Why You Need a Contract Mediation Clause

For this week’s Guest Post Friday here at Musings, we welcome Seth J. Smiley.  Seth is the managing member of Smiley Law, a boutique law firm located in New Orleans, Louisiana.  Seth handles all aspects of construction cases from initial contracting to payment once work is complete. Other areas of focus include mediating, commercial collections, landlord/tenant law, corporate/business formation, and insurance property damage claims. The son of a general contractor, Seth has first-hand work experience in the construction industry. Seth is licensed to practice law in Louisiana and California.

The construction industry has a complex landscape. Contractors range from the very sophisticated to the guy working out of the back of his truck. Regardless of where you fall on this spectrum, it is imperative to know that the construction world is moving toward alternative dispute resolution (ADR).

ADR is here to stay because it is a smarter way to do business. Any contractor who has been held hostage by litigation will tell you that ADR is the way to go. ADR can be broken down, most simply, by dividing it into two categories: Mediation and Arbitration. There are countless forms of each category and this post will focus on my favorite, Mediation.

Mediation in the contract

Many standard contracts include ADR clauses. I encourage my clients, here at Wolfe Law, to include a mandatory mediation clause in all construction contracts. There are people who will doubt this recommendation because it does not guarantee the dispute will end, but I think its worth a shot when you compare it to the high cost of litigation.

Standard form contracts such as the ones offered by the AIA and ConsensusDocs have options to put in mediation clauses in a construction contract. Any large-scale project will have some type of ADR clause in its contractual documents, in order to keep parties out of the court room.

No Mediation Clause

Most construction contracts involve smaller projects. These projects have much more simple contracts if any at all. I have clients come to me all the time expressing there was no written contract. Although, as an attorney this is frustrating, its not a deal killer. In either circumstance, a party can always suggest mediation.

The parties in this circumstance are not bound to participate in mediation, but if they so choose, the parties can try to resolve the difference with the help of a trained professional.

Why is Mediation Recommended?

Mediators are facilitators. They work with each party to come up with a solution to the problems between the parties. The key is that the mediator cannot and will not make any decisions for the parties. Each party must make its own decision.

A successful mediation ends with a settlement! This is time for celebration. Although parties may be uneasy after compromising, at the end of the day there is some finality. The case or dispute is over and you can get back to what you do best, making money.

Conclusion

The trend in the construction industry is heading toward ADR clauses. Mediation is the only forum whereby the parties can come up with their own solution. Otherwise, parties must roll the dice and let an arbitrator or judge decide the outcome. Contractors should be adding mediation clauses to their contracts. When a dispute arises, you will be glad to have this valuable tool at your disposal.

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