Resolution of Construction Disputes

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Resolution

Of Construction
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Disputes:
A Review of Current
Methodologies
KATHLEEN M. J. HARMON

ABSTRACT: Construction projects are increasingly complex, resulting in complex contract


documents. Complex construction can likewise often result in complex disputes, which
predominantly arise from the intricacy and magnitude of the work, multiple prime
contracting parties, poorly prepared and/or executed contract documents, inadequate
planning, financial issues, and communication problems. Any one of these factors can
derail a project and lead to complicated litigation or arbitration, increased costs, and a
breakdown in the parties’ communication and relationship. This paper reviews the
current methodologies for preventing and/or resolving construction conflicts. It is not
meant to be an exhaustive review of each and every process, but rather to give the reader
an overview of the advantages and disadvantages of each process when determining
which one is right for a particular situation.

C
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onstruction projects are increasingly tion to coordinate time, resources, and communication if the
complex, resulting in complex con- project is to be successful. The main goal of all parties involved
tract documents. Complex construc- in a construction project is that the project be successful, with
tion can likewise often result in com- success being defined as a project completed within the origi-
plex disputes, which predominantly nal time span and costs (Harmon 2003). The success of a
arise from the intricacy and magni- project depends on a number of variables—not the least of
tude of the work, multiple prime contracting parties, poorly whichishowthevariousorganizationsapproachproblemsand
prepared and/or executed contract documents, inadequate conflicts (Diekmann et al. 1994). Unfortunately, the successful
planning, financial issues, and communication problems. Any project goal is not achieved as often as the contractual parties
one of these factors can derail a project and lead to complicated would like. There are many reasons for this occurrence, not the
litigation or arbitration, increased costs, and a breakdown in least of which is the current adversarial nature of the industry
theparties’communicationandrelationship. and its methodologies for resolving disputes. This paper
Contractual parties form a society with a complicated set of reviews the current methodologies for preventing and/or
interrelated relationships requiring cooperation and collabora- resolving construction conflicts. It is not meant to be an

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187 O C T O B E R 2 0 0 3

Leadership Manage. Eng. 2003.3:187-201.


exhaustive review of each and every process, but rather to give process (Tolle et al. 1990). Moreover, litigation is a public

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the reader an overview of the advantages and disadvantages of process: documents filed with the court and transcripts of
each process when determining which one is right for a par- court proceedings are available for public viewing and media
ticularsituation. scrutiny (Bristow and Vasilopoulos 1995). In addition, attor-
neys are trained to be adversarial and, once litigation begins,
TRADITIONAL DISPUTE RESOLUTION to use every tactic available to them to win (Burger 1982,
LITIGATION 1984; Bristow and Vasilopoulos 1995; Rendell 2000). Not
I was never ruined but twice: once when I lost a lawsuit, and once to do so may leave them open to charges of malpractice.
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when I won one. (Voltaire) Whether or not the relationship between the parties is main-
Unresolved conflicts or disputes over large complex con- tained must be of secondary importance to the attorney.
struction projects generally result in complex construction
litigation (Pinnell 1999). The reason for this is simple: a
construction project has numerous parties, thousands of ac- Financial Cost of Litigation
tivities, tens of thousands of documents and facts, and a mul-
titude of legal issues (Currie and Robey 1988). A breach of
Authors have characterized construction litigation as expen-
contract, or even a subcontract, by one party can have re-
sive (Burger 1982, 1984; Rowe 1989; Arditi et al. 1998);
sounding effects on the entire project. Litigation, once a pro-
adversarial (Rendell 2000); time consuming (Burger 1982;
cess of last resort, has at times become a ‘‘de facto process’’ to
ABA 1984; Janofsky et al. 1984; Kakalik et al. 1996b);
resolve construction disputes (Kellogg 2001, p. 2).
fraught with flaws (ASFE 1988); and a debilitating process
Although there may be situations in which avoiding liti-
that ends with the ‘‘winner’’ sometimes being the ‘‘loser’’
gation is more costly then engaging in it (Meyer 1984;
(Henry and Lieberman 1985; Loulakis and Smith 1992;
Arditi et al. 1998), many experts [for example, Construction
Bristow and Vasilopoulos 1995; Goodman 1999). As Abra-
Industry Institute (CII) (1995)] believe that litigation is es-
ham Lincoln advised, ‘‘Discourage litigation. Persuade your
pecially inappropriate for resolving conflicts in construction.
neighbors to compromise whenever you can. Point out to
One reason is that future work may depend on present and
them how the nominal winner is often the real loser—in
former business relationships, particularly with a private,
fees, expenses, and waste of time’’ [cited in Burger (1982), p.
nongovernmental organization. Another is the complexity of
274].
technical and financial matters associated with construction
Many nonattorneys within the construction industry are
disputes. Contractors generally seek to avoid litigation be-
not fully aware of the full cost of pursuing litigation, which
cause it can reduce or eliminate job profits and damage good
requires reviewing documents, interviewing witnesses, and
working relationships with the owner, architects, engineers,
preparing for and attending meetings, strategy conferences,
and other participants (Stipanowich 1998).
pretrial motions, and conferences (Currie and Robey 1988;
Litigation may be preferable if the dispute involves a legal
Bristow and Vasilopoulos 1995). There are also hidden costs,
issue or an issue that requires the ‘‘expansion of existing law-
such as the diversion of personnel from the pursuit or accom-
bucking old precedent’’ (Trantina 2001, p. 12). Moreover,
plishment of the construction project and other lost con-
litigation may be preferable if the dispute covers an area of
struction opportunities (Shadbolt 1999). In 1995, Bristow
the law wherein the ‘‘results [are] so certain and rapid in
and Perrier determined that litigation fees for a suit for more
application by the courts ... that attorneys and their clients
than $6,000 but less than $100,000 would cost more than
are unwilling to give up the benefits [of courts]’’ (Trantina
the amount claims [cited in Bristow and Vasilopoulos
2001, p. 12). Hence going to court may allow a party to
(1995), p. 100]. It is not unusual for litigation fees to cost
achieve its goal, whereas resolving the dispute via another
several millions of dollars.
process may not. Nevertheless, the resolution of disputes in a
Estimates of the approximate annual cost of litigation to
nonadversarial process is preferable if relationships are to be
the construction industry are $10 billion (DeSai 1997). The
maintained and unrecoverable expenses avoided (Currie and
cost of litigation increases in proportion to the amount of
Robey 1988).
time that project personnel spend to educate attorneys, con-
sultants, judges, and juries or arbitrators. As the complexity
The Decision to Litigate of the case increases, the plaintiff’s recovery decreases (Hen-
sler et al. 1987). As Chief Justice Warren Burger (1982)
The plaintiff comes to litigation believing that the defen- noted, ‘‘The best service a lawyer could render a client was to
dant’s actions were improper, but often both parties feel ‘‘ag- keep away from the courts’’ (p. 275). Finally, and not of least
grieved by the system of law itself’’ (Rendell 2000, p. 69) importance, with their voluminous documentation, many
because it generally involves a protracted period of discovery, witnesses, complex technical issues, and legal theories, con-
procedural rigidity and delays, and an oppressive appellate struction cases tend to be lengthy and therefore a low prior-

