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The following article was included as a feature comment in the April 19, 1999 issue of the CONSTRUCTION CONTRACTOR and is reproduced by permission of the publisher, Federal Publications.
Alternative dispute resolution (ADR) is widely used to resolve construction disputes. ADR is a term that refers to various procedures. For ADR to be effective, parties, counsel, and the ADR neutral should consider which technique or combination of techniques to apply. It is helpful to know the similarities and differences in these procedures in order to make an effective choice.
This FEATURE COMMENT discusses the types of ADR techniques and their similarities and differences. It was prepared by Board Judge Allan H. Goodman of the General Services Administration Board of Contract Appeals (GSBCA) .
Choosing a Neutral - The parties will usually decide upon the type of ADR technique they wish to use before a neutral is chosen. The type of technique will determine the individual who will serve as the neutral, as individuals may not be experienced in all ADR techniques. For example, there are individuals who are trained as arbitrators but not mediators, and vice versa.
There are circumstances in which a neutral may employ more than one technique. For cases docketed before the GSBCA, the parties will discuss the various techniques available with the judge assigned to the case. That judge may ultimately be the person to serve as the neutral, or another judge may be appointed to do so. It is not unusual for the parties to decide to use more than one ADR procedure in combination. There have been instances in which the parties, after deciding upon a procedure to be used, request that a different procedure be used before the ADR session commences or while it is proceeding.
Binding Arbitration - Binding arbitration is probably the most familiar ADR technique since it is similar to litigation. The goal of arbitration is a binding decision on the merits. An individual, or a panel of individuals, with specific expertise in the subject matter of the dispute is chosen by the parties and given the authority to hear evidence and render a decision. While arbitration is said to be less formal than litigation, the actual hearing process is similar -- opening statements, witness testimony elicited by attorney examination, cross examination, closing arguments, and often the submission of written briefs before and after the hearing. The arbitrator is in essence a "private judge."
The advantages of arbitration over litigation are often said to be savings in time and expense. The parties do not have to wait their turn on a docket in order to have their case resolved, much of the pretrial discovery can be eliminated by voluntary cooperation, and hearings may be expedited. In practice, the arbitrator does not have the authority that a judge would have to control the proceedings. The advantages of arbitration may disappear if the parties themselves delay the process, demand extensive prehearing discovery, and extend the hearing by insisting on protracted testimony. For resolution of cases normally docketed before the GSBCA, arbitration is not a viable alternative, as the Board's traditional procedures result in a binding decision on the merits. For disputes referred to the GSBCA by other agencies over which the Board would not otherwise have jurisdiction, binding arbitration is often chosen.
Non-Binding Arbitration. Non-binding arbitration is the review of evidence by an arbitrator, in the same procedural setting as binding arbitration. The arbitrator then renders a non-binding decision, which is used as a basis of settlement discussions. This procedure is not often used, as most parties would not decide to go through such an extensive procedure only to receive a non-binding decision. Parties often do choose to use non-binding procedures, but they will usually choose one of the more expedited techniques described below instead of non-binding arbitration.
Round-table hearing. The round-table hearing is held in a conference room rather than a hearing room. All witnesses are placed under oath at the beginning of the hearing. The evidence is presented by the attorneys and witnesses in a discussion format, with the judge controlling the flow of the discussion. Witnesses may direct questions to each other and respond to comments of others. A court reporter is present, and a transcript is made. The case is resolved by a binding decision on the merits, just as if a traditional hearing was held.
Binding Decision, Summary Trial. For courts and Boards of Contract Appeals, there is a technique known as "binding decision" or "summary trial." In this process, one or more judges render a decision which, by prior agreement of the parties, is to be binding and non-appealable. The manner in which information is presented for a binding decision may vary depending on the circumstances of the particular case. The parties may agree to present the information in summary fashion, through a discussion around a conference table rather than in a hearing room. This technique has been used in bid protests at the GSBCA because the parties desire to resolve the protest and proceed with the award of the contract. A binding decision is also an economical ADR procedure in matters that involve small dollar amounts, allowing a quick resolution without committing resources which might possibly exceed the monetary recovery.
Neutral Case Evaluation - Neutral case evaluation is a process in which the parties agree to present information upon which a neutral bases a non-binding, oral, advisory opinion. The manner in which the information is presented depends upon the parties' agreement. Presentations are usually an informal proffer of information (not necessarily in the form of evidence which would be admissible at a hearing) together with limited argument from counsel.
In contrast to arbitration, the presentation of information is to demonstrate to the neutral what the evidence would be if traditional procedures were employed.
During the presentation of information to the neutral, the party representatives and attorneys may ask questions to each other, and the neutral may also ask questions. Depending on the nature of the issues involved, an advisory opinion may be rendered at the conclusion of the presentation, or the neutral may schedule a time to reconvene in order to render the opinion. When the non-binding decision is rendered, the parties may attempt to settle the dispute without further assistance of the neutral or may request that the neutral become involved in settlement discussions. The parties may also request that the neutral then conduct the settlement negotiations as a mediation, which is described below.
