USING ALTERNATIVE DISPUTE RESOLUTION ... - SSRN papers

USING ALTERNATIVE DISPUTE RESOLUTION TECHNIQUES IN CONSTRUCTION DISPUTES Professor John Barkai William S. Richardson School of Law University of Hawaii at Manoa 2515 Dole Street ? Honolulu, Hawaii 96822 Phone (808) 956-6546 ? Fax (808) 956-6402 E-mail: [email protected] Mediate, don't litigate! (Automobile Bumper Sticker) CAVEAT: This paper describes the history and use of alternative dispute resolution (ADR) in the United States generally, with particular emphasis on the use of ADR in the construction industry. There is no intent to suggest what should be done to solve construction disputes in Japan. The purpose is to describe American ADR and hope that this information will be both interesting and useful to those people interested in the construction industry in Japan and other countries. This paper makes a variety of points about ADR and the construction industry. A rather lengthy appendix provides an ADR resource and includes a short article about a basic mediation model used for community disputes, a short description of a construction mediation, a excerpt from an article describing mediator styles, a glossary (or set of definitions) of a wide variety of ADR processes, some sample ADR clauses for written contracts, and a few ADR web sites. INTRODUCTION Construction projects mean construction disputes - at least in the United States. Even though Japan is know as a the land of "Wa" - or harmony - I suspect that you also have a wide variety of disputes in your construction projects. The U.S. is known as a litigious society - meaning that Americans frequently use the courts to resolve conflicts. A statistic that might sound unbelievable to people in Japan is that there were 94 million cases law suits filed in the state and federal courts in the US in 2002. However, I have selected that number to be a number to shock you. The 94 million cases includes all types of cases including 55 million traffic cases such as speeding, failure to wear seat belts, and many many parking tickets. In truth, there are "only" about 20 million civil law suits filed in the U.S. each year. Nonetheless, I am relatively sure that "only 20 million law suits" is still a shocking number. By comparison, Japan supposedly has about 2.5 million new civil law suits filed each year (Data for 1994, Source: Joseph W.S. Davis, Dispute Resolution In Japan 1996). Whatever the number of law suits is in either country, we would probably all agree that there seem to be too many law suits filed.

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The many law suits in the U.S. do not mean however, that there are many trials. In fact, on a percentage basis, very few cases go to trial. Most cases terminate in a negotiated settlement without a trial. The national average is the only about three percent of civil cases filed in court go to trial. In Hawaii, less than two percent of the civil cases filed in court go to trial. My research on Hawaii cases show that up to 85 percent settle without a trial. The remaining 13 percent terminate for other legal reasons. It is my understanding that the trial rate in Japan is much higher, often close to 50 percent of the cases filed in court go to trial. My interpretation of this difference is that Americans are quick to file a case in court. Serious negotiations often take place after a case is filed in court, and during these negotiations most cases settle. It is also my understanding that in Japan the parties in dispute do everything they can to settle a potential law suit before filing a case in court. So, in the U.S. filing a law suit is done early in the case; in Japan filing a law suit is one of last things done in a dispute before trial. Any attempts to compare the litigation in our two countries is probably highly confusing because of our different legal, social, and cultural traditions and practices. People in Japan probably cannot believe the high cost of litigation in the U.S., the low filing fee of $100 to $200 to file even multi-million dollar cases, the immense amount and cost of pre-trial discovery, the huge jury verdicts1, that in some state judges are elected by ordinary citizens, and that we have nearly 1 million lawyers. People in the U.S. cannot believe that the Japanese only have about 20,000 bengoshi, there are very high filing fees to file a law suit in court, no juries, that some law school graduates start their careers as judges as soon as the pass the Japanese Bar Examination and enter the legal training Institute, and that trials are held only one day a month.2 1

. Did you hear of the 1994 $2.7 million dollar verdict for a woman who spilled super-heated McDonald's coffee in her lap? She had very serious injuries. Although the verdict was later reduced by a substantial amount, this case has become a symbol for what some people think is wrong with the American court system. 2 . Social policies and cultural patterns probably explain many of these differences between the American and Japanese systems. Some of these differences are less important or less actually different when you understand them better. For example while it looks like the US has far more lawyers than Japan, the differences are not as extreme if you understand that both Japan and the U.S. have a large number of legally trained students. To provide legal advice in the U.S., you must have graduated from college (in 4 years), then graduated from law school (in 3 years), and then passed a bar examination. The vast majority of American students who go to law school do become lawyers. On the other hand, bengoshi are not simply lawyers, but what Americans would call "trial lawyers" - lawyers who appear in court. Many Japanese students who have graduated from law school (in 5 years) actually provide legal advice to people and businesses, and that many of the best and brightest Japanese law graduates never take the Japanese bar examination - which John Barkai: ADR in Construction Disputes

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More and more Americans generally, and especially people in the construction industry are turning away from the courts to resolve their disputes and using various forms of what is called "Alternative Dispute Resolution" or "ADR" to resolve their disputes. The courts are seen as too expensive and too slow to resolve cases. In smaller cases, the cost for lawyers and pre-trial discovery may be more than the amount at issue. In really large cases, the legal expenses may be millions of dollars. However, the legal costs are only part of the problem. It can take a long time to resolve these cases, even if they eventually settle and do not go to trial. In large cities in America - New York, Los Angles, Chicago - it might take up to 5 years between the time for a case is filed in court until when the trial is completed. After that, either side has a right to appeal the decision to an appellate court to review the decision for errors of law. This first appeal can sometimes take two or more years. There is also the possibility of yet another appeal to a state Supreme Court or even the U.S. Supreme Court. With the appellate process, it might take seven to ten years before a decision is final. The cost, the delay, the time away from business, and the emotional toll on the business people are just some of the reason why court is not a favored way to resolve disputes. USING ADR TO RESOLVE DISPUTES There are really only two ways to resolve a dispute. Either the parties to the dispute negotiate their own solution, or someone else decides the issue in conflict for the parties. Americans use a variety of ADR methods to resolve all kinds of disputes. Virtually all of the ADR methods use a third-party as a neutral person to conduct the ADR process. For this reason, ADR processes are sometimes referred to "third-party" processes. Arbitration and mediation are the two most common ADR processes in use these days and represent two fundamentally different approaches to ADR. The parties in a dispute can give a neutral third-party the power to make the decision on the dispute. severely limits the number of applicants who can pass the bar examination to the number of seats available in the Legal Training Institute, an organization that trains people who have passed the Japanese bar examination to be trial lawyers, prosecutors, and judges. Currently there is a significant reform under way to increase the number of practicing lawyers and judges in Japan. In recent years, only two percent, or about 500 students per year, of all the Japanese law school graduates who took the Japanese bar examination were allowed to pass the bar examination and enter the Legal Training Institute. That number is increasing to 1,000 per year, and will increase further under the reforms. An interesting comparison is that Japan has about 47,000 law school graduates every year, and the U.S. has a very similar number. So as we can see, part of the differences in the number of lawyers has to do with the way the pass rates are set on the bar examinations. John Barkai: ADR in Construction Disputes

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Such a process is generally called arbitration. If the third party has not been given the power to decide the issues in dispute, but is merely asked to assist the parties in their negotiation, the process is called mediation. Some mediators, especially in business cases, recommend a proposed solution which the party can either accept, reject, or use as a basis to further negotiate their own solution. Even if the third party does make a recommendation, the process is still called mediation. Mediation is generally considered to be the same as "conciliation" even though some countries might have different rules or laws about mediation and conciliation. Some people have started to call ADR "Appropriate" Dispute Resolution. Although their idea is sound - the search is for an appropriate dispute process and most ADR is not an alternative to trial in court because most cases filed in court do not end in a trial - I still avoid using "appropriate" because I think we are still working on getting the term ADR well know. It is too early to change its name. ADR IN CONSTRUCTION American seldom use the courts to resolve their construction disputes. Although there are no good statistics here, it is my impression that hardly any construction cases ever go to trial. Trials are just too slow, and too costly. They destroy business relationships, they take the dispute out of the parties control, and the decision maker (judge or jury) is usually not an expert in planning, design, or construction. The primary ADR methods to resolve construction disputes are arbitration, mediation, dispute review boards, and partnering (a dispute prevention process). To a much lesser extent, ADR processes called mini-trial, summary jury trial, settlement conferences, and ENE (early neutral evaluation) are also used to resolve construction disputes. "Special masters" are sometimes appointed by judges to manage the pre-trial activities of a construction case that is in the pre-trial litigation process in a court. (A short description of all of these ADR activities, and may more, may be found in the Glossary in the appendix.) ADR methods such as evaluative mediation, Dispute Review Boards, Summary Jury Trials, and Early Neutral Evaluation (ENE), provide a non-binding opinion from the third-party neutral about the value of the case. The parties can either accept the opinion of the third-party neutral, negotiate their own settlement terms, or reject it entirely and proceed to arbitration or litigation. A fundamental difference between arbitration and mediation is that arbitration is binding on the parties and mediation proposals made by the mediator are not binding. If there is an agreement reach during a mediation, that agreement is as enforceable as any other contract. Sometimes the mediator who was with the parties when the mediated an agreement is asked by the parties to assume the role of arbitrator and issue an arbitration award in the exact terms of the negotiation settlement. The process ensures the enforceability of the agreement in the courts. In fact, Section 16 of the Conciliation Rules of the Japanese Shipping John Barkai: ADR in Construction Disputes

