cpr’s dispute prevention initiative james p. groton sutherland asbill & brennan llp (retired)...
TRANSCRIPT
CPR’S DISPUTE
PREVENTION INITIATIVE
James P. Groton
Sutherland Asbill & Brennan LLP (Retired)
Member, CPR Dispute Prevention Exploratory Group
Key Concepts
“An ounce of prevention
is worth a pound of cure”
“Prevention is the highest and best form of dispute resolution”
The Problem
• Disputes cost too much
• The transaction costs of dispute resolution through litigation, arbitration and even mediation are enormous:– Direct costs: Lawyers, evidence gathering, travel,
witnesses, arbitrators, mediators...
– Indirect costs: Management and personnel time and salaries
– Hidden costs: Broken business relationships, damage to reputation
• These costs severely impact profits
The Best Solution: Prevention
• Most of these costs can be avoided
• In fact, most disputes can be prevented, managed and controlled
• Most managers know how to control business costs and how to manage production, quality, and safety
• Most ADR professionals and lawyers know how to resolve disputes through ADR procedures and litigation
• But, unfortunately, few have learned how to prevent disputes
CPR’s Prevention Initiative
A New CPR Conflict
Prevention Initiative:
REDUCING DISPUTES
THROUGH
WISE PREVENTION
PROCESSES
An ounce of prevention is worth a pound of cure
A stitch in time saves nine
Be prepared
Fortune favors the prepared mind
FIX THE PROBLEM, NOT THE BLAME
It usually costs less to avoid getting into trouble than to pay for getting out of trouble
The highest and best form of dispute resolution is dispute prevention
Dispute resolution co$t$ money. Dispute prevention $ave$
money.
CPR-Recommended Approaches
• Proactively anticipate sources of potential problems
• Incorporate into contracts processes that will:
– Prevent problems from occurring
– Control problems to keep them from escalating into disputes
• These practices are based upon successful construction industry experience as well as recent experience in other businesses
CPR Prevention Practice Materials
Supporting the CPR Dispute
Reduction Initiative:
PREVENTION PRACTICE
MATERIALS
An ounce of prevention is worth a pound of cure
A stitch in time saves nine
Be prepared
Fortune favors the prepared mind
FIX THE PROBLEM, NOT THE BLAME
It usually costs less to avoid getting into trouble than to pay for getting out of trouble
The highest and best form of dispute resolution is dispute prevention
Dispute resolution co$t$ money. Dispute prevention $ave$
money.
Tools and Contract Language
• CPR’s Initiative Paper and Practice Materials:
– Teach how businesses can prevent and control disputes
– Describe available tools and techniques
– Provide illustrative contract language
PREVENTION Realistic Risk
Allocation Incentives for
Cooperation Disputes Potential
Index Partnering
NEGOTIATION Direct
Negotiations Step
Negotiations
STANDING NEUTRAL Dispute Review
Board Individual Standing
Neutral Initial Decision
Maker Project Neutral Standing Mediator Standing Arbitrator (binding)
NONBINDING RESOLUTION Mediation Mini-trial Advisory
Opinion Advisory
Arbitration
PRIVATE BINDING RESOLUTION Binding
Arbitration Private Judge
LITIGATION Judge / Jury /
Special Master Court-Annexed
Alternative Dispute Resolution
Prevention and Cooperation
Stage
Dispute Control Stage Facilitated Resolution
Stage
Binding Resolution Stage
Dispute Prevention and Resolution Steps
Disputes Don’t Just “Happen”
They evolve from:
• A problem
• A difference of opinion
• A disagreement
• A dispute which, if not immediately resolved, requires intervention by some form of mediation, an arbitration, or litigation
Needed: An Immediate Intervention Process
• If problems are neglected, they can cost a lot
• Having an immediate intervention process can keep a problem from escalating into disagreement
• If a disagreement can be resolved before it becomes a dispute, it costs relatively little
Importance of Having a Process Already in Place
• Before a dispute arises, parties can rationally and mutually agree on processes for dealing with disputes
• But once a dispute has developed, it’s difficult to get parties to agree to anything
• Without a process in place, chaos can ensue
• Immediate availability of a process– Absorbs the shock of unexpected events
