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Use Of Blind Negotiations At Mediation

March 05, 2010 BY Bruce Taylor

            The resolution of construction disputes can be a dizzying process even for the most experienced attorneys and their clients.  A project which begins with high hopes and expectations, all too often ends in confusion and posturing among the several varying interests.  The thought of allowing a jury to attempt to evaluate what are typically complex and sometimes technical disputes can be disturbing.  Likewise, allowing a judge with little or no construction industry experience to make such decisions does not offer much comfort to those involved. 

            The complexity of most construction disputes makes them ideal candidates for Alternative Dispute Resolution (“ADR”), mediation in particular.[1]  According to one report, more than eighty-five percent of construction disputes settle.  Clearly, it often makes sense to take these cases to mediation.  But how do we get them settled once we get there?

            Frequently, a major obstacle to getting to settlement in construction disputes are the varying roles and interests at play.  These disputes often pit Owners, Design Professionals, General Contractors, and numerous Sub-Contractors against each other.  Add in the insurance carriers for each party and numerous attorneys, and the battle for posture begins.  A recent trend of using blind negotiations in mediation has developed to try to negate some of this posturing.  This paper discusses the basics of blind negotiations and some of the advantages and disadvantages of blind negotiations in striving towards more cost and time efficient resolution of construction disputes.

THE BASICS

            Blind negotiations use the concept of confidentiality to shield or limit information regarding the parties’ positions.  The steps of a typical Blind Negotiation can be broken down as follows:

  1. The mediator obtains an opening demand from the claimants.
  2. The mediator speaks to all defending parties to convey the claimants’ opening demand and secure a confidential contribution toward a joint offer from each defending party.
  3. The mediator adds up the contributions of all the defendants and discloses the total amount to the claimant as a collective offer.  The mediator does not disclose individual contributions.
  4. The claimant responds with a new demand. 
  5. The mediator returns to each of the defending parties and discloses the gap between the total contribution of all defendants and the new demand from the claimant but does not disclose the actual demand amount.  The mediator seeks additional contributions to cover the gap.

A simplistic hypothetical involving a Blind Negotiation at mediation follows:

Facts:   An Owner of land contracts with a Design Professional for the design of a building.  The Owner then uses this design to contract with a General Contractor for the construction of the building.  The General Contractor contracts with three Sub-contractors for the actual construction.  Not long after completion of the building, the Owner notices water intrusion and mold.  The Owner brings suit against the Design Professional, General Contractor, and Subcontractors. 

Mediation:  At mediation, the Owner demands $200,000.  The mediator informs the parties of the demand and gets a confidential contribution from each defendant as follows:

Design Professional ………………………………………….          $50,000

General Contractor   …………………………………………          $50,000

Subcontractor 1 ………………………………………………          $10,000

Subcontractor 2 ………………………………………………          $5,000

Subcontractor 3 ………………………………………………          $20,000

Total    ………………………………………………………..          $135,000

The mediator returns to the Owner and conveys an offer of  $135,000.  The Owner then reduces its demand to $170,000.  The Mediator returns to the defendants, indicates that there is a gap of $35,000 and asks for additional amounts from each defendant.  After meeting with each defendant and working to get the necessary contribution to cover the gap, the offers come back as follows:

Design Professional ………………………………………….          $57,000

General Contractor  ………………………………………….          $65,000

Subcontractor 1 ………………………………………………          $16,000

Subcontractor 2 ………………………………………………          $7,000

Subcontractor 3 ………………………………………………          $25,000

Total    ………………………………………………………..          $170,000

The case settles. 

            The amount contributed by each party remains confidential.  In this hypothetical, assume that the General Contractor was willing to contribute up to $75,000 toward settlement and is therefore satisfied with its payment of $65,000.  However, the General Contractor had evaluated the Design Professional’s exposure as greater than its own, and had the General Contractor known that the Design Professional was contributing only $57,000, it may not have been as willing to contribute $65,000, which was within its evaluated exposure.

            Obviously, an actual mediation would almost certainly involve many more steps and be much more complicated than this simplistic hypothetical.  However, the general principle and process would remain the same.

ADVANTAGES AND DISADVANTAGES

            Probably, the biggest advantage to blind negotiations is that it removes some of the posturing among the defending parties.  Rather than focusing on other parties’ offers and comparing those offers with its own contribution, a defending party can focus on an evaluation of its own risk.   Additionally, if a case fails to settle, there are no assumptions about percentages of fault based on the negotiations, because nothing other than the initial demand and the subsequent gaps were disclosed to the parties. 

            Perhaps, the biggest disadvantage to blind negotiations is the lack of information made available to the individual defendants.  Typically, attorneys, adjusters, and other risk evaluators want more information, not less. Conducting negotiations in the blind provides less information upon which to make decisions.  However, in complex construction disputes, oftentimes the parties spend too much time comparing their offers and their perceived allocation of fault with their co-defendants and not enough time determining what is a fair amount to contribute toward settlement.

            Another disadvantage is that blind negotiations may get off to a slower pace, as defendants know that their contributions are confidential and that they won’t get pressure from other defendants to increase their percentage of the total.  This can result in larger gaps in the demands and offers.  However, if the mediator takes an aggressive role and keeps the parties engaged as the gap closes, the approach may remove some of the obstacles present in traditional mediation.

CONCLUSION

            Blind Negotiations provide an intriguing option for parties involved in complex, multi-party construction litigation disputes.  The biggest advantage is the limitation on posturing among defendants.  As we all know, in many instances this posturing results in a mediation within the mediation which may prevent or delay a case from settling.  The analysis and ultimate decision will be different for each party in each case, but given the potential downside of taking these complex cases to arbitration or trial, any technique which might aid the parties in reaching a reasonable settlement should be explored. 

            For additional information about this process, see Mark J. Heley’s 2007 “Mediation of Construction Cases Using “Blind Negotiations”: Can Providing Less Information Generate Better Results?” published in the William Mitchell Law Review, and republished in the Legal Handbook for Architects, Engineers, and Contractors, Volume 24, published by Thomson West in 2008.  Also see, Robert A. Creo’s “Emerging from No Man’s Land to Establish a Bargaining Model” published in Alternatives to High Cost Litigation in 2001.

 

[1] Mark J. Heley, Mediation of Construction Cases Using “Blind Negotiations”:  Can Providing Less Information Generate Better Results?reprinted in LEGAL HANDBOOK FOR ARCHITECTS, ENGINEERS AND CONTRACTORS 381, 383 (Albert H. Dib, ed., vol. 24,  Thomson West 2008) (2007).

The Journal is a publication for the clients of Drew Eckl & Farnham, LLP. It is written in a general format and is not intended to be legal advice to any specific circumstance. Legal Opinions may vary when based upon subtle factual differences. All rights reserved. 

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