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188 Leadership and Management in Engineering

Leadership Manage. Eng. 2003.3:187-201.


ity with judges, who may want to put off these cases due to putes with the ‘‘least possible intervention by an outside

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case load and scheduling concerns (Augustine 1994; Treacy third party’’ (Gillie et al. 1991, p. 158). The design and
1995). implementation of dispute resolution procedures that are
suitable for complex projects can be a factor in the success of
Litigation Outcome a project.

The outcome of construction litigation depends on a number Contractual Nature of ADR


of variables (Arditi and Tokdemir 1999), a few of which are
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under the control of the parties to the dispute. Once the ADR is a contractual dispute resolution mechanism; there-
dispute is handed over to a third party, such as a judge or fore it is dependent on the existence of an agreement be-
jury, who may have little knowledge of construction or of the tween the parties (Battelle 1995) and is globally defined as a
practices and procedures of the construction industry, control set of methods for resolving disputes without litigation, cov-
is lost (Tolle et al. 1990). Litigation cannot satisfy all the ering a spectrum of nonlitigation methods (Treacy 1995).
needs of the parties, formulate agreement, or propose solu- Some believe that ADR outcomes are fairer than outcomes
tions (Rendell 2000, p. 69), and its solution is made in the from litigation; this belief, however, is subject to interpreta-
form of a cash award. The dispute may be resolved by this tion and may not be accurate (ASFE 1988).
win-lose method, but there is a good chance it will not be There are two groups of construction ADR techniques:
resolved to the satisfaction of the parties involved. formal, binding methodologies and informal, nonbinding
methodologies. Binding ADR is predominantly arbitration,
the most widely used ADR mechanism in construction (Di-
Untimeliness of Litigation
Donato 1993). Nonbinding ADR methodologies include
mediation, third-party neutrals, and minitrials.
A civil lawsuit initiated in 1995 may not be adjudicated for
five to seven years [Keil (1999); see also ABA (1984)]. More- Rationale for ADR
over, it is not unusual for the final resolution of a construc-
tion case to be 10 or more years after final project completion The main rationale for ADR was to create a process that was
(ASFE 1988, p. 3). Studies show that cost and delay are faster and less expensive than litigation (ASFE 1988; De-
judged to be major reasons for a litigant’s dissatisfaction with loitte and Touche 1993; Treacy 1995). However, there is
the civil justice system [for example, Burger (1982); Con- little empirical evidence to support the effectiveness of ADR
nolly and Smith (1983)]. in saving time or costs (Reuben 1996; Trantina 2001). A
The often-quoted remark, ‘‘justice delayed is justice de- study published in 1994 concluded that ‘‘the small amount
nied,’’ holds true because the final resolution of a lawsuit may of data gathered has not shown cost reductions [for ADR
be so delayed as not to offer real relief to a contractor who has mechanisms compared with litigation]’’ (Keilitz 1994, pp.
been compelled by the legal process to wait. Cash flow ‘‘is 41–42). Perhaps because of the paucity of empirical evi-
the lifeblood of the contractor’’ (Currie and Robey 1988, p. dence, a 1996 RAND study (Kakalik et al. 1996b) has in-
918), so waiting may essentially provide no relief at all. Al- dicated that neither attorneys nor judges use ADR exten-
though approximately 95 percent of cases in litigation are sively when it is not mandatory, either by judicial order or
settled before trial (ABA 1984, p. 7; ASFE 1988, p. 16; contractual language. Yet ADR is purported to produce re-
Gillie et al. 1991; Bristow and Vasilopoulos 1995), settle- sults that are fair and equitable (ASFE 1988) and more sat-
ment often is not attained until well after an elongated and isfactory to the participants than formal court adjudication
expensive discovery process (Bristow and Vasilopoulos 1995). (Sander 1991; Plapinger and Shaw 1992; Deloitte and
Common sense would dictate that disputes should be re- Touche 1993; Kakalik et al. 1996a).
solved sooner rather than later, but such is not always the
case for a number of reasons, not the least of which is that
while going through the litigation process (filing the com- ARBITRATION: HISTORY
plaint, document discovery, depositions, interrogatories, and The contemporary ADR movement is the result of the 1976
so on), the parties become entrapped in their positions and National Conference on the Causes of Popular Dissatisfaction
less willing to cooperate in achieving a reasonable settlement. with the Administration of Justice [also known as the Pound
Conference, named after Roscoe Pound, a Harvard professor
ALTERNATIVE DISPUTE RESOLUTION of law who, in 1912, spoke at a legal convention and criti-
Because of an elongated and expensive litigation process, the cized the crowded court dockets (Burger 1984). Pound’s
old battle cry of ‘‘sue the bum’’ does not necessarily benefit views were so vehemently opposed by the American Bar
either party (Harmon 2001). The main purpose of alterna- Association that it refused to publish or distribute his re-
tive dispute resolution (ADR) mechanisms is to resolve dis- marks (Auerbach 1983, p. 95) until years later] convened by

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the American Bar Association (ABA), Chief Justice Warren trators maintained by the AAA. The parties may cross

