The Project Stress Index is a measure of construction
projects that have been paused, abandoned, or have a delayed bid date. “Abandonment activity has continued to rise,
reaching its highest reading in over a year,” said Devlin Bell, associate
economist at ConstructConnect. For the
month of May 2025, private abandonments increased 62.6% over the month and are
now up 92.2% year over year. That surge
has led to the highest level of abandonments since ConstructConnect began
tracking data in mid-2019.
On top of that, contractors are facing increased cost
pressures as prices for key materials surge under the Trump Tariffs. “The acceleration in the year-over-year rate of increase is alarming,
given that most of the tariffs announced so far were not in effect when these
prices were collected…It is likely that contractors will be hit with
substantial additional price increases shortly, unless the tariffs are rolled
back,” said Ken Simonson, Chief Economist at the Associated General Contractors
of America.
This level of stress sets the stage for a coming storm of
epic disputes in the construction industry. Those that prepare for the storm by taking proactive steps to prepare
will fare better than those that simply wait for the post storm clean-up
efforts.
The Case for Standing Construction Mediation
Construction is a technical and complex industry. The best drafted construction contracts
attempt to consider the complex and shifting sands in a construction
project. Common issues such as change
orders, cost overruns, changes of scope, building code challenges and even
tariffs are now commonly dealt with. Even so, disputes are bound to arise and are part of the process. It is a process that is traditionally full of
challenges and problems. The best
players in the industry understand this difficult and challenging process and
tend to be experts at getting to the finish line through the mine field.
However, even the best of the best will be challenged when
the industry faces this tsunami of economic challenges. Record-breaking abandonments coupled with
unforeseen cost increases have set the stage for an explosion of construction
disputes. Construction projects under
normal economic times are fraught with challenges and disputes. We are now treading in unchartered waters
where tariffs and economic indicators are putting untold pressures on the
industry. The normal number of disputes
and complexity of the challenges have just become multiplied by exponential
levels.
A Standing Construction Mediator contracted on your project
is your construction litigation insurance policy. No one would build a construction project
without insurance. Insurance coverage is
a fundamental part of any construction project. Insurance coverage often times
continues for years after project completion. It would be unfathomable for anyone to build without insurance
coverage.
Why would you get into a project knowing that disputes will
be exponentially higher than in previous years without a mediator on hand to
help navigate the guaranteed problems and disputes.
Yet we build without mediation coverage. A Standing Construction Mediator is your
insurance policy against the growing risk of construction dispute in today’s
economy.
The Benefits of Standing Construction Mediation
A Standing Construction Mediator becomes an integral part of
the construction project from the outset. They are brought into the project by the owner early in the process at
the time of selection of Architects, Engineers and General Contractors. The Standing Construction Mediator (SCM) is
proficient in the technical world of construction and is familiar with the
fundamental areas of construction such as finance, architectural plans,
engineering plans, building process, general contracting, sub-contracted
trades, suppliers and building codes. The SCM will be written into all contracts with key parties and shall be
ready to serve anyone who has a dispute that arises during the project. Time is of the essence in a construction
project and delays caused by disputed change orders requests, disputed cost
overruns disputes and delayed performance result in enormous costs to all the
parties involved. When these disputes
cannot be resolved quickly and efficiently, they morph into legal battles which
often times get put onto the back burner to be resolved through litigation
after completion of the project. Meanwhile, the dispute at hand will cause costly delays, mechanics lien
issues, stop orders, and cash flow challenges for all affected parties.
With a SCM involved in the process such disputes can be resolved immediately because:
1) The
SCM is familiar with the full scope of the project having reviewed all key
construction documents and all key player contracts (GC, Subs, Suppliers, Architects,
Engineers and related professionals).
2) The SCM is included in all contracts along with the
process for dispute resolution during the course of construction.
3) The SCM makes themself immediately available to resolve
all course of construction disputes either by in person at the construction
site or via zoom.
