Multistep Dispute Resolution in Design

and Construction Industry

J. Richard Cheeks, M.ASCE1

Abstract: The construction industry has a propensity to disputes dating back thousands of years, at least to the time of the Hammurabi
Code. As a result, the industry devised alternative methods for dispute resolution to avoid the civil litigation. Since the late nineteenth
century, the traditional two-step process has been included in standard construction contracts. The engineer first renders a determination,
followed by binding arbitration if either the owner or contractor disagreed with the engineer’s decision. In the last half of the twentieth
century, the industry has reexamined this traditional two-step method. This examination has produced a multistep dispute resolution
process consisting of 共1兲 loss prevention and dispute avoidance, 共2兲 direct negotiations, 共3兲 facilitated direct negotiations with preselected
standing neutrals, 共4兲 issue specific outside neutral facilitated negotiations, and 共5兲 binding adjudication. This paper examines the
evolution of this multistep dispute resolution process within the construction industry.
DOI: 10.1061/共ASCE兲1052-3928共2003兲129:2共84兲
CE Database subject headings: Arbitration; Liability; Litigation; Mediation; Negotiations; Professional practice; Risk management;
Construction management.

Introduction The complex, relational, and lengthy process of designing and

The construction industry contributes nearly $900 billion per year
共Construciton Economics 2002兲 to the U.S. economy, making it
the largest single production sector. It represents approximately
13% of the Gross National Product and employs about 8% of the
work force. In addition to the direct employment with the profes-
sions and trades, the industry provides work for scientists of vari-
ous backgrounds, analysts, financial institutions, equipment
manufacturers, material suppliers, lawyers, and governmental
agencies 共Ruskin and Estes 1982兲. Architects, engineers, and
builders create our infrastructure of housing, commercial and in-
dustrial facilities, and the wide range of public works. This built
environment enhances the lives of every citizen in meaningful
and substantial ways 共Stipanowich 1998a兲.
The design and construction process is often lengthy, and in-
volves negotiation, collaboration, and compromise among mul-
tiple parties including but not limited to the designers, contrac-
tors, and owners. The final ‘‘product’’ is therefore quite unlike a
mass marketed consumer product for which strict liability in tort
has been devised. Moreover, it is not ‘‘goods’’ under the Uniform
Commercial Code.
1 translate an owner’s idea into specific design details and construc-
President, Stokley-Cheeks and Associates, Inc.; Adjunct Professor of
Civil Engineering, Dept. of Civil Engineering, Univ. of Kentucky, Lex-
ington, KY; Private Attorney, 2506 Sugar Creek Pike, Nicholasville, KY
40356.
Note. Discussion open until September 1, 2003. Separate discussions
must be submitted for individual papers. To extend the closing date by
one month, a written request must be filed with the ASCE Managing
Editor. The manuscript for this paper was submitted for review and pos-
sible publication on September 30, 2002; approved on December 17,
2002. This paper is part of the Journal of Professional Issues in Engi-
neering Education and Practice, Vol. 129, No. 2, April 1, 2003. ©ASCE,
ISSN 1052-3928/2003/2-84 –91/$18.00.
building makes construction a process in which disputes are vir-
tually ensured 共McManamy 1994兲. This propensity toward dis-
putes in construction can be traced as far back as the well known
Hammurabi Code, published around 2200 B.C., and the law still
holds those responsible for building liable for injuries caused by
their failure to properly perform their responsibilities. However,
‘‘punishment’’ today will usually take the form of monetary dam-
ages or insistence on completed performance instead of the eye-
for-an-eye philosophy of Hammurabi’s day 共Jessup and Jessup
1963兲. This characteristic of construction led the business round-
table to conclude that construction is the least efficient industrial
segment of the U.S. economy 共Groton 1998兲.
The composition of the implementing team dictates the range
considered options and the facility’s final form, functionality,
cost, and general acceptability 共DPIC 1977兲. The unique experi-
ence that design professionals and construction specialists bring
to a particular project is highly personal. Continuity of this imple-
menting team is an important success factor, yet the composition
of the project team varies from project to project and often
changes during the course of a project, particularly for projects of
any complexity or duration. Design professionals nurture and
tion specifications. Builders transform these conceptual represen-
tations into real facilities. The design and construction team mem-
bers often participate in start-up and shake-down procedures
before the owner traditionally assumes operations for the duration
of the facility’s life 共Ruskin and Estes 1982兲.
This is precisely why the parties want to, and have to, continue
to work with one another until the project is completed regardless
of disputes. Therefore, the industry requires a dispute resolution
process that will not destroy these relationships and that will
allow the parties to achieve their objectives.

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History of Dispute Resolution in Construction
Industry
Traditional Approach to Dispute Resolution
in Construction Industry
The construction industry’s essential characteristics, that enable it
to respond to the ever-changing and varied needs of the public,
are the very ingredients that produce the conflicts. The construc-
tion industry’s significance to the economy and the industry’s
propensity, if not destiny, to experience disputes work together to
create an essential need for consent based approaches to conflict
resolution.
