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.     

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.     

Perspective from the United States: Tensions between “Getting It Done” and “Getting It Right”

For over 2 decades, and in response to complaints that arbitration was too expensive and too time consuming, the American construction bar has been energetic and innovative in developing a broad array of dispute resolution tools for resolving construction disputes. These “tools” have included “partnering,” mandatory negotiations, interim decision making by design professionals, mediation, standing neutrals and dispute resolution boards, minitrials, early neutral evaluation, and expert determinations, all developed as alternatives to arbitration and litigation. More recently, in 2006, a voluntary “fast track” process for resolving construction disputes within 100?days has been proffered by the CPR Institute for Conflict Prevention and Resolution. Yet, there are certain dynamics or “tensions” inherent within, and associated with, all construction disputes that continue to resist efforts to speed up dispute resolution processes; these tensions must be reconciled or taken into account before any fast track or “adjudication”-type process will be generally accepted in the United States construction industry. Thus, for now and in the foreseeable future, there will continue to be a smorgasbord of dispute resolution processes for resolution of construction disputes. This is a good thing, because parties to construction disputes come with a great variety of appetites and needs. The focus of attention should be, not so much on development of the ideal or best dispute resolution tool, but having a willingness to select the “best tool for the job,” after the nature of the dispute is known.     

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.     

Case Studies on Negotiation and Mediation for Coastal Zone Conflicts

The cases detailed in this paper provide insight into the application of negotiation and other forms of alternative dispute resolution (ADR) to resolve heated disputes over the use of coastal resources. Three examples are provided to demonstrate the possible outcomes when ADR techniques are applied to resolve increasingly common coastal disputes. The first case between Chevron and the Surfrider Foundation is described to provide an example of how negotiation can result in unique innovative solutions that are unlikely to come out of normal legal proceedings. The second case involves the mediation of the disagreement between nature conservationists and the Dyke Associations in Jade Bay, Germany. This case provides an example of how a mediator can help disclose each party’s interests to transform an ongoing stalemated dispute into a unanimous agreement. The third case details the quarrel between the Surfrider Foundation and a coastal developer in Rincón, Puerto Rico, where the case was successfully negotiated but then later resulted in undesirable and unmitigated consequences for both parties.     

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.     

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.     

Effect of Delivery Systems on Collaborative Negotiations for Large-Scale Infrastructure Projects

In large-scale projects, collaboration is an essential key for the success of projects. Since different participants from different organizations try to work together in projects, competitive stresses exist in their relationships and as a result, disputes or conflicts may inevitably occur. This paper builds on Pea-Mora and Wang's collaborative negotiation methodology for facilitating∕mediating the negotiation process of conflicts. In order for that collaborative negotiation methodology to be more detailed for its implementation, it needs to account for the effect of project structures and delivery methods on the negotiation processes in large-scale projects. Because contracts define the temporary formal and informal relationships among the different parties in a project and subsequently, they define the framework of the negotiations of conflicts within that project, different delivery systems may be more or less effective in terms of conflict resolution. In this research, to study the effect of delivery system on negotiation of conflicts, first, several different project structures and delivery systems are studied in order to identify participants' roles, responsibilities, and relationships. Second, potential conflicts in relationships among project participants are examined to show that each delivery system has typical or pattern behavior that may affect the interrelationship among groups on negotiations. These patterns or characteristics of the groups and their relationship make possible to evaluate quantitatively and qualitatively the advantage or disadvantage of each delivery system in terms of conflict avoidance or dispute resolution. Then, indexes of negotiation effectiveness for each delivery system are developed in order to quantify the advantage of implementing the collaborative negotiation methodology in a large-scale project within a particular delivery system.     

MAUT-Based Dispute Resolution Selection Model Prototype for International Construction Projects

Disputes are common in international projects because of contractual, cultural, and legal factors. The dispute resolution methods currently adopted in international projects are varying, including litigation, arbitration, adjudication, mediation, expert-determination, dispute resolution board, and minitrial. The problem in question is on how to select the most appropriate resolution method that can fit nicely in the nature of the dispute and the disputing parties’ needs. A dispute resolution selection prototype (Model) based on the analytical hierarchy process and multiattribute utility technique (MAUT) is presented in this paper. The Model developed consists of five components: Selection factors, dispute resolution methods, utility factors, relative importance weightings, and user’s preferred weightings. These were based on the quantitative data provided by 41 experts in the field, who were barristers, arbitrators, mediators, and project managers. The Model is considered beneficial to the industry, as it provides construction professionals with a systematic and objective approach in the management of international project disputes.     

