Using mediation to facilitate the structuring and agreement of contract terms for major projects

Before I entered private practice as a Barrister, I worked in house for Rolls Royce and Alstom, structuring, drafting, and negotiating contracts for major projects around the world. Following the award of a major contract in Malaysia, I undertook the Rolls Royce Industrial Power Group internal one year Project Management training course for the company’s elite cadre of Project Managers of major power projects around the world. This equipped me with insights and skills which I use today for planning. Looking back I wonder if there is a role for a mediator to facilitate contract negotiations, in order to enable each party’s commercial objectives, expected outcome, needs, concerns about risk, and priorities to be clearly understood, so that instead of competing about price and specification, they can focus upon how to maximise the planned commercial outcome to their mutual benefit. While a mediator cannot devlop a creative commercial solution, he can steer the parties toward that end by facilitatating clear communication. I am currently writing an article for Taxation (Tolley) for publication before Christmas. In the article I present a methodological formula for mediating a tax dispute. Extrapolating from this idea, and bearing in mind that mediation can be used for estate planning (see my article for Taxation – ‘Mediation and Estate/Business Succession Planning’, Taxation (Tolley) 08.03.2022), perhaps a methodological approach could be developed for the mediation of a contract negotiation as follows:

Based upon S, input CPA into WBS = P.
Adjust P to account for: F; LD (insurance premiums); PB (cost); and RA = expected and planned Net profit (‘NP’).
Identify the gap between P and EURCO = ‘PEG’.
Adjust the PEG to account for V = Adjusted commercial outcome (‘ACO’).
The gap between ACO and NP is the deal-making zone [‘DMZ’].
The question then, is how to close the gap, e.g. by enhancing EURCO through specification (including time, design and materials changes), and project management efficiency/savings.

‘CPA’ = Critical Path Analysis.
‘F’ = Float.
‘ERUCO’ = Expected revenue following commercial operation.
‘LD’ = Liquidated damages.
‘M’ = Margin (calculated by reference to project costs – which may be reduced if the time and money incurred in negotiating contracts can be reduced through mediation).
‘P’ = Price.
‘PB’ = Performance bond.
‘S’ = Technical specification (including completion date).

‘S&T’ = Suspension (i.e. to avoid LD’s and for non-payment) and Termination for (RA and non-payment).
‘RA’ = Risk analysis (including political risk; force majeure [‘FM’]; liability for latent defects; liability for unlimited consequential loss; and taxation e.g. if a permanent establishment is created onshore).
‘V’ = Variations (entitlement to extra time and costs e.g. for a change in specification; FM etc).
‘WBS’ = Work Breakdown Structure.