For many years, this industry relied on contract provisions to
cope with construction conflict. The contract typically addressed
the work to be performed, the parties, the time of performance,
the price, and the division of risks associated with normal and
abnormal hazards of performance 共Jessup and Jessup 1963兲. This
traditional construction contract approach requires the supervising
architect or engineer to approve the work, and any changes, as a
condition precedent for the owner to pay the contractor 共Jessup
and Jessup 1963兲. For example, if the contractor encounters un-
anticipated conditions, he submits a claim for additional work,
time, and compensation by requesting an amendment to the un-
derlying agreement with the owner. The design professional,
under the terms of the contract, first determines whether the con-
tractor’s claim is appropriate. The design professional then either
recommends approval or denial of the claim to the owner. Either
the owner or the contractor can contest the design professional’s
conclusion and seek relief through binding adjudication 共Jessup
and Jessup 1963兲. This is the traditional two-step process of dis-
pute resolution embodied within many construction contracts for
many decades.
This two-step approach has its roots in the relational aspects of
the construction process, a desire to maintain relationships during
the course of the project, and the need to avoid lengthy delays in
project completion. The parties also recognize that a prompt re-
sponse to a disagreement can avoid more serious conflict later on
the project. Furthermore, this approach is based on a consensus
belief among the industry members that the designer is in the best
position to determine whether an asserted change is valid based
on the intent of his own design 共Stipanowich 1998b兲.
Finally, the construction industry has used binding arbitration
as an alternative to litigation in standard contracts as early as
1871 共Bachner 1988兲. Binding arbitration has been attractive to
the industry because it provides a means to resolve its disputes on
the basis of industry practice and custom by using ‘‘insiders’’ to
render the judgment final 共Jessup and Jessup 1963兲.
Weaknesses of Traditional Approach Exposed
Over the last half century, the construction industry has developed
new delivery systems and new technologies. The industry has also
experienced increased competition, more complex relationships,
and new applications of law. These changes have exposed weak-
nesses inherent in the traditional two-step process. The design
professional, in his quasi-adjudicatory role, is vulnerable to attack
on conflict-of-interest grounds. In addition, construction arbitra-
tion changed over the years and some say it now emulates con-
ventional litigation with its speed, cost, and frustration levels.
The design professional’s decision in this role of adjudicator
often has substantial financial impact on the owner, contractor,
and design professional. If the design professional concludes the
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contractor is entitled to extra compensation or time, the owner
may face large cost increases and time extensions that exceed his
budgets and delay completion of his project. On the other hand, if
the design professional concludes in favor of the owner, the con-
tractor may be denied justifiable extra compensation, or time. In
either case, the losing party often resorts to allegations that the
design professional’s inadequate design is the cause of their loss.
Such allegations, at the very least, create an appearance of a
conflict-of-interest, if not conflict-in-fact, on the part of the design
professional.
Courtroom type motion practice often frustrates the speed of
resolution promised by arbitration. The parties, expecting sea-
soned, experienced veterans of the process, familiar with the is-
sues in dispute, are often disappointed by the quality of the arbi-
trators. The parties, expecting time and cost savings by reducing
or eliminating discovery, are often frustrated by long, inefficient
hearings, punctuated by long delays for midstream document ex-
changes or evaluative investigations. These delays sometimes
occur several years after the claim-causing event. Furthermore,
many arbitrators are reluctant to prevent cummulative or redun-
dant evidence, or issue dispositive orders prior to full-blown hear-
ings, further increasing the time and cost. Additionally, arbitration
clauses often preclude consolidation of all interested parties into a
single proceeding 共Cheeks 1996兲. The writer has observed cases
in which the owner was required to pursue his remedies in sepa-
rate, concurrent proceedings involving the same nucleus of facts
and issues. In one such case, the owner/architect agreement re-
quired arbitration while the owner/contractor agreement did not.
In another case, both of the primary owner contracts required
arbitration, but the court refused to consolidate them into a single
proceeding. This bifurcated process often produces inconsistent
results 共Stipanowich 1998b兲.
During the 1980s, construction industry disputes became more
contentious 共Mix 1997兲 and inflicted deep wounds as various
members of the construction team engaged in persistent risk shift-
ing, finger pointing, and a turn away from arbitration and back to
litigation 共McManamy 1994兲. This can probably be attributed to
increased competition for jobs due to lowered interest rates during
those years. These events led some observers to conclude that the
industry had turned on itself 共McManamy 1994兲 and that con-
struction is one of the country’s least efficient industries because
of its constant state of confrontation 共Groton 1998兲. However, as
litigation expenses increased and the perceived incentives to liti-
gate declined, the industry renewed its efforts to arbitrate disputes
and renewed its focus on alternatives to binding adjudication
共Mix 1997兲.
One professional group characterized this situation by explain-
ing that most problems are minor, but they take on mountainous
proportions if not addressed quickly by the parties 共Bachner
1995兲 Others have observed that the only parties who profit from
the system are those who make their living resolving disputes for
others—particularly lawyers 共Bachner 1988兲. This observation is
supported, at least empirically, by a reported 345% increase in the
construction bar during the contentious 1980s 共McManamy
1994兲.
Conflict is inevitable to the construction process for a number
of reasons generally inherent to the complexity of the industry, its
relationships, and its work 共Overcash 1998兲. The best laid plans
cannot anticipate all of the contingencies that are possible; adjust-
ments to the design are virtually inevitable; external events such
as material shortages or labor stoppages cannot be predicted; the
plans and specifications are prone to multiple interpretations; and
misunderstandings are part and parcel to human transactions.
