Hybrid Model Incorporating Real Options with Process Centric and System Dynamics Modeling to Assess Value of Investments in Alternative Dispute Resolution Techniques

Project-specific dispute resolution ladders (DRLs) are typically implemented in construction projects to resolve issues arising between the project participants. The DRL typically consists of single or multiple alternative dispute resolution (ADR) techniques to address construction issues at the three levels of escalation: conflicts; disputes; and claims. However, a DRL requires significant investments to cover the direct costs incurred in-house by the project participants or, externally, if construction specialists and lawyers are recruited to assist in the resolution. Thus, the benefits of the DRL implementation in a construction project must outweigh its costs for the implementation to be worthwhile. This paper presents a methodology to study the effect of different resolution strategies on the value of the investment in a DRL using option/real option theories from financial engineering, process centric modeling, and system dynamics methodology. Of particular interest in this paper is the integration of these research methodologies into a computer model to support the evaluation of the DRL investment in a particular construction project by taking into account the characteristics of (1) the project and (2) the different ADR techniques chosen for the DRL implementation. Finally, an example is presented to illustrate the application of the computer model in a real construction project. The results of the simulation serve two main purposes. First, the results of the simulation are used to verify the intended model behavior in terms of proper integration of the three methodologies (i.e., real options, process centric, and system dynamics) in one computer system. Second, the model application to a real construction project using actual project data illustrates the potential of the model in providing the project participants with information related to the expected number of claims and change orders resolved at each level of the DRL, the change in the expected savings during the construction phase, and finally the value of the investment from the perspective of the project owner.     

Option Pricing Model to Analyze Cost–Benefit Trade-Offs of ADR Investments in AEC Projects

Alternative dispute resolution (ADR) techniques are adopted by architecture, engineering, and construction project participants to help achieve reasonable settlement of claims and change orders (CCOs) that arise during a project’s life cycle without having to resort to protracted litigation for final determination of merit. Since such ADR techniques require resources to prepare, review, and resolve CCOs, the managerial decisions regarding the investments for these resources need to be economically justified. The application of the net present value approach to determine the value of any ADR investment is limited because the future cash flows resulting from such an investment cannot be estimated a priori as they will vary with the nature of the CCOs, the amounts claimed, and the effectiveness of the ADR in addressing these CCOs. This paper presents a conceptual and mathematical model to evaluate ADR investments by drawing an analogy from theories of financial and real option pricing. The objective is to provide the owner with a decision framework that accounts for the uncertainty in estimating the ADR investment cash flows during the project planning phase, and provides realistic results regarding the value of this investment. The model presented in this paper is applied to a real case study involving a seismic retrofit of a bridge project to demonstrate the parameter estimation and the practical application of the model.     

Analytical Framework for the Choice of Dispute Resolution Methods in International Construction Projects Based on Risk Factors

International construction projects provide opportunities for developing countries to advance in the global economy and for international construction and design firms to increase their profit and market share. Despite the attractive opportunities that international construction offers, international contractors are faced with many challenges and difficulties when moving into international markets. Many risks are associated with international construction, whether external or project-specific risks. Those risks affect how contract clauses are written, including the dispute resolution clause. This paper discusses the different dispute resolution methods employed in international construction contracts and develops an analytical framework (DRM-Risk matrix) suggesting the use of specific dispute resolution methods depending on the risks expected in the project. The matrix may eventually help international contractors in the selection of the appropriate dispute resolution method during contract formation depending on the risks involved in a project.     

