Backstopped mediation: Evolved construction dispute resolution
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Duncan Glaholt, of Glaholt ADR Inc., explains how construction disputes can actually be constructive
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CO-OPERATION BETWEEN disputants occurs organically through engagement in repeated, high-value interactions. The more high-value interactions the parties have, the more they perceive and adopt co-operation as their most successful opening strategy.
Thus, one of the goals of construction dispute mediation should be to create just such repeated, high-value interactions in as focused, efficient, and economical a manner as possible. If we can achieve this, defection from co-operation to opportunism and self-interest will become seen as the failing strategy it is.
The foundational idea behind these statements comes from the groundbreaking research and writing of Robert Axelrod and Michael D. Cohen. Axelrod and Cohen studied the organizational implications of complexity and the evolution of co-operation. They concluded that when a system, like the construction industry, contains agents that seek to adapt, all the agents’ strategies are part of the context in which each agent is acting, making it hard for any agent to predict the consequences of its actions and therefore choose the best course of action.
Glaholt ADR Inc. provides independent mediation, arbitration, and dispute board practice to the domestic and international construction industries. The firm has experience in resolving disputes by mediation and arbitration in transportation, energy, industrial, mining, and other similar sectors of the construction industry, and under both institutional and ad hoc rules. Duncan Glaholt chairs a number of dispute boards and often acts as a referee and court-appointed claims monitor. The firm has developed strategies for mid-project resets and the completion of troubled projects.
Find out more
“The more high-value interactions the parties have, the more they perceive and adopt co-operation as their most successful opening strategy”
Duncan Glaholt,
Glaholt ADR Inc.
Several characteristics of the construction industry qualify it as a paradigm of complex adaptive systems:
1.0 Repeat, high-value interactions: The construction industry is networked and complex. Contracts create massive interlocked and interdependent series of transactions, most of which are performed over long periods of time and are thus vulnerable to adaptive, even opportunistic, strategies in performance.
2.0 Low-validity decision-making environment: The construction industry creates a document-rich, factually complex environment. Construction industry disputes engage technical as well as commercial issues between disputants with misaligned contractual risk distribution schemes. This can create deeply entrenched but shallowly rooted (low-validity) positional approaches to decision-making, including the decision to co-operate and settle.
3.0 Relational contracting using transactional forms of contract: Industry contractual models have always been transactional in nature, resembling sales of goods contracts for the most part. This characteristic came to the attention of Ian Roderick Macneil in the mid-1970s. Macneil made it his mission to “free contract from the myth of pure transactionism.” He saw a global socioeconomy forming a “monstrously large and complex ongoing relational contract.” Macneil based his contractual theory on the creation of sustainable relationships rather than simple exchanges of value. As recently as 2018, the term “relational contract” was judicially defined in Canada as “a contract that sets out the rules for a close co-operation that the parties wish to maintain
over the long term.” Thinking about construction contracts in relational terms, as Macneil and others have done, leads to several interesting questions, the answers to which should help guide us toward a more unified approach to construction dispute resolution:
With this background, one can envision a more evolved theory of construction dispute resolution, encouraging efficient, repeat, high-value interactions. I have chosen to call this “backstopped mediation.” Backstopped mediation is scalable and at the same time ideally suited to long-term construction contracts. Backstopped mediation differs from adjudication in that it melds mediation and arbitration into a single process and produces a final and binding result one way or another.
The steps in a backstopped mediation process:
1. Create and empower standing neutrals: At the inception of the project, the parties nominate and appoint a sole project mediator (SPM) and a sole project arbitrator (SPA) for the life of the project. The SPM functions essentially as a one-person dispute review board, staying abreast of the project monthly and working actively to build credibility with the parties, their senior decision-makers, and internal and external legal counsel. The SPA, on the other hand, stays away from the process until a matter is referred to arbitration by the SPM following an inconclusive mediation.