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Exchange provides for just such a conversion of mediated agreement into an arbitration award.3 If the parties do proceed to litigation or arbitration, the non-binding opinion given in any ADR process such as mediation or a Disputer Review Board is not admissible at the arbitration or court trial. ARBITRATION Arbitration used to be the major ADR method used to resolve construction disputes (and it is the major ADR method to resolve labor disputes). However, mediation is now often used before arbitration. Arbitration is still used as a last resort when the parties cannot resolve the disputes themselves through negotiation or mediation. However, many different ADR methods are now used before resorting to litigation or arbitration. In fact, arbitration has itself come under intense criticism, similar to the criticism of litigation. Arbitration is sometimes said to be too slow, too costly, and ineffective. The result of this criticism has been the development of some new forms of arbitration such as "fast-track" and "documents only" arbitrations. "Fast track" arbitration has procedures that allows it to move quickly than general arbitration. The American Arbitration Association has developed rules for "fast-track" arbitration for cases valued at less than $75,000, and yet a different set of procedures for complex arbitration cases valued at least $500,000. In "documents only" arbitration, no lawyers, parties, or witnesses appear before the arbitrator. In "documents only" arbitration, the arbitrator decides based upon a written information submitted to the arbitrator. American do not have a monopoly on new forms of arbitration. The Tokyo Maritime Arbitration Commission (TOMAC) and The Japan Shipping Exchange have created Rules of Simplified Arbitration for claims for up to ? 20 million, and Rules of Small Claims Arbitration Procedure for claims for up to ? 5 million. Agreements to arbitrate are often part of a business contact. The arbitration, or ADR clause, is merely one of many clauses that may be placed in a 3

. The Conciliation Rules of The Japan Shipping Exchange, Inc., Enacted 30th March, 1992; In force 1st July, 1992 Section 16 Alteration of conciliation proceedings into arbitration proceedings (1) In case all the parties, after reaching a settlement agreement, agree to convert the settlement agreement to an arbitral award in order to secure the settlement of their dispute, the conciliator shall terminate the conciliation proceedings immediately. .... (3) The arbitrator shall commence the arbitration proceedings immediately upon appointment by the parties, and shall make an arbitral award in the terms of the settlement agreement of the parties. John Barkai: ADR in Construction Disputes

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written contract. Major ADR institutions have sample clauses available for business people to insert into their contracts. Essentially these institutional ADR clauses say "I will come to your ADR institution and go through an ADR process with you." For example, the Japan Commercial Arbitration Association's standard arbitration clause reads as follows: All disputes, controversies or differences which may arise between the parties hereto, out of or in relation to or in connection with this Agreement shall be finally settled by arbitration in (name of city), Japan in accordance with the Commercial Arbitration Rules of The Japan Commercial Arbitration Association. The award rendered by the arbitrator(s) shall be final and binding upon the parties hereto. Arbitration is called a "creature of contract," meaning that the parties only have the option of using arbitration to resolve their dispute if they agree (by an oral or written contract) to use arbitration to resolve their dispute. Without a contract, one party cannot force another party to use arbitration. Without a contract to arbitrate, a party must otherwise use the courts to resolve their dispute if negotiations fail. What is probably the American construction industry's most widely used form contract language is the language of the AIA (American Institute of Architects) A201 General Conditions for the Contract for Construction. A201 has always used arbitration as a way to get a binding decision for a contract dispute. Provision 4.4, which is about the resolution of claims and disputes, continues to say that the Architect shall make the initial decision on a claim, and provision 4.6 about arbitration continues to say that claims, after a decision by the Architect, shall be submitted to arbitration. Several changes were made in 1997 related to ADR. Provision 4.5 is now about mediation, and endorses its use. Provisions 4.5 and 4.6 require that after a decision by the Architect, a claim must be submitted to mediation before using arbitration or the courts. Dispute resolution clauses in a contract can be drafted for either "future" or "existing" disputes. A "future disputes" clause is put into a contract when the contract is originally drafted and the business relationship is just beginning. It is just one of many clauses in the contract drafted at the beginning of the business relationship. An "existing disputes" agreement is used to place an existing dispute into an ADR process after the dispute has arisen and the original business contract did not have any dispute resolution provision in it (or there was not a written contract). It is possible to combine both mediation and arbitration. Some processes provide of "Med-Arb" or even "Arb-Med". "Med-Arb" means to use mediation first and then to use arbitration if the mediation does not produce a solution. "Arb-Med" means to use arbitration first to reach a decision and then allow the parties to mediate the same dispute to see if they can negotiate in mediation an agreement that is better for both parties than the arbitration award. These processes might use the same person as both the mediator and the arbitrator. It is said that business people like the efficiency of John Barkai: ADR in Construction Disputes

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med-arb with the same ADR neutral used for both the mediation and the arbitration because it saves time and money because the parties do not have to educate another neutral about the dispute if the mediation fails to produce an agreement. However, many American mediators do not like "Med-arb." They think it distorts the process. If a party knows that arbitration will follow a failed mediation, the party may not reveal any of their weaknesses in mediation because those weaknesses may be used against them in the arbitration. A Hong Kong Med-Arb Clause is as follows: Any dispute or difference arising out of or in connection with this contract shall first be referred to mediation at Hong Kong International Arbitration Centre (HKIAC) and in accordance with its then current Mediation Rules. If the mediation is abandoned by the mediator or is otherwise concluded without the dispute or difference being resolved, then such dispute or difference shall be referred to and determined by arbitration at HKIAC and in accordance with its Domestic Arbitration Rules. A distinctly Chinese approach is to combine arbitration and conciliation. China International Economic and Trade Arbitration Commission (CIETAC) specifically allows for combining arbitration with conciliation in one process. As CIETAC describes it: Combining the advantages of arbitration and conciliation, the tribunal may conciliate the case before or after the commencing of the arbitration proceedings if the parties so desire. If the conciliation fails, the tribunal will continue the arbitration proceedings in accordance with the Arbitration Rules until the final award is issued. The key is that the arbitrators can perform the conciliator's function, if necessary, in the same proceedings ; i.e. the arbitration proceedings. INTERNATIONAL COMMERCIAL ARBITRATION Cross border transactions and parties whose major assets are in different countries, have given rise to international commercial arbitration. There certainly could be an international aspect of major construction contracts. For international disputes, arbitration actually has an advantage over litigation in that because of an international treaty called the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, which is also known as the New York Convention. Over 130 of the world's major trading countries (but not Taiwan or Brazil) have signed this agreement which allows for easy enforcement of an arbitration award in another country that is signatory to this Convention. It is much easier (and surer) to get an arbitration award enforced in another country that it is to get a trial court's judgement enforced in another country. The New York Convention is designed to eliminate the problem of similar law suits simultaneously being brought in different countries, of differing law and legal procedures, and with the real possibility of corrupt courts with judges who take bribes. International arbitration is generally not faster or less expensive than tradition litigation, John Barkai: ADR in Construction Disputes

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but the enforcement is easier and the decision is more likely to be made on the merits. MEDIATION Mediation is a third-party process in which a neutral third party (the mediator) assists the parties to reach a negotiated settlement but the mediator has no power to decide the issues in dispute. Arbitration and meditation are clearly the two most popular types of ADR in the U.S. For many years mediation was the fastest growing type of ADR. Recently however, there has been a great increase in consumer arbitration. Many businesses are putting arbitration clauses in their business contracts. Almost all credit card agreement and stock broker contacts require arbitration for any dispute. This area of ADR has produced what some people call the "dark side of ADR" - implying evil - large companies that have superior bargaining power with small consumers are requiring what many people believe are unfair arbitration agreements requiring arbitration in distant places, high cost, or under other conditions that virtually block the consumer from starting the ADR process again the large company. Conciliation is essentially exactly the same thing as mediation. I think the term conciliation is used more often in Asia, and the term mediation is used more often in the U.S. What is mediation in some countries is conciliation in other countries. There is not world-wide accepted difference between them. This is true even though some countries have different rules for mediation and conciliation. Sometimes one of the terms is used for a type of evaluative mediation in which the mediator proposes solutions to the parties; sometimes the other term is used for a more facilitative mediation style in which the mediator never proposes solutions. The most important point here is: parties need to have a clear understanding of whether the third-party neutral expects to propose settlement terms to the parties. There are a variety of mediation styles or approaches. The most significant difference is between facilitative and evaluative approaches. In theory a "facilitative" mediator will only "facilitate" the discussion between the parties, will require the parties to generate their own settlement options, and will not suggest settlement terms. On the other hand, "evaluative" mediators will propose settlement options and try to persuade parties to make concessions. Community mediators tend to use the facilitative style; commercial mediators tend to use the evaluative style. Increasingly in construction, commercial, big case legal disputes - especially where lawyers are representing the parties - the lawyers and the parties expect and want the mediator to offer an opinion and propose settlement terms if the parties are not quickly able to come to their own solution. Transformative mediation has a more psychological emphasis and is focused much more on the empowerment and recognition of the parties. Transformative mediators are not as concerned with reaching a settlement. Suffice to say that this is an interesting, but very much a minority view of mediation. It is virtually never seen in John Barkai: ADR in Construction Disputes

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the construction industry. To my knowledge, only the U.S. Postal Service has adopted the tranformative style of mediation There is one way in which mediation varies from most of the other ADR processes, and that is the use of private meeting or causes where the mediator meeting with one party alone. In litigation or arbitration, such private meeting would be called "ex parte" communication and not be permitted. However, causes are appropriate in mediation because the mediation is not going to decide the dispute. FUTURE v. THE PAST; INTERESTS v. POSITIONS Another significant way in which mediation differs from arbitration or court is that mediation can look forward to create a future situation without having to spend time looking backward to determine who was at fault. The "future focus" is very consistent with attempts to fix construction problems rather that to cast blame on each of the parties. Mediation, and most of the other non-biding ADR processes, find great value in an "interest-based" approach to dispute resolution, particularly to the extent negotiation is being done. "Positions" are what you want; your proposed solution. Positions are therefore "nani" in Japanese - what you want. Positions are more like "tatemae" or the official position. Interests on the other hand are "why" you want something; the reason behind your position. Interests are more like "naze" - or why you want something. Interest are more like "honne" or the true intention. MEDIATION IS A TEACHABLE SKILL A very important point about modern mediation, especially as practiced in the U.S. is that mediation is considered be a teachable skill and process. Almost anyone can be trained to be a mediation. In the U.S. children in grade school (ages 8-12) are taught mediation skills and can mediate disputes at their schools. THE GROWTH OF ADR & MEDIATION Until the last 100 years, most ADR has been a combination of informal arbitration and mediation done by village elders and chiefs, natural community leaders, and respected "wise men" (and almost never wise women). Craft guilds and certain groups of merchants often used some informal dispute resolution systems, usually arbitration, to resolve differences with their profession. There are references to arbitration being used several hundreds years ago by the great Chinese Emperor Kang-Hsi (during the Manchu Dynasty), and the first American President, George Washington, had an arbitration provision in his will more John Barkai: ADR in Construction Disputes