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Burger, and the Judicial Conference of the United States names it considers unacceptable off the list of proposed arbi-
(ASFE 1988; Scimecca 1991). Three former presidents of the trators. The AAA administrator compares the listing of ac-
ABA described what they believed was a ‘‘real and present ceptable arbitrators whose names have not been crossed off
danger’’ (Auerbach 1983, p. 123) and outlined the problems and chooses the panel from the remaining names. The AAA
and difficulties associated with the judicial system. Accord- contacts the proposed arbitrators to determine if any conflict
ing to Chief Justice Burger, the current court process re- of interests exists prior to appointing them to the panel.
quired streamlining because the courts were overburdened At the arbitration hearing, presentations are made by at-
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and were threatened with collapse (Auerbach 1983). Conse- torneys for each side to either a panel of three or a single
quently ADR gained credibility, reducing settlement time neutral expert, who then issues a decision. Procedurally, ar-
and costs (Scimecca 1991). Moreover, it is believed that with bitration hearings are similar to court adjudication in that
the ADR process, the resolution of the dispute ‘‘is based the parties present their respective cases through the presen-
more on the merits of parties’ positions ... and less on proce- tation of evidence and testimony. Also, like judges and juries,
dural delays or economic duress that force unwarranted the arbitration panel has complete authority. Cross-
settlements’’ (Trantina 2001, p. 8). examination is allowed and the parties have a chance to rebut
each other’s positions. Arbitration, however, is a private mat-
Arbitration in the Construction Industry ter not generally open to the public. It is usually attended
only by the parties involved in the dispute, although other
Arbitration clauses have been used in standard agreements parties may attend at the discretion of the arbitrator and the
since 1871 (ASFE 1988, p. 18), and for many years were contending parties (Currie and Robey 1988; AAA rules, sec-
used as the only alternative to litigation (Treacy 1995; Sti- tion 26).
panowich 1997). Arbitration clauses have been incorporated Arbitration differs from litigation in that the strict rules
into standard contracts published by the American Institute of evidence do not apply; that is, the arbitrators may accept
of Architects since 1915 (Treacy 1995) and by the Associated all types of evidence (Currie and Robey 1988; Tolle et al.
General Contractors (DiDonato 1993), and they are widely 1990) and assign any weight they believe is justified to the
used in the construction industry today for both private and evidence as presented (Currie and Robey 1988). Because the
public contracts. arbitrators are usually experienced in the field, the need for
Binding arbitration is a process wherein opposing parties expert witnesses may be limited, and testimony may be sub-
submit their dispute or conflict for a binding determination mitted in the form of sworn affidavits (Tolle et al. 1990;
by one or more third parties. Depending on the contract Trantina 2001).
language, arbitration is generally conducted in accordance
with procedural rules such as those set forth by the American Binding Decision
Arbitration Association (AAA 2000) Construction Industry
Arbitration Rules. In surveys of the ABA Forum on the
The arbitration decision is rendered after the close of the
Construction Industry conducted in 1991 and 1994, 80 and
hearing and is binding on the parties. The award is based on
97 percent, respectively, of the respondents indicated that
the merits of the dispute and must dispose of all issues raised
they had participated in arbitration (Stipanowich 1996, pp.
by the parties. Only an award is required, not a reasoned
90, 136). However, it should be noted that the 1991 survey
opinion (First Preservation Capital vs. Smith Barney 1996; Green
had a response rate of approximately 10 percent, while the
vs. Ameritech 2000). The award is the full and final settlement
1994 survey had a response rate of approximately 9 percent
of all disputes, and the decision is final and unlikely to be
(Stipanowich 1996). In addition, neither survey published
vacated except on limited grounds, such as fraud, corruption,
data concerning reliability or validity.
arbitrator misconduct, prejudicing the rights of a party, or
refusal to hear evidence [Uniform Arbitration Act (UAA) (sec-
The Arbitration Hearing tion 23) 1955]. The arbitration award must be entered as a
judgment by a court to make the award enforceable. To do
Before the arbitration hearing, the arbitrator or panel is se- so, the ‘‘winning’’ party must file a motion under the Federal
lected. Entities such as the American Arbitration Association Arbitration Act, sections 9 and 13, for confirmation of the
(AAA) maintain a roster of qualified individuals from which award in either state or federal court [9 USC sections 9 and
the parties may select their arbitrator or panel; they also 13; UAA (sections 11 and 14) 1955]. The court must then
handle administrative functions such as making arrange- grant the motion and enter the judgment unless the oppos-
ments for the hearing (Coulson 1994). Lists of proposed ar- ing party files its own motion to vacate, modify, or correct
bitrators are sent simultaneously to both parties for review. the award (Monte vs. Southern Delaware County Authority 1963;
This listing is developed from a listing of construction arbi- Ruby-Collins vs. City of Huntsville, AL 1963). In general,

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Leadership Manage. Eng. 2003.3:187-201.


awards must be confirmed by a court within one year (Sutter Brooker and Lavers 1997) who, some believe, are too often

