advisory opinions: a way to save money, time and relationships

The use of a non-binding advisory opinion from an expert third party neutral (“advisory opinions”) can be a cost effective, real time method to resolve construction disputes. It has some advantages over both mediation (which is rarely an evaluative process) and binding arbitration (which is often quite expensive and time consuming). One recent large power plant project successfully used advisory opinions to resolve disputes.  The owner had entered into a single construction contract with one contractor for the entire project, so their relationship would last for several years. During the first phase site work a dispute arose over piling and foundations based on subsurface conditions.

The contractor submitted two (2) different multi-million dollar claims for differing site conditions, which the owner rejected. Following the unsuccessful settlement meeting of senior management, the contract called for mediation followed by binding arbitration. Neither of these options seemed appropriate or useful to the parties at this early stage in the project.  The parties came up with a process to obtain a non-binding advisory opinion on both claims over a very short time frame.  The following process was outlined in a written agreement:

1. The Neutral – A mutually agreeable single arbitrator would be selected, who was to be a construction claims expert with at least 10 years in the industry.  Costs were to be shared equally, except if there were objections to the decision as discussed below.

2.  Pre-Hearing Exchanges – Within 30 days the parties would exchange all materials to be relied on in the hearings. Two weeks after the exchange, position papers would be submitted and one week after that power point presentations would be exchanged. The parties were bound by their initial exchange of information and position papers.

3.  Conduct of the Hearings – Strict time limits were imposed on each party with a 30 minute opening statement and a 4 hour presentation of their positions for each of the two claims.  (Both sides retained experts who provided part of the testimony.)  The hearing was scheduled to be completed in no more than three (3) consecutive days. There was no examination of the witnesses by the parties, and only the arbitrator could ask questions at the end.

4. Arbitration Decision – The arbitrator was to issue his decision within 10 days of the close of the hearings. The opinion was to address both claims and defenses and be no more than three (3) pages in length.

5. Effect of Decision – Following the decision, either party could object within 30 days. If there were no objections the decision would become final and binding.  If a notice of objection was given, the decision would remain non-binding and be treated as confidential settlement discussions.  If only one party objected, that party would pay the other party’s 50% share of the cost of the proceeding. Following an objection, the parties would follow the contract and proceed to binding arbitration.

In this case, the advisory opinions rendered included two different decisions on the entitlement for the two claims. Neither party objected to the decisions within 30 days. Thus the matter was completely resolved before the project was even 30% complete. The entire process was completed within 90 days from start to finish, compared to a minimum 12 months for a full-blown binding arbitration.  The cost of the advisory opinion process was probably less than 10% of what a binding arbitration process may have cost and probably only slightly more than the cost of mediation.

As in this case, the advisory opinion can give the parties a neutral benchmark to settle the dispute, before large amounts of time, money and damage to on-going working relationships are incurred. Contract drafters should add advisory opinions to their dispute resolution menu.

Storm water run-off disputes – resolving “neighbor wars” (Part 3 of 3)

compromise solution

In this final post let me describe how the matter was resolved by mediation. My approach and practice in these type disputes is to start the mediation with a joint session with everyone on the same room, which in this case lasted about 2 hours.  This allowed each side to present their position and have a chance to rebut the other side, thus “being heard” which is a critical component in resolving disputes.  There was a critical acknowledgement in the joint session by all, that temporary structures had not been put in final form, since all the housing units had not been completed. It was further acknowledged that this fact contributed to an increase in flow conditions.

However there was no agreement at the outset of the mediation on how to fix the problem. The developer’s expert recommended a simple solution involving completing the drainage structures that were designed for the development site when the project had been completely built out. In addition they offered to add in a few upgrades the cost of their solution was only about 1/10th the price of the other side’s design. The farmers totally lacked confidence in the as-designed plan. Their expert recommended completely re-routing the storm water by putting a ¼ mile drainage pipe under a paved road to discharge directly in the creek downstream, at a cost of several hundred thousand dollars.

The final phase of the mediation included caucusing with each side separately. For this case this phase lasted about 4 hours with the mediator encouraging proposals and shuttling back and forth.  The two initial solutions were pretty far apart. After much back and forth, the mediator identified an intermediate solution that no one had focused on. It involved burying a drainage pipe through the farmers’ property exactly where the water was running. The benefits to this technical solution were multiple:

• It involved a much shorter distance and a reduced cost somewhere in between the two solutions that were presented.
• The cost was within the range of the available contribution from the insurance companies.
• It didn’t require digging up a paved county road, with all the costs and potential liability issues associated with that solution.
• It offered an opportunity of repairing the earlier damage to the farmers land at the same time the new pipe was installed this saving cost.
• Since the pipe was routed underneath the natural path of the water flow that caused the damage, it provided a good grade for the pipe to flow naturally.
• By chance there was an existing easement for a water main that happened to be in the same location.

