Conflict Management & Dispute Resolution Report
Linda111
workbook2022.pdf
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Conflict Management and Dispute Resolution
Elective Module 66061
MSc Management of Projects
Peter Fenn
MACE
Manchester
M13 9PL
Tel 01613064233
Email: [email protected]
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Conflict Management and Dispute Resolution
Table Of Contents And Workbook Outline
How To Use This Workbook
1. Introduction
2. Conflict Theory
3. Conflict Management and Dispute Avoidance
4. Bribery and Corruption
5. Negotiation
6. Mediation Principles
7. ADR Processes and Game Theory
8. Cooperation and collaboration
9. Dispute Avoidance
10. Comparison of Dispute Resolution
11. International Law and International Disputes
12. Conclusion
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How to Use this Workbook
This workbook has been specially designed and written for the elective module in
Conflict Management and Dispute Resolution on the MSc in Management of Projects.
It will help you to plan your study and to work systematically through the course. You
should use this workbook as the basis of your studies. The workbook is just part of the
material which is provided at the Blackboard Virtual Learning Environment [VLE].
There are 5 main teaching documents:
1. This Workbook [ available at any time as an ebook and on Blackboard]
2. The Learning Modules [available ONLY at Blackboard]
3. I give a synchronous lecture for each learning module and the Lecture Slides
are available at any time on Blackboard
4. All the lectures are copied and are available as asynchronous learning
5. As preparation for each topic I present a brief 10-15 minute video detailing the
content of the coming weeks learning module and full lecture.
In addition I expect that you will do some reading. I try to give more reading, web
material, videos etc in each week’s folder on Bb.
Content
The workbook is divided into sections that reflect the syllabus. Each section begins with
an introduction, which briefly explains the topic to be studied and may suggest areas to
be focused upon. This is followed by a list of objectives that should be achieved after
studying the section.
The substantive part of the text must be read very carefully, and you must ensure that
you understand the concepts before moving on to the next section. It is important that
you are sure that you have achieved the objectives identified at the beginning of the
section.
Questions
In this workbook there are boxed questions in the text; and these are repeated in the
web based learning modules. These are designed to make you stop and think about the
issues, and sometimes the rules of law, you are studying. You should answer these
questions before proceeding. However, not every question will have a clear answer.
This is the nature of the subject.
After the substantive part of each section, you will find some short revision type
questions. These basic questions are a good way of checking the extent of your
understanding of the main concepts. In spite of the fact that they are basic, you are
strongly recommended to do these questions before moving on to the next section. The
questions can be answered by reference to the text and some self study. If you are unable
to answer the questions you should read the section again to identify areas that were
unclear to you at the first reading.
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Following the revision questions, there will normally be an essay-style question. This
is the type of question that you can expect as part of your assessment. You should
attempt these questions to see if you can identify the issues raised.
Writing an answer
It is important to understand how to write an answer to a question. When answering an
essay style question, you should try to structure your answer: start; middle and end is
always a good structure. Start your answer with a short introductory paragraph
outlining your treatment of the topic; set the stage for the text which follows. In the
middle deal with the substantive issues; what are they? At the end make sure you have
answered the question; and reach conclusions based on your text in the middle.
Questions have a command work e.g. discuss – this requires at least two viewpoints or
opposing theories; make sure you deal with the command word..
Having determined the issues in a problem (and remember there may be more than one
issue in a question) you may have to state the law that applies to the particular issue. In
Mediation this is less likely than other areas e.g. arbitration where a statute applies. If
the law is from a statute, you will need to state which Act and which section applies.
So, for example, s 11 of the Unfair Contract Terms Act 1977. It is not necessary to
memorise s 11, but you should be able to state the effect of the section. Having done so
you must then show how it relates to the problem you are dealing with and try to come
to a conclusion on that issue. Sometimes it will not be possible to arrive at a firm
decision, normally because the question does not give you all the facts. It is permissible
to say that a particular conclusion is more or less likely in the circumstances. It is also
permissible to give one or two possibilities, but you must be careful not to lose sight of
the rest of the question.
The relevant law may also be found in the decision of a case; again less likely in
Mediation but needs to carefully monitored. You will need to state the name of the case
and the principle it provides. When stating the name it is not necessary to put down the
entire citation just the name of the case is sufficient: for example, Donoghue v
Stevenson. Should you be unable to remember the entire case name, simply 'the
Donoghue Case' will suffice. When you cannot remember either part of the name, but
remember some salient facts, which will identify the case, you may state those facts
very briefly. For example, in relation to the above, you may say, 'in the case of the snail
in the ginger beer bottle'. Do not panic if you do not remember the case name, it is more
important to state the principle involved. Try to remember the most important cases in
each topic, rather than all the case names in the list. Many of the cases merely illustrate
a point, rather than create new law. These illustrative cases will help you to understand
how the courts apply already established principles of law.
Having identified the issues and stated the law, you must apply the law to the particular
set of facts that you have been given. This process must be repeated for all the issues
the question raises before you can finally come to a conclusion.
Revision and assessment technique
The following are just a few suggestions on matters you might like to have in mind
when revising for and writing the assessment.