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than 200 years ago. Except for the last 25 years, modern ADR in the U.S. has been focused on arbitration - and the major focus of that arbitration has been in the labor / management area. Essentially a focus on employment contracts. Many states have had arbitration laws for more an 100 years. The U.S. Federal government has had an interest in labor arbitration since the early 1920s, and in the early part of last century the American courts began to accept the idea the people could contract with each other to use arbitration and avoid the courts. What I will call "modern" mediation started about 25 years ago in the U.S. It began as way of resolving small neighborhoods disputes, such as noise complaints, barking dog problems, and branches of fruit trees hanging into their neighbor's yards and dropping their fruit. I have been lucky enough to have my profession career to coincide largely with the amazing growth of ADR. My first trip to Japan was 20 years ago, when I came in 1983 to talk at a meeting of Japanese law professors and a few bengoshi to talk about this early form of mediation in Hawaii. When the first mediation centers were started, at least in Hawaii, we claimed that the types of cases that would be handled in mediation were the types that would not go to court because they were so small that parties could not afford to hire lawyers for such small cases. Little did we realize that less than 25 years later, it would be common place for mediation to be used for multi-million dollar construction disputes. In fact, ADR grew so quickly that various form of ADR have been used in the construction industry for more than 20 years. WHY USE MEDIATION? Paries in conflict may select mediation for any or all of the following reasons: Parties, not lawyers, can remain in control of their case and directly engage in the negotiation of the settlement. The mediator, as a neutral third party, can view the dispute objectively and can assist the parties in exploring alternatives which they might not have considered on their own. A mediation can be scheduled at an early stage in the dispute, and settlement can be reached much more quickly than in litigation. Parties generally save money through reduced legal costs and less staff time.

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Mediators can be chosen for their knowledge and experience in construction matters. Parties enhance the likelihood of continuing their business relationship The settlement can be creative, Court and arbitration look only backward to see who was at fault. ADR methods such as mediation can look forward to a creative solution or fix of the problem without requiring the finding of fault. Information disclosed at a mediation may not be divulged as evidence in any arbitration or trial in court. WHAT DOES A MEDIATOR DO? Bring parties together Establish communication and set an atmosphere for negotiation Help negotiate agendas and clarify issues to be addressed Help parties obtain data they need to make decisions Facilitate joint sessions and call caucuses Clarify interests, priorities and alternatives to an agreement Help parties explore ideas for creative solutions Identify overlapping interests or areas of potential agreement Help parties agree on criteria to evaluate solutions Record agreements as they develop Facilitates communication in the mediation process Encourages the exchange of information Helps the parties to understand each other?s views Promotes venting or emotional expression in a safe environment Shifts the focus from the past to the future Sometimes, suggests proposed solutions (evaluative style) THE DISPUTE REVIEW BOARD The Dispute Review Board is an ADR process designed to prevent disputes from growing into full-scale arbitration or litigation. It is the one ADR process that seems to only be used in the construction industry. These boards are usually three person teams of experts who keep in close contact with the project as it is built and give informal, and sometimes formal non-binding opinions to the parties about the disputes. It is said that the DRBs began in the mid-1970s (which would place them outside the growth of the mediation movement in the U.S) on tunneling contracts. Usually the owner and the contractor each select one a member to the three person DRB. Each party to the contact must approve the other party's choice. Then the two party-appointed members of the DRB nominate the third member, who must also John Barkai: ADR in Construction Disputes

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be approved by both the owner and the contractor. The DRB has two basic responsibilities. The first is to become familiar with the project during construction. This process begins with the board's review of the plans and specifications, followed by periodic visits to the project. These visits are usually made at least every three months. During these visits, in addition to viewing the construction work in progress, the DRB members meet with the owner's and contractor's staff at the job site to discuss the progress of the work, as well any potential disputes. These activities on the part of the DRB play a useful role in preventing disputes from arising because the parties are encouraged to clearly and objectively state their positions. They also provide the DRB with valuable background information should it need to hear a dispute. The DRB's second major responsibility is conducting hearings on any disputes referred to it. At a hearing, which usually is held at the construction site, owner and contractor representatives who have first-hand knowledge of the issues, are given the opportunity to present facts, documents, and the rationale in support of their respective positions. Formal recording of the hearing and participation by lawyers are both relatively rare. Following the hearing the DRB issues a written recommendation or a decision, setting forth its analysis and opinion. If one or both parties elect to reject the recommendation, the issue proceeds to the next stage of dispute resolution under the terms of their agreement whether that be mediation, arbitration, or even eventually litigation. In practice, however, it is very rare for a party to reject the DRB's recommendation and go forward with the dispute. This is primarily because the parties' needs have been met by having an informed decision from neutral decision makers whose opinions they respect. DRBs were first used about 25 years ago. Since then they have been used on many major construction projects, primarily those involving public infrastructure construction. Many public owners in the U.S. (examples are the Washington Metropolitan Area Transit Authority, the Massachusetts Turnpike Authority, and the Departments of Transportation in Florida, California and Washington) have used DRBs extensively. The international equivalent of the DRB is known as the dispute adjudication board and it has been included in the standard conditions of contract of FIDIC (Federation International des Ingeniurs Conseils), the World Bank, and the Asian Development Bank. In some reports, DRBs have been credited with a 99% success rate in resolving on-site construction disputes. The U.S. federal government agencies have use DRBs frequently on construction projects. Although there is certainly a significant cost to paying for three experts to be reviewing the project and resolving the on-site conflicts, John Barkai: ADR in Construction Disputes

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those people who have used DRBs successfully have claimed that the costs are more than offset by reduced bid prices, which no longer need to include the costs of potential ADR or litigation proceedings. PARTNERING Partnering is another ADR process and one that is used almost exclusively in large construction projects. Unlike other ADR process that focus on dispute resolution, partnering focuses on dispute prevention by working to enhance the relationship between the parties to the construction project, even before the ground is broken on the project. Before construction begins, all important parties to the project - including the owner, design professionals, general contractor, and sub-contractors - generally meet for at least a weekend retreat. The ADR neutral in partnering acts as a group facilitator to lead the construction team in team-building activities to get to know each other better, to improve communication between the parties, to discuss some of the potential problems in the project, to determine ways to prevent and resolve disputes. Usually the partnering groups drafts a short document called the "partnering chapter" that states their commitment and other agreements they have reached during the retreat. All parties sign the document and are given copies of it. There are usually additional relationship enhancing meeting of the parties during the life of construction project. The partnering process is designed to build a better relationship between the parties in hopes that a better, less adversarial relationship will reduce the natural friction between the parties when the inevitable conflicts do arise. The assumption is that you do not sue your friends in court, but rather you work our your disagreements with them in friendly negotiations. Frankly, this practice sounds to me a bit like the classic relationship building phase of traditional Japanese negotiating behavior where Japanese people never talk business before building a relationship. The partnering facilitator may lead to additional meetings during the life of the project, although the partnered parties do not engage in formal dispute resolution during partnering sessions. If there is a dispute that cannot be solved in friendly negotiations, the dispute typically moves to another pre-defined ADR process such as a dispute review board or mediation. When people report on ADR successes, some people love to provide various statistics. The American Arbitration Associated reported that in one group of five partnered projects with total construction costs of $492 million averaged 7% savings by using partnering. Another report indicated that of 30 partnered projects with a total cost of $684 million, 83% completed their project early or on time.


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SUMMARY JURY TRIALS AND MINITRIALS Both Summary Jury Trials and Minitrials are ADR processes that are conducted in the more formal atmosphere of a courtroom, and yet are still non-binding processes. In both summary jury trials and minitrials, an attorney for each party presents an abbreviated version of that side's case in a courtroom. The attorneys present summary proofs and make arguments. Rather than using live witnesses as they would a trial, the "evidence" is the stories told in a summary form by the parties' lawyers. In the minitrial, the case is heard not by a judge, but by the C.E.O.s or other high-level business people from both sides. The representative should have full settlement authority. A third-party neutral usually joins the party representative listening to the proofs and argument, and can make any necessary decision to regulate the process. At any time, the neutral can advise, mediate, or offer advisory opinions. Following the presentations, the parties' representatives meet, with or without the neutral, to negotiate a settlement. Frequently, the neutral will serve as a mediator during the negotiations or be asked to offer a non-binding opinion on the potential court outcome. In the summary jury trial, the case is generally presided over by a judge but some other third-party neutral could provide this function. In a process very similar to the minitrial, an attorney for each party presents summary proofs and make arguments. However rather than trying to case to the executives of the disputing companies, a jury of lay people hears the case and makes a decision. However, the jury's decision is non-binding. This non-binding verdict becomes the basis for subsequent settlement negotiations. A third-party neutral can facilitate the discussions after the jury "verdict" and even mediate the dispute. The disputing parties now have more information about the case - specifically how a real jury might judge each side's proofs. This additional information is usually quite useful in re-evaluating their respective positions, and often leads to a settlement. If the parties do not reach a settlement during their post-verdict negotiations, the case proceeds to trial. ADR's GROWTH & THE FEDERAL GOVERNMENT One of the reasons ADR has been used so much in U.S. Federal Government is because of various laws that were passed to encourage the use of ADR. The most important law is the Administrative Dispute Resolution Act of 1996, 5 U.S.C. Sec. 571 et. seq. ("ADRA of 1996"), which requires each agency in the federal government to: 1. Adopt a policy that addresses the use of ADR; 2. Designate a senior official to be the dispute resolution specialist of the agency who shall be responsible for the implementation of the law and the John Barkai: ADR in Construction Disputes

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3. 4.

agency's ADR policy; Provide ADR training on a regular basis for employees involved in implementing the agency?s ADR policy; and Review each of its standard agreements for contracts, grants, and other assistance to determine whether to amend any such agreements to authorize and encourage the use of ADR.

