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Contracts & Legal

Mediation

In Plain English

A voluntary process where a neutral person helps two parties negotiate a settlement to their dispute.

Definition

Mediation is a voluntary dispute resolution process in which a neutral third party facilitates negotiations between disputing parties to help them reach a mutually acceptable settlement. Unlike arbitration, the mediator does not render a binding decision; the parties must agree on any resolution. Mediation is typically required before arbitration or litigation in most construction contracts.

Why It Matters in Bidding

Most construction contracts make mediation a mandatory first step before arbitration or litigation, so estimators should price in the time and cost of resolving disputed change orders and delay claims that don't settle in the field. A successful mediation preserves working relationships and cash flow, avoiding the legal fees, schedule disruption, and discovery burden of a full arbitration.

Example

When the owner rejected $200,000 in differing-site-condition claims, the GC invoked the contract's mediation clause, and a neutral construction mediator helped both sides settle in a single day before arbitration costs mounted.

Related Terms

ArbitrationDispute ResolutionClaimAIA Contract

Frequently Asked Questions

Mediation is non-binding; the mediator only facilitates a voluntary settlement and cannot impose a decision. Arbitration is adjudicative, where an arbitrator hears evidence and issues a binding award. Many contracts stage them, requiring mediation first and arbitration only if mediation fails, to give parties a low-cost off-ramp.
It often is when the contract contains a condition-precedent mediation clause, common in AIA and ConsensusDocs forms. Skipping a required mediation can get a later lawsuit or arbitration demand dismissed or stayed. Always check the dispute-resolution article before escalating, and confirm whether a claim notice deadline runs in parallel.
Mediator fees and administrative costs are typically split equally between the parties unless the contract says otherwise, with each side bearing its own attorney and expert costs. Because a single mediation session is far cheaper than discovery and hearings, it is usually the most cost-effective stage to resolve disputed scope or delay.

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