Who is indemnified for the loss?
  • Who is entitled to attorney's fees and costs?
  • What is the venue for the dispute?
  • Have inspections and testing been completed?

Insurance Coverage:

  • Have all parties tendered to past and current carriers?
  • Are the carriers accepting defense and coverage?
  • If not, have all carriers provided reservations of rights letters and detailed coverage opinions?
  • Are full copies of insurance contracts available?
  • Do the principals have coverage counsel?
  • Are the policy limits and deductibles known?
  • Is there a chart of the additional insureds?
  • What is the total amount of insurance?
  • Are sureties on notice and fully informed of their risks?

Legal and Expert Costs:

  • Do the insurers and principals have an estimate of defense costs?
  • Are there defense costs that are uninsured?
  • Can the carriers later seek to recover those costs?
  • Are experts a recoverable cost?
  • Is there any False Claim allegation?
  • Is there Bad Faith by any carrier or surety?

Damages:

  • Is there an itemized and complete written claim?
  • Is it supported by written documentation?
  • Is there an independent expert report on causation?
  • What is the economic rationale for the damages?
  • Is there a remediation or rehabilitation plan?
  • Did the parties mitigate their damages?

Strategy and Planning:

  • Are the parties and their carriers informed?
  • Do the principals know the case or only the lawyers?
  • Do the parties have readily available funds?
  • Are the key factual, contractual and legal positions known?
  • What are the likely alliances among parties?

Settlement Mechanics:

  • Can the case settle piecemeal or only globally?
  • Are the parties emotionally and financially prepared for settlement?
  • Is there a financing mechanism available?
  • Are there personal problems that foreclose settlement?

Settlement Obstacles:

  • Does one party wish to punish another party?
  • Is there anyone who cannot compromise?
  • Can the uncompromising individual be removed from the process?
  • Can the parties agree on a settlement draft?
  • Has each defending party responded to the claims in writing?
  • What are the a) original contract amounts, b) agreed adjustments, c) paid amounts, d) outstanding claims, e) asserted backcharges, f) punchlists, and g) retentions?

Pleadings:

  • Are the basic pleadings in place?
  • Have all parties answered?
  • Are there absent parties?
  • Are all parties served?
  • Are there any jurisdictional issues?
  • Is there a bankruptcy stay on any party?

Claim Analysis:

  • Are full copies of the contracts available?
  • Who had primary responsibility?
  • What subcontracts assigned that responsibility?
  • What are the contract defenses?
  • Who is indemnified for the loss?
  • Who is entitled to attorney's fees and costs?
  • What is the venue for the dispute?
  • Have inspections and testing been completed?

Insurance Coverage:

  • Have all parties tendered to past and current carriers?
  • Are the carriers accepting defense and coverage?
  • If not, have all carriers provided reservations of rights letters and detailed coverage opinions?
  • Are full copies of insurance contracts available?
  • Do the principals have coverage counsel?
  • Are the policy limits and deductibles known?
  • Is there a chart of the additional insured?
  • What is the total amount of insurance?
  • Are sureties on notice and fully informed of their risks?

The Mediation Facility:

  • Are the mediation facilities adequate?
  • Do the parties have private meeting rooms?
  • Can the adversarial parties be physically separated?
  • Are lunch, refreshments and A/C available?
  • Can the parties communicate freely via telephone, fax and email?
  • If there are separate languages spoken, do the parties need a translator?
  • Can the parties and their counsel stay late?

CAVEAT

The foregoing describes a generalized mediation process and a generic checklist for construction disputes. Careful thought by the parties and their counsel will result in supplementing or shaping these lists for individual cases. Experienced legal counsel may find this paper useful in assisting their clients in understanding the mediation process and assuring they are fully ready for an effective mediation experience and a satisfying case resolution.