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Construction ADR undergoes a sea change.

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to the High Costs of Litigation
Vol. 14, No. 6 .June 1996
CPR Institute for Dispute Resolution
ADR Took. Lawyers’ intuitions about what a case
is worth are gut
reactions at best, hard to support or explain to clients. And that can put a
serious crimp in settlement discussions.Marjorie Corman Aaron, executive
director of the Program on Negotiation at Harvard Law School, offers a
more analytical approach to evaluating trial alternatives. She shows how
decision trees can help link strengths and weaknesses of positions on
specific issues, to the overall value of a case. .................................... Page 71
ADR Trends. A breeding ground for conflict, the construction industry
has traditionally been on the cutting edge of dispute resolution methods.
Lately this industry, which once relied chiefly on arbitration, is expanding
its dispute resolution repertoire to include consensual techniques, writes
ThomasJ. Stipanowich, a professor at the University of Kentucky School of
Law and author of a leading treatise about arbitration. More and more,
contractors and their attorneys are also using mechanisms aimed at avoiding disputes by addressing the roots of controversy. ....................... Page 69
Practice Notes. In an effort to resolve a $250 million patent dispute, one
organization tried three different ADR techniques. The last method-a
three-day summaryjury trial-was what finally worked. Todd H. Bailey, a
lawyer with Frost &Jacobs who represented one of the parties, pinpoints
what ultimately brought the rivals together. .................................... Page 75
Commentary. In a provocative article in the March issue of Alternatives,
two ADR professors argued that evaluative mediation “jeopardizes neutrality.”John Bickerman, of b y e , Scholer, Fierman, Hays & Handler, takes
issue. Mr. Bickerman, a full-time mediator specializingin complex commercial and policy cases, writes that parties often want-and expect-a mediator to explore strengths and weaknesses. ......................................... Page 70
ADR Ethics. Recent efforts to develop ethical standards for mediators
have ignited a vigorous debate about whether mediation is the practice of
law. Bruce Meyerson, a lawyer and mediator with Steptoe &Johnson, argues
that it isn’t. Any other conclusion, he writes, would lead to a number of
undesirable consequences. For example, judges presiding over settlement
conferences would be breaking ethical rules in states that prohibit judges
from practicing law while they serve on the bench. And thousands of
professionals in other disciplines who serve as mediators would be engaged
in the unauthorized practice of law. ................................................. Page 74
Briefs ..................................
Page 77
Drawing by Cullum ........... Page 77
ADR Undergoes
A Sea Change
By Thomas J. Stipanowich
The construction industry, long a laboratory for developing consensual alternatives to the courtroom, is experiencing a sea change in its approach to
Binding arbitration,once the sine quo
non of construction contracting under
standard industry agreements, remains
popular. But lately there have been growing pains, and a long-simmeringstruggle
over the “soul”of the process. As arbitration has been called upon to take on the
burden of almost the entire spectrum of
civil rights and remedies-including
claims for exemplary damages and class
actions, Title VII cases and RICO-based
needs of users have
stretched and strained the traditional
processes to the limit.
Critics have raised a host of questions
regarding the structure and shape of
arbitration, covering procedural
arbitrability, handling of multi-party
disputes, discovery, arbitral opinionwriting and arbitral remedies. While
some participants have insisted that arbitration must borrow certain features
of civil litigation to address current re(continued on page 78)
ThommJ Stipanowich is WL. M a t t h s ProUniversityof Kentucky, co-author
ofthe book ‘FederalArbitrationLaw:Agreements,
Awards &Remedies” (Little,Brown 1994),and
editor of The Construction Lawyer (thejournal ofthe Amerkan Bar AssociationForum on
the ConstructionIndustry).
fessor of Law,
78 Alternatives
Construction ADR
(continued from front page)
alities, others (particularly contractors
and design professionals) have complained that arbitration is becoming
too much like litigation.
Clearly, arbitration is only a partial
answer to the industry’s needs. And two
recent national surveys confirm that
contractors, design professionals, and
their attorneys are making much
greater use of consensual ADR. More
and more, they are using mediation,
non-binding third-party evaluative processes, and are even seeking to minimize or channel conflict through the
use of partnm’ng.
The web of human relationships surrounding construction has always made
it a breeding ground for disputes.
Among the many contingencies that
make conflict inevitable: a schedule extending over months or years; the interaction of hundreds-perhaps
thousands-of people and products;
the vagaries of climate, weather and site
To most participants, the first goal is
to complete the contract in the shortest possible time, and in so doing to
maximize profits. In such an environment, formal litigation is an anathema.
The best solution for most players is to
address the root causes of conflict, and
to resolve conflict informally-if necessary with the help of third parties.
Failing all else, the preference has
been to refer disputes to one or more
informed “insiders”for resolution. This
is a sensible course since most disagreements tend to hinge on the quality or
scope of performance, matters involving technical questions or applications
of industry terms, norms and standards.
