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Build Success

Source: Daily Journal Extra
Date: December 22, 2003

Like the real estate mantra of location, location, location, the key to success in any mediation negotiation is preparation, preparation, preparation. Attorneys who specialize in representing subcontractors in construction defect litigation often feel like a demasted ship at sea, powerless to influence their course against the currents directed by plaintiffs and the developer/general contractor defendants.

However, there are specific, well-defined tasks that every subcontractor's attorney can and should complete before mediation. These following five tactics will provide a subcontractor's counsel the basic tools to maximize their negotiation position and influence, if not direct, the settlement outcome:

Locate the job file.
A subcontractor's job file, which may include job contracts, work orders, shop drawings, field notes and payment records, is usually ground zero in the search to reconstruct a subcontractor's involvement with a project years after the original work has been completed. This effort, however, can be complicated when the subcontractor is no longer in business and the original job file, assuming one ever existed, is incomplete or altogether missing.

All too often, counsel for a subcontractor will need to track down billing and payment records, permit applications or people most knowledgeable to flesh out a more accurate understanding of the subcontractor's original scope of work. In one recent case, critical signed subcontractors were located in the "sales" files held by a subcontractor. Counsel for subcontractors must accurately define the subcontractor's scope of work on the project, because this will become the basis for all subsequent settlement negotiations.

Even if a complete job file is located, counsel should not overlook the importance of interviewing the client regarding the myriad details that arose during the construction but weren't reduced to writing and preserved in the job file.

In one classic example, a lightweight concrete subcontractor began its pour only after advising the general contractor in writing that, because of pre-existing conditions, the concrete would bury adjacent weep screeds for which the subcontractor could not be responsible. This letter came to light only after a client interview and was located apart from the original job file. This letter had profound implications for the settlement negotiations.

Determine insurance issues early.
What starts out as a facilitated discussion regarding scope of work and appropriate cost of repair inevitably leads to the harder question of, once properly allocated, who will pay for that subcontractor's share of responsibility. More often than not, the subcontractors' insurance carriers answer this question, in whole or in part. Perhaps the most valuable service a subcontractor's attorney can provide in advance of the mediation is to confirm the availability and effect of the participation of all potential insurance carriers.

In extreme circumstances, a subcontractor's attorney who has been retained by one or more carriers to defend the insured may need to have his client, the subcontractor, retain separate personal counsel to help the carriers sort through the competing demands of time on risk allocation, missing or limited coverage, or the need for the insured to contribute directly for uncovered claims. Having busy insurance professionals sort out these issues in advance of the mediation can spell the difference between success and delay at mediation.

Although much has been written about the participation of insurance professionals at mediation, it is worth repeating that all the advance work done by a subcontractor's attorney with its insurance carriers may be worthless without a insurance representative at the mediation with previewed settlement authority who is open to reconsidering his settlement position.

Get an expert.
Not just any expert will do, but one qualified to evaluate and sort through the many overlapping technical issues presented in a traditional construction defect case. The expert must be credible, well-organized and capable of supporting her opinions regarding the legitimacy of defect allegations. She also must be prepared to decide which of many interrelated trades potentially bear responsibility for a particular defect.

Experts hired by counsel for subcontractors typically fall into one of two broad categories: those who tell the hiring attorney what they think he or she wants to hear, and those who "tell it like it is" regardless of consequences. The first type of expert is often seen as one who stretches his or her expertise to cover a broad range of technical issues yet offers consistently similar opinions characterized by little or no liability and even less resulting damage.

The second type of expert is well-qualified, well-prepared and open-minded throughout the investigation and negotiation of a claim. A subcontractor's attorney who employs this latter type of expert knows that, well managed, he often defines the limits of the negotiation while bringing credibility to the entire subcontractor's team.

Get a bid.
While this sounds simple, it is seldom done. In the never-ending debate between professionals regarding a projected cost of repair, nothing crystallizes the conversation as succinctly as a detailed bid by a licensed, bonded general contractor who is ready to perform the work. Thus, a subcontractor's attorney should seek out a bid (or bids) that flows from an agreed-on scope of repair and circulate it to all parties in advance of the mediation.

If other parties respond by obtaining their own responsive bids, all the better. You now have a firm jumping-off point to begin the negotiation.

Most subcontractor's attorneys, however, enter into a settlement negotiation ill-prepared to substantiate their cost-of-repair position and are susceptible to the pull of other, potentially inflated projections.

Determine a negotiation strategy.
At this point, the subcontractor's team, including attorney, client, expert and insurance professional, must meet in advance of the mediation to assess the opportunity to extricate the client from the lawsuit during the upcoming negotiation and consider strategic responses to the following questions:

  • What is the appropriate timing and role of the expert in the negotiation?