4) The dispute is resolved immediately and before it has a
change to grow from spark to fire.
5) There is a
balance of power between all parties allowing for equal access to dispute
resolution during the construction process.
An Example of SCM at Work
A tile subcontractor is hired by the General Contractor (“GC”) on a hotel project to supply and install tile specified according to plans. The installation schedule is moved back six months due to construction delays caused by building inspection corrections. The tile subcontractor was informed of the six-month delay and, as a result, does not purchase the tile for another 5 months to preserve cash flow. Five months later, tile subcontractor is informed by tile supplier that there is an increase of 20% on the tile due to tariffs and increased shipping costs and that the tile is now on back order and will not be available for another 4 months. The additional 20% charge in tile will cost the tile subcontractor $50,000. The tile subcontractor also loses another job where it could have made $500,000 profit which it had scheduled to start in six months. The tile subcontractor informs the GC that there will be: 1) a $50,000 change order; 2) 4 months further delay; and 3) a consequential damage claim for its lost $500,000.
The GC refuses the change order of $50,000 stating that the tile
subcontractor should have purchased the tile earlier. The GC then informs tile subcontractor that it
must start in six months, and that the extra 4-month delay is not the GC’s
problem. The GC sees the $500,000 lost
profit claim as an insult and is now more inclined to fire the tile subcontractor, hire another sub, and hold the tile subcontractor liable for additional costs
involved.
Without an SCM, this would have a classic end with the tile
subcontractor walking off the job and ending the relationship with this GC. The GC would
hire a substitute tile subcontractor at a higher cost resulting in his
presenting the owner with a change order resulting in added friction or possible
litigation between the owner and GC. The
GC who played hard ball with the tile subcontractor would now find himself at
the mercy of the owner who would tell the GC he was hired to manage all subs
and suppliers and that he should have verified that the tile was purchased on
time instead of relying on a tile subcontractor and thus was not paying for the
additional cost of tile or the new tile subcontractor costs.
With an SCM, the tile subcontractor would have called the
mediator and requested an immediate mediation of the matter. The SCM is on call for precisely this type of
dispute and would immediately rise to the challenge. A mediation would be immediately scheduled
and either through on-site visits, phone calls or zoom meetings, a successful
mediated settlement would result. Solutions agreed to, delays minimized, relationships preserved, and the
project continues with a reasonable settlement of the dispute.
Why not simply bring in a traditional mediator to address such issues. Why the need for an SCM?
1) Expert construction mediators are normally booked out for 6-12 months.
2) General mediators with no construction specialization are less well equipped to deal with such technical disputes and are usually not immediately available either and can be cost prohibitive.
3) The SCM is precisely contracted for this scenario and is already familiar with the scope of work and all contracts and is “on call” to resolve these types of disputes.
What is the Process for Hiring an SCM?
An SCM is typically brought into the project before any key contracts are signed. An initial flat fee is paid to the SCM for review of the scope of work and for involvement in contract review and SCM contract terms.
Next, the SCM process is included in all contracts between the parties with clearly defined steps for mediation of disputes arising during and after project completion. A fixed hourly rate is set for the SCM services which is split evenly among the interested parties.
The parties are introduced to the SCM early in the process and are provided all the information necessary for them to understand how they can get the SCM involved to help mediate and resolve disputes as they arise. Should mediation not resolve the dispute, the parties are free to continue the traditional trajectory towards litigation (or arbitration).
Given the recent statistics which will give rise to enormous construction disputes, it is now more important than ever to have the insurance of a SCM on retainer to push projects through the steps of completion rather than to the steps of the courthouse.
Author Joel Bertet provides mediation services focused on resolving disputes in the construction and real estate sectors. With 30 years of experience, Joel is an established construction lawyer, legal advisor, licensed General Contractor, and Licensed Real Estate Broker. Joel can be contacted at joel@resolvebertet.com.
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