Mediation - Mediation uses a neutral third party, the mediator, who helps the parties reach a settlement of the dispute. Unlike arbitration, the mediation process does not confer the neutral with the authority to render a binding decision. Thus, the goal of a successful mediation is that the parties will enter into a binding settlement agreement.
Mediation processes vary, but a typical order of the process is as follows. The mediator requests brief written statements from the parties prior to meeting with them. These written statements are to familiarize the mediator with the issues. The mediation commences in a joint session, in which the mediator meets with the parties and their representatives. Each party presents their position to the mediator in the presence of the other party. After this joint session, the mediator then meets privately in a caucus with each party. This caucus is the distinguishing feature of mediation, as the mediator is allowed to have private, ex parte contact with the parties. Such private contact is not allowed during litigation or arbitration between parties and the judge or arbitrator. For purposes of these private meetings, it is useful to place the parties in separate rooms so that the mediator can meet with them privately.
There is no limit to the number of private caucuses the mediator may conduct, nor is there a predetermined order as to which party the mediator may meet with first. The mediator will go back and forth between the parties, gathering information and transmitting information. The transmittal of information will only be to the extent that the parties authorize the transmittal. During these private meetings, the parties may reveal confidential information which they believe might be helpful for the mediator to know, but which they do not wish to reveal to the other party. They will specifically direct the mediator not to reveal this information to the other party.
There comes a time in the mediation process when the focus shifts from information gathering to resolution of the dispute. The parties privately discuss their settlement options with the mediator. The mediator and the parties may discuss proposed settlement terms which a court or arbitrator would not have the power to impose. For example, such terms would include exercise of options under an existing contract, an agreement to enter into future contracts, removal of certain personnel from the worksite, or anything else mutually agreeable to the parties. The mediator serves as a "shuttle diplomat," moving back and forth between the parties.
It may become necessary for the parties to meet together during the settlement process and talk directly to each other, but often the parties do not meet again until after they have accepted the terms of a proposed settlement. Once the parties have agreed to a settlement, the mediator will usually have the parties meet together and have them reduce the agreement to writing. The written document does not have to be a formal agreement, but can be no more than a handwritten list of terms that the parties sign. One caution is that the parties should draft this document, and not the mediator, so that there will be no misunderstanding as to who drafted the terms of the agreement.
How does mediation differ from neutral case evaluation? There are two approaches to mediation, one of which is similar to neutral case evaluation. In evaluative mediation, the parties request a non-binding assessment from the mediator similar to that rendered during neutral case evaluation. The non-binding assessment comes at the end of the information gathering phase, and serves as a basis of settlement discussion in which the mediator continues to participate. The difference between this procedure and neutral case evaluation is that the non-binding assessment comes after the mediator has met privately with the parties, while in neutral case evaluation there is no ex parte contact. Usually, parties who seek mediation at the GSBCA with a judge serving as mediator will request evaluative mediation, as they consider the non-binding opinion to have predictive value.
The other mediation technique is facilitative mediation, in which the mediator is not asked to offer an opinion, but aids in discussion, points out strengths and weaknesses, and guides the parties in settlement negotiations. Such a technique, while useful to the parties, falls short of providing non-binding opinion.
Mini-trial. The term "mini-trial" is a procedure conducted by a neutral presiding over a panel consisting of representatives of the parties who have authority to settle the dispute - usually one representative from each party. Ideally, the party representatives should be individuals in upper management who have not been directly involved in the project from which the dispute arises so they are "emotionally divorced" from the dispute. The panel hears the evidence and/or information presented by attorneys and witnesses in summary fashion. Once the presentation phase is concluded, the neutral aids the other panel members in reaching a settlement by employing facilitative or evaluative mediation.
The term mini-trial is a misnomer. It is not a trial, but rather a structured settlement procedure which psychologically separates the parties' decision makers from the advocacy of their positions and places them apart with the neutral. Those with the authority to settle the dispute therefore become a part of the solution. Their perspective is that of the problem solver, as the advocates from both parties direct their presentation to them. Once the presentation is over, the party representatives deal solely with the neutral to arrive at a solution.
Mini-trials are very effective in resolving complex disputes. Cases which would require a hearing of a month or more have been resolved by mini-trials lasting a week or less. The savings in time and dollars is enormous.
Combined ADR Procedures. ADR procedures may be used in combination. The non-binding procedures of neutral case evaluation and mediation work well in combination. Once the neutral has rendered a non-binding opinion, this opinion can be used as the basis of settlement discussions. The neutral then assumes the role of mediator and facilitates the settlement discussions, meeting ex parte with the parties, if necessary.
This combination is particularly useful in disputes that involve several disputed change orders. In such disputes, the parties often elect to proceed by presenting information on each individual change order, receiving a non-binding opinion as to entitlement, and then resolving quantum by mediation with the help of the neutral.
Conclusion. ADR procedures are used successfully to resolve construction disputes, but the appropriate technique must be determined by the parties, sometimes in collaboration with the neutral. A clear understanding of the similarities and differences between the available techniques is necessary in order to make an informed choice. The parties may decide to use one or more procedures in combination in any given case.