The U.S. Army Corps of Engineers, the Air Force, the Navy and many other federal government agencies have all made extensive use of ADR in recent years. There are many "success stories" written about their use of ADR. See: http://www.adr.af.mil/other/iadrwg/stories. Military web sites such as http://www.adr.af.mil offer many links to the use of ADR in public contracts. CHOICES, CHOICES, CHOICES There are many different types of ADR processes that could be used to resolve construction disputes. What type of ADR is the best choice for resolving construction disputes? The answer is very unclear. The only thing I am sure of is this: no one is sure what works best! In fact, the truth is probably that everything works! The particular ADR method selected may depend more on local legal culture and industry culture than any scientific matching of type of dispute and type of process. CONCLUSION The final answer is that there is no clear "best" ADR method to use in construction disputes. Partnering works well to prevent disputes, and Dispute Review Boards, Mediation, and Arbitration have all proved very successful for resolving disputes. Mini-trials and Summary-Jury-Trials have also work well. And, probably any other form of ADR would also work too. Essentially every ADR process used to prevent or resolve construction disputes has met with success if the ADR process was conducted by a skilled ADR practioner. Probably the "best" ADR approach for a construction project would be: 1)

start with a Partnering retreat and rely on direct negotiations between the people from the partnering retreat to resolve most conflicts;

2)

use a Dispute Review Board to resolve additional dispute at the construction site during the life of the construction project;

3)

use Mediation to resolve conflicts that the Dispute Review Board was not able to solve; and


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4)

finally, put an Arbitration clause into to contract and use arbitration as a last resort.


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APPENDIX Professor John Barkai William S. Richardson School of Law University of Hawaii at Manoa 2515 Dole Street ? Honolulu, Hawaii 96822 Phone (808) 956-6546 ? Fax (808) 956-6402 E-mail: [email protected]. Contents: Mediation Model Used in Hawaii for Community Disputes Construction Mediation Article The ABCS of ADR: A Dispute Resolution Glossary Facilitative & Evaluative Mediation Styles Chinese and George Washington Examples of ADR Clauses Useful Web Sites


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The Mediation Model Used in Hawaii for Community Disputes Professor John Barkai Introduction In its simplest form, mediation is a conflict resolution method in which a mediator helps two people negotiate a voluntary solution to their dispute. What makes mediation different from other third-party dispute resolution processes is that the mediator does not have the power to decide who "wins" the dispute or what the solution should be. The mediator is neutral and provides non-judgmental management of the negotiation process. Even though the mediator has no power to decide, mediation is a powerful and successful dispute resolution process. The majority of mediated conflicts result in negotiated solutions that are satisfactory to all the disputants. Statistics from mediation centers indicate that approximately 85 percent of the mediations end in agreements. Even if there is no mediated solution, the disputants are no worse off than before the mediation. A Basic Model of Mediation The basic mediation process can be most clearly identified in its purest form by looking at the mediation of minor disputes. Mediators of minor disputes devote their attention to managing the mediation process and using techniques which allow the disputants to 1) identify, clarify, and communicate the issues and interests in dispute, 2) effectively negotiate with each other, and 3) structure a settlement that is fair and workable from their perspectives. Especially in minor disputes, the mediator has no way of knowing what a fair and workable settlement would be from the disputants' perspectives. In addition, there is no legal standard by which to judge, for example, how much noise to too much for the neighborhood or how the children of the neighbors should relate to each other. Because the disputants have to live with any negotiated agreement, the disputants (not the mediator) are the people in the best position to decide what is the best, most workable solution. The native Hawaiian people had their own family problem solving process called Ho'oponpono. [See, V. Shook, Ho'oponpono: Contemporary Uses of a Hawaiian Problem-Solving Process. Honolulu: University of Hawaii Press (1985).] This article, however, focuses on the contemporary, community mediation process in Hawaii. Formal mediation began in Hawaii in 1979 with the establishment of the Neighborhood Justice Center (NJC) of Honolulu. The following model of mediation was developed over more than a decade and thousands of mediations at the NJ. The mediation model presented here has been revised and refined as a result of the experiences of many John Barkai: ADR in Construction Disputes

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volunteer mediators and almost countless mediator trainings. The Core Process The core process of mediation is designed around two central tasks: 1) defining the problems, and 2) negotiating solutions. When teaching mediation in Hawaii, the mediation process is conceptually divided into two phases referred to as the "Forum" and the "Negotiation." Each phase is in turn divided into three stages. The Forum includes: 1) the mediator's opening statement, 2) the disputants' statements, and 3) private meetings called "caucuses" with each disputant to discover all the issues and interests important to a fair, workable solution. The Negotiation includes: 1) a second round of private caucuses with each disputant to define options and begin the bargaining, 2) a joint session with all disputants to negotiate the general terms of the agreement, and 3) a drafting session that results in a specific, written agreement. Such a mediation process can be diagramed as two triangles, each with three layers, as seen below. The Mediation Process Phases

Conceptual Model

Stages Mediator's Opening

Forum Disputants' Statements 1

First Caucuses

Second Caucuses Negotiation Joint Session 2


Draft Agreement

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A. The Forum Phase The Forum phase, represented by the top triangle, starts with the mediator's opening statement, then allows each disputant to tell their view of the conflict, and finally moves to caucuses with each disputant. In the mediator's opening statement, the mediator first convenes the meeting by discussing the voluntary, confidential, and impartial nature of the process. In addition, the mediation process is described generally (especially the confidential caucuses), and it is stressed that the mediator will not issue a decision as a judge would in court. Next, in the disputants' statement stage, each disputant is asked to make a short statement about their view of the conflict and the other disputant is asked to not interrupt. Finally, the mediation moves into a series of confidential caucuses with just the mediator and one of the disputants present. As the mediator process moves to the caucus stage, the upper triangle has its widest part, signifying the increasing amount of information that becomes available to the mediator and the disputants as issues, positions, interest, feelings, and hidden agendas are discussed and clarified in the caucuses. The full development of facts and feelings in the Forum phase offers the greatest opportunity to create in the Negotiation phase a cooperative, integrative solution - what some people refer to as a "win-win" solution. As the mediator uses this Forum phase to learn the history of the conflict, the disputants often focus on just the facts which support their view of the conflict. In both joint meetings and especially in the caucuses, the mediator probes beyond the apparent facts to learn the disputants' underlying interests and feelings about the conflict. During the Forum, the time focus is on the past and the present. B. The Negotiation Phase In the Negotiation phase, represented by the second, inverted triangle, the mediator shifts the focus to the future and assists the disputants to negotiate solutions based upon their interests. The Negotiation usually begins with another series of caucuses. The caucuses are used to move the disputants off their current negotiating positions by asking them to brainstorm possible solutions to the problem. Mediators can use a number of techniques to narrow the differences between the disputants and allow them to save face. Common mediator tactics are to review the good parts of the prior relationship, create doubts, stress the consequences of no agreement, provide reality testing about proposed solutions, and emphasize the progress that has been made. Several caucuses may be necessary.


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When the disputants appear ready to bargain effectively face-to-face, the mediator brings the disputants together for a joint meeting. Although the mediator may still manage the bargaining as mutual concessions are proposed and accepted, the disputants are encouraged to negotiate directly with one another. Finally, as the disputants work out the solution, the mediator assists them by drafting a written agreement that is balanced, specific, complete, workable and in the disputants' own words. C. A Communication Focus Throughout the entire mediation process, Hawaiian mediators use facilitative communication techniques. During the Forum, the mediators try to get the disputants to reveal and clarify their interests and express their feelings by using various communication techniques such as open-ended questions, clarifying questions, and active listening. Mediators often summarize to acknowledge what the disputants have said, to prevent repetitive accounts, and to check their understanding of what the disputants mean. They use active listening to acknowledge the disputants' feelings because feelings can be as important to a solution as the facts. Mediators also "reframe" the disputants' language to eliminate blame and the attribution of motives. A fundamental hypothesis of Hawaii community mediation model is that the disputants are in charge of their own dispute. Hence, during the Negotiation phase the disputants are expected and encouraged to create their own solutions to the conflict. Acting under the assumption that disputants are more likely to move from their entrenched negotiation positions towards mutually acceptable solutions if the basis of the solutions comes from a disputant's own mouth rather than if suggested by someone else, mediators are taught to refrain from giving advice. Hence, rather that make direct suggestions to the disputants, mediators ask well crafted questions that are intended to stimulate the creative thinking of the disputants. The Neighborhood Justice Center The basic mediation model described in this article is used in many different types of disputes in Hawaii, including complex, multi-party construction cases in court, bitterly contested divorce proceedings, minor neighbor-neighbor disputes, and for playground conflicts mediated by grade school children. When the mediation is done at the Neighborhood Justice Center, the mediators are community volunteers from a wide variety of backgrounds and professions, who mediate without compensation. All such mediators have gone through at least 40 hours of training using role plays and debriefing sessions as the primary teaching techniques. Finally, at the NJC all mediations are done with two mediators in a process called "co-mediation." Conclusion John Barkai: ADR in Construction Disputes

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The process of mediation has been used for thousands of years to resolve conflicts. In some parts of the world, mediation is considered to be the same as, or similar to, conciliation. Whatever its name, at its core is a voluntary process used to help two or more disputants negotiate and settle their differences. The article has described a basic model of mediation taught to community mediators in Hawaii and adapted to a wide variety of disputes. The people of Hawaii have made it their own process.