“Backstopped mediation is scalable and at the same time ideally suited to long-term construction contracts. Backstopped mediation … melds mediation and arbitration into a single process and produces a final and binding result one way or another”
Duncan Glaholt,
Glaholt ADR Inc.
2. Start with interests-based mediation: When a dispute arises, and as often as disputes arise during the project, either party may refer the dispute to the SPM as the first step in the backstopped mediation process. The SPM then works with the parties to mediate the dispute like any other conventional construction dispute, using interests-based mediation techniques:
a. If settlement is reached, the settlement is documented,
and the matter ends there.
b. If settlement is not reached, disputants commit their final
irrevocable offer to writing, sign it, seal it, and provide it
sealed to the SPM, who then refers the matter to the SPA.
c. Much has been written on final-offer arbitration, but for the
purposes of construction industry disputes, it is this finality
and irrevocability that makes the mediation a “high-value”
interaction for the parties. Final offers are consequential.
This procedure captures all the advantages of med/arb, or co-med/arb, without the many worrying disadvantages of those procedures. From the point of view of external counsel, the arbitration set between two mediations gives them full rein for adversarial resolution. From the point of view of the parties, this creates a number of repeat, high-value interactions likely to lead to co-operative conduct and settlement, particularly at the time of the second mediation.
The time periods involved and the economy of the process (relatively speaking) encourage repeat use of the process during the life of the project. The backstopped mediation process engages the parties in repeat high-value interactions, without limiting counsel’s role in advancing a rights-based case.
As observed in jurisdictions where non-binding adjudication processes have been adopted, the outcome of an evolved process such as backstopped mediation is likely to restrict strategic defection, encourage co-operation, and result in a collaborative approach to contract performance.
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The construction industry is a paradigm of complex systems
Toward a more evolved theory of dispute resolution
Published 23 May 2023
Copyright © 2023 KM Business Information Canada Ltd.
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Copyright © 2023 KM Business Information Canada Ltd.
PRIVACY | TERMS OF USE | ABOUT US
| ADVERTISE WITH US | CONTACT US | SUBSCRIBE
| NEWSLETTER | AUTHORS | EXTERNAL CONTRIBUTORS
Home
Rankings
News
Awards
Methodology
Team
Copyright © 2023 KM Business Information Canada Ltd.
PRIVACY | TERMS OF USE | ABOUT US
| ADVERTISE WITH US | CONTACT US
| SUBSCRIBE | NEWSLETTER | AUTHORS
| EXTERNAL CONTRIBUTORS
Home
Rankings
News
Awards
Methodology
Team
3. Proceed with final-offer arbitration: During the arbitration part of the process, the parties’ sealed irrevocable offers remain in the possession of the SPM, not the SPA. The arbitration process then proceeds as follows:
a. The arbitration proceeds like any other construction arbitration. The underlying agreement with the
SPA would provide for a final award on the discrete issue involved within a short period after the close
of any evidentiary hearing that might be necessary.
b. The parties’ sealed irrevocable offers remain in the possession of the SPM until the SPA notifies the
SPM that a written, reasoned Final Award is ready for signature, but for a choice of remedy.
c. Upon receiving this notification, the SPM provides the parties’ sealed irrevocable offers to the SPA,
and the SPA chooses one or the other and makes the appropriate Final Award.
d. The Final Award is then sealed and provided in sealed form to the SPM for delivery to the parties, if
necessary, following a final day of mediation. The SPM does not see the Final Award at this stage.
4. Finish with a final interests-based mediation: The SPM then conducts one final day of mediation, usually within 30 business days of receiving the sealed Final Award.
a. If the issue is settled at this second day of mediation, the Final Award is not released to the parties
and is destroyed by the SPM. The SPA is told only that the issue settled and that the Final Award was
not delivered to the parties.
b. If the issue is not settled, the Final Award is delivered to the parties and becomes immediately
enforceable. It is in this way that the mediation can be said to have been “backstopped” by final and
binding award.
c. The Final Award once delivered is unappealable and subject only to challenge on Model Law grounds.