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Corp. vs. PandP Industries 1997). Motions to vacate awards intent on protecting their interests rather than those of the
must be made within 90 days per the FAA time limits party they represent (Flood and Caiger 1993). Legal fees,
(Prasad, MD vs. Investors Associates, Inc. 2000). arbitration administration costs, fees for the arbitrators them-
selves, and other related costs are running neck and neck
The Pros of Arbitration with the cost of litigation (Currie and Robey 1988; Loulakis
and Smith 1992; Flood and Caiger 1993; CII 1995; Treacy
Arbitration features procedural flexibility, allows the parties a 1995; Reuben 1996; Brooker and Lavers 1997; Pinnell
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choice in the selection of the arbitrators, employs arbitrators 1999; Gransberg and Joplin 2000). Unlike a judge and jury
with knowledge of the construction industry (Mix 1997) trial, which carries minimal fees, arbitration fees can be con-
and/or construction law, uses relaxed rules of evidence siderable. Payments for the administration of the arbitration
(Cronin-Harris 1996; Trantina 2001), and maintains the and panel member fees can add up very quickly. Arbitration
confidentiality of the proceedings (ASFE 1988; Cronin- decisions have been characterized as ‘‘splitting the baby’’ (Far-
Harris 1996; Trantina 2001). The last feature may be par- ber 1981, p. 70), which induces the parties to bring extreme
ticularly important if a party needs to disclose confidential positions into the arbitration. Additionally, arbitrators are
information or trade secrets in order to present its position also criticized as willing participants to the ‘‘kitchen sink’’
(Trantina 2001). Arbitration also allows for a lesser cost for approach to case presentation, wherein they will accept every
the discovery process because discovery can be controlled by piece of paper whether or not it has relevance (Trantina
the panel, which can reduce or eliminate waste, abuse, and 2001).
disagreements (Trantina 2001). The panel can decide either Some authors contend that mandatory arbitration is
to allow or prohibit dispositions or motions, both of which mainly an alternative to settlement, rather than an alterna-
can be time consuming and expensive. Eliminating these tive to trial [for example, Kakalik et al. (1996a), p. 11],
may reduce the costs of discovery. whereas others view it as a substitute for litigation [for ex-
Arbitration benefits the parties by increasing the likeli- ample, Stipanowich (2001)]. It is not difficult to determine
hood that their business relationship will be preserved, and it why arbitration has ‘‘fallen into disrepute’’ (Brooker 1999, p.
is less disruptive and time consuming and can sometimes be 757) in light of its common delays, escalating costs, evolved
more cost-efficient than litigation (Gillie 1988; Tolle et al. procedural complexities, and adversarial approach (Hoarce et
1990; Mix 1997; Phillips 1999; Levine 2000; Trantina al. 1992; Cronin-Harris 1996; Brooker and Lavers 1997;
2001). Moreover, the need for local counsel can be mini- Silberman and Battelle 1997).
mized (Trantina 2001). Unlike a trial, which begins and generally runs continu-
ously from start to finish, arbitration is often plagued by
The Cons of Arbitration delays almost exclusively caused by scheduling conflicts be-
tween the parties and the arbitrators (NAS 1974; Rubin et
The evolution of arbitration from an informal, fair, and swift al. 1992). The scheduling and rescheduling of attorneys, wit-
process into a more elaborate and structured one has replaced nesses, and so on can be costly and counterproductive (Rubin
its virtues with the vices of litigation: greater expense, more et al. 1992). It is not unusual for a large, complex arbitration
procedures, and longer duration (Tolle et al. 1990; Treacy proceeding to stretch out over several years, with hearings
1995; Cronin-Harris 1996; Brooker and Lavers 1997). Pre- held in a disjointed manner (NAS 1974; Rubin et al. 1992).
paring for arbitration may require more time and, hence, With arbitration, the grounds for appeal are so limited
more money because of the possibility of ‘‘surprises’’ (Lyons that if the arbitration panel does not enforce the notice or
1985; Tolle et al. 1990) resulting from limited discovery. other contract provisions, the ruling is still likely to stand
Some commentators (Currie and Robey 1988; Reuben (Fitzgerald and Groff 1989; Rubin et al. 1992). The lack of
1996) argue that arbitration is neither faster nor cheaper than the appeal process is considered by some (Rubin et al. 1992)
litigation but can be ‘‘an expensive, unending kangaroo a serious disadvantage to arbitration. Arbitrators are not
court’’ [Braun (1998), p. 9; see also Lyons (1985)] without compelled to follow the rules of law, and awards may be
the safeguards provided by litigation. overturned if they flagrantly disregard the law, but overturn-
Arbitration is currently considered analogous to litigation ing an arbitration award is not common (Rubin et al. 1992;
and is no longer a quick and easy answer to resolving con- Trantina 2001). Moreover, different arbitrators hearing a dis-
struction disputes (Lyons 1985; Keil 1999). Many believe pute involving multiple parties can reach different, inconsis-
that arbitration has ceased to be the quick and easy answer to tent conclusions if the arbitration is not consolidated (Rubin
resolving construction disputes (Lyons 1985; Technical et al. 1992). Legal maneuvering can delay the arbitration
Committee 1991) because it is now commandeered by at- process by forcing a party to motion the court to compel
torneys (Loulakis and Smith 1992; Cronin-Harris 1996; arbitration or enforce the arbitration award (Rubin et al.

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1992). Also, the arbitrator has no statutory limits on the have significant control over decision making, studies sug-

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amount or types of damages awarded unless specifically de- gest that satisfaction with these procedures will be less than
lineated in the contract document (Trantina 2001). with other ADR methods, such as mediation or a dispute
In summary, arbitration was initially thought to be an review board, where third-party control is limited.
inexpensive, efficient, prompt, private, and informal process, MEDIATION
with decisions made by experienced industry professionals
Mediation is becoming a popular mode of dispute resolution
(Coulson 1994; Stipanowich 1997). Today, however, there is
in the United States (Bush and Folger 1994; Moore 1996). It
disagreement about whether it is a speedy, economical pro-
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is a nonbinding, consensual process of resolving conflicts


