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A View of Certainty in the Law

0 Comments Published by kreed June 12th, 2009 in Articles

Certainty in the Law?  The idea is not exactly an oxymoron, but it is not at all what many people expect or would like.  The truth lies somewhere between Euclidean geometry and a roulette wheel.   A more apt metaphor might be a large river.  Ordinarily the water remains predictably within its existing banks.  It could treacherous at times, to be sure, near rapids and waterfalls, but navigable nevertheless with knowledge, determination, and experience.  However, on occasion it can become an unpredictable torrent cutting new, unexpected paths and swallowing everything near it.  Boaters beware.

Dispute Review Boards: From Construction to Bio-Tech

0 Comments Published by kreed May 4th, 2009 in Articles


Kendall C. Reed[1] and Eric van Ginkel[2]

 

 

Sixty miles west of Denver, the Eisenhower Memorial Tunnel carries Interstate 70 under the Continental Divide.   It is the highest vehicular tunnel in the world, sitting at an elevation of some 11,000 feet.   The tunnel is a “twin bore” design, one bore for the westbound lanes and one for the eastbound lanes, the two bores being separated by approximately 200 feet.  Construction on the first bore began on March 15, 1968 and was completed on March 8, 1973.  Construction on the second bore began on August 18, 1975 and was completed on December 21, 1979.[3]

 

The construction of the first bore was a financial disaster[4] due in large part to fighting between the parties during construction.   In contrast, construction of the second bore proceeded smoothly and with few disputes.  The disputes that did occur were settled quickly.[5]  What made the difference?  Certainly it was not a difference in specifications or site conditions.  The difference was in the use of a dispute review board,[6] or equivalently, a dispute resolution board (“DRB”), during construction of the second bore.

 

A DRB is a private body, typically consisting of from one to five individuals.  The DRB is established by contract at the outset of a project.  It has jurisdiction over disputes that arise among the project participants during the course of the project.[7]

 

The second bore of the Eisenhower Tunnel project was one of the first uses of the DRB process.  Other notable uses of DRBs include such projects as the Boundary Dam in Washington, the El Cajon Dam and Hydropower station in Honduras, the Hong Kong International Airport, the Channel Tunnel, and the Central Artery (the Big Dig) in Boston, Massachusetts. 

 

Today, the DRB process is required in all construction projects funded by the World Bank where the estimated costs are more than $10m.  The process is also widely used in connection with construction projects undertaken by the California State Department of Transportation[8] and a number of cities and counties throughout the State of California, among many other states and local governments. 

 

Historically, the use of DRBs has been limited to the construction industry; however, the authors believe the process could also be used to great effect in a number of other contexts.

 

How DRBs Operate

 

DRBs are created at the outset of a project.  The exact terms and conditions under which a DRB operates are subject to negotiation and contract among the participants in the underlying project.  Typically, the requirement for a DRB is set out in the original bid proposal.  There is also a “three-party agreement” among the project owner, prime contractor and the DRB members.  A three-party agreement sets out in more detail the authority and obligations of the DRB members   Three-party agreements are more fully discussed below.

 

The output of a DRB consists of its recommendations about how specific disputes among project participants may be resolved. These recommendations are usually non-binding and non-confidential. 

 

DRBs are not self-engaging.  Precisely how a DRB is activated by the parties is defined in the relevant provisions of their contract.  Frequently, the parties must attempt to resolve a given dispute themselves through a series of graduated steps, and only after these procedures have been exhausted may a party officially call upon the DRB to act.

 

Having said this, it is also true that a DRB is often a standing body that has been described as a “job site” dispute resolution process.[9]  At the outset of an engagement, the DRB members are provided with the underlying project documentation, including the specifications, requirements, work flow timelines, deliverables, and required milestones.  As construction progresses, they receive copies of status reports, and, importantly, all change orders.  The DRB members conduct periodic site visits so that they are at all times familiar with the individual players, the status of the project, the pace of progress, and the potential for dispute. 

 

DRBs are Effective

 

The Dispute Resolution Board Foundation[10] provides statistics on the use of DRBs worldwide from 1982 to 2006[11].  Over this period, there have been approximately 1,500 projects that employed DRBs, and these projects were collectively valued at approximately $95 billion.  In the course of these projects, approximately 1,800 disputes were heard by DRBs, and of these, only a hand full were not revolved. 

 

DRBs          are effective because they are fast.  DRB members are at all times in a state of readiness.  They are familiar with the underlying project documents, the players, and the status of the project.  As a result, a DRB can be called upon at any time during the project, can render a recommendation quickly, and usually can do so with relatively minimal and highly focused presentations.

 

DRBs are effective because they offer early neutral expert recommendations that are both practical and useful. 

 

DRBs are effective because in addition to their formal role, the members can serve an informal role as mediators.  During periodic site visits, DRB members can leverage their status as empowered neutrals to encourage and assist the parties to work together more productively.  They can effectively help the parties prevent disagreements from ever becoming disputes.