Sometimes, the contract documents are left intentionally vague to
allow the project to move to the next step without additional
delay, or to transfer the risk of the unknown from the owner and
design team to the constructors. Changes in construction are more
certain than death and taxes, and these changes are the genesis of
the disagreement 共Overcash 1998兲.
Construction Industry Responds to Crisis
Application of Firm Based Loss Prevention
and Dispute Avoidance to Projects
Many commentators regard the industry meltdown of the 1980s
as the stimulus for needed change, and this may indeed be the
case. However, the movement towards this change actually began
at least a decade earlier when the geotechnical engineering com-
munity became virtually uninsurable in the late 1960s because of
its claims rate and loss history. In response, soil and foundation
engineers joined forces through a new professional association,
The Association of Soil and Foundation Engineers 共ASFE 1995a兲.
Their focus over the three to four decades has been the reduction
in the number of disputes by determining and understanding their
root causes and developing new loss prevention, dispute avoid-
ance, and dispute resolution techniques 共ASFE 1995兲.
The loss prevention techniques implemented by the geotech-
nical engineering community since the 1970s have been success-
ful, transforming it into one of the most insurable sectors of the
design profession by the late 1980s. By the late 1980s,
geotechnical-engineering firms paid premiums of 2 to 5% of gross
billings, a range favorably comparable to any other segment of
the design professions at that time. During the same period, struc-
tural engineers faced liability insurance premiums between 7 and
10% or more, if the insurance was available at all to them.
The ASFE experience has provided a road map for other de-
sign disciplines, indeed the entire industry. In 1974, ASFE intro-
duced the mediation/arbitration concept to construction 共Bachner
1988兲. This development was the first innovation in construction
dispute resolution in over 100 years 共Bachner 1995兲, primarily
because the ASFE version of mediation/arbitration introduced the
concept of a preselected neutral.
Since 1974, a new generation of alternate dispute resolution
共ADR兲 methods has emerged, building upon earlier loss-
prevention efforts by expanding the concept’s reach to entire
project teams through project management, partnering, and step
negotiations. While traditional arbitration and litigation proce-
dures remain, other processes are now available, based upon the
preselected neutral concept pioneered by ASFE, for use between
the failure of direct negotiations and the adversarial adjudication
that arbitration and litigation provide 共Bachner 1988兲.
Since the 1980s, the entire industry has broadly applied this
success by expanding the available ADR options, moving toward
prevention and quick, efficient on-site resolutions of disputes
共Mix 1997兲. These new ADR options include dispute resolution
boards 共DRB兲, settlement masters, early neutral evaluation, and
the various forms of mediation and mediation/arbitration 共Bach-
ner 1995兲. Today, there are literally dozens of ADR procedures
that are limited only by the parties’ imagination. Project partici-
pants can select a combination of methods that will suit their
needs 共Bachner 1995兲. By 1988, the industry was recognizing that
no single technique is sufficient, forecasting the coming multistep
approach. By 1998, loss prevention, dispute avoidance, and
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prompt third-party intervention were widely used by the entire
construction industry 共Stipanowich 1998a兲.
Movement Toward A Multistep Approach
The traditional two-step approach remains the starting point for
dispute resolution reform efforts because it has served the con-
struction industry well for many years. Reformers today empha-
size an expansion of the traditional two-step approach into mul-
tiple steps as described by the CPR Institute For Dispute
Resolution.
Parties may agree, either when a specific dispute arises, or
earlier in a contract clause between business ventures, to
engage in a progressive series of dispute resolution proce-
dures. One step typically is some form of negotiation, pref-
erably face-to-face between the parties. If unsuccessful, a
second tier of negotiation between higher levels of execu-
tives may resolve the matter. The next step may be media-
tion 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 共CPR 1998兲.
This multistep process moves dispute resolution closer to the
sources of disputes 共Groton 1998兲, which allows the disputants to
focus their attention on the events leading to the disputes. Regret-
tably, the CPR description does not incorporate the contributions
that loss prevention and dispute avoidance offer to the develop-
ment and operation of the overall process. When these essential
components are added, the parties work to anticipate dispute
causing events and to avoid conflict whenever possible 共Mix
1997兲.
Multistep approaches have been successfully implemented on
major projects, and the reported results have been impressive.
With majority of the Boston Central Artery/Tunnel 共CA/T兲 project
under contract 共‘‘CA/T’’ 1998兲 and the design essentially com-
plete 共Angelo 1996兲, direct negotiations have been unsuccessful
in some instances. All of these disputes have been successfully
resolved by the dispute resolution boards 共Battelle 1995兲, and
none have advanced to litigation, as of August 1997 共‘‘Boston’s’’
1997兲. The Los Angeles mass transit project adopted partnering
and DRBs in the second phase of the Red Line. As a result,
project claims for phase two fell by more than 90% 共Mix 1997兲.
The total number of claims on the project fell from 1,952 to 147.
The U.S. Army Corps of Engineers 共COE兲, Arizona Department
of Transportation 共AZDOT兲, and ASCE all report successful ex-
perience with partnering or DRBs 共McManamy 1994兲.