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You should plan your revision in good time. Apportion enough time to each topic that
you are studying. It is a good idea to test your self after revising each topic. This should
include writing an assessment style answer to time, as explained below.
You should be careful to note mark allocations on the questions. It is pointless to spend
an excessive amount of time in producing a lengthy answer to part of a question that
only merits a few marks, whilst giving a short answer to the part meriting higher marks.
Deal with the command in a question and answer the question; that is the question
posed, not the question you wish had been posed!
I hope that you will find this course stimulating and challenging. It is hoped that when
you have completed the course you will have a sound appreciation of the basic
principles of Conflict Management and Dispute Resolution
Good luck with your studies!
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Introduction
Chapter 1
Some issues
Why teach a course on conflict and disputes for project managers? I am neither a
lawyer nor a project manager, but I have taught such courses to Engineers and a
postgraduate course to Project Managers for more than 10 years. The Engineers course
is at MEng level but might be described as an undergraduate level course; the Project
Management course is post-graduate MSc. Both professionals need to know about
conflict and dispute issues but the study of law is a peripheral issue. I have been
involved in commercial disputes for longer, these nearly always involve lawyers and
often Project Managers or Engineers. Recently the Project Manager’s course has
become truly international in one year, 2018, more than 250 students from almost 30
countries took part. It was clear to me that Project Managers [PMs from now] had to
understand some law. I wonder if somewhere else in one of the 10500 universes someone
else is writing a book called Project Management for lawyers using similar logic.
I set a piece of coursework for many years. In my feedback.: “ Students reported time
spent by Project Manager in dealing with conflict and dispute ranging between 10 and
70 to 80!% of their total time?” This is the danger or the problem in this field its
dominated by anecdote and unsupported data. One academic paper can be found with
a simple search.
MANAGERS SPEND 42% OF THEIR TIME ON REACHING AGREEMENT WITH
OTHERS WHEN CONFLICT OCCURS. Conflict Resolution in Project
Management
Amy Ohlendorf
https://www.umsl.edu/~sauterv/analysis/488_f01_papers/Ohlendorf.htm
The citation to support this Ford J. Workplace conflict: facts and figures.
URL:http://mediate.com/workplace/ford1.cfm returns
The Page cannot be found.
The page you are looking for might have been removed, had its name changed, or is
temporarily unavailable. Also, please check for a typo in your address. (error 404).
There are many reasons why I chose to teach a course for PMs ; not least because there
are many books out there but few for PMs. So to further confuse things I’ve called this
one conflict management and dispute resolution for PMs, because strictly its not Law.
Like many things around legal issues this book will be plagued by definitions. Is it:
Law; the law; or laws? These debates are great fun, but not for us here. You will find
many things that are different in the study of legal issues. For example Project
Management tends to be taught on the Instructivist approach where an instructor
delivers the ‘right’ answer. While law [call it what you will] adopts a Socratic style;
here scenarios are developed and the leader argues with a position perhaps by
developing Reductio ad absurdum. There have been strong pressures to purge courts
of Latin so that is the last bit in this book and you can look it up, Socratic too.
What do the law and Project Management think of each other? Perhaps you have a
view on the law. A recent case helps with what the law thinks of Project Management
and leads to the some more introductory issue. In The Trustees of Ampleforth Abbey
Trust v Turner & Townsend Project Management Limited 144 Con LR 115, [2012]
TCLR 8, [2012] EWHC 2137 (TCC) it was noted at para 76:
“it may be impossible in any event, to define with precision the expression "project
manager"”
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The first issue is Legal Citation and reporting, this is a bewildering field. Many, many
cases weave their way through the court system; historically only certain people were
allowed to report cases because this then formed the case law system which is a feature
of the Common Law system in England and Wales (see later). Information Technology
IT has changed everything and now the majesty of the case law system is available with
the click of a mouse. Try and find the The Trustees of Ampleforth Abbey Trust v
Turner & Townsend Project Management Limited case and read the judgement, does
the judge say that Project Management is simply common sense?
The second issue is that the Ampleforth Case might be seen as the latest in a line of
cases dealing with the role of PMs, other relevant cases include: Royal Brompton
Hospital NHS Trust v Hammond (No. 9) [2002] EWHC 2037 (TCC) and Pozzollanic
Lytag Ltd v Bryan Hobson Associates [1998] EWHC 285 (TCC), [2000] B.L.R. 233.
Do PMs need to know the cases? There are so many? I suggest that PMs need to be
aware of what a line of cases means but of course they don’t need to know the cases.
That’s what lawyers do and leads to the next point.
Your search for the Ampleforth case will undoubtedly have thrown up many
commentaries on the case; free to access on the internet. Written mostly by lawyers,
but some by specialist Project Managers with an interest in the law; some by those
irritating swots who have the ability to be dual qualified. Why write things and then
give the words away for free? Mine are collected together and sold as a ridiculously
expensive book. The answer to my question raises so many interesting issues and I do
not, for a moment, cast any doubt or aspersions on the people who write things then
give them away for free. If you are interested do a google search on Web2.0 and watch
hours of your life float away, gone for ever.
This book takes the model of the independent Project Manager appointed, and paid for,
by the client. This is not the only model, if you are a project manager within an
organisation; the issues raised translate to your model. Either way stand back and
reflect; read the Ampleforth case and see the issues raised there, translate them to your
particular model.