1. How is flexibility planned into economic relations, and what is the legal response to such planning?
2. How are conflicts between specific planning and needs to adapt to subsequent change in
circumstances treated?
3. How are contractual relations preserved when conflicts arise?
4. How are economic activities terminated when they have outlived their lifetime?
Source: Arcadis 2022 Global Construction Disputes Report
Regional average dispute value
Global and regional average dispute values, 2017–2021
The global average value of disputes decreased slightly between 2020 and 2021 to US$52.6 million
US$ millions
100
80
60
40
20
0
Middle East
2017-2021
30.1
52.6
54.3
30.7
33.0
43.4
2021
2020
2019
2018
2017
60
50
40
30
20
10
0
US$ millions
Global average dispute value
Continental Europe
2017-2021
United Kingdom
2017-2021
North America
2017-2021
37.9
18.8
16.3
19.0
90.4
86.0
62.0
56.7
91.0
57.5
54.4
24.5
41.0
29.5
37.8
38.6
17.8
17.8
34.0
Source: Arcadis 2022 Global Construction Disputes Report
Middle East
2017-2021
Continental Europe
2017-2021
United Kingdom
2017-2021
North America
2017-2021
20
15
10
5
0
Months
15.8
15.5
17.0
20.0
13.5
17.5
14.0
15.6
20.0
18.1
11.8
9.8
9.8
12.8
10.0
16.7
14.2
17.6
15.2
17.7
Regional average dispute length
2021
2020
2019
2018
2017
20
15
10
5
0
Months
15.4
13.4
15.0
17.0
14.8
Global average dispute length
The global average length of disputes increased between 2020 and 2021 to 15.4 months
Global and regional average dispute lengths, 2017–2021
1
2
3
Robert Axelrod, The Evolution of Cooperation (Basic Books, Perseus Books Group, 1984); Robert Axelrod, Michael D. Cohen, Harnessing Complexity: Organizational Implications of a Scientific Frontier (Basic Books, Perseus Books Group, 2000).
Ian Macneil, “The Many Futures of Contracts,” Southern California Law Review 47 (1974): 691.
Ian Macneil, “Contracting Worlds and Essential Contract Theory,” Social and Legal Studies 9 no. 3 (2000): 432.
3
2
1
Glaholt ADR Inc. provides independent mediation, arbitration, and dispute board practice to the domestic and international construction industries. The firm has experience in resolving disputes by mediation and arbitration in transportation, energy, industrial, mining, and other similar sectors of the construction industry, and under both institutional and ad hoc rules. Duncan Glaholt chairs a number of dispute boards and often acts as a referee and court-appointed claims monitor. The firm has developed strategies for mid-project resets and the completion of troubled projects.
Find out more
This procedure captures all the advantages of med/arb, or co-med/arb, without the many worrying disadvantages of those procedures. From the point of view of external counsel, the arbitration set between two mediations gives them full rein for adversarial resolution. From the point of view of the parties, this creates a number of repeat, high-value interactions likely to lead to co-operative conduct and settlement, particularly at the time of the second mediation.
The time periods involved and the economy of the process (relatively speaking) encourage repeat use of the process during the life of the project. The backstopped mediation process engages the parties in repeat high-value interactions, without limiting counsel’s role in advancing a rights-based case.
As observed in jurisdictions where non-binding adjudication processes have been adopted, the outcome of an evolved process such as backstopped mediation is likely to restrict strategic defection, encourage co-operation, and result in a collaborative approach to contract performance.
