Why Not Try Neutral Evaluation?

By Andrew Ness

Neutral Evaluation Used in Conjunction with Mediation

Mediating construction disputes is almost ubiquitous because mediation continues to be a powerful and effective tool for settling a wide variety of disputes.  Neutral Evaluation, by contrast, may be the most under-appreciated ADT tool.[1] But a well-designed Neutral Evaluation can be highly effective in helping to settle disputes where mediation impasses.

For example, a common situation where mediation may be unsuccessful is where both sides feel strongly and sincerely that they have a very strong case. This mutual high degree of confidence in the merits of their case the parties prevents parties from making the concessions needed to reach a mutually acceptable settlement figure, despite the mediator’s efforts to question their respective views. 

Both parties cannot be right – one party or the other, and maybe both, is misreading the actual strength of its case.  Certainly, one side may be very disappointed if the case goes to trial or arbitration.  But which party is off the mark?  If the parties had a trusted source of insight into that question, settlement could become more feasible.

What Does Neutral Evaluation Provide For the Cost Involved?

Neutral Evaluation is a great tool for getting settlement discussions onto a more productive track in situations like this.  For a small fraction of the cost of going to trial or an arbitration hearing, the parties get expert insight into the merits and the likely outcome of the trial or arbitration.  The evaluation triggers a more productive settlement discussion. Often the parties settle at or close to the result of the Neutral Evaluation.  Once the impasse is broken resolving the dispute becomes far more likely.

A well-designed Neutral Evaluation process will yield highly practical, realistic feedback respecting the relative strength of both sides’ positions and arguments, but at three to ten percent of the cost of a trial or arbitration.  If the Neutral Evaluation sets out its reasoning clearly and persuasively, and is well grounded in the facts and applicable law, the chances are excellent that the Evaluation will substantially influence both sides.

The 80-20 Rule

Neutral Evaluation is an example of the 80-20 rule (except in this case it’s more like 90-10).  The 80-20 rule says generally you can get 80% of the desired value for 20% of the effort it takes to get to 100% of the value. In Neutral Evaluation, you get a prediction of the outcome of a full trial or hearing that is likely quite close to the outcome (that is the 80% or 90%), while spending 5% to 10% of the cost for the full process.  Sometimes it’s necessary to resume mediation to close the deal, but in many instances the evaluation alone will be sufficient to enable the parties to reach an agreement.

Of course, getting the maximum value from a Neutral Evaluation for the least cost takes some care in structuring an appropriate process to fit the dispute.  That will be the topic for the next post on this subject. At a minimum, the process should yield a written evaluation, backed by reasons and not just a number.  But the hallmark of Neutral Evaluation is its almost unlimited flexibility—the process can be shaped to meet the needs of a very wide variety of construction disputes, from simple to extremely complex, and from modest in size to very large claims.

Neutral Evaluation in Multi-Party Disputes

Besides the classic situation described above, there are many other cases where Neutral Evaluation can be well-suited to aid settlement of a construction dispute.

Many attorneys assume that all parties with a direct interest in the dispute must participate in the Neutral Evaluation for it to be worthwhile.  However, this is not a prerequisite.  Consider a common situation in multiparty cases, where a number of parties have a working consensus on a reasonable range for settlement.  If they were the only parties involved, they likely could get to a settlement.  But the holdout parties who are not on board stall the negotiations.

A Neutral Evaluation in this multi-party setting can be a great tool to get the holdouts on the same page as the other parties, even if they refuse to participate in the Neutral Evaluation.  The other parties can share the Neutral Evaluation under a mediation confidentiality agreement (see prior post: IS MEDIATION CONFIDENTIAL? IT DEPENDS!) with the holdouts, and can be a persuasive tool to convince the holdouts to change their positions.

Another multi-party situation is where all parties have a genuine desire to settle, but cannot agree on the allocation of liability shares.  Here the Neutral Evaluation recommends liability allocation that all parties (hopefully) see as fair.  At least this may move the parties closer to agreement on relative shares of liability.

One-Sided Neutral Evaluations

Neutral Evaluations are also frequently commissioned by one side of a two-party dispute.  This is helpful where a party wants to obtain an independent assessment of its position and prospects before committing substantial additional resources to the case, or to inform its negotiating strategy for an upcoming mediation.  

Another use of a one-party Neutral Evaluation, assuming the outcome is relatively favorable to the commissioning party, is to share it with the opposing party (again under cover of mediation privilege) to inject a greater degree of reality into the other party’s case evaluation.

While useful, one-sided Neutral Evaluations are not usually as effective as those where both parties participate in the process from the outset. It is much harder to disregard an unfavorable neutral evaluation when the party has participated in selecting the evaluator and the process.  But this is a technique to consider when the opposing party refuses to participate.

The hurdle to overcome in any one-sided Neutral Evaluation is assuring that the best arguments and facts favorable to the nonparticipating party or parties are fairly considered in the evaluation.  The parties commissioning the evaluation must accurately represent the other parties’ positions and best points . Obtaining the most accurate evaluation reflecting the actual merits of the dispute is more helpful to move the non-participating parties in the desired direction.

Assigning some members the legal team to act as surrogate opposing counsel, making the non-participating parties’ arguments as effectively as possible, may best assure that the resulting evaluation fully considered both sides’ positions.

Other Applications of Neutral Evaluation

Additional variations on the Neutral Evaluation concept can also be utilized to meet the needs of a particular construction case, including:

• mock arguments to test trial strategies and themes;
• presentations to a retired judge to predict likely jury reactions to the dispute;
• neutral evaluation of proposed expert testimony;
• mock summary judgment arguments;
• neutral pre-filing appraisal of contemplated claims; and
• neutral appraisal of contemplated appeals.

Neutral Evaluation is an under-appreciated concept that can be applied cost-effectively in many different construction dispute situations either with a mediation or independently.

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[1] See Andrew Ness, “Neutral Evaluation; Another Tool in the ADR Toolbox.”  40 The Construction Lawyer, at 5 (Fall 2020) (ABA Forum on Construction Law).https://www.jamsadr.com/files/uploads/documents/articles/ness-andrew-construction-lawyer-neutral-evaluation-10-2020.pdf

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