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CONSTRUCTION MEDIATION REALLY WORKS by Gary Morgerman Introduction This is the story of a recent construction mediation mediated by Construction Mediation Inc in New York City. In four hours the parties reached settlement in a typical construction dispute that had survived a year of intense negotiations which broke off when they concluded, "we cannot resolve this." The Participants A construction mediator was mutually selected by the parties to help them break the impasse. The mediation was initiated by a contractor to collect extra costs, allegedly the result of over-inspection on one of his subcontractors on a project built for a NYC municipal agency. The contractor's party of three: the contractor, the sub and an expert in the sub's field of work, sat on one side of the mediation table facing the Agency's team of five: its change order chief, head architect, project manager, the project's Construction Manager (an independent contractor) and a field inspector from a testing firm hired by the CM for the Agency. Neither side had a lawyer; the Agency's excludes its legal staff if the other side is not represented by counsel. The mediator was not an attorney. The Joint Meeting Unlike many construction mediations, congeniality was apparent in the mediation room. It later developed that the contractor and sub were highly regarded by the Agency by virtue of work they had done on previous Agency projects. Such a relationship, which each side wanted to maintain, is the backbone of the construction business. A mediated settlement of a dispute encourages a continuation of this relationship vs. arbitration/litigation : a cooperative resolution instead of a hostile, take-no-prisoners, war resulting in a decreed decision. Proceedings began with an explanation of the ground rules. Each side then made a presentation of its case. The mediator, already familiar with each party's basic positions based upon information each submits prior to the first meeting, interjected questions and comments during the presentations, in part to gain the party's confidence in his understanding of the issues. This is often done by rephrasing statements made from a different perspective. This also allows each side to see issues from a point of view they may not have considered previously. Each side was given the opportunity to ask questions and make comments after the other side had spoken. A mediator must be able to identify and uncover interests. On the face of it, it would have been in the best interest of the inspector, paid by the hour, to have inspected as much as possible. And if the claim had merit, it would be in the best interest of the Agency's CM to refute the alleged over-inspection. His firm, hired by the Agency to John Barkai: ADR in Construction Disputes

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keep costs down, hired the inspector. He did not want to be associated with a double waste of municipal funds - the additional cost of the over-inspection and the sub's claim - in a City under a budget crunch. And it is not unusual, after a mediation gets underway, that unanticipated interests are identified. Sometimes participants on the same side of the table have interests that are at odds. Interests, if explored by the mediator, as with devil's advocate questions, are made during the private caucuses, never during a joint meeting. A mediator must not expose weaknesses in one side's case in the presence of the other side. The subcontractor claimed in its presentation the work specification had been misinterpreted by the field inspector. He claimed his performance had been held to a higher standard than the spec and industry standards required. Additionally, he claimed he was over-inspected. The combination of the two resulted in additional material and labor costs that had not been anticipated in his bid. After the sub spoke, his expert went into an in-depth analysis of the specification and an explanation of the work performance customs in the industry that prevailed in the sub's trade. He concluded with an analysis that showed how the inspector's demands on the sub's work far exceeded both criterion. The Agency's presentation, with contributions from each of its five-man team, alleged that the quality of work demanded and the amount of inspection that occurred were in compliance with the job specification and industry standards. The chief architect concluded with, "that's what we bought and that's what we were entitled to." A discussion between the parties, moderated by the mediator, ensued. The mediator's main role is to clarify the issues and help the parties narrow their differences keeping the exchanges focused and orderly, a task whose difficulty is directly proportional to the number of people, their diversity of interests and how many are outspoken - in construction disputes, the majority. Neither side would budge from its initial position so when the discussion did not blaze new ground the mediator adjourned the joint session and the first round of caucuses, first with the contractor, began. Caucuses with the Contractor and the Agency After some discussion, the sub and its expert agreed that the specification could be interpreted more favorably to the Agency than they acknowledged during the joint session. The mediator also pointed out that their lost productivity and damages were calculated in a summary manner, without backup, and would have to be much more detailed (and expensive) if the dispute ended up in a courtroom. They agreed the cost of litigation (arbitration was not in their contract) would wipe out a successful lawsuit. This "cost to collect" dilemma faces every contractor and subcontractor with a claim which is not for big dollars that faces a stubborn opponent with deep pockets or an inhouse, on the payroll, legal staff. The sub agreed to be reasonable and was prepared to John Barkai: ADR in Construction Disputes

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lower his demands. The contractor, whose only financial stake in the outcome was his overhead and profit markup on the sub's claim, concurred. The caucus with the Agency lasted longer and was more delicate. The mediator again played devil's advocate with the Agency's interpretation of the specification. At the outset, the inspector was adamant and outspoken, the CM silent. The three Agency staff displayed confidence in the Agency's position, each with an enthusiasm directly proportional to their personal involvement in the project. Why was the inspector's inspection so intense? He reiterated that the spec demanded it, and even if it did not, he had observed defects in the sub's initial performance that justified a continuous, close scrutiny of the sub's performance. This was contrary to statements made by the sub in the previous caucus who said his work was done without criticism, nor correction, by the inspector. The inspector was so advised and when asked if he could produce inspection reports to support observations of defective work, he could not, nor could his office when he called it from the mediation room. The mediator showed the chief architect an excerpt from a local construction case decision which stated: "the courts will seek the meaning that would be attached by a reasonably intelligent bidder...who would be expected to have the technical and trade knowledge of his industry and know how to read and interpret technical engineering specifications and perform construction work in accordance with such specifications." The architect, who had praised the contractor's and his sub's previous work for the Agency at the joint meeting, read it without comment. The project manager was concerned that if the claim was given merit word would get out resulting in similar claims by subs on other Agency projects. He was reminded, and all had agreed, that a condition of mediation is that everything that transpires is confidential. The only thing that would survive the proceedings would be, hopefully, a settlement agreement. The caucus concluded with a discussion of an Agency memo, whose conclusion regarding the specification and inspection, the mediator thought, supported the subcontractor's position. The mediator received it from the Agency along with other pertinent documents requested by the mediator when he was appointed to the case. As it was not clear who the document was distributed to, it had not been shown to the contractor's people nor was it discussed during the joint meeting or the preceding caucus. Neither side mentioned it during the joint meeting. Surprisingly, but not unexpected, neither the C.O. officer nor the chief architect had seen the memo. Senior staff in large municipal agencies, and in private companies with numerous projects under construction do not see every document generated, even one, as this, which seemed so important and relevant to the dispute.


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The author of the memo, the Agency's director of field inspection was summoned to the caucus to review it. He disavowed its conclusion, saying, with obvious discomfort, that it was a mistake and incorrect. The chief architect declared the memo an "internal document, not subject to discovery if the dispute were litigated, and, in any event, its conclusion was ambiguous." Thereupon the C.O. officer, the Agency representative authorized to sign off on a settlement agreement, advised the mediator that he wanted to meet in private with his team. Another Joint Meeting No long thereafter, the mediator was called back into the mediation room by the Agency. The C.O. officer said they wanted to meet with the other side. They wanted some additional questions answered and wanted to hear the sub's arguments once again. The contractor's team was accompanied back into the mediation room. The expert and the sub again made their case, this time to a more open, less defensive audience. After a short, but intense discussion of the issues by all present, the sub and the C.O. officer began negotiating hard dollars. The mediator's main object was to keep this exchange focused without disruption by the others present. He did not interject nor comment on the offers and counteroffers being made. Within minutes they agreed on a number to settle the claim. A written settlement agreement was draw up and executed by the sub, contractor, the Agency's C.O. officer and witnessed by the mediator. Both sides appeared satisfied with the outcome. They went their separate ways in the same spirit of good will and cooperation that was present at the start of the mediation and no doubt will be doing business, once again, in the future.


