When construction disputes tied to technical issues, as most are, devolve into an adversarial resolution process, expensive opposing technical experts, are almost always involved. Those familiar with these cases have experienced this world of “dueling” experts, with diametrically opposed opinions. Testifying experts are one of the most expensive elements of the transactional costs when litigation or arbitration is used to resolve these disputes. There may be a better, more cost effective approach. Recent real world examples indicate how collaboration with technical experts in the context of mediation and advisory opinions can improve the use of experts and significantly reduce the transaction time and costs of resolving technical disputes. This article focuses on approaches to finding technical solutions to construction disputes that may not eliminate extra costs but can reduce costs and preserve relationship.
Mediation can be very productive when convened early on to find a cost effective technical solution to a problem before efforts to allocate costs occur. The parties’ individual experts can be brought together in mediation (known as hot tubbing) in a collaborative and privileged manner, in order to solve the problem. In this forum, open and free exchange between opposing experts can produce much better outcomes in less time and for less money. In addition to direct collaboration with opposing experts, neutral experts can be engaged to produce a non-binding advisory opinion. This article discusses the process where these methods have been used for cost effective use of experts.
Use Of Experts In The Mediation To Identify Cost Effective Solutions
When a dispute involves a construction deficiency that still needs to be remedied, mediation with experts’ active participation can be very beneficial in finding agreed to solutions. In contrast to an adversarial process, the involved experts can recommend fixes that range from a “bandaid” to “open heart surgery.” Experience has shown that once there is even tentative agreement on a cost effective technical solution , the allocation of responsibility for the costs of the solution can be much simplified.
One example involves stormwater runoff onto farmers’ land from an adjacent residential development. The development had an approved storm water management plan. Having only completed about half of the planned build-out, the recession hit and the development stalled. The developer only completed the approved temporary structures to control storm water run-off that was required by the permit. The farmers alleged damages to their properties from an increased run-off, but the farmers could not get any relief from the county or the developer because the storm water management plan, albeit temporary, had been “approved”.
After a couple of years of frustrated attempts to seek help from the county government and the developer, the farmers finally sued the homeowners’ association and the developer for damages caused to their farms. The development had allegedly increased the water flow onto the adjacent farms. The water management plan was approved by the county and showed no change in run-off based on final improvements. The farmers however experienced erosion, increased muddy patches in pasture lands, as well as the formation of potential new “wetlands.” A major concern was that endangered turtles would inhabit the new conditions, which would dramatically change the land use requirements on the farms.
Following the suit and a year of discovery and pre-trial posturing, all at the expense of the parties involved, the judge ordered all parties to take time-out for 60 days, and use mediation to find a solution. The parties first agreed to an experienced mediator with the technical expertise involved in the subject matter of the case. Once retained the mediator and the parties agreed to the following collaborative process:
- Direct Involvement of the parties’ technical advisers. In order to mediate a technical solution, both sides were encouraged to use their own technical experts for advice on the nature of the problem, as well as a solution. Prior to the mediation, all sides’ technical experts exchanged their analysis and technical solutions.
- Pre-mediation understanding of technical positions. Conference calls were held prior to the mediation with all sides, both together and also separately, to ensure a clear understanding of each side’s position and interests. Although the technical positions were understood, there was no agreement at the outset of the mediation on how to fix the problem.
- Mediation Joint Session. In a joint session that lasted 2 hours, the experts presented their positions and had the opportunity to enter a dialogue with questions from the mediator and also direct discussion between them. Through this process, the experts were able to agree that there was in fact an increase in storm water run-off due to the temporary nature of the mitigation measures.
- Positions on Technical Solutions. The developer’s expert recommended a simple solution involving completing the drainage and retention structures that were designed for the development when the project had been completely built out, along with a few upgrades. The farmers’ expert recommended completely rerouting the storm water along a paved road to discharge directly into a creek, at a cost of several times the developer’s solution.
- An Alternative Technical Solution. The final phase of the mediation included caucusing with each side separately, with the mediator encouraging proposals to shuttle back and forth between the parties. When an impasse appeared near, the mediator was able to propose an intermediate compromise solution. Having the conceptual solution come from the mediator was helpful in that neither expert had to concede their position, and both sides began to focus on a compromise fix that solved the problem.