cess (Lyons 1985; Currie and Robey 1988; Trantina 2001).
through settlement conferences expedited by an impartial
third party who facilitates negotiations (stories and their in-
terpretation) between the disputants (Gillie et al. 1991; Lou-
Similarities between Arbitration and Litigation lakis and Smith 1992; Rondeno and Rumbaugh 1999; Har-
mon 2002). Mediation may be considered a form of
Arbitration, like litigation, is a confrontational and adver- distributive justice, even though the contending parties con-
sarial process with a win-lose premise (ASFE 1988; Fitzger- trol the discussion of the conflict and its ultimate resolution.
ald and Groff 1989; Cronin-Harris 1996). Both can be ex- It can be entered into voluntarily or as a result of a court
pensive and lengthy (Gillie et al. 1991), and both involve a order, and it does not bind the parties in any way other than
significant delay from the time the dispute arises until the by mutual agreement.
presentation of facts to others for a binding decision (Shad- Construction disputes have used mediation since 1985
bolt 1999). Before the actual arbitration or trial itself, the (Phillips 1997). According to AAA surveys, mediation is
parties will incur the cost of learning the case through the currently the fastest-growing form of the ADR methodolo-
process of discovery. In either arbitration or litigation, discov- gies in construction today (Macneil et al. 1994; Reuben
ery serves the important purpose of allowing the parties to 1996). Compared to litigation, mediation has proved to be a
evaluate the strengths and weaknesses of their own case as faster, less expensive, more confidential, and more satisfactory
well as those of the opposition, and it also allows the parties’ way to resolve disputes (Gillie et al. 1991; Stipanowich
attorneys to evaluate the likely outcome (ASFE 1988, p. 17). 1996, 1997; Clay and Hoenig 1997). It enhances the parties’
Both are document intensive and can involve tens or hun- understanding of the dispute and minimizes future disputes
dreds of thousands of documents, including contracts, sub- by maintaining open communication between the parties
contracts, contract drawings, shop drawings, design docu- (Macneil et al. 1994). Bush and Folger (1994) describe me-
ments and calculations, specifications, inspection reports, diation as ‘‘a powerful tool’’ (p. 16) for satisfying the needs of
correspondence, meeting minutes, schedules, and the like. the disputants that can ‘‘establish or strengthen relationships
To make sense of these facts and technical issues the parties of trust’’ (Moore 1996, p. 15) and create a win-win outcome
use expert witnesses and consulting experts to analyze the that satisfies both parties. It is particularly effective for com-
documents, develop conclusions, and pay particular attention plex construction disputes because it allows for a relatively
to those items that affect the schedule and the resulting timely and cost-effective solution (Hinchey 1992).
damages (Loulakis and Smith 1992; DiDonato 1993). The The purpose of the mediator is to assist the parties to
costs of simply organizing the documentation for one project achieve a mutually satisfying resolution (Phillips 1997). Al-
can be enormous and run into the hundreds of thousands of though the mediator can exert some control over the process,
dollars. The use of experts further escalates the cost of the he/she does not control the outcome (Houlden et al. 1978;
dispute, whether the venue is arbitration or litigation. Add- Gillie et al. 1991). This neutral party is said to have process
ing to the costs is the fact that lawyers need to develop and control over the discussions (Ross 1988), but the contending
explore legal theories (Sutherland et al. 1998). This process parties themselves control whether or not they will settle,
alone can wipe out any profit the project may have hoped to thereby retaining outcome control. If the mediator is well
generate. respected, his or her opinion may be persuasive in bringing
Like litigation, arbitration is a process wherein the third the dispute to resolution. Some authors (Gillie et al. 1991)
party (arbitration panel, judge, or jury) cannot develop cre- believe that a good mediator does not offer opinions on how
ative solutions to the disputants’ conflict but must rule based the case should be settled, but rather guides the parties to a
on the evidence presented. Thibaut et al. (1974) demon- consensual settlement. These authors believe that by offering
strated a negative relationship between satisfaction and per- opinions, a mediator may ‘‘distort the process’’ (Gillie et al.
ceived fairness and the extent of control by a third party. As 1991, p. 160). Others have a contrary view and believe that
third-party control decreased, satisfaction and perceived fair- the parties look to the mediator for an evaluation of their
ness increased (Thibaut et al. 1974). Therefore, because both position. In a 1991 survey of members of the ABA Forum
litigation and arbitration procedures allow a third party to on the Construction Industry, 77 percent of the respondents

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believed that at the request of the parties, the mediator After the storytelling phase, the mediator guides the par-

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should give his/her opinion regarding the issues of the dis- ties to see their position more practically, noting strengths
pute (Stipanowich 1996, p. 105). and weaknesses and potential outcomes (Harmon 2002).
A good mediator is interested in a successful settlement During this phase, the mediator often caucuses with each
but not necessarily in the outcome of the settlement (DiDo- party and engages in ‘‘shuttle diplomacy,’’ presenting offers,
nato 1993; Coulson 1994), yet mediators have their own counteroffers, arguments, and so on, as authorized by the
agendas, particularly in regard to settling disputes (Carnevale parties (Harmon 2002). In these ex parte meetings, the par-
1986). For example, in an effort to move the parties toward ties generally reveal confidential information to the mediator
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a resolution, mediators may propose a settlement (Kressel that may assist the mediator to convince the opposing party
and Pruitt 1989; Bercovitch 1992; Carnevale and Pruitt to settle (DiDonato 1993; Goodman 1999). When dispu-
1992), which can call for one of the parties to reduce its tants feel that the mediator and the other party have heard
claim (Arnold and O’Connor 1999). them, it allows them to reduce the emotional baggage
Some authors (Ravin and Kruglanski 1970; Carnevale brought into the mediation (Harmon 2002). Because issues
1986) have argued that mediators attempt to control the are addressed face to face rather than through attorneys or
bargaining by using various combinations of power (for ex- other intermediaries, the participants feel empowered and
ample, coercion, information, reward). These mediators at- recognized (Bush and Folger 1994).
tempt to define the range of settlements in order to direct If a settlement is reached, the parties jointly develop and
the disputants to an area of common ground where an agree- sign the agreement. The negative characteristics of ‘‘splitting
ment can be forged. The disputants’ perception of the me- the baby’’ are generally avoided because the parties control
diator’s proposal has significant effects on their perception of the settlement procedures. Because mediation is very infor-
the mediator and their own behavior, including the making mal and flexible, the agreement is based on the parties’ mu-
of concessions (Conlon and Ross 1997). tual needs rather than on extensive rules (CII 1995, p. 12;
Mediation can also be considered a form of assisted or Costello 1999).
guided negotiation because a skilled mediator can get stalled
negotiations moving and assist the parties in exploring a
range of options (Harmon 2002). Mediation allows the par- Mediation’s Success
ties flexibility to develop creative solutions, which may or
may not have been available to arbitrators or the court (Al-
A number of factors can contribute to mediation’s popularity
ternative Dispute Resolution Guidebook 1998).
and success. Because the parties craft their own settlement,
they are more likely to honor their agreement voluntarily.
The Mediation Process Mediation also provides a forum wherein the aggrieved party
can present its position or defense directly to the opposing
Mediation is a form of narrative wherein both parties present party rather than through an attorney (Trantina 2001),
their stories of anger, hurt, blame, pain, and resulting thereby giving the aggrieved party ‘‘voice’’ or recognition of
damage—all strong, negative emotions (Harmon 2002). being heard. Also, mediation can preserve the party’s rela-
The story each disputant begins to tell is meant to describe tionship (Lederman 1997). In a 1991 survey of members of
his or her interests and to establish a bargaining procedure, the ABA Forum on the Construction Industry, 93 percent of
while also building rapport with the opposing party (Moore the respondents indicated that they would recommend me-
1996). The most important step in the mediation process is diation to their clients (Stipanowich 1996, p. 83). Recom-
to allow the parties to tell their stories based on their own mending mediation to the opposing party was not seen as a
perceptions of the facts (Harmon 2002), which may influ- ‘‘sign of weakness’’ by 37 percent of the respondents (Sti-
ence the parties’ behavior. The narrative is guided by an ex- panowich 1996, p. 95), although 96 percent did indicate
perienced mediator. In the initial phase of mediation, the that some discovery is warranted before the actual mediation
mediator builds a rapport with the disputants (Moore 1996, itself (Stipanowich 1996, p. 101).
p. 123). In the initial session, the mediator attempts to un- Another reason for the success of mediation ‘‘may be that
derstand the issues and desires of each side and questions the a mediator’s recommendation is regarded as a face-saving
parties to arrive at an understanding as to the root causes of mechanism by the parties’’ (Pruitt and Johnson 1970). Fur-
the dispute (Harmon 2002). Mediators then educate the par- thermore, responsibility for the decision can be shifted from
ties as to their opponents’ position, which may not have been the individual to the mediator when concessions are needed
accurately or fully communicated for a variety of reasons to reach a settlement. Kozan (1997) argues that direct com-
(Gillie 1988). The mediator then develops a mediation strat- munication between disputants discussing negative emo-
egy to guide the disputants to the goal of resolving the con- tions is softened when using an intermediary such as a me-
flict to each party’s satisfaction. diator. The mediator may ameliorate the negative beliefs of

