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Alternate Dispute Resolution and Beyond

May 23, 2013

Stephen Revay, FSCS

Agenda

Warning signs

Email out of control

ADR – During Construction

ADR ‐ Post Construction

Conclusions

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Warning Signs

Owners who:

have unrealistic expectations

fail to properly develop project 

cut corners on investigations  

and design

inappropriately shift risks to contractor

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Realistic Schedule

Project CompletionEngineering

Overlap

Construction

DELAY

Increased overlap

Failure to move start and end dates notwithstanding initial delays causes unrealistic schedule

Fast TrackFast Track

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Fast TrackFast Track

&

Hard money

&

Hard moneyExcellent source of business for claims consultants

Warning Signs

Engineers  who:

pass on design responsibilities to 

Contractors

agrees to unrealistic expectations

have vested interest in disputes

produce ambiguous or conflicting 

documents

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"The root cause of these problems is poor quality engineering and subpar

site management. At Fort Hills we are putting most of the engineering work outside of the overstretched Alberta

market and we are assembling a stronger owners team."

Petro Canada CEO Ron Brenneman

Reporting on $1.9 Billion overrun RCP Edmonton

Calgary Herald July 25, 2008

Warning Signs

Contractors can make the situation worse if they:

don’t satisfy notice provisions

cut corners to offset bid deficiencies

abuse subcontractors

don’t read the contract or assume it will

not be enforced

fail to keep adequate project records

don’t document claims properly

fail to develop and update schedules

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LessonsLearnt

Repeated

ARTICLESTOREADNOTICE PROVISION

CHANGES/EXTRAS

DISPUTES

AUTHORITY

SOIL SITE CONDITIONS

DELAY

PAYMENT

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R T  F  C

Words of Wisdom

“ Education is what you get 

when you read the fine print 

…

...experience is what you get 

when you don’t. ”

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Email: Getting in Control

http://emailcharter.org

When do we use E‐mail?79% checked email in the bathroom 

77% while driving 

11% while engaged in intimate behaviour 

41% while their commercial plane was in 

the air 

94% during work nights or weekends 

96% while on vacation

* Taken from “Mobile Messaging Marketing Trends,”  

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A. Barbour, Louder Than Words: Nonverbal Communication,

Communication Elements

Electronic Media Discovery (EMD)

Hard Drives

Text Messages E-mail MessagesVoice Mail Laptops, Tablets & Desktops

CDs & DVDsMemory Sticks Servers

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ADR ‐ During Construction

Dispute Review Board (American)

NEC Contract               (Great Britain)

Project Mediator (Canadian)

ARBITER DESIGN

CONSULTANT

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Fight each other 

or be PROACTIVE

Innovative use ofExpert Opinions

Productivity and 

Delay claims

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Options

• Each party engages  claims consultant

• Each party diverts project people to perform analysis

• Two parties engage independent to provide objective basis

Proposed Best Alternative

The appointment of an impartial independent claims consultant to offer:

Unbiased advice and decisions

Assist in negotiation

Conduct forensic analysis at half the cost to each party

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Forensic Analysis

Initiation of Process

Fact Finding

Draft Report

Final Report

Initiation of Process

• Differences with regards to 

delay / productivity

• One termination dispute

• Generally speaking not scope 

issues

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Fact Finding

Access to documents from all parties;

Access to project people from all parties;

Better results less cost;

Opportunity to discuss weakness 

confidentially;

Can involve legal counsel from each party.

Draft ReportSame Report to Each Party

Issued with the expectation that it will 

be challenged

Each party has input into final result

Manage expectations regarding outcome

On occasion settlement reached before 

final is submitted

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Final Report

Parties have contributed to final 

result

Legitimate interests have been 

considered

Most economic alternative 

Based on objective criteria

Advantages ‐ Benefits

Early attention

Site personnel remain focused

All costs known before 

completion

No bias or personnel agenda

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Unfounded Criticisms

increases project costs

creates disputes

inappropriate for construction

POST

CONSTRUCTION

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RESOLUTION OF CLAIMSRESOLUTION OF CLAIMSNEGOTIATION

QUASI‐MINI‐TRIAL

DISPUTE REVIEW BOARDS

MEDIATION

ARBITRATION

LITIGATION

Electronic ADR

THE REALITY BEHIND SETTLING CLAIMS

Most construction claims are settled on-site [direct negotiations]

Negotiation is the preferred resolution method

Why do alternative dispute resolution methods exist?