2. Start with interests-based mediation: When a dispute arises, and as often as disputes arise during the project, either party may refer the dispute to the SPM as the first step in the backstopped mediation process. The SPM then works with the parties to mediate the dispute like any other conventional construction dispute, using interests-based mediation techniques:
a. If settlement is reached, the settlement is documented, and the matter ends there.
b. If settlement is not reached, disputants commit their final irrevocable offer to writing, sign it, seal it, and provide it sealed to the SPM, who then refers the matter to the SPA.
c. Much has been written on final-offer arbitration, but for the purposes of construction industry disputes, it is this finality and irrevocability that makes the mediation a “high-value” interaction for the parties. Final offers are consequential.
With this background, one can envision a more evolved theory of construction dispute resolution, encouraging efficient, repeat, high-value interactions. I have chosen to call this “backstopped mediation.” Backstopped mediation is scalable and at the same time ideally suited to long-term construction contracts. Backstopped mediation differs from adjudication in that it melds mediation and arbitration into a single process and produces a final and binding result one way or another.
The steps in a backstopped mediation process:
1. Create and empower standing neutrals: At the inception of the project, the parties nominate and appoint a sole project mediator (SPM) and a sole project arbitrator (SPA) for the life of the project. The SPM functions essentially as a one-person dispute review board, staying abreast of the project monthly and working actively to build credibility with the parties, their senior decision-makers, and internal and external legal counsel. The SPA, on the other hand, stays away from the process until a matter is referred to arbitration by the SPM following an inconclusive mediation.
3.0 Relational contracting using transactional forms of contract: Industry contractual models have always been transactional in nature, resembling sales of goods contracts for the most part. This characteristic came to the attention of Ian Roderick Macneil in the mid-1970s. Macneil made it his mission to “free contract from the myth of pure transactionism.” He saw a global socioeconomy forming a “monstrously large and complex ongoing relational contract.” Macneil based his contractual theory on the creation of sustainable relationships rather than simple exchanges of value. As recently as 2018, the term “relational contract” was judicially defined in Canada as “a contract that sets out the rules for a close co-operation that the parties wish to maintain over the long term.” Thinking about construction contracts in relational terms, as Macneil and others have done, leads to several interesting questions, the answers to which should help guide us toward a more unified approach to construction dispute resolution:
Several characteristics of the construction industry qualify it as a paradigm of complex adaptive systems:
1.0 Repeat, high-value interactions: The construction industry is networked and complex. Contracts create massive interlocked and interdependent series of transactions, most of which are performed over long periods of time and are thus vulnerable to adaptive, even opportunistic, strategies in performance.
2.0 Low-validity decision-making environment: The construction industry creates a document-rich, factually complex environment. Construction industry disputes engage technical as well as commercial issues between disputants with misaligned contractual risk distribution schemes. This can create deeply entrenched but shallowly rooted (low-validity) positional approaches to decision-making, including the decision to co-operate and settle.
The construction industry is a paradigm of complex systems
COOPERATION BETWEEN disputants occurs organically through engagement in repeated, high-value interactions. The more high-value interactions the parties have, the more they perceive and adopt co-operation as their most successful opening strategy.
Thus, one of the goals of construction dispute mediation should be to create just such repeated, high-value interactions in as focused, efficient, and economical a manner as possible. If we can achieve this, defection from co-operation to opportunism and self-interest will become seen as the failing strategy it is.
The foundational idea behind these statements comes from the groundbreaking research and writing of Robert Axelrod and Michael D. Cohen. Axelrod and Cohen studied the organizational implications of complexity and the evolution of co-operation. They concluded that when a system, like the construction industry, contains agents that seek to adapt, all the agents’ strategies are part of the context in which each agent is acting, making it hard for any agent to predict the consequences of its actions and therefore choose the best course of action.
Published 23 May 2023
“Backstopped mediation is scalable and at the same time ideally suited to long-term construction contracts. Backstopped mediation … melds mediation and arbitration into a single process and produces a final and binding result one way or another”
Duncan Glaholt,
Glaholt Bowles LLP
“The more high-value interactions the parties have, the more they perceive and adopt co-operation as their most successful opening strategy”
Duncan Glaholt,
Glaholt Bowles LLP