It is impossible to write a disputes unit without reference to some law, both statute and
case law, but this is not a legal reference book. If you seek a reference look elsewhere,
there are plenty.
Finally I hope I have answered my own question: Why write a book about disputes and
project management? By posing more questions, just like Socrates.
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Some issues of law
The United Kingdom of Great Britain and Northern Ireland (UK) consists of four
countries: England, Wales, Scotland and Northern Ireland. Some law applies
throughout the whole of the UK; some applies in only one, two or three countries. This
book deals with law in England and Wales; remember things are different elsewhere,
in Scotland and Northern Ireland. Whatever you do don’t say British Law; particularly
to a Welshman or a Scot or Irishman.
Sources of Law
Where does law come from? A nice easy one; but of course like everything else it gets
difficult, the two principal sources of English Law are legislation and common law.
Two important additional sources of law are: European Union law and the European
Convention on Human Rights. I first started thinking about and writing this book before
‘Brexit’ and a major influence on the vote was that we, whoever we are, should not be
bound by European courts. I am finishing writing the book as exit looms, who knows
what will happen to our laws, whoever our refers to. Legislation is by statute. Common
law (sometimes case law or precedent) is developed by judges through decisions in
courts when individual cases are decided, as opposed to the statutes made or adopted
through legislative process
There is no single series of documents that contains the whole of the law of England
and Wales. This is often surprising to non lawyers and lawyers from other jurisdictions
The legal Profession[s]
Historically the legal profession in England had two branches; barristers and solicitors,
each with its own controlling body. The two branches did different things, and most
notably barristers were the clients voice in higher court; they alone had rights of
audience i.e. they could be heard. Those restrictions are mostly gone and more players
have now been added to the mix: e.g. paralegals and legal executives. The term lawyer
will be used from now, and lawyers will advise which specialist to consult. In the same
way that you see a doctor who then refers you for specialist advice to a specialist doctor;
you see a lawyer who then advises which specialist lawyer might be consulted. That
specialist lawyer might be a paralegal; a legal executive; a non lawyer; a solicitor; a
barrister or a specialist senior barrister who might be a Queens Counsel. The first
lawyer you consult might be specialist; might be a paralegal; a legal executive; a non
lawyer; a solicitor; a barrister or a specialist senior barrister who might be a Queens
Counsel. You get the idea.
The legal system in England and Wales
The United Kingdom has three separate legal systems; one each for England and Wales,
Scotland and Northern Ireland. This reflects its historical origins and the fact that both
Scotland and Ireland, and later Northern Ireland, retained their own legal systems and
traditions under Acts of Union 1707 and 1800. This section deals with the judiciary of
England and Wales.
The justice system is one of the three branches of the state. The other two branches are
the executive, or the government, and the legislature, which in England and Wales is
the two Houses of Parliament. In other [mostly] democracies these three branches of
the state are separate from each other by a principle known as separation of powers.
Roles and functions are defined within written constitutions, preventing the
concentration of power in any one branch and enabling each branch to serve as a check
on the other two branches. The United Kingdom does not have a constitution that is
contained in a written constitutional instrument; and periodically attempts are made to
deal with this. These are fascinating points of Law and politics but hardly the detail of
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a book on legal issues for PMs. If you want to read more, and the structure of the court
system try The Courts and Tribunals Judiciary Website at
https://www.judiciary.gov.uk/.
Stratification
Justinian was a Roman emperor from 527 to 565, he was famous for many things, his
role in formalizing or codifying the law of Rome came through his legal writing. The
Institutes of Justinian was Justinian’s codification and is useful here because it
demonstrates the law’s predilection for stratification.
Law is stratified or divided in many way. Substantive or procedure. Criminal or civil.
Common law or statute. Public or Private. All attempts to stratify are difficult at the
boundaries and the layers or divides often overlap.
Procedural law comprises the set of rules that govern the proceedings of the tribunal
[court or arbitration]. The tribunal needs to conform to the standards setup by
procedural law during the proceedings. These rules ensure fair practice and consistency
in natural justice and rule of law in England or "due process" in the USA.
Substantive law deals with the legal relationship between people or the people and the
state. Therefore, substantive law defines the rights and duties of the people. Procedural
law lays down the rules by which they are enforced. Of course the differences between
the two need to be studied in greater detail if you are interested for better understanding.
More than that will not be said here.
Criminal law seeks to punish the wrongdoer. Civil law seeks the redress of wrongs
by compelling compensation or restitution: the wrongdoer is not punished.
Private law applies to relationships between individuals in a legal system. e.g. contracts
.
Public law applies to the relationship between an individual and the government. e.g.
criminal law
Common Law or statute ? As English law first developed there was little legislation
or statute. Judges made law by their decisions on cases, these laws were followed or
bound the whole country by the system of precedent; the common law of England
developed. As society developed and parliamentary democracy was born law made by
the monarch was replaced by laws made by legislation of parliament. The two co-exist
to produce the law of the land but a Common law system became a way of describing
jurisdictions which followed the English system. As opposed to a Common Law
system, Civil Law system is used to describe jurisdictions which follow a Roman or
codified system [i.e. the law is written down].