These methods are an attempt at the next level of resolving outstanding issues

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“A party to a dispute, particularly if there is an arbitration, will learn these three lessons (often too late):

1. The importance of records

2. The importance of records, and

3. The importance of records”Abrahamson, M.W.

Engineering Law and the ICE Contracts (4th edn, 1985)

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“Documentation is a tool that most contractors do not use effectively. Good documentation of the events leading to and supporting a contention that a variation occurred can mean the difference between settling a valuation there and then, and waiting some years to re‐present the argument before a judge or arbitrator.”

Pickavance K. Delay and Disruption in Construction Contracts, 1997

Non Adversarial Communication

claims are about 

money not people

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What is being said  ‐ What is happening

Owners say

We want to know early on when there are problems 

Contractors say

Owners become defensive and more rigid with no give 

and take ‐

becomes war zone

DETERMINING YOUR BATNA

Evaluate Damages – Cause and effect 

Consulting with Legal Services to

evaluate the litigation risk value 

legal exposure risk percentage

More than opinion do your research

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KNOW YOUR BATNA

Best Alternative To a Negotiated Agreement

Before Negotiation , one should know His/Her BATNA

to weigh offers and counteroffers that PM will receive 

during negotiations

to protect a PM against reaching an agreement that 

possibly should have been rejected

QUASI‐MINI‐TRIAL

RESPECTIVE PRINCIPALS

OR

COURT SANCTIONED

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MEDIATIONMEDIATION

VOLUNTARY

NON‐BINDING

FACILITATED NEGOTIATION

Why Mediate Cost

Speed

Control

Informal

Separating people from the problem

Preserving Relationships

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Consider Mediation

Parties are willing to meet and settle

Parties want a flexible and informal process

Parties have an interest in maintaining a 

relationship

Parties wish to keep the matter private

ARBITRATIONIS THE OLDEST FORMOF DISPUTE RESOLUTIONGOING BACK TO THE

ROMAN EMPIRE

ARBITRATIONIS THE OLDEST FORMOF DISPUTE RESOLUTIONGOING BACK TO THE

ROMAN EMPIRE

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ARBITRATIONARBITRATION

BINDING

1 OR 3 ARBITRATORS

SELECTION OF NOMINEES

Survey of 1,000 US firms

Price Waterhouse

Cornell University

The Foundation for the Prevention and Early 

Resolution of Conflict (PERC)

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Arbitration

the process 69% likely to use

31% unlikely to use

79% have used

Mediation

84% likely to use in the future

17% unlikely to use in the future

88% have used the process

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“It has been said that thegreatest lesson the litigationprocess offers disputants isthat, in comparison, it makes allother forms of resolution quiteattractive.”

Claim: Sub vs. GC $1.75MGC vs. Owner $1.35MOwner vs. GC $5.00M

Result: After 99 days of discovery and 132 days of trial, almost six years after substantial completion of the project:

SO YOU THINK YOU WANT TO CLAIM?

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SO YOU THINK YOU WANT TO CLAIM?

Sub got $1.1M, but incurred $1.2M in legal costs

GC got $0.9M, but had to pay $300K to the Sub, plus $1.8M in legal costs

The Owner had to pay a total judgment of $1.7M, had its counterclaim dismissed, and incurred $1.1M in legal costs

Foundation Company of Canada v. United Grain Growers, BC Supreme Court, 1995

99 days of discovery

37,000 pages of exhibits

132 days of trial

decision 330 pages 6 years after completion

$4 million on legal fees; total win

approximately half that amount

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Online Dispute Resolution 

• Can be used to manage process

• Can be used to reach settlement

• Akin to shopping on Ebay

• Questionable for construction industry

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ADVISORS

Lawyers / Claim Consultants 

Don’t handcuff  ‐ do manage

Not a poker game

Beware of advisors who are 

in it for the game or the fees  

and not the results