Alternative Dispute Resolution Techniques: Design Professional's Perspective

Alternative dispute resolution (ADR) techniques offer members of the design‐construct community the opportunity to resolve disputes without having to resort to expensive and lengthy litigation. Disputes inevitably arise because elements of the design‐construct process, such as contracts, specifications, and personnel, are not perfect. Even with a qualified project team that is dedicated to the construction of a quality project, some disputes will occur. Knowing this, a project team's primary objective should be to anticipate circumstances which might generate a dispute and to develop proactive strategies for dealing with such circumstances. When a dispute does occur, internal negotiation should be tried first. This process involves decision makers—those involved financially and those who understand the ultimate impacts of the dispute on the quality and long‐term success of the project. Lawyers should not actively participate in internal negotiation except as a last resort. If this process does not generate a settlement, mediation and arbitration should be tried before commencing litigation proceedings. ADR is an approach to dispute resolution that may be less expensive and time‐consuming, and is more likely to yield “win‐win” settlements than other dispute resolution techniques.     

Alternative Dispute Resolution in U.S. Public Works: Proposed Model

Alternative dispute resolution (ADR) is rapidly becoming a mainstream option to traditional litigation in the United States. Its effectiveness in resolving private-sector construction disputes has been proven, and its benefits, for the most part, uncontroverted. Sufficient attention, however, has not been given to adapting ADR for use on public projects. Public construction operates in a unique context, where the institutional realities facing a public owner can undermine the effectiveness of even the most promising ADR method. This paper discusses the characteristics of ADR, its acknowledged benefits, and the extent of our present ability to realize those benefits in public construction. Measures for tailoring ADR for its effective use in the public sector are offered.     

Conflict Resolution in Construction Disputes Using the Graph Model

A formal approach is presented for systematically resolving construction conflicts. Using an actual case study, a decision support system based on the graph model for conflict resolution (GMCR II), is employed to effectively investigate the strategic interactions that took place between an owner and a general contractor concerning the financing of a construction project. The conflict analysis process considers the decision participants, their decision options, and their relative preferences when modeling the dispute. GMCR II is then used to perform an in-depth stability analysis in order to ascertain the possible compromise resolutions or equilibria. In the case study, GMCR II correctly predicts the sequence of decisions that took place in the dispute and furnishes an array of useful strategic insights about the conflict. Moreover, a sensitivity analysis is executed to determine how changes in preferences can affect the equilibrium results. This conflict resolution procedure is useful for both researchers and practitioners to better deal with the dispute-prone nature of the construction industry.     

Mediation∕Arbitration: Alternative Dispute Resolution Process

Interest in alternative dispute resolution (ADR) techniques for the construction industry has grown in recent years. Traditional litigation has been criticized on several fronts. The traditional procedures are often cumbersome, expensive, and lengthy. The outcome of litigation is uncertain and often confusing. For certain cases, alternative procedures may be useful in quickly resolving disputes. Sometimes there is no alternative to litigation. Each case is unique, and the appropriate form of dispute resolution mechanism must be established for each project. This paper reviews the process of mediation∕arbitration, and compares that process to other alternative dispute resolution procedures.     

Exploring the Potential for Predicting Project Dispute Resolution Satisfaction Using Logistic Regression

The success of a construction project depends on the coordinated efforts of project team members. This is especially crucial when a project is in dispute and hence the achievement of satisfactory project dispute resolution is critical to project success. This proposition has been empirically demonstrated a previous research that studied project dispute resolution satisfaction (DRS) using multivariate discriminant analysis (MDA). This paper reports on a study that builds on that research, with the specific aim of predicting project DRS through the use of logistic regression (LR). In this study, a LR model of project DRS (Model 1) is developed, and then compared with the MDA model. The findings suggest that the LR technique provides a higher hit rate and thus a higher proportion of correct classification. With the wider acceptance of the use of alternative dispute resolution (ADR) methods, the effect, on the LR model, of changing the demarcation between adverse and favorable project DRS is also examined. For this examination, another LR model (Model 2) was developed. It is believed that Model 2 may reflect the prevailing sentiment that ADR is viewed as an amicable way to resolve disputes. Both the MDA model and LR models (Model 1 and Model 2) indicated that “design changes” are the root cause of adverse project DRS. Within the scope of the project data, these findings suggest that design changes are not just disruptive to project progress but also a critical cause of construction disputes.     