The construction industry has developed a broad range of op-
tions for dispute avoidance and resolution, and parties can use
these options individually or in combination as a condition pre-
cedent to final adjudication. The parties can use them in any num-
ber of combinations to form multiple steps between the anticipa-
tion of a dispute and the binding adjudication. Generally, these
procedures can be placed into five broad categories based upon
the use, or lack of standing neutrals, outside facilitators, consult-
ants, experts, and lawyers.
The objective is to identify and solve problems as they arise at
the lowest possible organizational and procedural level, prefer-
ably using informal and amicable job-site negotiations 共Bachner
1995兲. Russ Chaney, senior vice president of loss prevention ser-
vices with Design Professional Insurance Company 共DPIC兲, ob-
serves that ADR should stand for ‘‘appropriate’’ dispute resolu-
tion, and that adjudication should be the last appropriate
alternative for construction industry disputes 共DPIC 1998兲.
 The first level of the multistep process is dispute avoidance
and loss prevention. These activities are on-going processes that
examine all activities that can produce dispute 共ASFE 1995b兲.
Individual firms voluntarily implement various internal safe-
guards intended to prevent mistakes, misunderstandings, and
omissions with the ultimate goal of enhanced quality and dispute
prevention. Loss prevention techniques vary widely from internal
procedures for reviewing and checking all work, to staff training
in communication, management, and interpersonal skills, to ex-
ternal peer review of the firm’s organizational structure and poli-
cies, and external peer review of typical reports, proposals, con-
tracts, and project files.
Partnering also focuses on dispute avoidance and prevention
on a project basis. The use of partnering on a project is voluntary,
but, in contrast to a firm-based loss-prevention program, partner-
ing establishes the project protocols for party interaction, prob-
lem recognition and solution, and dispute resolution 共‘‘Build-
ing’’1998兲. When project sponsors use partnering, they initiate the
program at the beginning of the project. At that time, they agree
how they will resolve their problems and disputes during the
course of the project 共Groton 1996兲. When the parties do not
adopt a formal partnering agreement, they can apply the loss pre-
vention skills and techniques they use in their own firms to
project management function 共ASFE 1995b兲.
The second level of the multistep process is direct negotiations
at the job site by the directly affected parties. The objective of
these direct negotiations is to resolve any problems or disagree-
ments that occur quickly and efficiently 共DeSilva 1998兲. The ben-
efits of direct, job-site negotiations are reduced costs, less disrup-
tion, better information, preserved relationships, and less
diversion of human resources 共DeSilva 1998兲. While the direct
negotiations may begin with face-to-face negotiations of the
project personnel who are directly affected, the negotiations can
move to progressively higher levels of management, each more
removed from the emotions generated by the disagreement 共Gro-
ton 1996兲.
The experience of the Boston CA/T and Los Angeles Mass
Transit projects illustrate how these first two levels of the multi-
step process can identify and solve a very high percentage of
problems. Other commentators have also observed similar results,
and they report that the chances of negotiating a reasonable settle-
ment are great. The chair of the American Bar Association 共ABA兲
forum on the construction industry observed that many problems
are being resolved at the job site by way of the multistep process
共McManamy 1994兲.
These first two levels, problem avoidance and prevention, fol-
lowed by mutual problem solving and direct negotiations are de-
signed and intended to provide harmony and cooperative solu-
tions that are relatively low cost. Despite the parties’ sincere
commitment to worthy objectives, some disputes will inevitably
advance to the third level of dispute resolution, direct negotiations
facilitated by a preselected neutral. Level three provides a transi-
tion between low-cost, rapid resolution at the job site by the
project parties 共Levels 1 and 2兲, and reliance upon third party
neutrals in Levels 4 and 5 who only address specific issues in an
environment removed far from day to day project activity 共Groton
1996兲.
The cost of dispute resolution escalates rapidly when the par-
ties must rely upon outside consultants, experts, and lawyers. For
these reasons, Level 3 is the ‘‘continental divide’’ of dispute reso-
lution, the point at which the cost, hostility, and time begin to
escalate to wasteful levels 共Groton 1998兲.
Level 3 is characterized by standing neutral evaluation of the
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dispute in an effort to facilitate a conciliatory resolution still fun-
damentally framed by the parties even though the effort is some-
what removed from the day-to-day project activities. These Level
3 standing neutrals may be mediators, DRBs, early neutral evalu-
ators, and nonbinding arbitrators. They are preselected so they
can remain informed about the project’s progress and early prob-
lem identification. They have a long-term advisory interest in the
project, and they can evaluate the dispute free of the adversarial
posturing that often begins with issue-by-issue conflict resolution
at Level 4 共Groton 1996兲.
When the parties are unable to resolve the dispute at Level 3,
conflict resolution must move to outside facilitated negotiations,
the fourth level of the process. At this level, outside neutrals
facilitate negotiated settlements on an issue-by-issue basis in an
environment removed from the project activity, and the role of
attorneys and experts is expanded. Finally, the parties must sub-
mit the dispute to binding adjudication if their attempts at the first
four levels fail to find a solution. Binding adjudication is a costly,
time consuming, and adversarial process that provides an unpre-
dictable outcome.
Components of Multistep Process
There are five components of the multistep process discussed
below.
