Question

Negotiations are an important part of the construction project, from start to finish. Negotiations need to made in good faith, with all parties expecting compromises. When negotiations fail, mediation and arbitration can settle project disputes.

Answer 1

Negotiation is the most informal method of dispute resolution. The only participants in the negotiation process are the parties to the contract and their designated negotiators. The goal of a negotiator is to resolve the dispute on the best terms for the party that he or she represents. When parties attempt to resolve a dispute by negotiation, it is not certain that the process will result in a resolution. The parties and their negotiators must deal face to face with each other in a manner that promotes the parties’ interests, yet preserves the parties’ relationship. In a successful negotiation, the parties and their negotiators reach a resolution of the dispute based on the parties’ interests.

Mediation is often referred to as “assisted negotiation.” In this process, the parties select a neutral person, the mediator, to help them arrive at a settlement of the dispute. A mediator is not a negotiator, as the mediator does not represent the interest of either party. The mediator is a facilitator, who helps the parties explore the strengths and weaknesses of their cases and assists them to frame and transmit settlement offers. The mediator spends a majority of the time meeting privately with each party. The mediator does not have authority to bind the parties, but can only help the parties resolve their dispute by agreement. In a successful mediation, the parties will reach a settlement of their dispute with the aid of the mediator.

As you can see, negotiation and mediation are both non-binding processesthat will resolve the dispute only if the parties agree to a settlement. A settlement may be based upon compromises, promises of performance, and agreements to continue to do business in the future. By using these processes, the parties retain control of the resolution.

In contrast to negotiation and mediation, arbitration is binding. The parties select a neutral person, the arbitrator, who acts as a private judge. The arbitrator conducts a hearing, similar to a trial in court, and issues a decision, known as an “award,” that binds the parties. Unlike a mediator, the arbitrator cannot meet privately with the parties, but must come to a decision based upon his or her understanding of the evidence submitted at the hearing and the law. Though arbitration is similar to litigation in court, it is private, the parties can choose an arbitrator that has particular expertise in the subject matter of the dispute, and the scheduling of the arbitration proceeding is not dependent on delays usually associated with a court’s docket.