– Channels the problem onto a constructive track
– Discourages game-playing, delaying tactics
– Encourages parties to resolve problem by themselves
PREVENTION Realistic Risk
Allocation Incentives for
Cooperation Disputes Potential
Index Partnering
NEGOTIATION Direct
Negotiations Step
Negotiations
STANDING NEUTRAL Dispute Review
Board Individual Standing
Neutral Initial Decision
Maker Project Neutral Standing Mediator Standing Arbitrator (binding)
NONBINDING RESOLUTION Mediation Mini-trial Advisory
Opinion Advisory
Arbitration
PRIVATE BINDING RESOLUTION Binding
Arbitration Private Judge
LITIGATION Judge / Jury /
Special Master Court-Annexed
Alternative Dispute Resolution
Prevention and Cooperation
Stage
Dispute Control Stage Facilitated Resolution
Stage
Binding Resolution Stage
Prevention and Cooperation Stage
Cooperation and Problem Prevention Tools
• One of the best ways to prevent disputes is to create an atmosphere of cooperation through– Establishing clear communications
– Using techniques for encouraging cooperation, alignment of interests and teamwork
• These can improve relationships, prevent some problems, and keep some disputes from arising– Consider inserting from the following: Realistic allocation of
risks (CPR has a monograph on this)
– Incentives to encourage cooperation
– Partnering (CPR has a monograph on this)
Objective of Partnering: Cooperation
Example of an Incentive Plan
• A bonus pool, to be paid:
– If objectives (e.g. cooperation) are achieved
– But -- payable either to everyone, or no one
• Has a remarkable effect on behavior
• Minimizes sources of disputes
PREVENTION Realistic Risk
Allocation Incentives for
Cooperation Disputes Potential
Index Partnering
NEGOTIATION Direct
Negotiations Step
Negotiations
STANDING NEUTRAL Dispute Review
Board Individual
Standing Neutral Initial Decision
Maker Project Neutral Standing Mediator Standing Arbitrator
(binding)
NONBINDING RESOLUTION Mediation Mini-trial Advisory
Opinion Advisory
Arbitration
PRIVATE BINDING RESOLUTION Binding
Arbitration Private Judge
LITIGATION Judge / Jury /
Special Master Court-Annexed
Alternative Dispute Resolution
Prevention and Cooperation
Stage
Dispute Control Stage Facilitated Resolution
Stage
Binding Resolution Stage
Dispute Control Stage
Problem-Solving and Control Tools
• Good communications
• Open sharing of information
• Negotiation / step negotiations
– Step Negotiations create incentives for solution
• Standing Neutral, for “real time” resolution
Essence of All Standing Neutral Processes
• Critical elements of a Standing Neutral, Standing Mediator or Standing Arbitrator:
1. Early mutual selection and confidence in the neutral
2. Continuous involvement by the neutral
3. Prompt action on any submitted disputes
Results from Using a Standing Neutral
1. Rarely is neutral required to act
2. When neutral does act, it’s a “reality check”
3. Neutral recommendations are almost never appealed
4. 98.7% success in achieving resolution of submitted disputes
5. A surprisingly effective dispute prevention tool
6. Remarkably inexpensive
Conclusion
• Billions of dollars are wasted on dispute-related costs
• Disputes can be prevented
• Effective tools and techniques exist
• Through the proactive and preventive approach organizations can, in their contracts
– Encourage cooperation and teamwork
– Prevent and control disputes
• Doing so will lead to improved performance
A Paradigm Shift
• CPR urges a shift
– From “reaction” (resolution)
– To “proactive action” (prevention)
• CPR has provided the practice tools and sample language
• So that business dealings can continue without disruption
Dispute System Design
• A smart contractual dispute system will include stepped processes for:
– Encouraging cooperation and prevention
– Immediate control of problems and incipient disputes
– Backstop binding dispute resolution
Needed: Further Research
• Research is needed to improve this new concept:– Need case studies, examples
– Need better understanding of why and how:• Problems arise and become differences of opinion
• Differences of opinion become disagreements
• Disagreements escalate into disputes
• With this kind of understanding, we can develop more effective mechanisms to contain and prevent disputes