2 Breakout Session #107 Carl P. Meglan, P.E., P.S., Founder & Limited Partner Meglan, Meglan & Company, Limited April 15, :30 pm to 5:30 pm How ADR Resolves Construction Disputes

3 Carl Meglan has more than 40 years of experience as a professional engineer and surveyor. His many areas of expertise include construction engineering, construction forensics, claims management, alternate dispute resolution, and organizational leadership and training. He has served as a consultant, advisor, expert witness, and as a mediator and arbitrator for the American Arbitration Association for 25 years. In the latter role, he has been the arbitrator on 130 separate construction arbitration cases. CARL P. MEGLAN, P.E., P.S.

4 Alternate dispute resolution (ADR) Dispute resolution boards Mediation vs. arbitration (or other) Mediation process Hearings, settlements & awards Arbitration process Mediation & Arbitration SEMINAR OVERVIEW

5 Mediation & Arbitration TYPES OF ADR Partnering & risk-sharing (incompatible?) Dispute resolution panels/boards Negotiation (by parties or representatives) Mediation (structured, assisted negotiation using a facilitator or mediator) Continued   

6 Mediation & Arbitration TYPES OF ADR Arbitration (decisions & awards made by neutrals) Party arbitration (3 arbitrators – two selected by parties & one selected by the two neutrals) Neutral arbitration (arbitrator selected by agreement of parties) American Arbitration Association Construction Arbitration Panel (1 or 3 arbitrators) Continued 

7 Mediation & Arbitration TYPES OF ADR Summary trials (decisions & awards by panel of professional neutrals) Litigation Trial by jury (decisions & awards by panel of amateur neutrals & judge) Trial by judge (decisions & awards by judge)

8 Dispute Resolution Boards TYPES OF ADR What are they? How do they work?

9 Summary Trials TYPES OF ADR What are they? How do they work?

10 Mediation vs. Arbitration THE DIFFERENCE? The major distinction lies within the more simplified mediation process Selecting a mediator Identifying all vital parties to the mediation Statements & hearings Settlements Let’s examine the mediation process...

11 Construction Mediation MEDIATOR SELECTION Candidate must be a neutral, disinterested individual with known mediation skills and experience who can manage the mediation process and bring it to a successful conclusion (settlement) for all involved parties and stakeholders.

12 Construction Mediation PRIOR TO HEARINGS Identify mediation parties & stakeholders Written pre-mediation summary statements by the parties to the mediator (facts & law) Adjust the parties’ pre-mediation attitude (reconciliation & compromise) Exclude representatives with preferences for arbitration or litigation

13 Construction Mediation HEARING PROCESS Parties present at the mediation offer opening statements, summarizing their position Parties are then placed in separate rooms with exhibits & witnesses to explain their positions & proofs to the mediator (facts & law) Continued   

14 Construction Mediation HEARING PROCESS Mediator communicates facts & legal positions (authorized by each party) from one party to the other (information exchange) Acting as communicator & go-between, mediator presents each party’s best settlement offer (or none, at first) Exchange of information & offers continues until a mutually agreeable settlement is reached & signed by all parties

15 Construction Mediation A GOOD SETTLEMENT Generally defined as an obvious displeasure with the mutually agreed settlement, offset by an overriding relief of having the process completed & now in the past Terms of a settlement can also assume forms other than just $$$

16 Construction Mediation WHY AAA IS USED? Contracts authored by the American Institute of Architects make mediation a prerequisite to arbitration or litigation (known as a condition precedent), so it is prudent to have AAA select a mediator to apply AAA rules and to manage the mediation process.

17 Arbitration vs. Mediation THE DIFFERENCES? Construction arbitrators decide who will pay whom how much (or do what for whom) Parties are usually represented by legal counsel, although it’s not mandatory Arbitrators’ award is final & legally binding Continued   

18 Arbitration vs. Mediation THE DIFFERENCES? Construction arbitration awards are decided & written by the arbitrators only Construction mediation settlements are reached & written by the parties only with the help of a mediator/facilitator Construction mediators and arbitrators must be familiar with the construction process and parties involved

19 Construction Arbitration WHAT IS IT? A binding & final decision rendered by one arbitrator (knowledgeable in construction) or an experienced arbitration panel selected and agreed upon by the parties An arbitrator serves as both the judge & juror, deciding facts & law (which to believe & adhere to)

20 Construction Arbitration NONBINDING ARBITRATION It is not arbitration... It is mediation (and a waste of time & money, usually) By definition, arbitration is legally binding on all parties & enforceable by law in the appropriate court (judgments issued by the court are identical to an arbitrator’s award)

21 Construction Arbitration AAA PROCESS Under AAA’s construction arbitration rules Claimant files an arbitration demand & pays an administrative fee AAA forwards copy of demand to other party (respondent), with a set time to respond Respondent files a response or counter claim & pays an administrative fee or Continued   

22 Construction Arbitration AAA PROCESS Respondent ignores demand (but after a set time period has expired, the process goes forward as if the respondent had answered the demand) Respondent may seek injunctive relief in court, which halts the arbitration process pending a court ruling or further appeal Continued   