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THE ABCS OF ADR: A DISPUTE RESOLUTION GLOSSARY 13 Alternatives to High Cost Litigation 147 November 1995 Center for Public Resources Institute for Dispute Resolution Ever since Alternatives published a partial glossary of alternative dispute resolution terms in 1992, it has become our most popular reprint. One reason might be that the myriad of possible ADR approaches has led to so much confusion in terminology. Sometimes participants in a process are not even sure what to call the technique that has helped them to resolve their dispute without costly litigation. The range of ADR devices and disputes they can address demand a vocabulary. Experts know that ADR encompasses a wide range of practices for managing and quickly resolving disputes at modest cost and with minimal adverse impact on commercial relationships. These processes, marked by confidentiality when desired, significantly broaden dispute resolution options beyond litigation or traditional unassisted negotiation. Some ADR procedures, such as binding arbitration and private judging, are similar to expedited litigation in that they involve a third-party decision- maker with authority to impose a resolution if the parties so desire. Other procedures, such as mediation and the minitrial, are collaborative: a neutral third party helps a group of individuals or entities with divergent views to reach a goal or complete a task to their mutual satisfaction. Arbitration, mediation and the minitrial tend to be the mechanisms most often used and, for many people, are synonymous with the term, "ADR." But to respond to specific needs, parties often craft hybrid procedures that combine elements of one or more dispute resolution methods. The following glossary is designed to help parties communicate about this rapidly changing field. Definitions are not standardized, but flexible and creative like ADR itself. And with all aspects of ADR, it is most important not that the parties use exactly the same terms, but that they understand each other. We have divided the glossary into private and court-related ADR processes. Most of these working definitions are derived from prior publications of the CPR Institute for Dispute Resolution, a number of which address particular ADR processes in depth.... PRIVATE ADR PROCESSES


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Arbitration. The most traditional form of private dispute resolution. It can be "administered" (managed) by a variety of private organizations, or "non-administered" and managed solely by the parties. It can be entered into by agreement at the time of the dispute, or prescribed in pre-dispute clauses contained in the parties' underlying business agreement. Arbitration can take any of the following forms: Binding Arbitration. A private adversarial process in which the disputing parties choose a neutral person or a panel of three neutrals to hear their dispute and to render a final and binding decision or award. The process is less formal than litigation; the parties can craft their own procedures and determine if any formal rules of evidence will apply. Unless there has been fraud or some other defect in the arbitration procedure, binding arbitration awards typically are enforceable by courts and not subject to appellate review. Non-binding Arbitration. This process works the same way as binding arbitration except that the neutral's decision is advisory only. The parties may agree in advance to use the advisory decision as a tool in resolving their dispute through negotiation or other means. "Baseball" or "Final-Offer" Arbitration. In this process, used increasingly in commercial disputes, each party submits a proposed monetary award to the arbitrator. At the conclusion of the hearing, the arbitrator chooses one award without modification. This approach imposes limits on the arbitrator's discretion and gives each party an incentive to offer a reasonable proposal, in the hope that it will be accepted by the decision-maker. A related variation, referred to as "night baseball" arbitration, requires the arbitrator to make a decision without the benefit of the parties' proposals and then to make the award to the party whose proposal is closest to that of the arbitrator. "Bounded" or "High-Low" Arbitration. The parties agree privately without informing the arbitrator that the arbitrator's final award will be adjusted to a bounded range. Example: P wants $200,000. D is willing to pay $70,000. Their high-low agreement would provide that if the award is below $70,000, D will pay at least $70,000; if the award exceeds $200,000, the payment will be reduced to $200,000. If the award is within the range, the parties are bound by the figure in the award. Incentive Arbitration. In non-binding arbitration, the parties agree to a penalty if one of them rejects the arbitrator's decision, resorts to litigation, and fails to improve his position by some specified percentage or formula. Penalties may include payment of attorneys' fees incurred in the litigation. Confidential Listener. The parties submit their confidential settlement positions to a third-party neutral, who without relaying one side's confidential offer to the other, informs them whether their positions are within a negotiable range. The parties may agree that if the proposed settlement figures overlap, with the plaintiff citing a lower John Barkai: ADR in Construction Disputes

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figure, they will settle at a level that splits the difference. If the proposed figures are within a specified range of each other (for example 10 percent), the parties may direct the neutral to so inform them and help them negotiate to narrow the gap. And if the submitted numbers are not within the set range, the parties might repeat the process. Fact-finding. A process by which the facts relevant to a controversy are determined. Fact-finding is a component of other ADR procedures, and may take a number of forms. In neutral fact-finding, the parties appoint a neutral third party to perform the function, and typically determine in advance whether the results of the fact-finding will be conclusive or advisory only. With expert fact-finding, the parties privately employ neutrals to render expert opinions that are conclusive or non-binding on technical, scientific or legal questions. In the latter, a former judge is often employed. Federal Rules of Evidence 706 gives courts the option of appointing neutral expert fact-finders. And while the procedure was rarely used in the past, courts increasingly find it an effective approach in cases that require special technical expertise, such as disputes over high-technology questions. The neutral expert can be called as a witness subject to cross-examination. In joint fact-finding, the parties designate representatives to work together to develop responses to factual questions. Mediation. A voluntary and informal process in which the disputing parties select a neutral third-party to assist them in reaching a negotiated settlement. Parties can employ mediation as a result of a contract provision, by private agreement made when disputes arise, or as part of a court-annexed program that diverts cases to mediation. Unlike a judge or arbitrator, a mediator has no power to impose a solution on the parties. Rather, mediators assist parties in shaping solutions to meet their interests and objectives. The mediator's role and the mediation process can take various forms, depending on the nature of the dispute and the approach of the mediator. The mediator can assist parties to communicate effectively; can identify and narrow issues; crystallize each side's underlying interests and concerns; carry messages between the parties; explore bases for agreement and the consequences of not settling; and develop a cooperative, problem- solving approach. By learning the confidential concerns and positions of all parties, the mediator often can identify options beyond their perceptions. The process is sometimes referred to as "facilitation" to structure participation in the mediation process, or "conciliation" in the international arena. John Barkai: ADR in Construction Disputes

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The mediator's role can take various forms. Some mediators, who favor a "facilitative" style, encourage parties to generate their own settlement options, and will not suggest settlement terms. At the other end of the spectrum are "evaluative" mediators, who will propose settlement options and try to persuade parties to make concessions. To guide negotiations in major commercial disputes, parties sometimes ask the mediator to assume an evaluative role. The mediator might assess the merits of claims or defenses, liability or damages, or predict the likely outcome of the case in court. Generally, mediators need substantive law background or expertise to make such assessments. Med-Arb. A short-hand reference to the procedure mediation-arbitration. In med-arb, the parties agree to mediate with the understanding that any issues not settled through the mediation will be resolved by arbitration using the same individual to act both as mediator and arbitrator. However, that choice may have a chilling effect on full participation in the mediation portion. A party may not believe that the arbitrator will be able to discount unfavorable information learned in mediation when making the arbitration decision. Co-Med-Arb addresses the problem by having two different people perform the roles of mediator and arbitrator. Jointly, they preside over an information exchange between the parties, after which the mediator works with the parties in the absence of the arbitrator. If mediation fails to achieve a settlement, the case (or any unresolved issues) can be submitted to the arbitrator for a binding decision. Minitrial. A structured process with two distinct components. Parties engage in an information exchange that provides an opportunity to hear the strengths and weaknesses of one's own case as well as the cases of the other parties involved, before negotiating the matter. In the minitrial, an attorney for each party presents an abbreviated version of that side's case. The case is heard not by a judge, but by high-level business representatives from both sides with full settlement authority. It may be presided over by these representatives with or without a neutral advisor, who can regulate the information exchange. Following the presentations, the parties' representatives meet, with or without the neutral, to negotiate a settlement. Frequently, the neutral will serve as a mediator during the negotiation phase or be asked to offer an advisory opinion on the potential court outcome, to guide negotiators. Multi-Party Coordinated Defense. A coordinated joint defense strategy in which a neutral facilitator helps multiple defendants negotiate, organize, and manage cooperative joint-party arrangements that are ancillary to the main dispute. In the John Barkai: ADR in Construction Disputes

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process, they streamline the steps toward resolution. Coordinated defense efforts include agreements to: limit infighting among defendants; use joint counsel and experts; assign and share discovery and research tasks; coordinate and share the results of procedural maneuvers; and apportion liability payments, should they be imposed. Multi-Step ADR. Parties may agree, either when a specific dispute arises, or earlier in a contract clause between business venturers, to engage in a progressive series of dispute resolution procedures. One step typically is some form of negotiation, preferably face-to-face between the parties. If unsuccessful, a second tier of negotiation between higher levels of executives may resolve the matter. The next step may be mediation or another facilitated settlement effort. If no resolution has been reached at any of the earlier stages, the agreement can provide for a binding resolution--through arbitration, private adjudication or litigation. One form of multi-step ADR is the wise man procedure, typically used when problems arise in long-term partnerships such as those in the oil and gas industry. Sometimes called "progressive negotiation" or "mutual escalation," this procedure refers matters first to a partnership committee which oversees the day-to-day operations of the project. If the problem cannot be resolved at that level, the wise-man option--the next ADR step--is employed. The wise men (or women) are respected senior executives of each company who are uninvolved in the project. These officials are given a fairly short time frame (sometimes just 30 days) to investigate the dispute. If that fails, the matter goes to a third step, usually binding arbitration. While pioneered in the oil industry, the wise man approach could also be useful in the high- technology field and other areas involving close and continuing business relationships. Negotiated Rule-Making. Also known as regulatory negotiation, this ADR method is an alternative to the traditional approach of U.S. government agencies to issue regulations after a lengthy notice and comment period. In reg-neg, as it is called, agency officials and affected private parties meet under the guidance of a neutral facilitator to engage in joint negotiation and drafting of the rule. The public is then asked to comment on the resulting, proposed rule. By encouraging participation by interested stakeholders, the process makes use of private parties' perspectives and expertise, and can help avoid subsequent litigation over the resulting rule. Ombudsperson. An organizational dispute resolution tool. The ombudsperson is appointed by an institution to investigate complaints within the institution and either prevent disputes or facilitate their resolution. The ombudsperson may use various ADR mechanisms such as fact-finding or mediation in the process of resolving disputes brought to his or her attention. Partnering. Typically used as a dispute-prevention method for large construction John Barkai: ADR in Construction Disputes

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projects, this method is capable of being transposed in other settings, particularly in joint ventures. Before the work starts, parties to the project generally assemble for a several-day retreat away from their organizations. With the help of a third-party neutral, they get to know each other; discuss some of the likely rough spots in the project; and even settle on a process to resolve misunderstandings and disputes as the project progresses. Predispute ADR Contract Clause. A clause included in the parties' business agreement to specify a method for resolving disputes that may arise under that agreement. It may refer to one or more ADR techniques, even naming the third party that will serve as an arbitrator or mediator in the case. Predispute agreements requiring arbitration of consumer disputes, or entered into as a condition of employment, have generated substantial backlash lately from people who argue that these clauses are adhesion contracts. Two-Track Approach. Involves use of ADR processes or traditional settlement negotiations in conjunction with litigation. Representatives of the disputing parties who are not involved in the litigation are used to conduct the settlement negotiations or ADR procedure. The negotiation or ADR efforts may proceed concurrently with litigation or during an agreed-upon cessation of litigation. This approach is particularly useful in cases when: it may not be feasible to abandon litigation while the parties explore settlement possibilities; or as a practical matter, the specter of litigation must be present in order for the opposing party to consider or agree to an alternative mechanism. It also is useful when the litigation has become acrimonious or when a suggestion of settlement would be construed as a sign of weakness.