This book is mostly about Private Law not Public , it is mostly about Civil not Criminal
[though much of Health and Safety Law is Criminal law], it is mostly about substantive
law not procedural law. Although some procedural law must be considered [Arbitration
and Adjudication]. This book is mostly about the common law not civil law but again
some Statute must be considered [again Arbitration and Adjudication are examples.
So now its confusing: civil law as opposed to criminal law but civil law can also mean
a non common or codified system, and back to Justinian. But before that what are the
legal systems around the world? Again its simple but its not. The systems are:
Common Law [e.g. England and Wales]
Civil Law [e.g. most but not all mainland Europe]
Bijuridical Law [e.g. South Africa]
Fidqh or Islamic Law [e.g. Saudi Arabia]
Fig x shows a world map of legal systems
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This work has been released into the public domain by its author at the English
Wikipedia project. This applies worldwide. Source
http://upload.wikimedia.org/wikipedia/commons/2/21/LegalSystemsOfTheWorldMap
.png
Fig x A world map of legal systems
Red Common Law; blue Civil Law; brown Bijuridical Law; yellow Fidqh or Islamic
Law
. Remember that by their very nature the explanations offered here are simplistic you
need to read more than the material here. An example from elsewhere: introductory
science explains atomic structure as a nucleus circled by electrons; intermediary science
includes protons and neutrons; advanced science talks of many, many sub atomic and
sub nuclear particles. An introduction to contract and tort cannot go direct to the
advanced explanation.
PMs come from and work in many nations and it would be impossible to consider all
the aspects of every project in each country. However many of the issues facing the
parties to projects are generic; and by considering certain of these issues in differing
countries you will be able to analyse the effect of risk and contract conditions; no matter
what the project or the contract or how the risk is allocated.
Finally projects operate within legal frameworks and jurisdictions; this book describes
the legal frameworks under generic headings and also provides some analysis of the
jurisdiction in England and Wales. Many countries share similarities with law of
England and Wales, but many do not. It may be that the country in which you are
operating has a different legal system or that a particular area of the law is different;
you should always consider the effect of jurisdiction.
Projects need not be bound by the law of the country in which they are physically
situated or the law of the countries from which the parties are drawn. Imagine the
common situation:
An infrastructure project in an African country:
• funded by the World Bank;
• designed by engineers from Scotland (United Kingdom);
• project management by an organisation from the USA;
• procurement arranged by quantity surveyors from Australia;
• construction management by an organisation from England;
• sub-contractors from Holland, Malaysia and the African country;
• subject to the law of England;
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• disputes to be dealt with a variety of procedures culminating in
International Arbitration in Switzerland.
It would be difficult, although perhaps not impossible, to include in any book detail of
all these arrangements and all the jurisdictional issues; and it is not attempted here.
International law
This is a confusing term and for our purposes we can assume that there is no such thing.
Public International Law governs the relationship between states and international
entities. PMs will seldom be involved in such matters. Private international law, which
addresses the questions of (1) which jurisdiction may hear a case, and (2) the law
concerning which jurisdiction applies to the issues in the case. English Law and
lawyers term this conflict of laws. The conflict is which court has jurisdiction? And
which law applies. Parties can choose the law and the jurisdiction which applies to
their project, usually via their contract. The phrase:
The Agreement and these Conditions shall be governed by and construed in
accordance with the law of England and Wales, the parties agree to submit to
the exclusive jurisdiction of the Courts of England and Wales in respect of any
dispute which arises out of or under this Agreement.
Is commonly seen in contracts. The parties actively seek English Law and the English
Courts. Why parties would do that is a complex issue, and will be returned to later [in
Chapter 11]. You might consider it: Why would the parties to our imaginary project
seek English Law and English Courts?
Remember our infrastructure project in an African country:
• funded by the World Bank;
• designed by engineers from Scotland (United Kingdom);
• project management by an organisation from the USA;
• procurement arranged by quantity surveyors from Australia;
• construction management by an organisation from England;
• sub-contractors from Holland, Malaysia and the African country;
Why would it be subject to the law of England; with any disputes to be
dealt with a variety of procedures culminating in International
Arbitration in London? The law in England and Wales, the legal system
in England and Wales and English [and Welsh] Lawyers is a great
contributor to UK plc. In 2016 The Law Society said:
Net exports of legal services have also grown in value by an average of 5.6 per
cent per annum over the last 10 years, to £3.6 billion in 2014. The legal services
sector is a net exporter, helping to offset the UK's overall balance of payments
deficit. English and Welsh law is the choice of law internationally and England
and Wales is the jurisdiction of choice.
In some quarters there is a tendency to blame lawyers for lots of things. A line from
William Shakespeare's Henry VI, Part 2, Act IV, Scene 2. Says "The first thing we do,
let's kill all the lawyers”. I am not in that camp. Some lawyers may read this book to
point out my, many, puerile errors. Go easy on me, I am your fan.
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Eats, shoots and leaves; can a word modify a sentence and what is the cost of a
comma
There are many books which point to the havoc wreaked by poor punctuation. Try the
sentence ending eats shoots and leaves as opposed to eats, shoots and leaves. Google
it and see.
How about considering if a word can modify an entire sentence? In Flores-Figueroa v.