Nearly always, the emphasis is on containing disputes in the short term to
avoid a hardening of positions.That also
permits contract performance to proceed without interruption pending final resolution of disputes.
To achieve these goals, standard industry contracts have provided for informal interim adjudication during
construction (by the architect or engineer employed by the owner), followed
by binding arbitration.
Lately, the quasi-judicial role of
project design professionals has come
CPR Institute fbr Dispute Kesolution
under attack. One charge is that architects and engineers have a conflict of
interest inherent in their concurrent
roles as agent and contractee of the
owner. Another argument is that architects and engineers are de facto parties to disputes stemming from design
defects and other errors or ambiguities
in the contract documents.
Now the pressure of legislative,judicial and administrative developments
and increasing awareness of other alternatives is encouraging unprecedented experimentation in consensual dispute resolution. Recent surveys
suggest that the construction industry
represents the cutting edge of experience with dispute resolution processes.
It is also the spearhead of experimentation with mechanisms aimed at avoiding disputes by addressing the roots of
ABA Survey
Of Construction Attorneys
An in-depth survey of construction lawyers by the American Bar Association
Forum on the Construction Industry
and the ABA Litigation Section (with
assistance from CPR and the American
Arbitration Association) provided the
first significant empirical data on the
substantial change in construction-industry ADR. The first portion of the
survey sought general information regarding experience and familiaritywith
settlement-oriented approaches, with
special emphasis on mediation and
minitrial. Another series of questions
covered personal experiences with various procedures aimed primarily at facilitating dispute settlement. The 552
responses received by the ABA provide
a diamatic picture of events unfolding
during the century’s final decade.
These are some of them:
Emphasis on mediationgrowing. Instead
of relying solely on binding arbitration,
the industry is expanding its dispute
resolution repertoire to include consensual methods like mediation and
the minitrial, focused on helping parties resolve their own problems. While
more than 80 percent of respondents
had participated in arbitration, nearly
two-thirds had participated in at least
one mediation.
Mediation was the clear favorite
among settlement-oriented approaches.
Vol. 14, No. 6 Julie 19%
Nearly 60 percent of the reported mediation experiences had occurred in the
two years prior to the survey. A majority
of the attorneys surveyed said they
would consider using mediation in most
cases and under a wide variety of circumstances. There was a major split of
opinion about whether standard industry contracts should require the use of
mediation, however. A substantial minority (46 percent) would not even require mediation in disputes involving
considerable sums.
Popular assumptions misplaced. Respondents overwhelmingly rejected yesterday’s popular wisdom that proposing
mediation was a sign of weakness.
Eighty-six percent of those responding to the question disagreed with that
notion. They also roundly repudiated
the idea that revealing confidences or
trial stratecgywas a serious drawback
to mediation-a fact corroborated by
data from hundreds of mediation experiences.
l+t-mdiation discoveryfavored. Attorneys
tended to favor at least some discovery
prior to mediation. Respondents 0:.
fered a variety of suggestions on balancing the requirements of mediation
against the cost of discovery.
Many mediators evaluate. Attorneys generally thought that parties should be
able to authorize mediators to evaluate
legal and factual issues. Data on reported mediations indicated that not
only did mediators usually share views
during the course of mediation, but that
such activity was associated with higher
settlement rates. There were significantly more full or partial settlements
in cases in which mediators expressed
views on pertinent facts or law (71.5
percent) than in cases in which they did
not (55 percent). However, we need to
learn much more about this aspect of
construction mediation; despite their
attitudes about giving informal opinions, construction attorneys generally
frown on combining the role of mediator with that of arbitrator.
Cooperation at the outset portends better
results. In contrast with binding arbitration, often required under standard
construction contracts, reported mediations were rarely conducted pursuant to a predispute agreement. Most
Vol. 14, No. 6 June 1996
resulted from a post-dispute agreement
or court referral. It also seemed that
cooperation between the parties in the
course of agreeing to mediation and
appointing a mediator tended to yield
better results in mediation.
Most constructionmediation inuolues more
than twoparties. Only about 37 percent
of these cases involved just two parties;
nearly one in ten cases involved ten or
more disputants. Multi-party conflict did
not generally appear to have a negative
effect on settlement opportunities.
Mediation is efficient, economical, lowrisk. The average cost of mediation (excluding attorney fees) was $12,547;
however, more than half of the reported mediations cost $3,000 or less,
and fewer than one in ten cost more
than $20,000. Nearly half of the reported mediations were concluded in
two days or less; fewer than ten percent
of the cases consumed more than six
days. In most reported cases of mediation, a final settlement resulted. About
two-thirds of the time, at least some issues were resolved.
Multi-disciplinary Survey
Even before the ABA team completed
its work, industry observers were pushing for a more comprehensive survey
of attitudes and trends in the American construction industry. No assessment of trends within the industry
would be complete without participation by design professionals (architects
and engineers), construction contractors, and construction owners, they
argued. Plus, the attorney survey didn’t
address certain salient developmentsincluding new variations on old dispute
resolution themes, a n d new approaches to planning for and minimizing conflict.