COURT ADR PROCESSES Court-Annexed Mediation. In mediation, a neutral third party--the mediator-facilitates negotiations among the parties to help them settle. The mediation session is confidential and informal. Disputants clarify their understanding of underlying interests and concerns, probe the strengths and weaknesses of legal positions, explore the consequences of not settling, and generate settlement options. The mediator, who may meet jointly or separately with the parties, serves solely as a facilitator and does not issue a decision or make findings of fact. A hallmark of mediation is its capacity to help parties expand traditional settlement discussions and broaden resolution options, often by going beyond the legal issues in controversy. Mediation works much the same in courts and in private settings, with a few important differences. A court mediation program may be based in the court, or may involve referral by the court to outside ADR programs run by bar associations, nonprofit groups, other local courts, or private ADR providers. Some courts require litigants to John Barkai: ADR in Construction Disputes

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use mediation in what are known as mandatory mediation programs. The purpose of the mediation session is unchanged whether litigants enter the program voluntarily or by court mandate. The court mediator may be a lawyer trained in mediation and compensated by the parties, or serve as a volunteer. Judges, magistrate judges, or court ADR professionals also serve as mediators in some court programs. Mediation is the primary ADR process in federal, state and local courts, second only to the traditional judicial settlement conference. Mediation has proved useful in so many kinds of disputes that some experts favor its use in all civil cases, to improve case management and settlement. In the federal system, more than 40 of the 94 district courts and almost all the circuit courts have mediation programs using judges or lawyers as mediators. Mediation programs are also underway in more than one-third of the state courts and in many bankruptcy courts. Early Neutral Evaluation. Like mediation, ENE is applicable to many types of civil cases, including complex disputes. In ENE, a neutral evaluator--a private attorney expert in the substance of the dispute--holds a several-hour confidential session with parties and counsel early in the litigation to hear both sides of the case. Afterwards, the evaluator identifies strengths and weaknesses of the parties' positions, flags areas of agreement and disputes, and issues a non-binding assessment of the merits of the case. Developed during the mid-1980's in the San Francisco federal court, ENE is now used in 18 federal district courts and several state courts. Usually, attorneys trained by the court serve as evaluators; in some courts, including the Southern District of California, magistrate judges conduct ENE sessions. Originally designed to make both case management and settlement more efficient, ENE has evolved into a pure settlement device in some courts. Used this way, ENE resembles evaluative mediation, in which the mediator uses case evaluation as a settlement tool. Court-Annexed Arbitration. An adjudicatory dispute-resolution process in which one or more arbitrators issue a non-binding judgment on the merits, after an expedited, adversarial hearing. The arbitrator's decision addresses only the disputed legal issues and applies legal standards. Either party may reject the non-binding ruling and proceed to trial. Court annexed arbitration is used mainly in small- and moderate-sized tort and contract cases, when litigation costs are often disproportionate to the amounts at stake. Twenty-six federal district courts have established mandatory or voluntary arbitration programs and arbitration is common in many state courts. In some courts, about a third John Barkai: ADR in Construction Disputes

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of all civil cases are referred to arbitration. Still, new court-annexed arbitration programs are rare these days. Once the premier court ADR process, it has lost popularity in recent years. Most court ADR development focuses on mediation. Summary Jury Trial. The summary jury trial is a non-binding ADR process used to promote settlement in trial-ready cases headed for protracted jury trials. Usually a judge or magistrate judge presides over the SJT; occasionally, a neutral attorney conducts the process. Part or all of a complex dispute may be submitted to a summary jury trial. After an abbreviated hearing in which counsel present evidence in summary form, the jury renders an advisory verdict. Non-binding, it becomes the basis for subsequent settlement negotiations. If the parties do not reach a settlement, the case proceeds to trial. Because they are costly, SJTs are used relatively rarely. Typically, the SJT is reserved for large cases when other settlement efforts have failed and litigants differ significantly about jury outcome. Appellate ADR. Mediation programs have become increasingly popular among the nation's appeals courts. Each of the 12 federal circuits either has a settlement office or plans to open one shortly. One the state level, at least 50 appeals courts have used mediation at some time, and approximately 25 courts currently have active programs. Unlike trial-level ADR, which ranges from mandatory arbitration to multidoor courthouses, appellate programs tend to look very similar. In most programs, staff attorneys or outside lawyers conduct mandatory, pre-argument conferences in those cases that seem most likely to settle. Some appellate programs are geared exclusively toward settlement, while other programs also address case management and procedural issues. Judge-Hosted Settlement Conferences. The most common form of ADR used in federal and state courts is the settlement conference presided over by a judge or magistrate judge. Almost 94 of the federal district courts use judicial settlement conferences routinely, and nearly one-third of the courts assign this role almost exclusively to magistrate judges. The classic role of the settlement judge is to articulate judgments about the merits of the case and to facilitate the trading of settlement offers. Some settlement judges and magistrate judges also use mediation techniques in the settlement conference to improve communication among the parties, probe barriers to settlement, and assist in formulating resolutions. In some courts, a specific judge or magistrate judge is designated as settlement judge. In others, the assigned judge (or another judicial officer who will not hear the case) hosts settlement conferences at various points during the litigation, often directly before trial.


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Court Minitrial. The minitrial is a flexible, non-binding settlement process primarily used out of court. During the past decade, some federal district judges have used their own version of the minitrial. Like the summary jury trial, the court minitrial is a relatively elaborate ADR method generally reserved for large disputes. In a typical court minitrial, each side presents a shortened form of its best case to settlement-authorized client representatives--usually senior executives. The hearing is informal, with no witnesses and a relaxation of the rules of evidence and procedure. A judge, magistrate judge or non-judicial neutral presides over the one- or two-day hearing. Following the hearing, the client representatives meet, with or without the neutral adviser, to negotiate a settlement. At the parties' request, the neutral advisor may assist the settlement discussions by acting as a facilitator or by issuing an advisory opinion. If the talks fail, the parties proceed to trial. Case Valuation ("Michigan Mediation"). This hybrid ADR process provides litigants in trial-ready cases with a written, non-binding assessment of the case's judgment value, delivered by a panel of three attorneys with subject- matter expertise after a very short hearing. If the panel's valuation is accepted by all parties, the case is settled for that amount. If any party rejects the panel's assessment, the case proceeds to trial. Used only in the federal and state courts in Michigan, the arbitration-like valuation process is known widely by the misnomer "Michigan Mediation." Established in the Michigan state courts almost 20 years ago, today the process is used mainly for money-only contract, personal injury and civil rights cases. Multidoor Courthouse or Multi-Option ADR. This term describes courts that offer an array of dispute resolution options or screen cases and then channel them to particular ADR methods. Some multidoor courthouses refer all cases of certain types to particular ADR programs, while others offer litigants a menu of options in each case. Multidoor courthouses have been established in state courts in New Jersey, Texas, Massachusetts, and the District of Columbia. On the federal level, courts in the Western District of Missouri, the Northern District of California, the District of Rhode Island, and others now have multi-option ADR. Settlement Week. In a typical settlement week, a court suspends normal trial activity and, aided by bar groups and volunteer lawyers, devotes itself to the mediation of long-pending civil cases. Mediation is the mainstay ADR method in a typical settlement week. Volunteer lawyers conduct mediations in courtrooms, conference rooms and other areas of the courthouse. Sessions may last an hour or two, with additional sessions held as needed. Unresolved cases return to the court's docket. Settlement weeks are used regularly only in two federal district courts. The process is used more widely in state courts and a few federal courts send cases to John Barkai: ADR in Construction Disputes

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settlement weeks sponsored by local state courts. Private Judging. Private judging is a general term used to describe a private or court-related process in which disputing parties empower a private individual to hear and decide their case. The procedure may be exclusively a matter of contract between the parties or may be undertaken in connection with an authorizing statute. When authorized by statute, the process is sometimes referred to by the colloquial term, "Rent-a-Judge."