United States. The U.S. Supreme Court decided that the word “knowingly” modifies
not only the verb, but also the direct object following the verb.
Ultimately the poor use of syntax, grammar and or punctuation might cost you dear. In
Canada a misplaced comma reportedly cost Rogers Communication Inc $2.13M.
There is a point in this rant for attention to grammar and syntax. PMs communicate via
the written word. The law and lawyers often have to decide a meaning when the written
word is unclear. The written word is an important tool for PMs; and writing is an under-
rated craft skill.
Read your work and read it again and read it again. Arbitrators are advised to finish an
award 3 days (at least) before it is due and put it in a drawer for a day before re-reading
one last time. Try it. Ask an independent third party to read for sense. Even if they
know nothing about the subject matter they can advise if it makes sense. The might be
anyone; might be a colleague: mum; dad; son; daughter; wife; husband; boy friend or
girl friend. But think about the law or the contract. An arbitrator can’t ask anyone, or
can they? If you want to see the debate about this you will have to consult a specialist
text or a specialist lawyer. What about something you produce for a client or at work,
can you show that to anyone? Look in your contract, see what it says. You will have
to consult a specialist text or a specialist lawyer and this might encompass Employment
about which this unit says nothing.
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What is law
The law is bound up with many things: concepts of justice; ethics; fairness and rules.
Common definitions include reference to rules. The system of rules which a particular
country or community recognizes as regulating the actions of its members and which it
may enforce by the imposition of penalties. The law might say shooting some birds is
against the law and might impose a penalty of money or imprisonment. Few laws say
You must shoot certain birds. This is often talked about in terms of sins of omission
and sins of commission.
Great thinkers; philosophers; jurists and lawmakers have written about these things.
Try Socrates, John Rawls, John Stuart Mill and Jeremy Bentham on the laws of Athens,
Justice, Liberty and Utilitarianism. Try many, many others. Try: law; the law or laws.
My example. Plato recorded the trial, condemnation and execution of Socrates in a
series of dialogues, Socrates himself left no written work. In the dialogue with Crito;
after Socrate’s trial a group of his friends, led by Crito, devised a plan for Socrates to
escape, and avoid execution, but Socrates would not join in the plan. He argued that:
life was only worth living and striving for if it was a good life. A good life meant
obedience to the laws of Athens. Even if he had been wronged, and he had; he could
not reply with a wrong. He had been condemned by due process and he must remain
obedient to the laws.
Socrates dreamt of the laws of Athens addressing him and concludes: the Laws are more
honourable than one's parents, for they too beget, educate, and nurture their citizens.
He has no choice but to obey the law. You might think about this when you think about
why people obey laws.
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Chapter 2: Conflict Theory Management And Dispute Resolution
Summary
There does exist a theory of conflict, proposed by Karl Marx and developed by others.
There is considerable interest in conflict and disputes from a psychological, through a
sociological to a commercial perspective. It used to be thought that all conflict was a
bad thing Amongst the first to question this was Mary Parker Follett who developed the
concepts of functional and dysfunctional conflict. The generally accepted view now is
that conflict and dispute are different. The difference however is less easily explained.
The widely held view is that conflict, which is all around in western dialectic, may
develop into dispute [although some argue the complete opposite that dispute is all
around and conflict is the stronger term].
This course and this chapter takes the view that conflict is inevitable; and is an essential
part of dynamic capitalism. Dispute may flow from the conflict. If you like conflict is
inevitable dispute is not. Dispute may emerge from conflict but conflict does not emerge
from dispute. Some talk of functional conflict and dysfunctional conflict or dispute.
Two things are required therefore: conflict management and dispute resolution.
Conflict Management is considered in the next chapter. The dispute resolution
techniques are considered individually in later chapters but here the four major Dispute
Resolution techniques are stated as: Mediation; Arbitration; Construction adjudication
and Litigation and are compared and contrasted under the headings of : Formality;
Speed; Flexibility and Cost.
The cost of Commercial Conflict and Dispute is not easily quantifiable but one thing is
clear whatever the cost is, it is something that should be avoided
Those believing the argument that conflict is inevitable have to consider the example
of the Dabbawallah of Mumbai; conflict is almost unheard of; estimates are that less
than one in six million deliveries produce mistake. A case study of the Dabbawallah is
made.
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Introduction
Both the professions and academics are enormously interested in commercial conflict
and disputes. The interest is mostly with the techniques used to resolve disputes; there
is little by way of interest into conflict management or dispute avoidance. This chapter
considers four areas:
• An introduction to conflict theory
• A discussion of the difference between conflict and dispute;
• An outline of the myriad of techniques used to resolve disputes, in the UK this
reflects the government’s current approach and that of other interests which seek
to make savings by optimising efficiency in dispute resolution;
• The lack of evidence that is apparent in any discussion of commercial disputes.
The chapter discusses the absence of an empirical base to the study of disputes.
The UK construction industry is given as an example. The lack of an empirical
base means that there has been little consideration of the issues of
understanding; explanation or prediction of commercial disputes. A research
agenda is proposed where an aetiological approach to commercial disputes is
employed; this, it is proposed, may help develop a mature and sophisticated
research base, which may help industry performance.