Increasingly, construction contracts
provided for the use of “standing
neutrals” and “dispute review boards”
to address conflict in its early stages,
usually by providing non-binding evaluations of current issues. “Partnering”
programs inaugurated a growing number of public and private arrangements. These included conferences
aimed at establishing mutual goals,
formal channels of communication,
and methods of handling and avoiding controversy on the jobsite.
CPR Institute for Disputr Rrsolutioii
Several industry organizations, including the Dispute Avoidance and
Resolution Task Force (DART), cosponsored a 1994 interdisciplinary survey. Four groups-the ABA Forum on
the Construction Industry, the ABA
Section of Public Contract Law, DPIC,
Inc. (a leading insurer of design professionals),and the Associated General
Contractors (or AGC)-administered
versions of the survey to their members. The result is data of extraordinary
depth and breadth detailing perceptions of and experiences with dispute
resolution mechanisms and with
partnering. Here are some of the salient findings:
@iet reuolution in construction ADR continues. The range of approaches for addressing conflict has expanded dramatically during the past decade. Many of
these processes, like partnering, are
prospective, minimizing conflict or insuring its effective handling on the
jobsite. The preference is for facilitative
or evaluative processes such as mediation and dispute review boards, which
address conflict informally, early-on.At
the same time, binding arbitration remains a viable alternative for many parties when adjudication is inevitable.
Mediation remains clear leadex Among
those processes aimed at helping parties resolve their own conflict without
binding adjudication, mediation was
clearly the leader-both in terms of familiarity to attorneys, design professionals, and contractors, and in actual use.
Perceptions about ejjfectiueness vary. Attorneys generally perceived mediation
as the most effective approach for
achieving a wide range of ends. These
included reducing the cost and duration of dispute resolution, enhancing
parties’ understanding of disputes,
minimizing future disputes, and opening channels of communication. On
the other hand, design professionals
and contractors tended to evaluate
partnering and early neutral evaluation
more highly. Non-attorneys often expressed a preference for simple, informal conflict resolution procedures
involving an independent evaluation of
issues in dispute.
Partnering and mediation growing. Survey respondents said partnering and
Alternatives 79
mediation were most likely to enjoy significantly increased use in the next few
years. The future of other processes,
however, is less certain (although many
attorneys and contractors anticipate
that binding arbitration will retain an
important role as a favored method of
binding adjudication). Partnering and
mediation were also favored subjects
for training or future use by respondents’ agencies or organizations-including many law firms.
Lackluster supportfor predispute contract
clauses. Respondents, particularly nonattorneys, expressed considerable reluctance to incorporate contract
provisions requiring the use of
partnering and conflict resolution processes such as mediation.
Architects and enginem shouldn’t make
binding decisions. A substantial majority
of design professionals and contractors
agreed that project architects or engineers should not have authority to make
final decisions unless the parties request
it after disputes have arisen. On the
other hand, it was not clear whether
contractors favored a significant movement away from the traditional quasiadjudicative role of the design professional (underwhich the latter’s decision
is usually appealable to arbitration).
High marks for consensual ADR and
partnering. The 1994 survey provides a
wealth of data about specific experiences with partnering and other consensual dispute resolution approaches.
The results underline the growing use
and relatively positive performance of
partnering and mediation.
Statistics suggest that perceptions of
the relative success or failure of a process often hinge on factors other than
resolving discrete disputes. Results
might also be measured in terms of
preserving and enhancing communications or relations, establishing procedures for handling disputes, o r
affecting the cost or duration of dispute resolution. All groups reported
that mediation and other processes
often resulted in significant savings of
days and dollars.
What’s Ahead?
Recent landmark surveys confirm that
the construction industry remains a
(continued o n buck page)
CPR Institute for Dispute Resolution
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Vol. 14, No. 6 June 1996
Construction ADR
(continued from previous page)
leader in developing alternativesto the
courtroom, and in coming to grips with
the root causes of conflict in long-term
contractual relationships. Historically,
there has been too little interplay
among the various dispute resolution
arenas-court-annexed, community,
and commercial-and too little awareness among researchers, teachers and
practitioners of parallel developments
in other arenas.
The ironic result of such “specialty
blindness” is to undercut the very cooperation which is central to the
“quiet revolution” in dispute resolution. Let’s hope the lessons of the construction industry-including the
concept of front-end partnering-will
ultimately not only benefit that industry, but will extend across the whole
spectrum of conflict.
A longer version of this article, “BeyondArbitration: Innovation and Euolution in the
U.S. Construction Industry, ”AnnualBusiness Law Symposium, 31 Wake Forest L.
Rev. 65 (1996), is availablefrom thewake
Forest Law Review at: (606) 759-5439.
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