New Developments in Alternative Dispute Resolution: What CM s Should Know CMAA National Conference October 27, 2009

Transcription

1 New Developments in Alternative Dispute Resolution: What CM s Should Know 2009 CMAA National Conference October 27, 2009

2 Presentation Outline 1. Current Industry and Market Conditions 2. Dispute Prevention Steps 3. New Approaches to Dispute Resolution 4. How to Cut Arbitration Time and Costs 5. An Owner s Perspective and Experiences

3 Today s Speakers Joe Seibold, P.E., FCMAA ARCADIS Kenneth C. Gibbs, Esq. Mediator/Arbitrator, JAMS John W. Hinchey, Esq. King & Spalding David A. Sadler Director, Office of Construction FDOT

4 Kenneth C. Gibbs, Esq. Legal Practice: Leading construction neutral expertise in mediation and arbitration in construction, real estate, insurance, surety and business disputes Successfully mediated over 800 cases and arbitrated over 150 disputes Fellow, American College of Construction Lawyers Co-author of California Construction Law

5 John W. Hinchey, Esq. King & Spalding: Leads construction disputes practice Recognized leader in construction law and international /domestic construction arbitration and dispute resolution ABA Construction Forum: Past Chair and Cornerstone award President, American College of Construction Lawyers Co-author, The International Construction Arbitration Handbook

6 David A. Sadler Director, Office of Construction Florida Department of Transportation

7 Good times, Bad times Good times As of 2 nd quarter 2008, construction starts were still at near record levels Record revenues, escalating costs, a fully inflated bubble Bad times Deep recession National unemployment doubled from April 2008 (5%) to Sept (9.8%) More than 1 million construction workers are unemployed (17.1%) The construction industry has been severely affected

8 How Bad Is It? Construction Spending Down: 11.6% lower than a year ago Kansas City, MO: down 35% Austin, TX: down 48% Alabama: down 95% Las Vegas: No new building projects for 10 years Construction Costs tumble: Industry reaction? Everyone is taking greater and greater risks.

9 What are the Consequences? Bidding is fierce New bidders in new markets and sectors Number of bidders has increased dramatically Bid spreads are tighter Smaller profit margins Bids well below the engineer s estimate Opportunity Knocks DOT s: Pushing shovel ready projects forward GSA: Bids are lower than we expected we are able to fund more projects FAA: Able to fund 347 projects instead of 301 because of low bids The collapsing construction industry is allowing local governments to get public works projects done at fire-sale prices

10 Pandora s Box for Contractors Contractors are not bidding their sweet spot due to perceived competition Competing for historical sole-source work Small or no profit margin Renegotiation of contracts Slow payment from owners Slow resolution of change orders Slow payment to subcontractors Unacceptable contract language

11 Pandora s Box for Owners? Projects rushed to bid without proper review Increase in bid protests Unqualified contractors Defective construction Change orders Disputes Defaults Low bids are not bargains

12 The Source of Construction Disputes JAMS conducted a series of Global Engineering & Construction Roundtables: 1. Incomplete or inadequate design documents 2. Low Bid contracting by public entities 3. The need for rapid dispute resolution

13 What Should a CM Do? The current economy does not require abandoning sound management practices simply to capitalize on market opportunities. Dispute Prevention Steps 1. Changes and claims avoidance 2. Clear and complete contract documents 3. Correct contract language

14 1. Changes & Claims Avoidance A. Project Execution Planning B. Clear and Complete Contract Documents C. Correct Contract Language

15 A. Project Execution Plan Accurate Program Requirements Confirm user needs, if necessary Adequate Project Funding Confirm budget, establish contingencies Realistic Project Schedule Balance time, cost and needs Project Delivery Strategy Risk allocation, contractor selection Construction Management Plan Owner s readiness to fulfill its role

16 B. Clear and Complete Contract Documents The Owner will be held accountable for the accuracy of the Contract Documents The industry has migrated to an expectation of a perfect design Contractors will not forget their assumptions when bidding the project The margin for error is zero!

17 Design Reviews OWNER REVIEWS * PROGRAMMATIC (Does Design meet Owner's Program?) PROGRAM SCHEMATICS DESIGN REVIEW CONSTRUCTION DOCUMENTS BID 65% 95% * PEER REVIEWS (Are Design Solutions appropriate?) * COST & VALUE ENGINEERING Estimates V.E. V.E. V.E. V.E. (Check Estimates & Value Engineering) * CONSTRUCTABILITY (Are Design solutions constructable?) * COMPLETENESS (Are Documents complete & accurate?) * CLAIMS AVOIDANCE (Are Gen'l Conditions, Gen'l Requirements & all CO's free of Ambiguities?)