A case study is made of the Dabbawallah of Mumbai where 99.99966% of the products
manufactured [services delivered in this case] are statistically expected to be free of
defects. Or if you like one in six million deliveries produce mistake.
Conflict Theory
A theory of conflict does exist; it was founded by Karl Marx1. Marx expresses the
theory in terms of a class struggle; the struggle between classes. Others. Notably Max
Weber took the theory forward . A glance at the conflict literature shows there is a great
diversity of conflict knowledge; from the everyday knowledge we all have to the
sophisticated theoretical writings of psychologists and sociologists. The problem is
how to present this broad range of knowledge in an understandable manner. One way
of dealing with this is to consider that the theories apply to many different conflicts;
even that they apply to all conflicts. Sociological theories apply to commercial conflict.
In addition the theories will be presented in a simple way. One famous definition of
economics is that it is a study of the allocation of scarce resources which have
alternative uses. Conflict theory might be expressed in a similar way; conflict is
inevitable as organisations seek to redistribute scarce resources, a classic Marxist view.
Conflict And Dispute: Is there a difference between conflict and disputes?
Disputes are time consuming, expensive and unpleasant. They can destroy
client/supplier relationships which have been painstakingly built up over long periods
of time. Disputes can add substantially to the cost of a project even making a project
unsuccessful, unfeasible or negating any benefits. Disputes need to be avoided; if they
cannot be avoided then they should be resolved as efficiently as possible to manage the
1 Campell T. (1981), Seven theories of human society, Oxford University Press
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‘Problem’, negotiate a ‘Settlement’, help ‘Preserve Relationships’ and maintain ‘Value
for Money’.
Many people would not recognize a distinct difference between the terms conflict and
dispute. Certainly most people would not concern themselves with any definition.
Academics, and others, would usually make definition their starting point. Definition
provides structure and structure may allow explanation and understanding.
Conflict and dispute studies do form academic disciplines. Any attempt here to
summarise the various strands of academic disciplines would be doomed to failure and
debate on definition. In an attempt to avoid this, it is suggested the following are some
of the areas of conflict and dispute studies:
• Peace and Conflict Studies – a social science
• Conflict Management as an Organisation Management Science – part of
management science
• Conflict Management and Dispute Resolution – the concern of this book
Functional and dysfunctional conflict
Early theory marked all conflict as a bad thing that should be avoided. Amongst the
first to question this was Mary Parker Follett2;She said that effective conflict
management ought not to conceive conflict as a wasteful outbreak of incompatibilities,
but a normal process whereby socially valuable differences register themselves for the
enrichment for all concerned. Three methods were advanced for dealing with conflict:
domination, whereby there is a victory of one side over the other (a win-lose
situation);
compromise, whereby each side gives up something in the process (a lose-lose
situation);
and integration, whereby each side refocuses their efforts so that neither side
loses anything and in fact each gains (a win-win situation).
Parker Follett recommended only integration this issue of integration is returned to in
Negotiation [see chapter 5] and in Mediation [see chapter 6].
Follett believed that domination should be avoided at all costs. Although application
of this strategy requires little effort on the part of the parties and their agents, the long-
term side effects can be devastating. Compromise carries with it the assumption that
both parties will be happy because each will gain something, but each loses something
as well and this in turn creates the potential for further conflict. Integration was
favoured simply because if both parties can become satisfied there will remain no issue
or problem – obviously an ideal situation not easily attained.
Win-lose is often overused as a strategy for solving conflicts. It assumes the use of
mental or physical power to bring about compliance; a lose-lose approach will also
leave no one entirely happy. Compromise, side payments and submission of the issue
2 Metcalf, H. (2003), Dynamic Administration: The Collected Papers of Mary Parker Follett: Early
Sociology of Management and Organizations, Routledge
17
to a neutral third party, as in the arbitration procedure, constitute examples of this latter
approach. The win-win approach, (now becoming more popular although still
misunderstood), yields solutions satisfactory to all in that each party to the conflict wins
something, and the conflict is therefore resolved constructively. It could be suggested
that important conflicts tend to be best managed with positive-sum (win-win) strategies,
while more trivial issues merit no more than zero-sum (win-lose/lose-lose) strategies,
with most situations calling for contingency or mixed modes (no win-no lose). The
concepts of integration and interest based approaches have considerable influence in
negotiation, mediation and Game Theory
A further distinction between conflict and dispute that is particularly useful is the one
which distinguishes the two based on time and issues in contention.3 Disputes, this
suggests, are short-term disagreements that are relatively easy to resolve. Long-term,
deep-rooted problems that involve seemingly non-negotiable issues and are resistant to
resolution are referred to as conflicts. Though both types of disagreement can occur
independently of one another, they may also be connected. In fact, one way to think
about the difference between them is that short-term disputes may exist within a larger,
longer conflict. A similar concept would be the notion of battles, which occur within
the broader context of a war. Other theorists talk of strategy and tactics; tactics win the
battle but strategy wins the war.
