Stage 4: Non-Binding Dispute Resolution

1. Stage 4: Non-Binding Dispute Resolution

2. Definitions • WHAT • Assistance of a Third Party to Reach a Mutually Agreeable Solution • Mediation, Conciliation, Advisory Arbitration and Various Forms of Mock Trials • WHO • Usual Participants with Mediators, Retired Judges and Experts • Services Provided by Organizations such as the American Arbitration Association and the International Chamber of Commerce • WHY • Last Attempt for a Solution with a Control Over the Outcome • Costs Becoming an Issue • HOW • Understand the significance of non-binding • Choose the appropriate non-binding DART technique • Follow the necessary processes

3. Case Study: Condo Project • Refurbishing an Old Apartment Building and Selling the 41 Existing Units • US$ 6 Million Worth of Repairs • Developer as Construction Manager, in Charge of Preparing an Offering for Prospective Buyers, Under the Supervision of the Designer • Main Participants: Developer, Designer, Homeowners, Subcontractors • Different Types of Subcontracts: Fixed-price, Extra Work Order, Cost Plus, Unit Price

4. Case Study: The Problematic • Poor Oversight and Lack of Strong Management on the Part of the Developer • Subcontractors Cutting Corners on Lump Sum Contracts • Subcontractors Taking Advantage of Extra Work Contracts Billed by the Hour • Variations From the Offering and Violation of the State Building Codes • Unsatisfied Homeowners

5. Case Study: Parties’ Attitudes • Some Problems Did Not Stem From the Developer’s Negligence. • The Building Inspector Signed off on the Code Violations. • The Main Interest of the Homeowners Is the Quality of the Work Rather Than the Cost. • The Homeowners Association Hired an Attorney. • The Lawyers Were Sympathetic to the Homeowners: They Did Not Stress on the Developer’s Obligations but Insisted on Having the Work Thoroughly Done.

6. Case Study: Important Issues • Are the Parties Committed to Resolving This Dispute Effectively? • Should Either of the Participants Make Concessions in Order to Reach a Solution? • What Effect Did the Hiring of the Lawyers Have on the Negotiations Between Them? • How Might a Non-binding Third Party Make Each Party See the Other Side? • Who Should Pay for a Third Party If Needed?

7. Outline • Importance of Non-Binding philosophy • Mediation • Conciliation • Advisory Arbitration (Non-Binding Arbitration) • Fact-Based Mediation • Mini-Trial or Executive Trial • Summary Jury Trial • Voluntary Settlement Conference (Rent-A-Judge

8. Non-Binding Dispute Resolution: Characteristics • Voluntary Participation of the Parties • Selection of the Third Party by Mutual Consent • Last Attempt for a Non-Binding, Non-zero Sum Outcome

9. Non-Binding Dispute Resolution: Survey Results • A Survey Conducted by the Johnson & Higgins Construction Group with the Aid of Arthur Andersen (ENR, 1/15/1996) • 200 of the Top 500 Design Firms in the US Were Investigated. • Design Firms that Use at Least One of the Three Risk Management Programs (Total Quality Management, DART, Partnering) Had the Lowest Professional Liability Losses and Insurance Premiums. • Table Associating Cost Savings with Adopted Management Program

10. Non-Binding Dispute Resolution: DPIC Cos. Inc • DPIC Cos. Insurance Company and the “ Mediation Works!” Incentive Program

11. Outline • Importance of Non-Binding philosophy • Mediation • Conciliation • Advisory Arbitration (Non-Binding Arbitration) • Fact-Based Mediation • Mini-Trial or Executive Trial • Summary Jury Trial • Voluntary Settlement Conference (Rent-A-Judge)

12. Mediation • Mediator, Facilitator and Translator of Positions • Exchange of Statements Between Parties and Mediator • Brief Case Summary Given by Each Party’s Advocate • Individual Meetings with Mediator • Objectives • Parties Revealing Things They Were Hiding to the Opposite Party • Mediator Playing the Devil’s Advocate and Presenting New Scenarios • Each Party Assessing Settlement Possibilities and Opportunities

13. Benefits of Mediation • “Reduces the hostility between the parties and helps them to engage in a meaningful dialogue on the issues at hand; • Opens discussions into areas not previously considered or…developed; • Communicates positions or proposals in understandable …terms; • Probes and uncovers additional facts and the real interests of parties; • Helps each party to better understand the other parties’ views and evaluations of a particular issue, without violating confidences; • narrows the issues and each party’s positions, and deflates extreme demands; • gauges the receptiveness for a proposal or suggestion; • explores alternatives and searches solutions; • identifies what is important and what is expandable; • prevents regression or raising of surprise issues; and • structures a settlement to resolve current problems and future parties’ needs.” AAA,2000

14. More Benefits • Mediation vs. Court: Mediation Provides a Wider Range of Settlements (Money Damages, Injunctive Relief, Declamatory Judgments) • Savings of 80% of Court and Counsel Costs (Meyer, 1995) • 90% Success in Dispute Resolution (ENR 2/14/1998)