18 Timing of Constructabililty Reviews SITE DENSITY & ACCESS DECISIONS SIZE SPACES FOR MECHANINCAL & ELECTRICAL SYSTEMS CHOICE OF BUILDING SYSTEMS CHOICE OF MATERIALS COMPATIBILITY OF BUILDING SYSTEMS CONSTRUCTION PHASING & SCHEDULE CONSTRAINTS SCHEMATIC DESIGN PHASE DESIGN DEVELOPMENT CONTRACT DOCUMENT PHASE 100% DETAILING REVIEWS EASE OF ASSEMBLY SEQUENCE CLEARANCES BID-ABILITY REVIEWS

19 C. Correct Contract Language Proven General Conditions Ongoing Operational Requirements Fairly allocate risks Appropriate Scheduling Requirements Delays Disputes Change Orders

20 An Ounce of Prevention Is Worth a Pound of Cure!

21 NEW APPROACHES TO CONSTRUCTION DISPUTE RESOLUTION Kenneth C. Gibbs JAMS The Resolution Experts Mediator & Arbitrator Tel:

22 The Construction Industry has been Innovative in the Use of ADR Construction Industry has been a leader in creative Alternative Dispute Resolution Techniques - Arbitration, Mediation, etc. Traditional ADR approaches have attempted to resolve conflict at the conclusion of Project

23 The Construction Industry has been Innovative in the Use of ADR Dispute Review Boards (DRB s) and Partnering have been efforts to solve disputes during course of the project New developments in bringing ADR up-front include Initial Decision Maker, Project Neutral and Rapid Resolution

24 Commonly Accepted ADR Concepts Post Project Mediation Definition Sometimes required by Contract before Arbitration or Litigation can commence (Is this good? Or Bad?) Arbitration Definition Pros and Cons

25 Commonly Accepted ADR Concepts During Project Partnering Pros and Cons Dispute Review Boards Neutrals should be selected before project begins Regular site visits develop familiarity Rulings Non-Binding Admissible or not admissible in litigation?

26 New Developments Initial Decision Maker Established by 2007 AIA Forms Concept of IDM recognizes inherent difficulties and conflicts of interest having Architect serve as Initial Arbiter of Disputes Per AIA contract, parties must specifically designate a third-party IDM or IDM role reverts to Architect

27 New Developments Project Neutrals Non-Party participant designated in Contract Trained ADR Expert Project Neutral s client is the Project Assists in Dispute Resolution throughout construction, similar to IDM Rapid Resolution Not designated in Contract Responds to disputes on an as-needed basis Provides resolution quickly

28 Initial Decision Maker Traditionally, architect as the Master-Builder was the initial arbiter of disputes Architects have been increasingly asked to rule on their own potential liability regarding alleged errors and omissions in the plans Inherent conflict of interest of Architect in making such determinations leads to distrust of decisions

29 Initial Decision Maker 2007 AIA Documents recognize this issue and allow parties to select independent and neutral third party as Initial Decision Maker In any event, Architect remains arbiter of aesthetic considerations If no third party is designated as IDM, architect becomes IDM by default

30 Project Neutral Removes perceived bias from the process Moves dispute resolution to the front of the process Prevents small problems from festering into large ones Works proactively to prevent disputes TIP: Choose an effective ADR process while everyone is still friends

31 Project Neutral Contract Clause Parties agree to the selected Project Neutral Neutral is experienced in resolution of disputes on comparable projects Neutral assists in dispute resolution but has no adjudicatory authority Neutral may attend meeting as requested Expense is born equally All discussions are confidential

32 Available at:

33 Use of a Project Neutral When? Project is large/complex Time is critical Why? Resolve disputes at the earliest possible date before small disputes fester into large ones How? Reactive: may rule on an as-needed basis Proactive: identify and resolve potential problems

34 Rapid Resolution Resolves disputes in real-time when a Project neutral is not specified in Contract Neutral brought in as Rapid Responder structures dispute resolution process with parties Possible use of neutral experts such as Engineers, Scheduling Consultants, Construction Management Experts, and Accountants to assist in technical evaluation of claims

35 Rapid Resolution Rapid Responders Enter a project and have a recommendation within days Facilitate structured negotiations Offer evaluative mediation Conduct binding or non-binding arbitrations using neutral experts as agreed upon by parties Conduct proactive sessions

36 Questions? Kenneth C. Gibbs JAMS The Resolution Experts Mediator & Arbitrator Tel:

37 How to Cut Arbitration Time and Costs by At Least One-half John W. Hinchey Partner, King & Spalding JAMS, Global Construction & Engineering Panel

38 Arbitration: Cutting Time & Cost Detailed Statements of Claims, Defenses and Counterclaims Specification of Issues Exchanges of Documents and Electronic Data Expert Reports and Testimony Depositions or Lack Thereof

39 Arbitration: Cutting Time & Cost Written Direct Testimony Comprehension Aids Timelines, Cast of Characters, Organizational Charts, Glossaries, Sketches, Animations, Graphic Presentation of Documents

40 Takeaway Lessons