I cannot recommend this brief article highly enough.
The full text can be found at https://vanblacklaw.com/articles/mediation-what-is-it-and-why-do-it/ and was written by Neil S. Lowenstein of Vandeventer Black.
What follows below is a short précis together with a few observations of my own.
For those of us involved in the construction industry, perhaps especially at the EPC end of the spectrum, disagreements during the execution of the Works are commonplace. Many can be resolved without resorting to some form of third party adjudication. Indeed, most of the standard contract forms in current use prescribe some form of amicable resolution (often referred to as Alternative Dispute Resolution or ADR) prior to the undesirable step of arbitration.
Rarely is there a specific demand for mediation as a mandatory stage but on a case-by-case basis it can be usefully employed on a voluntary basis. Mediation, perhaps confused by some with arbitration, is in fact an entirely different process. In arbitration (or adjudication for that matter) there is a third party neutral overseeing – and controlling – the process and eventually evaluating the outcome. In mediation too there is a third party neutral but his function as a mediator is not the arbitrator to judge or apportion blame. Evaluation of the outcome is not his rôle. Rather, the mediator’s role is to assist the Parties to reach their own resolution. This is effected not by the confrontational approach of arbitration but more by using a conciliatory or inquisitorial manner that seeks to bring the Parties closer together.
So the key question is: why use it? The simple answer is that it works. This is especially so in commercial disputes where its success rate is high. In 2016 in UK, the rate of settlement was 86% with 67% settled on the day and the balance soon after.
Consider how it can be so successful: it is a speedy, informal and confidential process in which the Parties are free to air their views. They can propose or counter-propose settlement terms, in the knowledge that these cannot be used in any subsequent proceedings.
In addition, the Parties retain control of the process, which is not passed over to the arbitrator (or judge). In this way, costs also remain under control. The chosen mediator may be an industry professional or legal professional – or indeed any person mutually acceptable to the Parties.
Mediation is not suitable for all types of disputes. It is however a convenient tool for use on construction contracts where picking the various items one-by-one permits the Works to proceed and with Contractor/Client relationships broadly amicable.