 

DRBs are effective because they can have a chilling effect on disputes.  It has been reported that when a DRB is in place, and for no other reason than the DRB is in place, project participants tend to behave more productively towards each other.[12]

 

Additionally, a DRB’s recommendation can allow for face saving, which can be significant in resolving disputes.[13]  The parties can effectively “blame” the DRB for proposing a creative solution that neither party might have been in a position to have suggested. [14]

 

DRBs are Created by the Contract between the Parties

                  

A DRB is created by agreement among the project participants.  They pay for the DRB process, select its members, and are subject to the DRB’s recommendations.  The decision to have a DRB and on what terms and conditions is often presented in the original bid proposal,  or in standard documents, as is the case with the World Bank[15] and the State of California.[16] Issues addressed in this agreement, bid proposal or the relevant contract clause, include:

·        whether the DRB will be ad hoc or administered;[17] 

·        whether the DRB will set its own procedural rules, and if not, then how the rules will be set;

·        the allocation of costs;

·        the non-binding and/or binding nature of recommendations[18];

·        how the DRB is to be brought into play with respect to any given dispute;

·        involvement of counsel at a DRB hearing; and

·        the requirement to exchange information.

 

As has been said, the agreement between the project participants and the DRB members is called a “three-party agreement.”  This document typically states in detail the terms and conditions under which each of the members will work, and thereby the DRB as a whole.  Three-party agreements may address many of the same issues contained in the relevant contract language between the project participants, either as a matter of flowing them through to those who will be implementing that agreement or as a matter of additional implementing detail, such as:

·        how the members are to respond to a reference;

·        expectations about periodic site visits;

·        what reports are required;

·        the format of recommendations, communication and reporting protocols; and

·        details of compensation.

 

DRB members are usually appointed in much the same way as arbitrators, that is, each party selects a member, subject to the approval of the other party, and then the selected members jointly select a chairman, again subject to the approval of the parties.  This process often takes place within three months after the contract is signed.

 

 

DRBs in Bio-Tech and other Situations

 

As effective as DRBs are in the construction arena, the natural question arises whether the process could be used in other types of situations?  The answer is definitively yes!

 

Other situations in which DRBs would likely be successful would be those in which the conditions are very similar to those existing in construction projects.  The features of construction projects relevant to the efficacy of the DRB process include that such projects:

·        are between two or more sophisticated parties;

·        are highly technical in nature;

·        are of finite duration and scope;

·        are highly sensitive to time;

·        involve a large number of serial steps;

·        involve a certain amount of unforeseeable technical risk; and

·        can be substantially delayed in the event of a dispute between the parties.

 

It would seem that many technical development projects that have some or all of these characteristics would benefit from the use of DRBs.  Examples of such projects could include: joint development projects between bio-tech or pharmaceutical companies; information technology development projects between software or computer gaming companies; film projects; aircraft development projects between airframe manufactures and power plant manufacturers; or joint development projects between two universities. 

 

This is especially true when such projects involve a heightened risk of miscommunication or misunderstanding as a result of language or cultural difference, which translates into a heightened risk for disputes.  A DRB could be extremely useful in these contexts given the noted informal meditative role that they can play.

 

Even in situations that might not be appropriate to classic DRBs, parties involved in joint projects could still apply boarder dispute resolution principles to fashion effective systems that are better, faster, and cheaper than arbitration or ligation.  These broader principles include a commitment to addressing conflict as a risk involvement of respected third party neutrals, and agreed upon procedures that are triggered by the onset of a dispute.  Such boarder dispute resolution systems and their application are limited only by our imaging to create them and our willingness to invoke them. 


A Quick Way for a Mediator to Size-Up a Dispute

0 Comments Published by kreed April 13th, 2009 in Articles




A quick way to size-up a dispute could be very helpful for mediators.  Doing so could allow a mediator to apply appropriate interventions more quickly and accurately.  Such a system would be a quick thumbnail guide for focusing the mediator’s attention.

It is a given that each dispute is unique with its own dynamics, and the mediator must remain flexible.  At the same time, it is equally clear that a mediator can anticipate certain problems and certain possible interventions.  The more quickly and accurately this can be done, the better it is for the process.

A typical way to anticipate problems is to group disputes by type.  For example, a family law dispute will likely have different issues in contrast to a dispute concerning insurance coverage.  This approach can be practical and useful.

I here suggest a different approach that can add a level of speed and accuracy to a mediator’s predictive work.  I suggest a process that parses disputes with three variables and two axes.  The three variables are: 1) emotional elevation, 2) dollars, and 3) complexity.  The two axis are firstly, the dispute as between the parties, and secondly, the process.  All of these factors are expressed on a scale of 1 to 10.

Take as an example a simple and low level dispute between neighbors as to the placement of trash cans at the curb on weekly trash pick-up days.  This dispute would involve a low level of emotional elevation.  The dispute would not involve money damages of any sort.  And, the complexity is likely to be low.  The second axis is likely to be non-existent, as there are not likely to be any helpers (such as attorneys), process costs or complexity.  This dispute could be represented as follows:  3/0, 0/0, 3/0.

On the other extreme, take a dispute that could be represented as: 9/9, 9/9, 9/9.  This would be a dispute in which the parties and their helpers are all highly elevated.  The amount of money involved is very significant, and the dispute itself and the process ahead are complex.

It is worth noting that these variables are loosely interdependent.  For example, no direct relationship exists between the level of emotional elevation between the parties, on the one hand, and the level of emotional elevation between their respective helpers, on the other hand, but if the lawyers are disputing between themselves, this could easily adversely affect the level of emotional elevation of their clients.  As another example,  no direct relationship exists between the level of complexity of an underlying dispute and the complexity of the dispute resolution process, nevertheless, a complex international business dispute could easily involve a more complex dispute resolution process.

Happy Resolving!

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