The mediator’s proposal was tested by both side’s experts at the mediation and found plausible. The parties agreed to stay the litigation and continue to work on the solving issues around an alternative solution. Although the exact alternative solution needed to be modified, the parties and their experts were now vested in the collaborative process and ended up with a solution to settle the case. Once a cost effective technical solution was identified, the parties and their insurance companies had little problem agreeing to share in the remediation cost in order to resolve the litigation.
A Non-Binding Advisory Opinion By a Neutral Expert
Another method to improve resolving opposing expert opinions, is to seek a neutral non-binding advisory opinion on the matter. The use of an advisory opinion from an expert third party can be a cost effective, real time method to help resolve certain contested technical construction disputes. On a large coal fired power plant project, the owner had entered into a single construction contract for the entire project. During the very first stage of site development, the contractor experienced subsurface conditions that contained allegedly unknown and undisclosed waste material.
The contractor submitted multi-million dollar claims for remedying the subsurface conditions, which the owner rejected. The parties had both retained experts with opposing views on the conditions and responsibility for the situation. Clearly, a long drawn out dispute process at the very beginning of the multi-year contract could ultimately damage relationships for the years remaining in the contract. With that negative motivation, the parties came up with a process to obtain a non-binding advisory opinion over a very short time frame through an abbreviated hearing process. The process was outlined in a written agreement with the following elements:
- The Neutral. A mutually agreeable single arbitrator would be selected who was to be a construction claims expert with at least 10 years in the industry. Costs were to be shared equally, except if there were objections to the decision as discussed below.
- Pre-Hearing Exchanges. Within 30 days the parties exchanged all materials to be relied on in the hearings. Two weeks after the exchange, position papers were submitted, and one week after that PowerPoint presentations were exchanged. The parties were bound by and limited to their initial exchange of information and position papers at the hearing.
- Conduct of the Hearings. Strict time limits were imposed on each party with a 30 minute opening statement and a 4 hour presentation of each parties’ position for each of the two claims. Both sides retained experts who provided part of the testimony. The hearing had to be completed in no more than three (3) consecutive days. There was no examination of the witnesses by the parties, and only the arbitrator could ask questions at the end. The process also allowed for some “hot tubbing” of the experts.
- Arbitration Decision. The arbitrator issued their decision within 10 days of the close of the hearings. The opinion addressed both claims and defenses and was limited to no more than three (3) pages.
- Effect of Decision. Following the decision, either party could object within 30 days. If there were no objections the decision would become final and binding. If a notice of objection was given, the decision would remain non-binding and be treated as confidential settlement discussions. If only one party objected, that party would pay the other party's 50% share of the cost of the proceeding. Following an objection, the parties would follow the contract and proceed to binding arbitration.
Ultimately, the advisory opinions rendered two different decisions on the entitlement for two claims. Neither party objected to the decisions within 30 days and thus the matter was completely resolved before the project was even 30% complete.
The entire process was completed within 90 days from start to finish, compared to a minimum 12 months for a full-blown binding arbitration. The cost of the advisory opinion process was in the range of 10% of what a binding arbitration process may have cost and probably only slightly more than the cost of mediation. As in this case, an advisory opinion can give the parties a neutral benchmark from which to settle the dispute, before large amounts of time, money and damage to on-going working relationships are incurred. Contract drafters should add advisory opinions to their menu.
In conclusion, attorneys who represent clients in these type of technical disputes should seriously consider new methods, EARLY in the process, to reach a consensus on technical problems. By using mediation or advisory opinions, this process can be open and confidential, and also be without prejudice if unsuccessful. The agreements should include incentives for using the process, such as allocating future transaction cost responsibility if one party refuses to accept an outcome. The alternative to such methods is having an expensive battle of the experts - with its discovery, experts reports, depositions and experts trial testimony - and then totally giving up control to a judge, jury or arbitrator to make a binding determination based on how well the opposing experts perform.