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Mediation Cuts Costs of Construction Disputes

by James T. Prior, Editor-in-Chief, New Jersey Business, June, 2002, at page 102

When disputes erupt among the participants of construction projects - developer, architect, consultant, contractor, subcontractor and vendor - it oft times winds up in a costly and time-consuming civil law suit. Some authoritative estimates place the legal tab at $300 billion, $1,000 per capita. Many are now turning to mediation as an alternative to litigation.

John. P. Madden, an attorney and civil engineer, with offices in Hackensack and Manhattan, has successfully settled between 85 and 90 percent of the disputes he has handled. He hastens to add that being a lawyer is not necessary to be a mediator or arbitrator, but it keeps him from being bullied by the lawyers for the disputants. As Madden explains it, many of today's construction controversies are being settled by Alternative Dispute Resolution, which initially was primarily arbitration. Under arbitration, parties to a dispute agree on the choice of a third party who will resolve the dispute and whole decision is binding and final. However, particularly in construction, major players are using mediation, a process in which the parties meet with a recognized outside authority of their choosing who helps them to voluntarily resolve the dispute.

Madden, who holds a bachelor's degree in civil engineering from Manhattan College and a masters of science in civil engineering from New York University and a juris doctor from St. John's University School of Law, New York, is equipped to deal with the complex issues of multi-million-dollar construction disputes. His legal practice for 20 years has concentrated on mediation. He frequently serves as a mediator or arbitrator in domestic and international engineering and construction disputes.

"I had 10 mediation cases last year and settled all of them," he explains. "The average case involved from $5 million to $10 million in dispute but, I have handled cases as small as $200,000 and some that were over $60 million." He explains that the parties involved in the case - which may be two to 10, depending on the complexity of the case - share equally in the fee to settle. Madden charges an hourly rate. Disputants can often save 90 percent of a litigation case by choosing mediation, which may cost $3,000 to $20,000 per party.

Cases could include such disparate entities as co-generation power plant, petrochemical plant, military/defense construction, residential units, office tower, academic facilities, medical centers, swimming pools and health club, sewerage treatment plant, retail centers and myriad of others. Sometimes the disputes involve European governments as parties or related owners or local governmental agencies.

The mediation often takes place in a hotel meeting room, with breakout rooms for each side to retreat to for private consultations. Some cases are settled in a day, others in two or three days.

"I want the parties to agree that I run the meetings the way I want, that I can call in people knowledgeable in the dispute to deal with technical issues and that they are authorized to settle," he explains. "My job is to get the parties and their lawyers to put their difference behind them and move toward resolution."

Madden insists there be no bickering and interrupting. In advance, he gets in writing from each side a summation of their positions and relevant drawings and documents. He asks each party's lawyer to make a presentation so that all can hear the case. After that, he asks each party to state their personal view of the nucleus of the argument. Team conferences are encouraged. He says mediation is an extension of business negotiations; it is a commercial, not judicial, process.

Madden says he whips up what he calls "a recipe" for success in mediation. "My recipe for success is a four-fold: commitment to the process by the parties; authority by all parties to act; knowledge of the facts of the dispute; and expertise. These elements are mixed into the mediation pot." The final ingredient is closure - written agreements signed by the parties.

He has cooked up some successful recipes.