Offices in Detroit, Grand Rapids & Traverse City. Call 248.644.0077

Construction Litigation: Late Case, Post-Discovery Mediation

Issue

How do a manufacturer and contractor resolve substantial claims, counterclaims, and ill will originating from the non-completion of a critical engineering project?

What Happened?

A multinational manufacturer hired a specialty engineering and construction contractor to design and install a critical backup power generation system for a new plant located in a foreign county known for unreliable utility service.  The agreement between the parties contained a critical time schedule and provisions for lump sum, fixed fee, and time and material billing.The time schedule was quickly adjusted several times for various reasons, arguably attributable to both parties – the scope of the project changed, personalities clashed, etc. – and threats to stop work and stop payment were made.  At a point when the project was largely complete, the contractor either walked away or was thrown out, depending on which side you asked at the time.

Subsequently, the contractor filed a claim for unpaid work in federal district court,and the manufacturer filed a substantial counterclaim seekingconsequential damages.  After numerous depositions and near the close of discovery, the parties agreed to mediate the dispute before their final settlement conference with the judge.

Special Considerations

Complicating matters were the following developments:

  • By the time of mediation, neither the contractor’s project team nor the manufacturer’s site manager was employed by their respective companies
  • Although experienced, the contractor’s counsel had only engaged in “shuttle diplomacy” in previous settlement hearings, and attorneys for both parties had different views regarding the amount of information they wanted to present at themediation hearing
  • The manufacturer began operating the new plant without completion of the permanent backup system, and instead brought in temporary equipment that would most likely have been inadequate in the event of power interruption
  • The manufacturer planned to remove the contractor’s work and bring in a new vendor due to the fact that the system was controlled by the contractor’s proprietary software
  • Although the contractor’s principal and chief engineer was an international expert in the proprietary software that controlled the operation of the backup equipment, he was involved in numerous other projects in which the company was involved.

How Did PREMi Help?

After a local construction specialist recommended that the manufacturer work with PREMi to find a solution, the parties agreed upon a qualified PREMi mediator to oversee the proceedings.

  • An Agreement to Mediate, including confidentiality provisions, was reviewed and executed by all parties prior to the hearing date.
  • The mediator established a two-stage fee schedule for the mediation engagement consisting of a fixed-fee component for all pre-hearing preparation and review along with an hourly fee for time spent presiding over the hearing
  • Counsel for both sides agreed to start with a joint session, but with a nod from the mediator, reserved the option to resort to a caucus-only format if they thought it best for their clients
  • The mediator focused the manufacturer’s attention on the fact that it was operating a plant without adequate utility backup, creating significant risk with enormous consequences, and that the installation of a new backup system would scrap almost all of the work completed under the disputed contract
  • Similarly, the mediator made clear to the contractor that if the matter could not be resolved in a way that salvaged the existing equipment, the manufacturer would more aggressively pursue its counterclaim for money damages
  • During the hearing, the contractor acknowledged problems with the project, but expressed its justification in demanding payment in full and its unwillingness to enter a hostile owner-contractor environment to complete the project

What Was the Outcome?

With guidance and direction from the mediator, the parties achieved an extremely favorable result that was beneficial to both sides:

  • For a modest amount of money, the parties agreed to not only salvage the existing equipment, but also get it online in a short amount of time, something the manufacturer had not previously considered
  • The opportunity to immediately mitigate the risk of lost production was a significant incentive to the manufacturer
  • To reach a settlement and restore the business relationship, the contractor’s principal agreed to personally locate his “A Team” onsite with the manufacturer until the equipment passed commissioning and final customer acceptance

__________________

Disclaimer: This summary is illustrative of the types of cases and the manner in which the PREMI associate dealt with the matter. Care has been taken to avoid disclosure of sensitive or confidential information.