Dispute Avoidance and Loss Prevention
The parties to a construction project implement loss prevention
and dispute avoidance measures in their own business practices,
adopt partnering to promote teamwork, and agree upon dispute
resolution procedures for the project 共Groton 1998兲. When the
parties agree to partner, they adopt a common objective to com-
plete the project on time and within budget by reducing conflict
and the cost of resolution of conflict. Loss prevention and dispute
avoidance, whether performed within individual firms or as a
group with partnering, is not an ADR method because it is not
used specifically to resolve disputes. It is a statement of philoso-
phy that makes a public commitment by management to prevent
disputes whenever possible, and resolve disputes quickly when
they do occur. It is more nearly analogous to a broad application
of loss prevention through project management, first introduced
by Robert E. Meyer, President of Robert E. Meyer Consultants,
Inc., in October 1979 共ASFE 1995b兲.
Partnering is usually achieved by a contract specification that
requires the parties to the agreement to observe the fundamental
obligations of good faith and fair dealing with each other during
the project. Before actual work begins on the project, an indepen-
dent facilitator conducts a retreat for the parties. This retreat
serves three fundamental purposes: 共1兲 to define leadership and
management responsibilities; 共2兲 to establish nonadversarial
methods to identify potential problems and resolve them before
they materialize 共Groton 1998兲; and 共3兲 to nurture long term re-
lationships built upon reciprocity and trust. As such, partnering
reduces future conflict and related expense, enhances project
communications, and maintains relationships 共Stipanowich
1998b兲. While partnering is purely voluntary and bilateral, the
ABA, DPIC, and AGC all encourage the adoption of partnering in
standard contract language 共Carr et al. 1995兲 because it
• Minimizes future disputes,
• Opens channels of communication,
• Reduces dispute resolution time,
• Reduces related transaction costs,
• Preserves or enhances professional relationships, and
• Helps all parties meet budgets and schedules 共Stipanowich
1996兲,
DPIC has demonstrated its commitment to partnering by offering
to pay all or most of the cost of a partnering facilitator’s time to
conduct the partnering retreat 共McManamy 1994兲.
Partnering agreements may not relieve the parties from their
legal duties and liabilities 共Groton 1998兲. However, partnering
does provide a basis for long-term relationships by defining the
details of the multistep dispute-resolution process they will em-
ploy on their project 共Stipanowich 1998兲.
The COE has used partnering on 200 construction contracts
between 1988 and 1994 without a single claim reaching litigation.
The AZDOT has used partnering on 96 projects between 1991
and 1994 without any claims, saving about 2% of the combined
contract values 共McManamy 1994兲. Despite these documented
successes, partnering has its critics who argue that while partner-
ing has become very popular on large complex projects, propo-
nents may overstate its value as a general cure for construction
disputes. Most commentators agree that partnering does encour-
age improved communications, but partnering does not alter the
parties’ varied interests and positions. As such, discussions may
be open expressions of the respective concerns with no assurance
that the communications will be productive or cordial. This ex-
plains the common criticisms of partnering, which include the
following:
• The other side did not seriously participate in the sessions.
• There was no meaningful follow-up.
• The people who needed to be there were not.
• The partnering sessions were simply job-site progress meet-
ings, which were not directed at changing attitudes.
• The informal cooperative approach is not consistent with ad-
versarial legal positions.
• Are statements made during partnering sessions admissions
that can be used later in court?
Some construction attorneys also criticize partnering because it
requires direct verbal communication rather than written formal
claim submissions. They express concern about a potential waiver
of the claim 共Overcash 1998兲. Generally, partnering differs fun-
damentally from the traditional adversarial contract scheme used
in the industry. Some members of the construction bar warn that
this approach could place the usual ‘‘independent contracting
party’’ status in jeopardy. Finally, some construction attorneys
fear that partnering could end the gravy train of lucrative con-
struction disputes 共Overcash 1998兲.
Industry members respond to these legal concerns by pointing
out that partnering has enjoyed a significant measure of success
共McManamy 1994兲. They argue that the conflict between partner-
ing and traditional contracts indicates a problem with the tradi-
tional approach to construction contracts, not a problem with part-
nering. Furthermore, no construction contract will ever be
executed exactly as written because a construction contract is a
static agreement, focused only on the fixed elements of perfor-
mance. As such, a construction contract can not provide for the
relational aspects of the process 共Overcash 1998兲.
Construction industry lawyers must draft future contracts with
the recognition that construction is a dynamic process. These con-
tracts should specify how the parties would allocate responsibility
for changes and changing circumstances—how they will resolve
their disputes 共Overcash 1998兲. To those construction attorneys
who fear the loss of business, the industry will still need lawyers;
however, the construction lawyer of the future must shift his or
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her focus away from adjudication of the industry’s disputes to
prevention and prompt resolution 共Mix 1997兲.
Direct and Stepped Negotiations
Project-management personnel can resolve problems on site when
they promptly discuss the problem and reach an agreement. This
rapid response to problems and their resolution by mutual agree-
ment are fundamental tenets of the dispute avoidance and loss
prevention. When rapid agreement is not possible, however, the
affected parties must be willing to engage in prompt, substantial,
honest negotiation 共Groton 2000兲.