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emotions or put them within the context of the dispute, tion. This creates a dilemma for the parties and the mediator.

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making them more palatable to the opposing party. Do you pursue the mediation phase as if there will be no
arbitration phase and tell the mediator ‘‘everything,’’ or
Problems with Mediation do you ‘‘hold back’’ some admissions or information in case
the dispute does not settle during the mediation phase,
thereby not revealing certain information to the potential
Mediation also has some negative features. Like arbitration,
arbitrator?
mediation will likely become more procedural as the process
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becomes subject to increased scrutiny (Stipanowich 1997). It


can be used as a process to stall court proceedings or as an-
other method of discovery (Trantina 2001). It may also lead MINITRIAL
to a compromise settlement because it can be conducted The term minitrial may be a misnomer because it is a vol-
before the completion of the full discovery process. Currently, untary and nonbinding hybrid ADR process, but it is still
the American Institute of Architects construction contract adversarial (CII 1995, p. 12). A minitrial is not really a trial
requires mediation as a condition precedent to arbitration at all. It may or may not be contractually mandated, but is a
(AIA 1997; Barnett 1997). The American Arbitration Asso- voluntary, confidential, nonbinding settlement procedure
ciation (2000) encourages parties to mediate prior to arbitra- (Ryan 1991) in which attorneys from each side present their
tion. In mediations under its umbrella, the AAA boasts of a best-case position in summary fashion to the opposing party,
high (86 percent) settlement rate (Loulakis and Smith 1992; its attorneys, and a qualified neutral (Cronin-Harris 1996;
Rondeno and Rumbaugh 1999; Levine 2000). Alternative 1998), or to a panel of top management represen-
tatives not involved in the dispute (Penna 1993). The main
MED/ARB goal of the minitrial process is to predict the results of an
Med/arb is a hybrid of mediation and arbitration that uses actual trial, thereby enabling the parties to come to a busi-
mediation first, after which disputes not resolved via media- ness decision to resolve their dispute.
tion are arbitrated (ASFE 1988; Costello 1999). It can be Minitrials are generally held after other alternative dis-
considered binding mediation. The process was developed pute mechanisms have failed, but before an actual trial. They
by the Associated Soil and Foundation Engineers (ASFE) in are effective in certain types of construction disputes (Good-
the 1970s, and it involves the selection by the parties of a man 1997) that mix factual and legal issues (Killian and
neutral third party at the start of construction to make bind- Mancini 1985) and are thought to promise an early
ing decisions contemporaneously as disputes arise. The dan- ‘‘business-decision settlement’’ (Loulakis and Smith 1992, p.
ger in this process is that it combines mediation, a concilia- 9). For a minitrial to be truly effective, each party must have
tory process, with arbitration, an adversarial process a relatively good understanding of its issues and the oppos-
(Stipanowich 2001). It is unlikely that a neutral third party ing parties’ refutations and issues (Hinchey 1992). The ac-
can remain unbiased during the arbitration proceeding after tual minitrial is therefore generally conducted after expe-
the failure of mediation (ASFE 1988; Stipanowich 2001) dited, limited discovery has taken place.
since during the mediation process the neutral party was Presentations at a minitrial are time limited (Loulakis and
exposed to confidential information during the caucus stage Smith 1992), taking one to two days of executive sessions
that may influence its decision in the arbitration. (Bramble and Cipollini 1995). An attorney or the parties’
Med/arb may be effective because it encourages the par- representatives themselves can question the witnesses (ASFE
ties to settle rather than lose control of the outcome if arbi- 1988). Because the goal of the minitrial is to give the parties
tration becomes necessary. The threat of arbitration may a clear understanding of the merits of their case, the neutral
make the parties more amenable to settling a dispute. Op- party may ask probing questions to educate the principals
ponents of med/arb speculate that it is an inferior form of and have them view the case from a new, more realistic per-
dispute resolution because if a settlement is not achieved, the spective (Loulakis and Smith 1992). The panel hears a sum-
resolution is then foisted off on a third party for a binding mary of evidence presented by attorneys and witnesses
decision. In a 1991 survey of members of the American Bar (Goodman 1997). The neutral party may, at the parties’ re-
Association (ABA) Forum on the Construction Industry, 63 quest, render a nonbinding decision and then mediate to
percent indicated that a mediator of an unsettled mediation settle the dispute (ASFE 1988; Costello 1999).
should under no circumstances be permitted to serve as an Procedurally, as in other ADR methods, rules of evidence
arbitrator to the same dispute; only 28 percent indicated that do not apply, and the parties can agree to whatever format is
a dual role would be acceptable (Stipanowich 1996, p. 106). appropriate for their case. In a 1991 survey of members of
Additionally, during the mediation phase, the mediator, in the ABA Forum on the Construction Industry, only 21 per-
private caucuses with the disputants, may have access to in- cent of the respondents indicated having participated in a
formation that would not have been presented at the arbitra- minitrial. A 1994 survey indicated that this percentage in-