From this analysis of conflict and dispute it can be argued that conflict is necessary and
inevitable but that disputes are to be avoided. The school of Western thought which
maintains that conflict (but not dispute) is inevitable4. Conflict is part of Western
societies and idioms; there is a Western dialectic argument idiom to use the academic
jargon. Conflict is part of dynamic capitalism and an integral part of commercialism;
conflict might be seen as the functional and necessary part. Dispute on the other hand
only develops when conflict is not (or cannot be) managed . Dispute, therefore, is the
unnecessary or dysfunctional element. Logically then there are two areas for
consideration:
• Conflict Management: Here the emphasis is on the axiom that it must be in all
parties interests to avoid disputes by managing conflict in such a way that
disputes do not arise - sometimes described as dispute avoidance.
• Dispute Resolution: Notwithstanding the emphasis on the desire to avoid
dispute, there must be occasions where the parties have legitimate disputes and
that the techniques of dispute resolution are employed to bring about the
conclusion or resolution of the dispute.
The distinction between conflict and dispute is shown diagrammatically in Figure 1.
It might be argued that at the dispute end of the continuum lies other action [e.g.
violence]. Hopefully we will not have to consider this option.
3 Burton, J. W. (1993) Conflict Resolution as a Political Philosophy. In: Conflict Resolution Theory and
Practice: Integration and Application (eds H. van der Merwe, D. J. D. Sandole), Manchester University
Press
4 De Bono, E. (1985) Conflicts. Penguin, London.
18
Disputes on projects, or contracts, are more than unpleasant, they divert valuable
resources from the overall aim, which must be completion: on time, on budget and to
the quality specified. In addition they generally cost money, take time and can destroy
relationships, which may have taken years to develop.
19
Dispute
Resolution
Conflict Management
Fig 1
Figure 1: Conflict Continuum
The legal issue conflict or dispute: Legal concerns about conflict or dispute
Although the esoteric discussion earlier on conflict and dispute is valuable, is there any
pragmatic real-world issue in the distinction? The legal point is discussed as the
difference between behavioural conflict and justiciable dispute5. The question as to
whether or not a dispute exists is highly relevant where an arbitration or other dispute
resolution provision in a contract provides that disputes are to be referred to arbitration
or other dispute resolution.
The meaning of the word dispute would at first sight seem to be relatively
straightforward, indeed cases such as Hayter v Nelson (1990)6 and Cruden v
Commission for New Towns (1995)7 have stated that an ordinary English word such as
dispute should be given its ordinary meaning. However there is a considerable body of
case law concerning the question of what constitutes a dispute. Much of that case law
5 Brown, H. and Marriot, A. (1994) ADR Principles and Practice. Sweet and Maxwell, London.
6 23 Con LR 7 2 Lloyd's Rep 387
CONFLICT
DISPUTE
Conflict Avoidance
Informal Negotiate Discussion
ADR Arbitrate Litigate
Adjudicate
Other
Action
Violence
20
has been associated with arbitration and /or Construction Adjudication under the
Housing Grants Construction and Regeneration Act. Section 108 of the Housing Grants
Construction and Regeneration Act provides that:
"A party to a construction contract has the right to refer a dispute arising under the
contract for adjudication under a procedure complying with this section. For this
purpose "dispute" includes any difference.”
It is extremely common in construction adjudication8 for the responding party to allege
that it has not previously been given the opportunity to review the case put forward by
the referring party and, therefore, that there is no dispute capable of being referred to
construction adjudication. On the basis of this, the responding party will contend that
the adjudicator does not have jurisdiction to deal with the matter. In 2003 at least 4
cases were pursued on this point alone.
The case of Cowlin Construction Ltd v CFW Architects9 considered the question of
definition and in doing so the court provided a useful summary of the relevant cases.
It appears from case-law that whilst there is no special meaning to be given to the
meaning of the word dispute, there are certain factors to take into consideration when
deciding whether or not there is a dispute. The approach adopted by the courts is one
which attempts to prevent one party from ambushing the other party. There seem to be
two schools of thought as to what is required for the crystallisation of a dispute. The
wide approach advocated by Halki Shipping corporation v Sopex Oils Ltd 10where a
claim made and not admitted is sufficient (Cowlin, Costain v Wescol Steel11 and Orange
EBB v ABB12.). The narrow approach advocated by Carillion v Devonport13 and Beck
Peppiatt v Norwest Holst Construction14 shows a reluctance to allow ambushes and for
dispute resolution to be commenced prematurely.
The myriad of techniques used to resolve disputes
There has been considerable recent interest in dispute resolution; particularly as a means
of making savings by optimising efficiency in dispute resolution. In fact, the ‘Pledge to
Alternative Dispute Resolution (ADR)’ relaunched in 2011 as the Dispute Resolution
Commitment is a central tenet of the UK government’s commitment to greater
efficiency in dispute resolution
The following section reviews the main techniques available (used) and compares three
key techniques. This is by no means an exhaustive or exclusive list; there are
undoubtedly others, indeed one definition of ADR is Appropriate Dispute Resolution
and there may be a ‘killer application’ yet to be devised.
The range of conflict management and dispute resolution techniques include:
8 See Chapter 6 9 [2002] EWHC 2914 TCC 10 [1998] 1 WLR 727 11 [2003] EWHC 312 12 [2003] EWHC 1187 TCC 13 [2005] EWCA Civ 1358 14 [2003] BLR 316.