The job-site negotiations are likely to succeed when the levels
of disagreement as to the entitlement and amount in controversy
are relatively low. Job-site negotiations can also succeed even if
there is a relatively large disagreement about either entitlement or
the amount if the parties empower their project managers to reach
agreement on entitlement issues and analyze the data with regard
to quantification. Those negotiations should occur, at least ini-
tially, at the management levels closest to the dispute before mov-
ing to progressively higher levels of management because with
each successive step up the management ladder, the negotiators
are further removed from the facts. However, each move away
from the project level personnel allows management to focus on
the broader, long-term business relationships with fewer emo-
tional entanglements 共Groton 1999兲.
Tony Battelle provides an excellent insight into the successful
use of ‘‘stepped negotiations’’ for ‘‘filtering’’ the disputes on the
CA/T. On that project, the managers initially address the prob-
lems and disagreements at the job site 共Battelle 1995兲. The pur-
pose is to informally resolve as many disagreements at the lowest
possible level. At this stage, the parties have maximum options
共DeSilva 1998兲 because the mutual goals and cooperative rela-
tionships established by the partnering charter probably still shape
job-site attitudes 共Groton 1998兲. These job-site negotiations offer
the additional advantages of reduced costs, less disruption, better
information, preserved relationships, and less diversion of human
resources 共DeSilva 1998兲.
Groton 共1996兲 has identified three major obstacles to success-
ful job-site negotiations:
1. Personalities and hardened personality-based positions make
it difficult to agree on entitlement.
2. Pressure of work, constraints on project-level resources, and
a close focus on project goals makes it difficult to agree on
the amount in controversy.
3. The competence and attitude of the negotiators can interfere
with success.
The criticisms and legal concerns previously noted regarding
partnering also apply to direct negotiations 共Overcash 1998兲.
Standing Neutrals
When the project participants are not able to resolve their prob-
lems and disputes within the context of their mutual interests,
they may obtain assistance from project-standing neutrals to fa-
cilitate negotiated settlement still within the context of the on-
going project. Standing advisors and neutrals are distinguishable
from the outside neutrals and litigators that the parties must en-
gage for external resolution in subsequent steps of this process.
The parties select the standing neutrals at the beginning of the
project. The parties expect the standing neutrals to adopt a long-
term perspective and provide on-going advice for the benefit of
the project. The efforts of the standing neutrals form a transition
between project-based dispute resolution and external-resolution
methods that rely upon outside consultants, experts, neutral evalu-
ators, and litigators, each hired by each of the disputants to ad-
dress a specific issue that the parties could not resolve by direct
negotiations 共Groton 1996兲.
The parties invest in these advisors from the beginning of a
project by compensating them for time spent attending preproject
and regular progress meetings. Their presence at these meetings
provides the basis for them to assist in identifying areas from
which problems could emerge and helping the parties identify
appropriate procedures and techniques to address the issues be-
fore they erupt into disagreements, much less a full dispute. These
advisors are not responsible for day-to-day activities of the
project, but are vested with responsibility for any disagreements
that occur as well as their resolution. The standing neutrals’ par-
ticipation in the preproject and project-progress meetings pro-
vides them with sufficient knowledge about the project’s activities
and progress for them to facilitate dispute settlement within the
context of the job, and concurrent with the performance of the
work 共Groton 1996兲.
The parties can structure a standing-neutral process in a wide
variety of ways to suit the project size, complexity, and culture of
the various representatives. The function can be satisfied by indi-
viduals 共e.g., referee, standing mediator, standing arbitrator, etc.兲
or a group of individuals representing specific technical disci-
plines required on the project. Many projects, particularly those of
significant size, assemble these individual-standing neutrals into a
three member DRB 共Groton 1996兲. Very large projects, such as
the CA/T, use multiple DRBs, each of which is formed as the
various contracts are awarded 共Battelle 1995兲.
If a dispute arises, the parties can quickly mobilize the respec-
tive standing neutral共s兲 to assist in the settlement negotiations
because of their familiarity with the project and their responsibil-
ity to it.
Several agencies report significant success with standing neu-
trals, particularly functioning as DRBs. As of 1994, only a few
claims had reached the DRB level and none had progressed to
litigation, the next available option on the CA/T project 共Battelle
1995兲. ASCE tracked the performance of DRBs on 166 projects
worth $10.5 billion. These boards have collectively heard a total
of 225 disputes and resolved 208, and only one of the unresolved
disputes reached litigation, where it settled prior to final adjudi-
cation. ASCE estimates that DRBs cost between 0.1 and 0.3% of
construction cost, and Deloitte & Touche data suggests ADR
saves between 10 to 50% of anticipated litigation costs. Empiri-
cally, based on this data and AZDOT’s 2% of construction costs
savings, one can infer that the use of partnering and DRBs could
produce industry wide annual savings of $10 to $15 billion 共Mc-
Manamy 1994兲.
Groton 共1998兲 has identified the following four elements criti-
cal to the success of standing advisor or standing neutral dispute
resolution:
• Early formation and identification,
• Continuous involvement,
• Prompt action on any disputes, and
• Mutual selection and confidence in the neutrals by the parties.
The use of standing neutrals on a project raises several issues
about their functioning, qualifications, training, and experience.
What role should lawyers play, if any, as neutrals or advocates?