Quantification of Costs for Dispute Resolution Procedures in the Construction Industry

The extent to which disputes affect the construction industry has been well-documented. There are a plethora of anecdotal stories, and even some data that explain how unresolved conflict can impact project cost, schedule, and quality. In response, many systems and procedures have been developed to address disputes and their resolution within the construction industry. However, no data exist that quantitatively compare these various alternatives and the real costs of resolving a dispute using methods other than litigation. This paper presents a framework for identifying and capturing the transactional costs incurred to resolve disputes throughout the full spectrum of resolution options. Transactional cost data from 46 recently completed construction projects, totaling over $2 billion of total installed costs, confirm that these sums can account for a large portion of the settlement/award amount, the original claim amount, and even the total contract value when using some dispute resolution methods. Furthermore, using dispute trend and cost data, a comprehensive dispute management system based upon the concepts of risk management is proposed, highlighting the overriding objective of promoting dispute avoidance/resolution in the most cost-efficient manner possible.     

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.     

ADR—A Different Ritual: An Insurer's Perspective

This paper is intended to provide, from an insurer's perspective, an overview of what has created the need for alternate dispute resolution (ADR) mechanisms, the preferred method, its function, effects, and results. Suggestions are made for incorporation of ADR into risk and litigation management programs and for tracking the results which would assist in the continuing evaluation of the process.     

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.     

Product Specification Practices and Problems

The technical product specifications of construction contracts and the associated submittal review processes are shown to be involved in a major portion of all serious project disputes. A large number of actual publicly‐funded water and wastewater treatment facility building projects were examined with subsequent analysis of those reviews indicating that these disputes are detrimental in terms of additional project cost, schedule delays, and overall project disruption and loss of goodwill. In particular, the proprietary “brand name or equal” product specification method is seen to be commonly at the heart of these product disputes. Several different solution strategies were expressed as statistical hypotheses and tested for effectiveness. Among other propositions, the managerial strategies of required bid listing of proposed products, timely dispute resolution, and clarifying the submittal review process proved to be realistic and effective tools for reducing both the incidence and severity of product‐related contract disputes. Exact details are put forward along with sensitivity ranges.     

Case for Expanding the Claim Dispute Resolution Training of TxDOT Personnel

Texas Department of Transportation (TxDOT) currently uses general alternative dispute resolution and dispute management tactics to resolve construction claims. The successful application by TxDOT of project partnering methods, critical path management, and the Contract Claims Committee has resulted in a relatively low number of claims filed. However, one weakness in TxDOT’s current methodology is the lack of specific protocol for project-level personnel and administrators. The following survey of TxDOT dispute resolution methods emphasizes the importance of developing a personnel training catalog for Area Engineers in order to avoid costly claim dispute escalation. As the individual primarily responsible for resolving project and district-level disputes, the Area Engineer should be equipped with dispute resolution training if TxDOT wishes to improve the efficiency of its alternative dispute resolution protocol.     

Engineer’s Study Notes for Understanding the Arbitration Process

Using arbitration to resolve commercial disputes has many advantages over court-based litigation. These include the use of “judges” who understand the relevant technical issues and industry practices and thus reduce the probability of unpredictable results can significantly reduce the cost and delay associated with document exchange and depositions and can reduce the amount of time spent on evidence presentation in hearings. Engineers can play an important role when determining whether their organizations and their clients arbitrate or litigate. The use of arbitration requires contractual agreement. Without the inclusion of predispute arbitration procedures in the project’s contracts, it is likely that disputes will be resolved through litigation and not arbitration. Engineers can influence the inclusion of arbitration because they often suggest the forms of project contracts as representatives of engineering, contracting, or owner organizations. Engineers may also find themselves in management roles where they will be involved in a dispute that will be resolved via arbitration. As a party to the arbitration, it is important for the engineer to understand what influence he or she has in making decisions regarding the arbitration process. This paper provides guidance to engineers who are in a position to influence the inclusion of arbitration in the project contracts. This paper also provides suggestions about how the engineer can work with the attorneys to influence the best and most cost- and time-efficient result in the event an arbitration has been commenced. This paper is not a theoretical research paper but rather is a practical guideline based on the experience of the writers, who are engineers and who have been in the arbitration field, both domestically and internationally for over 30?years, seeing the good, the bad, and the ugly. Together, they share their insights on why the arbitration process can be the better choice for dispute resolution.     