Case Study as to the Effectiveness of Dispute Review Boards on the Central Artery/Tunnel Project

The most prevalent use of the dispute review board (DRB) process in the United States to date is the central artery/tunnel project located in Boston. A DRB is a three-member panel jointly chosen by the contractor and owner that is present throughout the course of the contract, and whose responsibility it is to hear disputes contemporaneously with their occurrence. This paper reviews the efficacy of the DRB on the central artery/tunnel project answering such questions as to whether or not (1) there was any discernable bid savings between DRB and non-DRB contracts; (2) the DRB was successful in resolving all disputes prior to contract completion; (3) were there any barriers to the DRB’s effectiveness, concerning bid savings; and (4) the DRB reduced the costs of resolving disputes. The questions are timely and important in an industry that looks for new ways to reduce construction costs and values timely prevention and resolution to disputes.     

Dynamic Conflict Management in Large-Scale Design and Construction Projects

The construction industry plays a major role in both the economy and infrastructure project delivery worldwide. However, one major critical characteristic of the construction industry is the high cost incurred by the resolution of arising conflicts in projects. As a result, project managers are seeking ways to avoid conflicts and resolve them effectively and equitably when they happen. This paper discusses the dynamic nature of conflicts in terms of their evolution and escalation within a project and the interaction between conflicts and dispute avoidance and resolution techniques (DART). The paper also presents the background and development of a conflict management system, entitled the DART Simulator (DART-S). The intent of the DART-S is to provide project managers with a comprehensive and integrated approach to evaluate the impact of a DART implementation on the reduction of conflicts. The simulator was built using a system dynamic modeling within a visual simulation environment. The core of the simulator was developed by using data from literature on the nature of conflicts, dispute resolution processes, and the potential effectiveness of 46 different DART-S on conflict avoidance and resolution. The simulator was then tested and verified with a case study comparing the traditional two-step dispute resolution process with a five-step dispute resolution process. The results of this comparison clearly show that the five-step dispute resolution process is able to decrease the initial number of conflicts of a project, reduce the number of conflicts which may escalate to a higher step in the resolution process, and provide resolutions of conflicts before they reach litigation. By quantifying the amount of conflicts, evaluating the evolution of conflicts, and assessing the impact of DART implementation on conflict escalation, the DART-S provides project managers with an integrated strategy for conflict management.     

The intersection of therapeutic jurisprudence, preventive law, and alternative dispute resolution.

The author examines the intersection of alternative dispute resolution (ADR) with the theory of therapeutic jurisprudence (TJ) and the practical advice suggested by preventive law (PL). The 1st part of this article has a brief review of each of these approaches and notes similarities in their underlying concepts. In the 2nd part of the article, the use of TJ and PL in the practice and pedagogy of ADR is examined. A framework provided by the integration of TJ and PL can help lawyers counsel their clients in choosing between ADR methods and in designing dispute resolution systems. Finally, lessons and ideas that both TJ and PL could draw from ADR are examined. Empirical ADR research can support the premise of TJ. The implementation of ADR programs can also demonstrate the importance of balancing therapeutic factors with legal and financial factors while providing lessons for other areas of the law seeking to implement TJ and PL ideas. (PsycINFO Database Record (c) 2011 APA, all rights reserved)     

Analysis of Dispute Review Boards Application in U.S. Construction Projects from 1975 to 2007