Should all DRB members be independent of the parties, or should
a panel consist of ‘‘dedicated wing panelists’’ selected by the
respective parties with an independent chairperson? Should the
DRB provide only conclusive reports or include the reasoning for
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their recommendations? Should the DRB findings be available to
any subsequent adjudicatory process as evidence 共Battelle 1995兲?
Planners of the CA/T project elected to use totally independent
three-person panels consisting of two technical wing members
and a lawyer chairperson 共Battelle 1995兲. Other commentators
argue that DRB member independence is essential to ensure im-
partiality and neutrality, prerequisites of the trust that the parties
must possess toward the DRBs 共Smith et al. 1996兲. In this regard,
the Los Angeles Mass Transit project referenced previously pro-
vides a sobering example of the effect that advocate wing mem-
bers can have on a project. After receiving an unfavorable unani-
mous decision from the DRB, the owner fired the member it had
appointed, accusing this member of bias in favor of the contrac-
tor.
The New York City rules specify DRBs staffed with two em-
ployees of the city and one neutral, selected by the city from a
preapproved list of neutrals maintained by the city. One neutral
member observed in an unpublished decision that although the
two city employees tried to be fair, the ‘‘appearance of justice
would be better served’’ if the representatives designated by one
of the parties could not outvote the neutral member 共Smith et al.
1996兲.
There is a general skepticism among members of the construc-
tion industry about the role attorneys play. Some people believe
that an attorney’s mere presence undermines the process. How-
ever, many construction attorneys argue that counsel should have
a role in DRBs. The goal of the DRB deliberations is to resolve
the dispute. However, lawyers argue that if the parties exclude
advocating counsel from the process, counsel’s acceptance of the
outcome will be unlikely because counsel will have no basis to
conclude the process allowed a complete and impartial hearing of
the matter. They recommend that, at the least, the DRBs should
permit counsel to attend, even in an inactive role, to observe and
confer with his client 共Smith et al. 1996兲.
Members of the ABA also argue that the DRBs’ decisions
probably should not be admissible evidence in subsequent adju-
dication because its evidentiary value is questionable, and the
value of written DRB recommendations is probably outweighed
by their prejudicial effect. Supporters of DRBs contend that the
very knowledge that the DRB recommendations could be used in
a future proceeding provides the parties with a strong impetus to
settle 共Smith et al. 1996兲.
Facilitated Negotiations
If the parties fail to resolve their dispute within the framework of
the first three levels, the dispute crosses the ‘‘continental divide’’
of dispute resolution and moves down a slippery slope. When this
occurs, the parties lose control of the pace and cost of the pro-
cesses because the disputes proceed on an issue-by-issue basis
and the consultants, experts, and lawyers control the process.
Consequently, the parties are less likely to find the process or
outcome satisfactory 共Groton 1996兲.
The upper portion of this slippery slope uses facilitated nego-
tiations in a last-ditch effort to avoid the final binding adjudica-
tion. In this regard, a large number of techniques are available to
the industry including advisory expert opinions, mediation, mini-
trial, and nonbinding arbitration. In each of these, the neutral
receives ‘‘evidence’’ from each party. However, the neutral’s role
varies widely depending upon the actual method that is used.
Some of these procedures vest no power in the neutral to make
decisions or even recommendations 共mediation兲. Other proce-
dures allow the neutral to issue detailed reports assessing the facts
and stating a recommended basis for settlement, e.g. mini-trial,
nonbinding arbitration, etc. Other processes provide the neutral
with the authority to the render of an opinion of the probable
outcome, should the case proceed to litigation 共advisory expert
opinion, mini-trial, and nonbinding arbitration兲 共Groton 1996兲.
This level of dispute resolution differs from the previous level
in three primary ways. First, unlike the standing neutrals that
characterize the previous activities, these neutrals enter the dis-
pute resolution with essentially no prior involvement with or
knowledge about the project or the parties. Second, these dispute
resolution activities occur in an environment totally removed
from on-going project activities. Third, the parties employ con-
sultants, experts, and counsel to prepare and argue their respective
positions.
Adversarial Binding Adjudication
When the parties are unable to deal with one another on their own
terms, they must submit their conflict for final binding adjudica-
tion by a tribunal that imposes a binding decision. As previously
discussed, this final level of the multistep process was the second
step of the traditional two tier approach 共Stipanowich 1998a兲.
Whether this final step utilizes binding arbitration or traditional
litigation, the costs will be large, the time required to reach con-
clusion exhausting, and the parties at the end of the day will
probably feel that no one has ‘‘won.’’
The literature documents the problems and frustrations associ-
ated with litigation of construction-industry disputes. Some com-
mentators reach the same conclusion as many design and con-
struction professionals, that litigation should not be used to
resolve construction-related disputes. These opponents of litiga-
tion point to the ‘‘win/lose’’ attitudes that litigation produces, the
destruction of relationships, the inefficiency and expense of the
process, and the bluntness with which the law cuts into the
wounds of the industry’s illness 共Groton 1998兲.
People who hold this view implicitly are recommending bind-
ing arbitration because it is the only real option that is available to
the construction industry for this final binding adjudication, when
it is required 共Groton 1996兲. Private judging offers a third alter-
native final adjudicative method and final resolution. However, in
the writer’s experience, members of the industry do not generally
recognize private judging as a third viable alternative for this final
step of the multistep process.