15. Mediation vs. Arbitration Lipsky,et.al,1997

16. Mediation Styles in the UK Institutionalized Mediation Informal Mediation Evaluative Mediation Facilitative Mediation Centre for Dispute Resolution CEDR Institution of Civil Engineers ICE Gould,et.al,1998

17. Enforcement of Mediation in Japan Procedure A: Two-step process Mediation or Conciliation using third party If both parties agree Arbitration Construction Disputes Resolution Committee Procedure B: One-step process Peña-Mora,et.al,2002

18. Outline • Importance of Non-Binding philosophy • Mediation • Conciliation • Advisory Arbitration (Non-Binding Arbitration) • Fact-Based Mediation • Mini-Trial or Executive Trial • Summary Jury Trial • Voluntary Settlement Conference (Rent-A-Judge)

19. Conciliation • Steps • Conciliator’s Evaluation of the Dispute • Conciliator’s Written Proposal for Dispute Resolution • Acceptance or Rejection of the Proposal by Both Parties • Worldwide Recognition • A Mandatory Step in Dispute Resolution, as Provided by ICE in the Standard Form of Contract for Engineering Design • Part of New Zealand’s “ Conditions of Contract for Building and Civil Engineering Construction” Since 1987

20. Outline • Importance of Non-Binding philosophy • Mediation • Conciliation • Advisory Arbitration (Non-Binding Arbitration) • Fact-Based Mediation • Mini-Trial or Executive Trial • Summary Jury Trial • Voluntary Settlement Conference (Rent-A-Judge)

21. Advisory Arbitration (Non-Binding Arbitration) • Arbitration without Binding the Parties into the Third Party’s Decision • Suitable for Disputes with Technical and Legal Matters • Fact-finding Effort and Exchange of Information Between Parties Rather Than Simple Communication and Cooperation to Reach Settlement • Advisory Opinion: Similar to Neutral Advisor but Third Party Intervenes When a Dispute Arises

22. Outline • Importance of Non-Binding philosophy • Mediation • Conciliation • Advisory Arbitration (Non-Binding Arbitration) • Fact-Based Mediation • Mini-Trial or Executive Trial • Summary Jury Trial • Voluntary Settlement Conference (Rent-A-Judge)

23. Fact-Based Mediation • Combination of Advisory Opinion and Mediation • Steps: • Mediator Selected Jointly by the Two Parties When a Conflict Arises • Review of Evidence and Documents • Confidential and Detailed Reports to Each Party (Potential Costs of Litigation, Probable Outcomes of a Proposed Binding Procedure, Alternatives for Settlement, Settlement Recommendation)

24. Outline • Importance of Non-Binding philosophy • Mediation • Conciliation • Advisory Arbitration (Non-Binding Arbitration) • Fact-Based Mediation • Mini-Trial or Executive Trial • Summary Jury Trial • Voluntary Settlement Conference (Rent-A-Judge)

25. Mini-Trial or Executive Trial • Voluntary, Private, Non-binding Procedure • Same Proceedings as if In front of Court or Arbitration Panel • “... a brief presentation of each side’s ‘best case’ arguments in the presence of principal executives of both parties, whose efforts are usually facilitated by a third party neutral,” [Groton (1997)] • Advantages • Non-binding Results • Effective Mutual Participation • Guaranteed Privacy • Control Over the Process • Cheaper than Litigation or Arbitration

26. Outline • Importance of Non-Binding philosophy • Mediation • Conciliation • Advisory Arbitration (Non-Binding Arbitration) • Fact-Based Mediation • Mini-Trial or Executive Trial • Summary Jury Trial • Voluntary Settlement Conference (Rent-A-Judge)

27. Summary Jury Trial • Professionals with Expertise in the Specific Field in Dispute as Members of the Panel Parties • Presentations as the Last Opportunity for a Non-Binding Solution, Before Binding Arbitration or Litigation • A Counsel from Each Party Making Presentations in Front of a “Rented” Jury of Six People • Very Limited Time Frame for Presentations • Provision of an Understanding of”How a Potential Jury Will React to the Case” Without Taking the Case to the Court

28. Outline • Importance of Non-Binding philosophy • Mediation • Conciliation • Advisory Arbitration (Non-Binding Arbitration) • Fact-Based Mediation • Mini-Trial or Executive Trial • Summary Jury Trial • Voluntary Settlement Conference (Rent-A-Judge)

29. Voluntary Settlement Conference • Conferences in a Legal Framework • The Neutral Facilitator/Mediator : • A Retired Judge Selected by Mutual Agreement of Both Disputants • Prior Experience in Construction Disputes • Characteristics • Schedule Conferences and Follow-Up Meetings Not Subject to Legal Formalities, Thus Faster Process • Proceedings as in a Court Process • Pinpointing Legal Issues in the Dispute • Tentative Compromises • Advisory Settlements • Confidentiality During Conferences