The concept from the mediator was presented independently to each side and tested in private. Neither side wanted it to be considered their idea (which it wasn’t) until they received the other side’s reaction.  In addition, these farmers had owned the farms for generations and felt before agreeing to any such changes on their property, they would have to get approval from their adult children who lived in other states.  This family approval was obtained and everyone tested the solution, before all parties finally accepted the fix and settled the case.

Lessons Learned – There are several reason why this matter settled through the mediation process. First, there are many times a dispute needs a gentle (or not so gentle) shove towards a different way to resolve the dispute. Thanks to the court’s directive at an appropriate time in the case, the parties & lawyers although skeptical, moved forward to mediation. Secondly the technical experts were hired to find technical solutions, and not to testify at trial.  Thus they were much more open to factual agreements and creative thinking. When experts are hired to testify in trial they become necessarily very opinionated and adversarial, since that is what they are being paid to do.  In this case their assignment was to find a mutually agreeable solution.

Finally, although a mediator’s skills are often much more important than the mediator’s subject matter knowledge, this case was different. Since coming to agreement on the technical solution was the predominant interest, the mediator’s technical background was critical and related directly to the substance of the dispute. The mediator in fact, was certainly not as knowledgeable as any of the other engineers involved. Indeed there also may have been flaws in the suggested solution, but fortunately it held up to scrutiny from both sides. Having a neutral involved provides someone in the room with a much different perspective and view of the problem and solution, and the ability to see things the disputants cannot see.

Storm water run-off disputes – resolving neighbor wars

Storm water run-off is a condition that can create serious “neighbor wars” when changes occur unexpectedly. Personal animosity arises quickly when one neighbor’s development or renovation of its property, creates new or increased flow of surface water that damages its neighbor’s property. The end result is often litigation and undying resentments that last for years. Yet these disputes can be perfect candidates for collaborative dispute resolution. If the parties can focus on a mediation process that looks for a reasonable technical solution, they will be far better off and problems solved in a much quicker and cost effective manner.

The conditions created by development and the resulting change in water flow and absorption patterns are summarized in the attached diagram. As vegetation and natural landscapes are changed to impervious materials by construction, surface flows increase potentially creating problems for downstream neighbors. If appropriate structures required by proper engineering and regulations are included in the projects, these impacts can be mitigated or eliminated. However this can be a somewhat imprecise science and the nature of storm conditions has also been changing over the years.

One recent experience involved farmers and a residential development in a county in Pennsylvania. After years of frustration and attempts to seek help from the county government, the farmers ended up suing the home owners’ association and the developer for damages caused to their farms by increased storm water run-off. The development had allegedly increased the water flow onto the adjacent farms even though the water management plan was approved by the county and showed no change in run-off. The farmers experienced erosion, increased mud patches as well as the formation of potential new “wetlands”. One major concern was that endangered turtles would inhabit the new conditions, which would dramatically change the land use requirements on the farms.

My next post will describe how this matter was resolved in a mediation process that focused primarily on searching for a technical solution that all the parties and their experts could agree to.

Using dispute review panels on complex engineering and construction projects.

Dispute review boards, standing neutrals, and other forms of third party neutral evaluations can be a powerful tool in promoting collaborative dispute resolution. These  processes are particularly helpful in complex engineering and construction projects when the opinions can be advisory, non-binding and made in real time during project execution.  Projects such as power plants, dams, highways, rail transit and tunnels are often great candidates for these techniques.  The application of this method of dispute resolution should always include the following:

1.  The parties to the contract should mutually agree at the outset of the project both to selection of the neutrals and the process itself.  This way the system and the individuals are in place before any disputes arise. The atmosphere at this stage is often one of cooperation and trust and the structure will help maintain that atmosphere.

2.  The neutrals need to have the required expertise involved in the project, but also need to be experienced in the process of rendering neutral (as opposed to adversarial) opinions. They need to be in a position to offer very timely decisions, since delays can cause an escalation in disputes and in the costs involved in resolving the problem.

3.  In the case of a dispute review board, typically there are 3 members: one member would be picked by each party; and the third member, who is often the chairperson, would then be picked by the two party-appointed members.

4.  Neutrals must not have been employed or retained by either party for a given number of prior years to avoid conflict or the appearance of conflict.  Once appointed the best practice is for all members, regardless of who appointed then, to adopt a completely neutral position with respect to disputes.

5. The neutral individual or panel must keep up-dated with the progress of the work as well as issues that arise, before they become disputes.  The mere  presence of the neutral decision maker(s) often, in and of itself, is additional motivation to have the project managers work things out at their level.

The Dispute Review Board Foundation is an excellent source of neutrals, case studies and the  procedures for this dispute resolution method.

Mediating conflicts in creating the built environment

This blog will address the use of  mediation for conflict resolution in creating (planning, approving, designing, building and operating) the built environment. Mediation is defined as use of a neutral to help facilitate resolution of conflicts and coming to an agreement by negotiation or consensus building. The particular “built environment” will focus mainly on infrastructure – including energy, water, waste and transportation.  Issues include: how to conduct the mediation; when in the dispute process to mediate; should lawyers participate and attend; how and when to use experts; techniques and lessons learned.