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creased to approximately 30 percent (Stipanowich 1996, pp. PREVENTIVE ADR METHODOLOGIES:

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90, 142). PARTNERING
Partnering is a project and risk management tool that seeks
to change attitudes about the relationships between the
owner and the contractor to promote mutual rather than
EARLY NEUTRAL EVALUATION
bifurcated goals (DiDonato 1993; Augustine 1994; Keil
Early neutral evaluation (ENE) is another ADR method 1999). This is accomplished by establishing trust and open
used to resolve construction disputes early in the litigation communication, discussing methods of handling conflict,
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process (Stipanowich 1996). Unless it is a contractual re- and establishing a cooperative and collaborative manage-
quirement, ENE is generally a court-ordered process that ment effort that enables the parties to complete the project as
begins three to four months after a complaint is filed (ASFE effectively and cost-efficiently as possible (Penna 1993;
1988). It is an informal, nonbinding procedure in which the Bramble and Cipollini 1995). Although the contract pro-
court or parties select a neutral third party (generally an at- vides for certain expectations about legal rights and rem-
torney) who is experienced in the type of construction or edies, it does not necessarily establish a good working rela-
issue in dispute (Treacy 1995). tionship (Appel 1993). Partnering is thought to restore the
The main purpose in using ENE is to discuss and resolve spirit of cooperation and teamwork and to shift the para-
disputes sooner rather than later, thereby circumventing the digm of the culture in the construction industry from adver-
need for trial preparation (Stipanowich 1996; p. 126). ENE sarial to cooperative (Steen and MacPherson 2000) without
can be an alternative to expensive discovery and be useful in replacing any contractual provisions.
resolving complex technical issues and promoting ‘‘meaning- The evolution of partnering can be traced to the 1980s
ful dialogue about the disputes’’ (ASFE 1988, p. 23). The contracts of the DuPont Engineering and Fluor Daniel cor-
neutral party gets involved early in the litigation process, porations (Mosley et al. 1991; Appel 1993). Both were will-
points out areas of agreement, and issues a nonbinding as- ing to risk the possibility that one or the other might be
sessment. The presentation to the neutral party depends on wrong, but they were genuinely curious about the reasons
the parties’ agreement. Sometimes a written statement of the construction-related disputes spiral out of control, and both
issues is forwarded to the neutral party before the first meet- recognized that there was little chance of exchanging the
ing. Presentations are generally informal, with limited oral conflict paradigm for one of collaboration unless they could
arguments. During the presentation, disputing parties may discover the root causes of their problems. As Schwartz
be allowed to cross-examine witnesses. The neutral party (1994) notes, you cannot truly solve a problem without un-
may or may not caucus with the disputants about issues that derstanding the problem’s root causes. Generally the owner’s
they agree on, and may encourage them to agree on issues decision to implement partnering is included in the bid
about which they are in partial agreement. documents, but partnering, to be successful, needs a top-
Depending on the complexity of the issues, the neutral down approach (DiDonato 1993).
party may render an oral opinion at the conclusion of the
presentation. An oral opinion is particularly useful when the
parties have reached an impasse on complex technical issues Partnering Procedures
about which the neutral party has expertise. Generally, dur-
ing the evaluation period other dispute resolution procedures A partnering conference or retreat is usually held before the
(for example, arbitration, discovery, motions) are suspended. actual start of construction and is facilitated by a neutral
The benefit of the minitrial process is that it provides a cost- adviser (Mosley et al. 1991; Penna 1993; Macneil et al.
effective mechanism to determine the relative merits of the 1994). Because old patterns and habits can easily resume
case while maintaining confidentiality (Treacy 1995). In ad- once problems or difficulties arise, partnering does not end
dition, both parties may benefit from hearing each other’s with the retreat, but must include continuous training or
case presentation and how one neutral party would resolve it seminars throughout the course of the project (DiDonato
(Trantina 2001). ENE is believed by some (Stipanowich and 1993). An expert third-party facilitator with knowledge of
O’Neal 1995) to be the most useful ADR method for pre- the construction industry assists the parties at the partnering
serving job relationships. However, like other adversarial conference or retreat to identify and reach other goals (Appel
ADR methods, the evaluation can be based on predicting 1993). Research has shown that it matters little how a goal is
the outcome of a trial or arbitration (ASFE 1988; Phillips determined but rather that a goal is set at all (Kay et al.
1997). Although one study noted an 80 percent satisfaction 1965; French et al. 1966). Latham and Yukl (1975a, 1975b)
rate among attorneys using ENE, it was not chosen volun- determined that participating in setting goals leads to higher
tarily (Rosenberg and Folberg 1994), and as of 1994, it was commitment to the goals and performance than simply as-
offered in only 14 of the 94 U.S. district courts (Plapinger signing goals to individuals, even if they are uneducated. An
and Stienstra 1996). opportunity to have input in setting goals provides the indi-

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vidual with a perceived control over the situation and results ADR methods because it seeks to use a procedure contem-