Since their first successful implementation in 1975, dispute review boards (DRBs) gained popularity as a standing neutral alternative dispute resolution (ADR) technique, and were implemented on a number of high profile construction projects in the United States and worldwide. The purpose of this study is to present a review, trend analysis, and classification of U.S. construction projects that had DRBs for the period of 1975–2007. Thus, a total of 1,042 U.S. construction projects that had DRB as part of their contract provisions are extracted from the Dispute Review Board Foundation database and are analyzed. The results of this study are presented in two major sections. In the first section, results of trend analysis are reported as growth in number of projects with DRB since 1975, as well as the distribution of these projects in terms of construction type (i.e., building, highway, and tunnel), and construction volume category. On the other hand, the second section includes the results of the analysis undertaken to study the mechanics of DRB application in construction projects. In this context, the effectiveness of DRB as a preventive measure against the escalation of conflicts to disputes is first studied. For those projects that had disputes heard by a DRB panel, the data was further analyzed to determine the effectiveness of the DRB as an ADR technique that can help in the resolution of a dispute at the project level without further escalation to arbitration or litigation. The results of the study indicate that DRBs have been successfully implemented in all three construction sectors in the United States. The effectiveness of DRB as a prevention technique was observed on approximately 50% of the 810 projects where no disputes were ever heard through a DRB panel formal hearing. For the remaining 50% of the projects, the effectiveness of DRB as an ADR technique was found to exceed 90% when comparing the number of disputes that were settled due to DRB recommendation to those that were actually heard during a DRB hearing session. Finally, the paper concludes with a set of questions and hypotheses that may be undertaken to explain the recorded observations, and set the way for future research efforts in this area.     

Cumulative Effect of Project Changes for Electrical and Mechanical Construction

Change is inevitable on construction projects, primarily because of the uniqueness of each project and the limited resources of time and money that can be spent on planning, executing, and delivering the project. Change clauses, which authorize the owner to alter work performed by the contractor, are included in most construction contracts and provide a mechanism for equitable adjustment to the contract price and duration. Even so, owners and contractors do not always agree on the adjusted contract price or the time it will take to incorporate the change. What is needed is a method to quantify the impact that the adjustments required by the change will have on the changed and unchanged work. Owners and our legal system recognize that contractors have a right to an adjustment in contract price for owner changes, including the cost associated with materials, labor, lost profit, and increased overhead due to changes. However, the actions of a contractor can impact a project just as easily as those of an owner. A more complex issue is that of determining the cumulative impact that single or multiple change orders may have over the life of a project. This paper presents a method to quantify the cumulative impact on labor productivity for mechanical and electrical construction resulting from changes in the project. Statistical hypothesis testing and correlation analysis were made to identify factors that affect productivity loss resulting from change orders. A multiple regression model was developed to estimate the cumulative impact of change orders. The model includes six significant factors, namely: Percent change, change order processing time, overmanning, percentage of time the project manager spent on the project, percentage of the changes initiated by the owner, and whether the contractor tracks productivity or not. Sensitivity analysis was performed on the model to study the impact of one factor on the productivity loss (%delta). The model can be used proactively to determine the impacts that management decisions will have on the overall project productivity. They may also be used at the conclusion of the project as a dispute resolution tool. It should be noted that every project is unique, so these tools need to be applied with caution.     

Comparing Procurement Methods for Design-Build Projects

The design-build delivery method is increasingly used in the United States due to numerous advantages it can offer a project. An important issue associated with design-build delivery is the procurement method used to select the design-build team. It is a critical decision that involves several key project team members, including the owner, designer, and contractor organizations, and requires the owner to carefully choose the design-build procurement method that will be used to select the team that will deliver the project. This research quantitatively analyzed the correlation between the design-build procurement method and the performance of the design-build project with regard to cost, time, and quality metrics. The procurement methods studied were sole source, qualifications-based, best value, and low bid selection. Data were collected through surveys from 76 design-build projects in the United States. Based on the patterns and relationships identified from these data, a better understanding of the procurement process and how it influences project performance is achieved. The impact of project-specific factors and guidelines are presented to assist owners in selecting the design-build team procurement method that responds to their project goals.     

