CPR’S DISPUTE PREVENTION INITIATIVE James P. Groton Sutherland Asbill & Brennan LLP (Retired)...

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