1. Introduction to Construction Dispute Resolution Feniosky Peña-Mora Gilbert W.Winslow Career Development Associate Professor of Information Technology and Project Management MIT Room 1-253, Phone (617)253-7142, Fax (617)253-6324 Email:feniosky@mit.edu Intelligent Engineering Systems Laboratory Center for Construction and Research Education Department of Civil and Environmental Engineering Massachusetts Institute of Technology Stage 3: Standing Neutral

2. © Peña-Mora, et. al. 2002Introduction to Construction Dispute Resolution Chapter 6: Stage 3: Standing Neutral 2 Definitions WHAT Neutral Third Party Providing Objective Feedback WHO Neutral Advisors, Owner/Agency Review Boards, Dispute Resolution Boards, On-Call Contractor WHY Failure of A/E to Provide Unbiased Feedback HOW Understand Participants’ Relationships and Objectives Resolve Dispute in a Timely Manner with Control Over the Outcome Assess the Different Available Options

3. © Peña-Mora, et. al. 2002Introduction to Construction Dispute Resolution Chapter 6: Stage 3: Standing Neutral 3 Case Study $187 million State-of-the-art Land Level Transfer Facility in the Northeastern United States Design-build Contract but Defaulting Contractor Lump Sum Agreement with a New Design-build Contractor Representation of Site Conditions not Spelled Out in the Contract Clause for an Adjustment in Price and/or Performance Period if Differing Site Conditions Claims of New Contractor for Substantial Damages (Exceeding $50 million) Due to Inaccurate Representation of Marine Subsurface Conditions in the Preliminary Design Performed by the Defaulting Contractor Third Party Neutral Retained by the Insurance Carrier’s Counsel

4. © Peña-Mora, et. al. 2002Introduction to Construction Dispute Resolution Chapter 6: Stage 3: Standing Neutral 4 Case Study: Important Issues What Services Might the Neutral Third Party Provide? What Are the Reasons for the Insurance Company’s Selection of an Independent Report? Is This Type of Analysis a Reality Check for Both Parties? Although the Recommendations Are Not Binding Among the Parties, What Effect Might They Have if the Conflict Escalates?

5. © Peña-Mora, et. al. 2002Introduction to Construction Dispute Resolution Chapter 6: Stage 3: Standing Neutral 5 Outline  Neutral Advisor Owner-Agency Review Boards Dispute Review Board On-call Contractor

6. © Peña-Mora, et. al. 2002Introduction to Construction Dispute Resolution Chapter 6: Stage 3: Standing Neutral 6 Neutral Advisor Mediator Jointly Pre-Selected as a Dispute Resolver Throughout the Construction Process Great Familiarity with Project Documents Assistance of Stakeholders in Reaching a Win-win Solution Intervention Even Before the Occurrence of Disputes for Consultancy Services

7. © Peña-Mora, et. al. 2002Introduction to Construction Dispute Resolution Chapter 6: Stage 3: Standing Neutral 7 Neutral Architect Mediator in Post-construction Disputes in Merchant Housing Projects Jointly Selected by Developer and Home Owners Associations (HOA) The Ideal of Impartiality and Fair Dealing

8. © Peña-Mora, et. al. 2002Introduction to Construction Dispute Resolution Chapter 6: Stage 3: Standing Neutral 8 Disadvantages and Risks Non Binding Advisor’s Decisions and Repercussion of Continuing Disputes on Job Performance A Neutral “Too” Familiar with the Job and Parties Uneducated or Inexperienced Neutral Advisor Neutral Advisor Becoming Partially Biased Over Time

9. © Peña-Mora, et. al. 2002Introduction to Construction Dispute Resolution Chapter 6: Stage 3: Standing Neutral 9 Outline Neutral Advisor  Owner-Agency Review Boards Dispute Review Board On-call Contractor

10. © Peña-Mora, et. al. 2002Introduction to Construction Dispute Resolution Chapter 6: Stage 3: Standing Neutral 10 Owner/Agency Review Boards In-house Review Boards for Public Owners, Composed of Senior Officials of the Public Agency City Dispute Review Board in New York City Functioning as a Permanent Arbitration Panel with Binding Authority Major Advantage Second Opportunity to Review with the Owner Unfavorable Decisions Made by the On-site Representative Major Disadvantage Board Biased toward the Owner

11. © Peña-Mora, et. al. 2002Introduction to Construction Dispute Resolution Chapter 6: Stage 3: Standing Neutral 11 Outline Neutral Advisor Owner-Agency Review Boards  Dispute Review Board On-call Contractor

12. © Peña-Mora, et. al. 2002Introduction to Construction Dispute Resolution Chapter 6: Stage 3: Standing Neutral 12 Dispute Review Board Panel of Construction Professionals with Technical Background Intervention for Dispute Prevention and Resolution Alternative of the A/E and Arbitration Panel in Conflict Resolution Selection at the Beginning of the Project by Joint Agreement Between Owner and Contractor Real Time Knowledge of Project’s Progress High Cost of Implementation: 0.5-1% of Construction Cost

13. © Peña-Mora, et. al. 2002Introduction to Construction Dispute Resolution Chapter 6: Stage 3: Standing Neutral 13 CDAB (Canada) Contract Dispute Advisory Board, a DRB with Non-binding Authority CDAB Formed for a Specific Dispute Concept Inception by the Ministry of Public Works and Government Services of Canada in 1987 Three Members: Neutral Chairman, Representative of the Ministry, Representative of the Contractor/Consultant Two Combined Techniques: DRB and Executive Minitrial