Some veterans of construction arbitration report costs, times,
and frustration levels on par with litigation. The principal sug-
gested advantage that binding arbitration offers is the use of in-
dustry representatives as the decision makers. This traditional ad-
vantage has received recent criticism regarding the quality of the
panel of construction arbitrators. This criticism, at the least,
brings this perceived advantage into question 共Stipanowich
1998b兲.
These aversions toward litigation run very deeply within the
design and construction practitioner’s psyche. Since entering the
profession in a private-practice environment, the writer has been
indoctrinated by constant and repeated internal and external train-
ing about the absurdity of litigation, the absolute necessity of
avoiding it at nearly any cost, and the importance of loss preven-
tion and negotiated settlements. However, there are construction
disputes that the parties, with advice of counsel, should litigate,
and parties should at least consider litigation an option in most
cases. Litigation may properly be the preferred alternative when
共1兲 disputes involve a favorable legal precedent, 共2兲 emergency
relief is sought, 共3兲 the amount of money in dispute is large, or 共4兲
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information is required that can only be obtained by applying the
rules of discovery. Litigation may also be preferable to binding
arbitration when
1. The dispute must be litigated to achieve an appropriate re-
sult,
2. The anticipated compromise would be contrary to the cus-
tom and practice relating to responsibility and duty,
3. The inevitable compromise could create a dangerous busi-
ness precedent for the industry with respect to relationships,
4. The scope of claimed damages is so outrageous that compro-
mise can only be a financial disaster,
5. There are clear, dispositive legal defenses such as the statute
of limitations or applicable contractual provisions, and
6. Necessary third parties cannot be made party to the 关ADR兴
process 共Bachner 1988兲.
Because of these respective relative advantages of litigation
over binding arbitration, the construction industry should address
this remaining issue—whether litigation, binding arbitration, or
any other method should be the exclusive method of final adjudi-
cation specified within standard contract documents? Certainly,
the collective industry experience favoring binding arbitration
cannot and should not be ignored. Broad arbitration agreements
that foreclose a party from litigating, however, could deprive the
parties of a more expeditious resolution when the particular dis-
pute falls into one of the categories identified by Bachner and
Marcus.
Conclusion
Over the last quarter century, the construction industry has ex-
plored and developed alternatives and supplements to its tradi-
tional two-step process of dispute resolution. As a result, the in-
dustry is moving toward a multistep process designed to advocate
loss prevention and dispute avoidance, and to push dispute reso-
lution as close as possible to the events and people involved di-
rectly with the dispute. This shift has been accompanied by the
realization that dispute avoidance and loss prevention are impor-
tant to the overall success of the construction process by identi-
fying the root causes of problems, enhancing the quality of the
work, and promoting productive communications among the
project participants.
The ultimate goal remains the reduction in the amount of bind-
ing adjudication required to resolve industry disputes. McMan-
amy 共1994兲 has characterized the industry’s determination in the
1990s as ‘‘a full scale counter assault ... 关on the兴 unending orgy of
risk-shifting, finger-pointing, and costly litigation.’’ The early
uses of a multistep dispute resolution process have been effective
in filtering out the vast majority of problems and disputes at or
near the project level 共Battelle 1995兲.
Nevertheless, questions remain. Will a multistep process actu-
ally decrease the overall time and cost of dispute resolution, or
increase them? Will the multistep process still be as appealing
after a case works its way to adjudication, only to be resolved by
a summary judgment motion in court?
Skeptics point out that over 90% of construction disputes settle
prior to the completion of binding adjudication, absent the use of
any specially developed ADR techniques. While this non-ADR
settlement rate is substantial, many of these settlements occur
virtually on the court house steps, only after years of discovery,
high cost, damaged relationships, and total disruption to the lives
of every party. ADR advocates argue that the multistep approach
will reduce the number of problems that erupt into full disputes.
In addition, any remaining disputes should require less time and
money, and should cause less disruption to lives and relationships.
These are beneficial outcomes even if the overall percentage of
cases resolved prior to adjudication is not significantly increased.
The multistep approach offers the flexibility of a wide range of
approaches that parties can select and blend together for any par-
ticular project, large or small, of usual or great complexity. For
example, some projects may be better suited for a three-step op-
tion, e.g., the traditional two-step approach with voluntary media-
tion added between direct negotiations and binding adjudication.
Other projects may require a full compliment of substeps within
each of the five identified major levels. A very large number of
possible variations exist between these limiting approaches.
ADR is not an end in and of itself; it is a process. The industry
and the legal community must continue to inject loss-prevention
and dispute-avoidance principles into the construction process
from inception of all projects. The industry must also continue its
search for improved approaches that can lower the high transac-
tion costs associated with construction-industry dispute resolu-
tion. Whether future improvements take the form of new steps or
fewer steps, more options or different options, the real key to
success will be enduring relationships built on trust, respect, re-
sponsibility, fairness, and professionalism promoted by the loss
prevention, dispute avoidance, and partnering concepts.
If the construction industry can lower its dispute-resolution
transaction costs, society can use the saved resources to increase
the volume of new construction, create innovative design ap-
proaches, and develop improved construction technologies.
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