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FACILITATIVE & EVALUATIVE MEDIATION STYLES Two very different mediation styles are the facilitative and evaluative styles. The following article explains more about the two mediation styles. Community mediators tend to use the facilitative style; commercial mediators tend to use the evaluative style From MEDIATOR ORIENTATIONS, STRATEGIES AND TECHNIQUES 12 Alternatives to High Cost Litigation 111 (Sept. 1994) Leonard L. Riskin THE MEDIATOR'S ROLE The evaluative mediator assumes that the participants want and need the mediator to provide some direction as to the appropriate grounds for settlement--based on law, industry practice or technology. She also assumes that the mediator is qualified to give such direction by virtue of her experience, training and objectivity. The facilitative mediator assumes the parties are intelligent, able to work with their counterparts, and capable of understanding their situations better than either their lawyers or the mediator. So the parties may develop better solutions than any that the mediator might create. For these reasons, the facilitative mediator assumes that his principal mission is to enhance and clarify communications between the parties in order to help them decide what to do. The facilitative mediator believes it is inappropriate for the mediator to give his opinion, for at least two reasons. First, such opinions might impair the appearance of impartiality and thereby interfere with the mediator's ability to function. Second, the mediator might not know enough--about the details of the case or the relevant law, practices or technology--to give an informed opinion. SUBJECT-MATTER EXPERTISE In selecting a mediator, what is the relevance of "subject-matter expertise?" The term could mean substantial understanding of either the law, customary practices, or technology associated with the dispute. In a patent infringement lawsuit, for instance, a mediator with subject-matter expertise could be familiar with the patent law or litigation, practices in the industry, or the relevant technology--or with all three of these areas. The need for subject-matter expertise typically increases to the extent that the parties seek evaluations--assessments, predictions or proposals--from the mediator. The kind of subject-matter expertise needed depends on the kind of evaluation or direction the parties seek. If they want a prediction about what would happen in court, they need a mediator with a strong background in related litigation. If they want John Barkai: ADR in Construction Disputes

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suggestions about how to structure future business relations, perhaps the mediator should understand the relevant industries. If they want to propose new government regulations (as in a regulatory negotiation), they might wish to retain a mediator who understands administrative law and procedure. In contrast, to the extent that the parties feel capable of understanding their circumstances and developing potential solutions--singly, jointly or with assistance from outside experts--they might prefer a mediator with great skill in the mediation process, even if she lacks subject-matter expertise. In such circumstances, the mediator need only have a rough understanding of the relevant law, customs and technology. In fact, too much subject-matter expertise could incline some mediators toward a more evaluative role, and could thereby interfere with developing creative solutions.


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VERY OLD ARBITRATION CLAUSES CHINESE ARBITRATION The great Chinese Emperor Kang-hsi (during the Manchu Dynasty) issued the following decree, in response to complaints about his courts: "The Emperor, considering the immense population of the empire, the great division of territorial property and the notoriously litigious character of the Chinese, is of the opinion that lawsuits would tend to increase to a frightful extent if people were not afraid of the tribunals and if they felt confident of always finding in them ready and perfect justice. I desire, therefore, that those who have recourse to the courts should be treated without any pity and in such a manner that they shall be disgusted with the law and tremble to appear before a magistrate. In this manner ... the good citizens who may have difficulties among themselves will settle them like brothers by referring them to the arbitration of some old man." - National Geographic Magazine, June 1927 Arbitration Clause from George Washington's Will (the first U.S. President, will approximately 1780) "... that all disputes (if unhappily any should arise) shall be decided by three impartial and intelligent men, known for their probity and good understanding; - two to be chosen by the disputants - each having the choice of one - and the third by these two - which three men then chosen, shall unfettered by law, or legal constructions, declare their sense of the testator's intention; and such decision is, to all intents and purposes, to be as binding on the parties as if it had been given in the Supreme Court of the United States."


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EXAMPLES OF ADR CLAUSES JAPAN COMMERCIAL ARBITRATION ASSOCIATION STANDARD ARBITRATION CLAUSE All disputes, controversies or differences which may arise between the parties hereto, out of or in relation to or in connection with this Agreement shall be finally settled by arbitration in (name of city), Japan in accordance with the Commercial Arbitration Rules of The Japan Commercial Arbitration Association. The award rendered by the arbitrator(s) shall be final and binding upon the parties hereto. HONG KONG MEDIATION CLAUSE Any dispute or difference arising out of or in connection with this contract shall first be referred to mediation at Hong Kong International Arbitration Centre (HKIAC) and in accordance with its then current Mediation Rules. If the mediation is abandoned by the mediator or is otherwise concluded without the dispute or difference being resolved, then such dispute or difference shall be referred to and determined by arbitration at HKIAC and in accordance with its Domestic Arbitration Rules. HONG KONG FIRST MEDIATION, THEN ARBITRATION CLAUSE Any dispute or difference arising out of or in connection with this contract shall first be referred to mediation at Hong Kong International Arbitration Centre (HKIAC) and in accordance with its then current Mediation Rules. If the mediation is abandoned by the mediator or is otherwise concluded without the dispute or difference being resolved, then such dispute or difference shall be referred to and determined by arbitration at HKIAC and in accordance with its Domestic Arbitration Rules. AMERICAN ARBITRATION ASSOCIATION'S CONSTRUCTION MEDIATION CLAUSE If a dispute arises out of or relates to this contract, or the breach thereof, and if the dispute cannot be settled through negotiation, the parties agree first to try in good faith to settle the dispute by mediation administered by the American Arbitration Association under its Construction Industry Mediation Procedures before resorting to arbitration, litigation, or some other dispute resolution procedure. PARTNERING CLAUSE: In order to achieve effective and efficient completion of this project, the project stakeholders agree to conduct a Partnering Retreat workshop within 10/30/60 days of the issuance of the Notice to Proceed. The Partnering Retreat shall be attended by key personnel of the Contractor, the Owner, the Designer, the subcontractors, major suppliers, and any other significant project participants. The project stakeholders intend to create a spirit of cooperation and cohesiveness utilizing Partnering techniques. The Partnering Retreat shall be conducted at a neutral facility and shall be facilitated by . The cost of the Partnering Retreat shall be (borne equally among all key project stakeholders, borne equally by the Contractor and John Barkai: ADR in Construction Disputes

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Owner, borne solely by the Owner, borne solely by the Contractor, borne initially by the Contractor and then passed along to the Owner as a normal cost of the project.) Follow up mini-retreats or workshops may be held on a periodic basis as agreed to by the project stakeholders. DISPUTE REVIEW BOARD CLAUSE In order to provide a project-level forum for the early, objective, rational, and nonbinding/binding review of disputes, the parties agree at the inception of this project to create a Dispute Review Board consisting of three members in accordance with the Rules, Procedures, and Protocols for DRB's of then in effect. The DRB panel shall be comprised of one member designated by the Contractor, one member designated by the Owner, and a third member selected by those two, and the third shall serve as the chairperson of the DRB. Thereafter, shall administer the DRB proceedings in a manner which is consistent with the parties' needs, the DRB's direction, and the Dispute Review Board Rules, Procedures and Protocols of . CENTER FOR PUBLIC RESOURCES MODEL MINITRIAL CLAUSE The parties will attempt in good faith to resolve any dispute arising out of or relating to this Agreement in accordance with the Center for Public Resources Minitrial Procedure [then currently in effect OR in effect on the date of this Agreement] and will enter into an initiating agreement in the form annexed to such Procedure. CPR MODEL MULTI-STEP DISPUTE RESOLUTION CLAUSE NEGOTIATION (1) Negotiation Between Executives The parties shall attempt in good faith to resolve any dispute arising out of or relating to this [Agreement] [Contract] promptly by negotiation between executives who have authority to settle the controversy and who are at a higher level of management than the persons with direct responsibility for administration of this contract. Any person may give the other party written notice of any dispute not resolved in the normal course of business. Within [15] days after delivery of the notice, the receiving party shall submit to the other a written response. The notice and response shall include (a) a statement of that party's position and a summary of arguments supporting that position, and (b) the name and title of the executive who will represent that party and of any other person who will accompany the executive. Within [30] days after delivery of the initial notice, the executives of both parties shall meet at a mutually acceptable time and place, and thereafter as often as they reasonably deem necessary, to attempt to resolve the dispute. All reasonable requests for information made by one party to the other will be honored. All negotiations pursuant to this clause are confidential and shall be treated as compromise and settlement negotiations for purposes of applicable rules of evidence. (2) MEDIATION John Barkai: ADR in Construction Disputes

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If the dispute has not been resolved by negotiation as provided herein within [45] days after delivery of the initial notice of negotiation, [or if the parties failed to meet within [30] days], the parties shall endeavor to settle the dispute by mediation under the CPR Mediation Procedure [then currently in effect OR in effect on the date of this Agreement], [provided, however, that if one party fails to participate in the negotiation as provided herein, the other party can initiate mediation prior to the expiration of the [45] days.] Unless otherwise agreed, the parties will select a mediator from the CPR Panels of Distinguished Neutrals. (3) ARBITRATION Any dispute arising out of or relating to this [Agreement] [Contract], including the breach, termination or validity thereof, which has not been resolved by mediation as provided herein [within [45] days after initiation of the mediation procedure] [within [30] days after appointment of a mediator], shall be finally resolved by arbitration in accordance with the CPR Rules for Non-Administered Arbitration [then currently in effect OR in effect on the date of this Agreement], by [a sole arbitrator] [three independent and impartial arbitrators, of whom each party shall designate one] [three arbitrators of whom each party shall appoint one in accordance with the ?screened? appointment procedure provided in Rule 5.4] [three independent and impartial arbitrators, none of whom shall be appointed by either party]; [provided, however, that if one party fails to participate in either the negotiation or mediation as agreed herein, the other party can commence arbitration prior to the expiration of the time periods set forth above.] The arbitration shall be governed by the Federal Arbitration Act, 9 U.S.C. ?? 1-16, and judgment upon the award rendered by the arbitrator(s) may be entered by any court having jurisdiction thereof. The place of arbitration shall be (city, state). - or (3) LITIGATION CLAUSE If the dispute has not been resolved by nonbinding means as provided herein within [90] days of the initiation of such procedure, this Agreement does not preclude either party from initiating litigation [upon 00 days written notice to the other party]; provided, however, that if one party has requested the other to participate in a nonbinding procedure and the other has failed to participate, the requesting party may initiate litigation before expiration of the above period.


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USEFUL WEB SITES Japan Shipping Exchange: www.jseinc.org/index_e.htm American Arbitration Association: www.adr.org. Center for Public Resources: www.cpradr.org Information about ADR in all of the APEC countries: www.arbitration.co.nz Power-Point Presentation about ADR (Outline for a seminar or article created) by APEC ADR/EEP 2000 Project: http://www.adr.gr.jp/pdf/ADR-EEP_1.pdf Japan Commercial Arbitration Center: www.jcaa.or.jp/e/index-e.html John Barkai Web Site: www2.hawaii.edu/~barkai


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