14. © Peña-Mora, et. al. 2002Introduction to Construction Dispute Resolution Chapter 6: Stage 3: Standing Neutral 14 CDAB DART Procedure Contractor/Consultant requests to the Minister the constitution of a CDAB to review and settle a pending claim Minister Reviews the request and determines whether it is necessary to form the CDAB Minister can negotiate a settlement with the contractor/consultant The contractor gets eight weeks to prepare and submit in writing to the Ministry copies of all documents supporting the claim The Ministry gets four weeks to review the documents and prepare its case Both parties make their respective presentations to the Board The Board reviews the information gathered at the presentations and sends a recommendation to the Minister, who them advises the contractor on his/her decision The contractor can accept the proposal by the Minister, or proceed to submit its claim to arbitration or litigation

15. © Peña-Mora, et. al. 2002Introduction to Construction Dispute Resolution Chapter 6: Stage 3: Standing Neutral 15 Outline Neutral Advisor Owner-Agency Review Boards Dispute Review Board  On-call Contractor

16. © Peña-Mora, et. al. 2002Introduction to Construction Dispute Resolution Chapter 6: Stage 3: Standing Neutral 16 On-call Contractor Contractor Hired by the Owner to Perform Last Minute Additional Work Orders Need for a Separate Schedule to Control New Contractor’s Activities Importance of Minimizing the Interference Between the Two Contractors Advantages Smooth Completion and Job Closeout Process Prevention of Last-Minute Disagreements Between Owner and Main Contractor

17. © Peña-Mora, et. al. 2002Introduction to Construction Dispute Resolution Chapter 6: Stage 3: Standing Neutral 17 Outline Neutral Advisor Owner-Agency Review Boards Dispute Review Board On-call Contractor

18. © Peña-Mora, et. al. 2002Introduction to Construction Dispute Resolution Chapter 6: Stage 3: Standing Neutral 18 Case Study Services Provided by the Third Party Neutral Review and Analysis of Geotechnical Information in Design Drawings and Commissioned Reports Comparison between Geotechnical Information Available to Bidders and Conditions Reported by Contractor Analysis of Entitlement to Additional Compensation Verification of Compensable Costs Analysis of Progress Schedule Output : Expert Report for the Findings Results Rejection of Contractor’s Claims Dispute Settlement in Subsequent Negotiations

19. © Peña-Mora, et. al. 2002Introduction to Construction Dispute Resolution Chapter 6: Stage 3: Standing Neutral 19 Summary Common Denominators of Techniques Used in the Standing Neutral Stage Third Party Involvement Unbiased Decisions Knowledgeable Expert Cost,Time and Resources Savings Variations Number of Agents Involved Relationship of the Agents with the Project Stage of Involvement

20. © Peña-Mora, et. al. 2002Introduction to Construction Dispute Resolution Chapter 6: Stage 3: Standing Neutral 20 Different SNT Standing Neutral Technique Neutral Advisor Owner Review Board Dispute Review Board On-Call Contractor Number of Agents 1 Multiple 1 company Relationship of the agent with the project External InternalExternal Stage in which the agents become involved From the beginning of the project When conflicts arise From the beginning of the project Towards the end of the project. Before conflicts arise

21. © Peña-Mora, et. al. 2002Introduction to Construction Dispute Resolution Chapter 6: Stage 3: Standing Neutral 21 References [ASCE, 1997]: Technical Committee on Contracting Practices of the Underground Technology Research Council. Avoiding and Resolving Diputes During Construction: Successful Practices and Guidelines. ASCE. 1997. [Bristow, 1998]: Bristow, David. The New CCDC2: Facilitating Dispute Resolution of Construction Projects. A paper delivered to the Canadian Bar Association – Ontario. December, 1998. [Croain-Harris, 1994]: Construction industry ADR / Catherine Cronin-Harris. -- New York, NY : CPR Institute for Dispute Resolution, c1994. [ENR, 8/26/1991]: McManamy, Rob. Quiet Revolution Brews for Settling Disputes. Engineering News Record. McGraw-Hill, New York. pp. 21-23 August 26, 1991. [Kane, 1992]: Kane, Christopher. Mitigation Construction Contract Disputes. Public Utilities Fortnightly. Vol. 130 (1). pp. 11-12. July 1992. [Kemp, 1998]: Kemp, Jack, (1998). Dispute Resolution Using a Neutral Architect. Punch List Vol. 20 (4) Winter [Peña-Mora et al, 2002] : Peña-Mora, F., Sosa, C., and McCone, S. Introduction to Construction Dispute Resolution. Prentice Hall, New Jersey, 2002 [Treacy, 1995]: Treacy, Thomas B., (1995). Use of ADR in the Construction Industry. Journal of Management in Engineering Vol. 11 (1) pp. 58-63. January/February, 1995. [Zack a, 1997]: Zack, James G., (1997). Claims Prevention: Offense Versus Defense. AACE. Vol. 39 (7) pp. 23-28. July [Zack b, 1997]: Zack, James G., (1997). Resolution of Disputes: The Next Generation. AACE Transactions. pp. 50-54.