MFC News - Spring 2006 Volume 1 Number 2

by Gary Morgerman, Founder and President of
Construction Mediation Inc. (CMInc), NY

Two owners were each trying to resolve separate disputes over the most fundamental structural component in a building, its slab on ground. For one it was the worst of times. He paid $100,000 to learn what every construction professional knows: nothing is perfect, especially when it comes to a slab on ground. For the other it was the best of times. He learned the same lesson for only $1,000.

The route each took to resolve its construction dispute demonstrates the effective use of Early Neutral Evaluation and Mediation, the misuse of Arbitration and shows why an evaluative mediator who is a construction expert and can play the role of devil's advocate to the substantive issues in dispute will be more successful in helping the parties achieve a settlement in this increasingly popular method of resolving construction disputes than a mediator who is a layman and can only play the role of a facilitator.

One slab was in a wine distribution warehouse, the other in an airline hangar, each covering about 100,000 square feet. The finished slabs each had its defects. There were random hairline cracks, some rough spots and shading in the surface of the hanger slab. Cracks in the warehouse slab were more extensive than in the hanger and wide enough in some spots that separation was visible and minor surface spalling had occurred along a number of the cracks.

Beyond an almost identical, boiler-plate concrete specification that controlled the slab construction, there was nothing in the job documents of either project that required the slabs to meet higher standards than those expected by the custom of the trade or the standards of the industry. The owners, however, had their own standards.

The hanger owner, the CEO of a national airline, expected a blemish-free slab surface with a showroom finish, one that shareholders, scheduled to attend a banquet at the hanger to inaugurate a new passenger route, could eat off of. He had stopped progress payments demanding that the slab be “fixed.”

The owner of the warehouse, who had been using the wine distribution center for over two years out of necessity but had complained about the condition of the slab since its completion, demanded a new slab or equal compensation, no more, no less.

Each construction contract specified arbitration as the means to resolve disputes. This was the route the warehouse owner took when faced with the contractor's adamant and continued refusal to meet his demand. The other owner, however, was shown a different path; early neutral evaluation followed by mediation.

Early Neutral Evaluation

Instead of stonewalling the owner as the warehouse contractor had, the hanger contractor tried another approach. After realizing his argument to the owner that the slab conformed to industry standards despite its "minor shortcomings" was falling on deaf ears, he called in a construction claims expert (this writer) to make an early neutral evaluation of the slab situation. He was confident the consultant would support his position. The expert was also a construction mediator.

[Intervention by an early neutral evaluator is an excellent, cost-effective consideration at the first rumblings of a construction dispute, a move that can nip it in the bud. Such a construction expert can be hired by either side individually or both sides jointly, to give each a neutral, bias-free opinion about the dispute. One side can even offer to engage an expert for the other when the other side, and its attorney, seem unsophisticated about construction disputes or when negotiations are at impasse.]

The consultant agreed with the hanger contractor's position that the slab's condition was well within the acceptable standards of the industry for such a facility. Anticipating this confirmation, the contractor promptly contacted the owner and requested that the expert be permitted to attend a meeting scheduled with the owner for the following week. Despite being openly apprehensive about an expert called in by the contractor, the owner okayed the expert's attendance and agreed to listen to whatever he had to say about the slab. When further advised that the construction expert was a mediator as well, he also agreed to hear about mediation.

A mediator first task is to gain the trust of the parties for his/her neutrality. This is not an easy task even when hired mutually by the disputants, but convincing one party of your neutrality when hired unilaterally by the other is considerably more difficult. As promised, the owner listened as the expert/mediator went over his credentials and explained how he got called into the dispute. He then explained how mediation worked, emphasizing that a mediator has no power over the parties in a mediation, either side able to stop the process at will, at any time. After a surprisingly few number of questions, the owner conferred with his attorney and then said he wanted to give mediation a try. This general meeting was adjourned and the mediator caucused privately with the hanger owner and his attorney.

Not long into the caucus the mediator had gained the owner's trust in his objectivity and expertise. (The mediator later learned that this quick acceptance was fortified by background checks on the mediator that were conducted by the owner's savvy lawyer days before this meeting.) The mediator repeated the evaluation he gave the contractor, played devil's advocate with the position taken by the owner and his attorney and answered their questions. After huddling once again with his attorney the CEO asked to meet with the contractor, who was waiting in an adjoining room, for a negotiation session under the mediator's gentle, but firm guidance.

Within an hour the owner agreed to accept a generous offer by the contractor to compensate him for the 'pain and suffering' from, his dissatisfaction with the slab. It was more than the contractor wanted to pay but it "saved face" for the airline owner, who now realized that his demands were unrealistic, and more importantly, it preserved for each an important business relationship as well as the cost in time, money and aggravation of a protracted dispute. The owner was entitled to compensation and the extra funds thrown into the settlement by the contractor was money well spent.

Each party further agreed to split the cost of the early neutral evaluator/mediator; a cost of a little more than $1000 each and far less than it cost the parties in the warehouse dispute who were embroiled in a 'slug it out' arbitration.

Perhaps the 'damn the torpedoes, full speed ahead' warehouse owner would have objected to the intervention by an evaluator/mediator but he, and every other involved in a construction dispute, should be given the option. Once an arbitration gets underway it takes on a life of its own and usually goes the distance, as occurred in this case.

Soon after the arbitration began it became clear to this writer (a member of the three-arbitrator panel) that the warehouse attorney, a former judge, was a great litigator but unsophisticated about construction. He and his client would have benefited from the insight of a construction professional. And, as the evidence unfolded, it became equally clear to the arbitration panel that the owner had seriously overestimated the value of his case.

During the two years the warehouse was in use the condition of the slab did not inhibit nor interfere with warehouse operations. The cracking condition had stabilized and random coring verified that the slab's thickness and reinforcement conformed to the specification. There was no differential settlement, nor were there new cracks or widening of existing ones for some time. All that was required were some epoxy repairs to correct the present condition. Beyond that the owner's recovery was limited to an allowance for depreciation, inconvenience and maintenance over the life of the warehouse. This was an easy call for the arbitration panel, a call that an early neutral evaluator could have made long before the arbitration went forward. Had this owner that input, taken heed and investigated, chances are he and the contractor each would have avoided the $100,000 and 6 months of time the arbitration devoured. And unlike those in the hanger dispute, it is unlikely that these parties will ever do business again.

One case exhibits early neutral evaluation and mediation at their best. The other demonstrates the misuse of the time, money and expertise expended in an arbitration whose outcome was preordained and should have never gone forward, one that more than likely would not have gone forward had the participants gotten outside, independent help before expected and repairable cracks in their slab on ground became permanent battle lines drawn in the sand.

-Gary Morgerman, Founder and President of Construction Mediation Inc. (CMInc), NY
www.cminco.com