Mediation: Effective Resolution of Contract Disputes

By Autry, Charles T.; Reid, George C. et al. | Management Quarterly, Fall 2005 | Go to article overview

Mediation: Effective Resolution of Contract Disputes


Autry, Charles T., Reid, George C., Hall, Roland F., Management Quarterly


The electric power industry is currently undergoing dramatic structural changes, and such changes are likely to continue for the foreseeable future. The wholesale power market continues to be transformed into a competitive market as the result of legislative and regulatory changes, but is still very much a work in progress. At the retail level, some states continue to experiment with various forms of "customer choice."

Adding a further layer of complexity is the fact that while the deregulated market brought about the introduction of a multitude of new players into the power market, such as power marketers, financial problems arising with deregulation have also changed the playing field, resulting both in the elimination of some participants and in changes in audit standards and regulatory requirements. (1) Ultimately, both distribution cooperatives and generation and transmission (G&T) cooperatives find themselves in an era of fluctuating relationships with contractors, suppliers and/or customers.

Industry changes have greatly increased the number of commercial relationships that most electric cooperatives need in order to function effectively in the new environment. Cooperative managers and directors face a corresponding increase in the number and complexity of the contractual arrangements needed to cement these relationships. (2) Once such contractual arrangements are made, these contracts--which are, in essence, simply large commercial contracts--must be administered and, if disputes arise, litigated.

A seemingly simple dispute arising from a complex commercial contract can take on a life of its own. Lawsuits are filed or arbitrations are instituted. The attorneys take charge. Experts and consultants are hired. The claims proliferate. As the proceedings progress, attorneys' fees, expert witness fees, document reproduction costs, deposition expense, and travel expense may approach or even exceed the amount in dispute. The cooperative and its attorneys can easily find themselves in a "lose-lose" position. The "sunk costs" are so large that a complete victory at trial is the only hope for salvation. Such victories, however, can be elusive, and inevitably drain resources that could be spent better elsewhere.

The complexity of such contracts, and the enormous costs in time and money incurred in litigating such contracts, make it inviting and sensible to consider other methods of resolving contractual disputes--both as to settling disputes under existing contracts and in requiring use of such methods for future contracts. These alternative methods are often collectively referred to as alternative dispute resolution, or simply ADR. This article examines one ADR method whose use has exploded in the last decade: mediation. (3)

This article explains the advantages and disadvantages of mediation and discusses the mechanics of a typical mediation proceeding. Also discussed are scenarios in which a cooperative might be required to go to mediation, such as where courts or agencies require or suggest that the parties attempt mediation. In addition, this article examines the abilities of cooperatives to provide for mediation in future contracts and discusses key elements that should be included in mediation clauses.

What is Mediation?

Mediation involves the use of a neutral third party (i.e., the mediator) to act as a facilitator of settlement discussions. Unlike an arbitrator, a mediator does not decide the controversy, but guides the negotiations and helps the parties reach their own agreement. In a typical mediation, the parties personally participate in joint sessions and in private caucuses that the mediator holds with each party and its attorney. Because mediation is non-binding, both parties retain the right to pursue other means of resolving the dispute. Because of the informal, confidential and non-binding nature of mediation, the management representative often plays a greater role in reaching a business solution than in more structured legal processes, such as arbitration or litigation, where legal counsel is much more in control of the process and direction of the proceeding. …

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