30. Outline • Importance of Non-Binding philosophy • Mediation • Conciliation • Advisory Arbitration (Non-Binding Arbitration) • Fact-Based Mediation • Mini-Trial or Executive Trial • Summary Jury Trial • Voluntary Settlement Conference (Rent-A-Judge)

31. Condo Project • The Lawyer Hired by the Homeowners Adopted a Hard Position Even Though the Developer Recognized His Commitments • The Developer Hired a Third-party to Develop a Non-binding Solution • Third-party’s Opinion: • Upwards of Half a Million Need to Be Spent by the Developer to Meet His Obligations • Issues Resolved on Case By Case Basis • Results • $50,000 as Third-Party’s Service Fees • Homeowners Requesting US$2 million • Developer Willing to Pay Half a Million in Improvements • Failure of Mediation: Lack of Commitment of Parties, Unrealistic Expectations of Homeowners • Litigation Staring 10 years ago and Still in Process

32. Summary Mediation Conciliation Advisory Arbitration Fact-Based Mediation Minitrial Jury Trial and Rent-a-Judge Flexibility:decreases along the continuum, less chances for win-win solutions Formality:increases as the techniques required more predefined steps Third Party Role: moves from a facilitator of communications to a judge or jury with only advisory opinion Costs:expenses should be expected to increase as the procedures become more complex Peña-Mora,et.al,1997

33. References • [AAA, 2000] : American Arbitration Assiociation. A Guide to Mediation and Arbitration for Business People 2000. • Beresford Hartwell, 1998] : Beresford Hartwell, Geoffrey M., (1998). The Relevance of Expertise in Commercial Arbitration. " Arbitration Procedures: Achieving Efficiency Without Sacrificing Due Process." Last Update: 22 June. Paris. Downloaded from the web on April 5, 1999 www.ciob.org • [Coates, 1997] : Coates, Tom, (1997). ADR is (not) for Wimps. International Commercial Litigation, Vol. 17 pp. 46-48. March, London. Euromoney Institutional Investor PLC. 1997. • [ENR, 1/15/1996] : Schriener, Judy. Partnering, TQM, ADR Lower Insurance Costs. Engineering News Record. McGraw-Hill, New York. Vol. 236 (2) p.16. January 15, 1996. • [ENR, 2/14/1998] : Engineering News Record. Contracts, New AGC Contract has Owner Input. McGraw-Hill, New York. Vol. 240 (7) p. 14 February 16, 1998. • [ENR, 7/11/1994] : McManamy, Rob. Industry Pounds Away at Disputes. Engineering News Record. McGraw-Hill, New York. pp. 24-27. July 11, 1994. • [Fenn et al., 1998] : Fenn, Peter, O’Shea Michael, and Davies Edward (1998). Dispute Resolution and Conflict Management in Construction an International Review. E & FN Spon, London, ISBN 0-419-23700-3 • [Gould, et al.,1998] : Gould, Nicholas and Cohen, Michael. ADR: Appropriate Dispute Resolution in the U.K. Construction Industry. Sweet & Maxwell, London. Vol. 17. April 1998. • [Groton, 1997] : Groton, James. ADR in the Construction Industry. Dispute Resolution Journal Vol. 52 (3) pp. 48-57, Summer, 1997. • [Hollands, 1989] : Hollands, David S. FIDIC Provision for Amicable, Settlement of Disputes. International Construction Law Review. Issue 1. pp. 33-43. 1989 • [Hunter et al., 1995] : Hunter Keith, and Hoening, James. Construction Dispute Prevention Comes of Age. Dispute Resolution Journal pp. 53-54, January 1995. • [Langeland, 1995] : Langeland, Erik, (1995). The Viability of Conciliation in International Dispute Resolution. Dispute Resolution Journal pp. 34-41. July • [Lipsky et al., 1997] : Lipsky, David B., and Seeber, Ronald, (1997). The Use of ADR in U.S. Corporations: Executive Summary. Cornell University School of Industrial and Labor Relations. Downloaded from the web on April 25, www.irl.conell.edu • [Macneil at al., 1994] : MacNeil, Ian, Richard Speidel and Thomas Stipanowich. "Federal Arbitration Law: Agreements, Awards and Remedies Under the Federal Arbitration Act." Little, Brown and Company. Vol. 3, Ch. 33. 1994. • [Meyer, 1995] : Meyer, Judith, (1995). Mediation Works…With the Least Damage done to the Parties’ Egos and Pocketbooks. Dispute Resolution Journal pp. 44-47. April • [Peña-Mora et al, 2002] : Peña-Mora, F., Sosa, C., and McCone, S. Introduction to Construction Dispute Resolution. Prentice Hall, New Jersey, 2002 • [Treacy, 1995] : Treacy, Thomas B., (1995). Use of ADR in the Construction Industry. Journal of Management in Engineering Vol. 11 (1) pp. 58-63. January/February, 1995. • [Zack b, 1997]: Zack, James G., (1997). Resolution of Disputes: The Next Generation. AACE Transactions. pp. 50-54.