23 Construction Arbitration AAA PROCESS Once the claim is filed & served, AAA assigns the case to an administrator Administrator selects a minimum of 12 arbitrators from the AAA Construction Arbitrators Panel, often located in proximity to the disputed project site, depending upon the contract language Continued   

24 Construction Arbitration AAA PROCESS Administrator sends list of arbitrators to parties for their review Parties strike names from the list with whom they have a prior relationship (business, social, family, etc.) or know the other party to have had one Continued   

25 Construction Arbitration AAA PROCESS Parties rank remaining arbitrators in numerical order of preference to each party Case manager selects arbitrators with the lowest numerical score & notifies the parties & arbitrators Arbitrators are asked to disclose any known conflicts with any party to the arbitration Continued   

26 Construction Arbitration AAA PROCESS To facilitate the conflict elimination process, AAA requires each party to list all of their principals, individuals, and companies involved in the project and the dispute and to list every potential witness they may call at the arbitration hearing. Those lists are forwarded to the appointed arbitrators who use them to determine possible conflicts of interest. Continued   

27 Construction Arbitration AAA PROCESS Once any conflicts are identified, waived and/or eliminated, the arbitrators sign a neutrality oath & are appointed to arbitrate the case from that point forward Large construction arbitration cases have three arbitrators, one of which is selected as chairman of the arbitration panel to handle administration Continued   

28 Construction Arbitration AAA PROCESS After the arbitrators are sworn in, a pre-arbitration hearing is usually held via teleconference, where the following are agreed to by the parties: Date, location & estimated duration of the hearings Whether there will be discovery, and if so, how much Continued   

29 Construction Arbitration AAA PROCESS Dates are set for exchange of exhibits and witness lists between the parties Requests to depose witnesses are made and & agreed to by the parties (or the arbitrators if they cannot agree) A stipulation of facts (and list of common exhibits) is formally agreed to by the parties, usually in accordance with a scheduled date of completion Continued   

30 Construction Arbitration AAA PROCESS Arbitrators who conduct the hearings may grant a party a continuance from the set hearing date, but often refuse such requests Pre-arbitration briefs may be prepared & delivered by the parties to the arbitrators, depending upon the preferences of the arbitrators & parties Continued   

31 Construction Arbitration AAA PROCESS Arbitration hearing begins with opening statements by claimant & respondent (or their advocates), setting the tone of the hearing & explaining each party’s position Claimant calls witnesses to testify on behalf of its position, facts & exhibits Witnesses may be cross-examined by respondent Continued   

32 Construction Arbitration AAA PROCESS Direct examination & cross-examination of witnesses proceeds until there are no more questions of the witnesses Claimant ends its case after presenting its final witness & cross-examination is finished Respondent then calls witnesses to testify on behalf of its position, facts & exhibits Cont  

33 Construction Arbitration AAA PROCESS Witnesses may be cross-examined by claimant Direct examination & cross-examination of witnesses proceeds until there are no more questions of the witnesses Respondent ends its case after presenting its final witness & cross-examination is finished Continued   

34 Construction Arbitration AAA PROCESS Arbitrators may ask questions of any witnesses at any point in the examination process, but that usually occurs at the end of the examinations, if at all Upon concluding the testimony of all witnesses of all parties, the hearing is declared closed Continued   

35 Construction Arbitration AAA PROCESS Parties & arbitrators may agree to the preparation of post-hearing briefs, a suggested form of award from each party, & a receipt date by the arbitrators Arbitrators have 10 to 30 days to make their awards after the close of the hearing or the date of receipt of the post-arbitration briefs, whichever is later Continued   

36 Construction Arbitration AAA PROCESS Awards are written by the arbitrators and forwarded to the AAA case administrator for distribution to the parties, at which point the arbitrators are dismissed Awards may be brief or very complex findings of fact & conclusions of law, depending on the wishes of the parties, with most arbitrators preferring awards in terms of dollars

37 The Arbitrator SELECTION AAA construction arbitrators are usually selected from among written applicants by a panel of local arbitrators who have served the association for many years. AAA arbitrators are engineers, contractors, architects, construction law attorneys, and other industry experts with considerable construction project experience. Attorneys constitute less then one-third of all AAA Construction Arbitrator Panelists.

38 The Arbitrator TRAINING AAA construction arbitrators are required to complete formal training courses, developed and administered by the association. Failure to take them will result in the removal of an arbitrator from the AAA Construction Arbitrator Panel until the courses are completed. Usually one course per year is required. AAA has the only continuously trained and reviewed panel of construction arbitrators in the U.S.

39 The Arbitrator COMPENSATION Arbitrators are compensated by the day and/or hour for their services. For example, an arbitrator might set his/her compensation rate at $800 per day and/or $100 per hour (for partial days) with the first day free, except for small single-day arbitrations, which are set by AAA at $950.

40 AAA Resources GENERAL INFORMATION For all other information, including the complete rules and fee schedules for mediation and arbitration, go to the Web site,

41 ANY QUESTIONS?

42 Carl Meglan, P.E., P.S. Web: Phone: (888) Ext. 222 (toll-free) FOR MORE INFORMATION, CONTACT:

43 The preceding presentation is copyrighted by the National Society of Professional Engineers ® Professional Engineers in Construction. All rights are reserved. Any transmission, retransmission, or republishing of the audio or written portions of this program without permission is prohibited.