Problems on $7 Million Construction Project Put 10 Parties in Dispute

Issues around a $7 million construction project embroil the architect, contractor, and construction manager in numerous disputes, leading to hundreds of RFO’s (requests for information) and change-orders. Construction of the new building wing is delayed, driving up project costs and prompting the owner to withhold substantial funds from the contractor. In turn, the contractor sues the owner and architect, which sparks counterclaims and cross-claims. Six subcontractors who haven’t received full payment are caught in the crossfire. After much discovery and litigation the multiple parties are not close to resolving their claims, which range from five figures into the millions of dollars.

Options Available

The next step, according to a clause in the architect’s contract, is to pursue an arbitration process, which the parties recognize could be both expensive and time-consuming. The building owner, contractor, architect, construction manager, and subcontractors decide to attempt mediation. The parties select James Morris as their mediator, because of his legal expertise and experience in helping resolve construction disputes.

Mediation Process

Morris requests that all parties, attorneys, and lead participants (a total of 25 individuals) be present at the beginning of the mediation to present their issues and hear others’ positions. This step saves time, expedites the mediation process, and reduces additional costs (e.g., legal fees, lost work time).

Key Issues

• The contractor seeks payment for funds withheld and for work resulting from change orders.
• The owner seeks damages due to the delayed opening and misunderstandings between the architect, construction manager, and contractor.
• The subcontractors want to be paid for contracted totals and extras since their work (for the most part) met agreed upon standards.

Motivation to Resolve Issues

In addition to getting paid for services rendered, all parties want to end the dispute so they can stop incurring legal fees related to the project, and can return to work on other projects. In addition, affected parties want to release the performance bond so they can bid other jobs and obtain new bonds.

Outcome

After two full days of mediation, including caucuses and conferences between various parties and the mediator, all parties agree to pay the subcontractors immediately, except for one subcontractor, who was involved in a major portion of the work. The remaining parties continue discussion with the mediator via many phone sessions over the next month. A global resolution is reached with the mediator identifying and working out all the details between the parties. At that point the final releases are exchanged, the bond discharged, and all issues are resolved.

Attorney comment: “I’m surprised you could get settlement. When we started I didn’t think there was any way this group would ever reach an agreement.”

Contractor comment: “The process worked. Now we can all get back to working in the field.”

 

Published: 3/3/2009