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in perceived fairness of the procedures in setting the goals. poraneous with the development of the conflict itself while
Other studies [for example, Dorsett et al. (1983)] have found also being more responsive to the parties’ underlying prob-
that when goals are set and accepted, ‘‘participation [in set- lems (Chapman 2001). Although many authors, such as
ting the goals] seems to be unimportant’’ (p. 9). Once a goal ASFE (1988) and Silberman and Battelle (1997), view the
has been established and agreed to by the parties, there is a DRB as a form of ADR, strictly speaking it is not because its
tendency to achieve that goal. focus is on circumventing disputes rather than merely resolv-
The result of the conference or retreat is a partnering ing them (Chapman 2001; Harmon 2001).
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‘‘charter’’ or agreement that is signed by all members of the The DRB consists of a three-member panel chosen and
project team. The charter commits the project team to pur- approved jointly by the contractor and the owner prior to the
sue specific goals, for example, project completion within the start of construction. Both parties must have complete con-
planned cost and duration. fidence in the DRB’s integrity and impartiality for this pro-
cess to be effective (Technical Committee 1991; Los Angeles
Partnering Benefits 1997). After the panel is chosen a third-party agreement is
executed by the panelists, owner, and contractor. This agree-
Of the numerous benefits of partnering, most important are ment establishes the parties (owner, contractor, and indi-
reduced exposure to litigation, cost overruns, and delays. vidual panel members), purpose, scope of work, responsibili-
This leads to a better product because time and energy are ties of the contractor and owner, duration of agreement,
focused on constructing the project rather than maintaining payment for services, and termination of panelists. Essentially
an adversarial position (Appel 1993; Penna 1993). There is this agreement is the formal mechanism that defines the
little downside to the partnering process, but it does require parties’ responsibilities to each other and the remuneration
commitment by the contractual parties to implement the the panelists will receive for their services.
steps necessary for success (Zack 1995; Pinnell 1999). Part- The duration of the panel’s engagement is specified in the
nering fosters communication and requires adequate ‘‘people agreement. In most cases this is for the entire duration of the
skills’’ from all participants to allow for collaborative problem project, but it can be terminated with or without cause or on
solving. mutual agreement. It is important to note that a DRB is not
Because it has been proven effective in reducing claims, vested with tenure over the life of the project (Los Angeles
46 out of 50 states utilize partnering (‘‘Recognizing’’ 2000). 1977; Technical Committee 1991). Generally the contractor
The Portland, Oregon, District of the U.S. Army Corps of and the owner must both agree on any individual panelist’s
Engineers has claimed that with partnering there is an 80 to termination before the completion of the project, but this
100 percent reduction in cost growth over the life of major may vary by agreement.
contracts, a 67 percent reduction in paperwork, improved
safety, and a reduction or elimination of schedule delays, liti-
gation, and outstanding claims (Griffis 1992). Partnering has
been heavily promoted by the Corps of Engineers (Appel
1993; Bramble and Cipollini 1995) and the Associated Gen- DRB Functions
eral Contractors of America (Larson 1997) to counter adver-
sarial attitudes between contracting parties. The Corps of The DRB regularly visits the project, but should the need
Engineers notes that since 1988 it has used partnering in arise it could also convene at times of critical construction
over 200 construction contracts without one going to litiga- events or the request of the parties (Coffee 1988; Treacy
tion (McNanamy 1994). Partnering is also used by the U.S. 1995). The frequency of jobsite visits depends on the nature
Air Force, NASA, the U.S. Navy, and their contractors of the work as well as the number of potential or actual
(Mosley et al. 1991). disputes (Shadbolt 1999). To keep current with the develop-
ment and progress of the project, the DRB is informed of
DISPUTE REVIEW BOARDS construction activity via regular written progress reports,
The dispute review board (DRB) is a contractual require- meeting minutes, and other relevant documents forwarded
ment: a unique, proactive, nonadversarial project manage- by either the contractor or the owner. A major strength of
ment technique for circumventing or resolving disputes dur- the DRB is its familiarity with the ongoing construction and
ing the course of construction that is established at the any important developments on the project (Harmon 2003).
beginning of the job by total agreement of the parties and By visiting the project on a regular basis, the DRB acquires
before any conflicts arise. Because of this and other factors, intimate knowledge of the difficulties the parties encounter
the DRB members establish a relationship and legitimacy and can make recommendations to resolve conflicts before
with the parties. This method distinguishes itself from other they escalate into disputes (CII 1996).

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DRB Hearings ing can be considered ADR methodologies, are also dis-

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cussed. Nevertheless, what can be discerned from the discus-
The owner or the contractor can request a hearing to present sion is that whether traditional (that is, litigation) or
an unresolved conflict to the DRB. A dispute should be currently popular ADR methodologies (that is, mediation)
brought to the DRB as soon as the parties have determined are used, each ADR process has positive and negative aspects
that a negotiated settlement is unlikely (Technical Commit- depending on whether or not the law, facts, time, and money
tee 1991), but only after exhaustion of the dispute resolution are on your side. However, neither time nor money is infinite
procedure as detailed in the contract documents. The con- and these processes require a certain amount of each, and the
Downloaded from ascelibrary.org by New York University on 05/18/15. Copyright ASCE. For personal use only; all rights reserved.

tract generally outlines the steps a contractor must take in its decision to utilize one process as opposed to another may
efforts to resolve a dispute before presenting it to a DRB for raise the issue of the cost of the methodology. The preventive
a recommendation. These steps include the formal submis- methodologies (that is, partnering or DRB) can be effective
sion of a change-order request, which includes a justification tools for saving both time and money before a conflict esca-
of the request along with any costs or time extensions lates into a dispute, but these measures are not without costs.
sought. This initial change-order request is followed by The difficulty in deciding which methodology best suits
questions or comments by the owner that generally include a an entity’s needs depends on the dispute, the contractual
give and take regarding what information is sought or pro- parties’ relationship, and other factors that are not known
vided in the negotiation of the change order. After the nego- until after a dispute arises. Yet many times the conflict reso-
tiations appear to be stalled, the issue of bringing the dispute lution methodology is chosen prior to the occurrence of a
to the DRB arises. The hearings are informal and ‘‘focus on dispute when it is included in the contract. The contractual
the issues in dispute’’ (Silberman and Battelle 1997, p. 214). dispute resolution methodology, whether arbitration, litiga-
At the hearing itself, each party is given a reasonable tion, or some other approach, may not be the best one once
opportunity to present its case. The parties are required to disputes have arisen, so flexibility in what mechanism is ac-
have representatives with direct knowledge of the problem tually utilized should be, but is often not, adaptable.
(Battelle and Dettman 1993) at the hearings. This allows the Nevertheless, it is apparent that complex construction
DRB panelists to question individuals with firsthand knowl- contracts can result in complex disputes. The contractual
edge of the problem being heard. parties, just like partners in a marriage, must recognize that
differences are bound to occur, and when they do, it is better
Recommendation to address them contemporaneously rather then sweep them
under the rug. Dispute prevention mechanisms such as part-
nering and DRBs can assist the parties to face their differ-
After the close of the hearing and all requested information
ences through frank and open communication. Once a dis-
or documentation has been received, the DRB issues a com-
pute has occurred, mechanisms such as mediation and ENE
prehensive written finding as to how it believes the dispute
can be an effective first strike to resolve the dispute before
should be resolved. The decision time to accept or reject the
more time-consuming and expensive measures such as arbi-
recommendation is either noted in the specifications or de-
tration, minitrial, or litigation are enacted.
termined by the rules of procedures mutually agreed to at
the initial meeting.
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