Model for Understanding, Preventing, and Resolving Project Disputes

Based on the comparative analysis of 24 construction disputes, this paper presents a process model that explains the development of disputes. The model examines the combined effect of project uncertainty, contract, working relations, and problem solving effectiveness on the development of disputes. The model develops a classification of problem situations, and identifies the problem-solving requirements and the potential for dispute in each situation. The model indicates that the prevention of complex, high cost disputes depends more on the planning and problem solving ability of the project organization, and less on the contractual terms. The paper identifies the following actions that can reduce the number and severity of claims: reduction of project uncertainty, reduction of contractual problems, reduction of opportunistic behavior, increased the project organization's problem-solving ability, and use of alternative dispute resolution methods to reduce resolution costs.     

Study of Real Options with Exogenous Competitive Entry to Analyze Dispute Resolution Ladder Investments in Architecture, Engineering, and Construction Projects

Architecture, engineering, and construction industry participants often find it pragmatic to implement a project-specific dispute resolution ladder (DRL) as a managerial tool to assist in the prompt resolution of claims and change orders (CCOs) that might arise during the project construction phase. This project-specific DRL consists of a single or multiple alternative dispute resolution (ADR) techniques that require capital expenditures to cover the expenses incurred by the owner’s/contractor’s employees and third-party neutrals. If a project-specific DRL is properly chosen, then the capital expenditures are outweighed by the expected benefits from the DRL implementation; namely, prompt resolution of the CCOs without incurring excessive cost overruns on an already financially stressed project budget, as well as avoiding the escalation of the claims to a dispute that requires long protracted litigation for final settlement. Typically, the decision as to which ADR techniques to include in the project-specific DRL is undertaken during the project planning phase prior to the actual occurrence of the CCOs. In this case, the project owner decide to invest in a DRL in exchange for the expected savings in the project. This decision regarding the project-specific DRL is usually done based on the experience of the project parties with the ADR techniques. However, such a decision needs to be guided by a financial tool that allows the project owner to evaluate alternative DRLs and choose the most economically feasible alternative based on the project and ADR characteristics. In this paper, a financial model is developed to evaluate DRL implementations in construction projects by drawing analogies from real option theory with exogenous competitive entry. More specifically, the occurrence of a given CCO will result in a reduction in the value of expected savings in the project due to DRL implementation. This is similar to the reduction in the gross value of a capital investment project in a commercial property due to competitive entry by another similar commercial property developer in the market. At the same time, the CCO resolution due to an effective DRL implementation will allow project owner to recover part of the losses in the expected savings in the project due to the DRL implementation. The model presented in this paper takes into account the characteristics of the various ADR techniques included in the project-specific DRL, and the characteristics of the CCOs occurring during the construction phase of the project. A case study of a real construction project is used to illustrate the practical implementation of the model. The results indicate that for this case project and from a financial point of view, the investment in the chosen project-specific DRL was not worthwhile because of the high uncertainty in the project, and the low effectiveness of the selected DRL. These conditions did not provide the owner with the anticipated advantage of the DRL implementation in reducing the value of the CCOs occurring in the project. At the same time the cost of the DRL implementation exceeded the actual savings attained in the project.     

Insight into Resolving Construction Disputes by Mediation/Adjudication in Hong Kong

Resolving construction disputes using an adversarial approach is considered to be in opposition of the maintenance of a harmonious relationship between two parties. The modern arbitration process may emulate the litigation proceeding leading to delay and cost escalation. During the past decade, the Hong Kong Government has implemented a mediation clause as an alternative mode for settlement of construction disputes. In this paper, the experience and insight into resolving construction disputes by integrating mediation and then arbitration in Hong Kong are highlighted. The state-of-the-art modern mediation process and its philosophical origins are reviewed. The shortcomings of the present system are pinpointed. The success of the adjudication now practiced in the United Kingdom may suggest that there is a place for another process of dispute resolution, which may help improve the situation. The prospect of the proposed mediation/adjudication and then arbitration mechanism is discussed with particular reference to the construction industry in Hong Kong.     

Designing systems for resolving disputes in organizations.

Dispute systems design attempts to reduce the costs of conflict and realize its benefits by changing the way people handle their disputes. A dispute systems designer may suggest new dispute resolution procedures; organize procedures in a low-to-high cost sequence; work with the parties to help them acquire the motivation, negotiation skills, and resources to use new procedures; and even recommend changes in the broader organization that will facilitate the success of a dispute resolution system. This article draws on our experiences and those of other dispute systems designers, as well as current research on negotiations and dispute resolution, in discussing how principles of dispute systems design apply to intra- and interorganizational conflict. (PsycINFO Database Record (c) 2010 APA, all rights reserved)