Budget and Schedule Success for Small Capital-Facility Projects

The project management environment of small capital projects is unique in many ways. One unique aspect is the total administrative burden they place on resources for approvals, reviews, and execution relative to the overall value of the capital works program. Administratively, many organizations follow a prescribed approval process for all capital project expenditures regardless of size. For these organizations, small capital projects constitute 80% of the projects executed per year but only account for approximately 16% of the capital projects’ budget expenditures. The opportunity to improve organizational performance through more effective project execution on small capital projects could provide substantial savings within individual small capital-project programs. This paper reports on data collected from active small project-program personnel as well as project success factors identified in the literature. By means of analysis and comparison between the data collected and the project success factors identified in the literature, a comprehensive list of small-project success factors was developed. Sixteen factors were identified from project success factors listed by various authors in project management literature. These factors are used as a baseline for evaluating the findings from a questionnaire and interview process conducted with a diverse group of project management personnel. The paper concludes that the factors on small projects are not unlike those on large projects. The key differences noted were related to the frequency of process implementation, which affects the timing and execution of the project work phases for small projects. The area holding the greatest potential for performance improvement for small projects is the front-end planning process.     

ADR: Trial Lawyer's Perspective

Despite the current publicity and popularity of alternative forms of dispute resolution (ADR), trial lawyers are urging a careful evaluation of the trade‐offs involved in choosing between traditional adjudication and ADR, both in general and in construction disputes specifically. The writer first presents recent evidence that casts some doubt on the justification for complaints against our system of formal litigation. He then discusses the major factors to be weighed in choosing between traditional adjudication and an ADR technique by parties involved in construction disputes. Among the factors considered are costs, certainty, sufficiency of information, the right of review, privacy, and guidance. He concludes with the contention that arbitration and other ADR techniques can be advantageous in many cases, so long as they are voluntary rather than mandatory.     

业主在工程建设项目前期阶段的投资控制

从决策、设计、招投标阶段分析了业主如何在工程建设项目实施前进行投资控制,以更合理、有效地利用投资,促进投资目标的实现。     

Strategic Positioning of Inventory to Match Demand in a Capital Projects Supply Chain

Industrial buyers of capital facilities have experienced and continue to experience pressure to reduce facility design and construction lead time. This pressure arises both internally (due to successes in manufacturing lead time reductions) and externally (due to competitive forces including narrowing product delivery windows). This paper presents a case study detailing one owner’s efforts to reduce the length and variability of delivery time for long-lead construction materials in order to improve overall project lead time. The owner adopted a long-term multiproject perspective, procuring material in advance of specific projects and holding it at a position in the supply chain selected to allow flexibility for customization. Reduction in lead time of 75% from order to delivery of the material resulted for individual projects within the owner’s capital plan. As a result, the material was available at the construction site well in advance of its need for erection. To study if holding material at alternative locations in the supply chain could provide a better match between delivery quantities and the demand for erection, the supply chain was simulated. In this case study, demand information was imprecise, allowing only the quantity of material delivered to be considered rather than matching specific items to specific locations. Nonetheless, the results demonstrate the utility of simulation in the capital projects supply chain and the value of improving demand forecasts.     

Optimizing Owner∕Contractor Core Competencies for Capital Programs

This paper proposes a process to help managers of capital project organizations, within owner companies, select key competencies for their capital programs and, where appropriate, leverage contractor personnel and expertise. The process involves evaluation of owner and contractor competencies and determination of the best possible sourcing strategy for each competency required in the owner's capital program. The sourcing strategy is defined in terms of work relationships that clearly identify primary and secondary roles and responsibilities. The resulting work structure helps owners and contractors avoid gaps and eliminate overlaps in their work relationships. The proposed process also provides an approach to evaluate alignment of work structures between owner's corporate objectives and their capital programs. Work structure and alignment indicators consider project delivery approaches, contract types, organizational relationships, and other relevant factors such as proprietary technology. Thus, this paper provides a decision process that can help managers optimize owner and contractor competencies for capital program success.