21
Conflict management/ dispute avoidance: incorporates a variety of techniques some
used consciously and some subliminal to avoid the escalation from normal conflict into
dispute. Examples might include: risk management to ensure that risks are identified;
analysed and managed; procurement strategies to ensure that risks are appropriately
allocated and contractual arrangements to allow sensible administration. Specific
examples include: Clearer Project Definition; Equitable Risk Allocation; Improved
Procurement and Tendering Procedures; and Partnering or Relationship Contracting.
Negotiation: this is easily the most common form of dispute resolution, carried out in
many forms every day by just about everybody. In negotiation the parties themselves
attempt to settle their differences using a range of techniques from concession and
compromise to coerce and confront.
Mediation: a private and non-binding form of dispute resolution where an independent
third party [neutral] facilitates the parties reaching their own agreement to settle a
dispute. Mediation is often a structured process where the settlement becomes a legally
binding contract.
Conciliation: a process of mediation where the neutral proposes a solution. In the same
way that we distinguished between a continuum of conflict and dispute; a continuum
of mediation and conciliation shows mediation at one facilitative end and conciliation
at the other evaluative end of the continuum
Med-arb: is a combination of mediation and arbitration where the parties agree to
mediate but if that fails to achieve a settlement the dispute is referred to arbitration. The
same person may act as mediator and arbitrator in this type of arrangement.
Dispute Resolution Adviser (DRA): The concept of DRA is the use of an independent
intervener. This independent intervener is paid for equally by the employer and the
contractor to settle disputes as they emerged; rather than wait until the end of the
contract.
Dispute Review Boards (and Dispute Review Panel and Dispute Avoidance Panel and
Dispute Adjudication Panels): Dispute Review Board is a process where an
independent board evaluate disputes.
Neutral evaluation: a private and non-binding technique where a third, neutral party
(often legally qualified), gives an opinion on the likely outcome at trail as a basis for
settlement discussions.
Expert Determination (Submission to Expert, Reference to an Expert, Expert
Adjudication): these are long-established procedures in English law and have been used
across a number of industries. Examples include: accountants valuing shares in limited
companies, valuers fixing the price of goods, actuaries carrying out valuations for
pension schemes, certifiers of liability for on-demand performance bonds, and
Adjudicators who are said to be acting “as expert and not as arbitrator”.
Mini-Trial (or Executive Tribunal): This is a voluntary non-binding process. The
parties involved present their respective cases to a panel comprised of senior members
of their organisation. The panel is assisted by a neutral facilitator and has decision-
making authority. After hearing presentations from both sides, the panel ask clarifying
questions and then the facilitator assists the senior party representatives in their attempt
to negotiate a settlement.
Construction adjudication: this refers to Statutory Adjudication in Construction
Disputes as set out in the Housing Grants, Construction Regeneration Act 1996. Here
decisions of an adjudicator are binding on the parties at least until a further process is
invoked (Arbitration or Litigation).
22
Arbitration: a formal, private and binding process where disputes are resolved by an
award of independent tribunal (third party or parties, the arbitrator or arbitrators). The
tribunal is either agreed by the parties or nominated by a further independent body: for
example, a court or a professional institution.
Litigation: the formal process whereby claims are taken through court and conducted
in public; judgements are binding on the parties subject to rights of appeal.
Each of these, but not litigation, are considered later.
The stages of conflict management and dispute resolution
The stages of conflict management and dispute resolution are usefully described in a
document produced by the Office of Government Commerce: Dispute Resolution
Guidance 15. The stages are:
• Stage 1: Negotiation
• Stage 2: Non Binding Techniques and Processes
• Stage 3: Binding Techniques and Processes
This epitomises the current approach which seeks to make savings by optimising
efficiency in dispute resolution; there is strong support for this in the UK by
Government and internationally by research teams such as those at Havard 16and
Cornell 17.
15 http://www.ogc.gov.uk/documents/dispute_resolution.pdf 16 Sander, F. (1976) The Muti-door Court House. 70 F.R.D. 111, Harvard 17 Lipsky, D. B. and Seeber, R. L (1998) The Appropriate Resolution of Corporate Disputes: A Report
on the Growing Use of ADR by US. Corporations. Institute on Conflict Resolution, Cornell
23
The Principal Stages and The Dispute Resolution Options are shown at Figures 2 and 3.
Figure 2 The Principal Stages of Dispute Resolution
STAGE 1 STAGE 3 STAGE 2
NEGOTIATION
Mediation
Conciliation
Neutral Evaluation
Construction
Adjudication
Expert
Determination
Arbitration
Litigation
24
Figure 3 Dispute Resolution Options
METHOD COMMO
N LAW/
STATUTE
BASIS
FREQUENC
Y
OF USE
SPEED COST CONFIDENTIALIT
Y
BINDIN
G
ADVERSARIA
L
SPECIAL
FEATURE
S
Stage 1
Negotiation No Very Common
Ubiquitous
Varies Low Yes No No Can
continue
throughout
the dispute
Stage 2
Mediation No Common Fast Low Yes No (unless
agreed)
No
Conciliation No Fairly
Common
Fast Low Yes No (unless
agreed)
No Often
included
with
mediation
Neutral
Evaluation
No Infrequent Fast Low Yes No No
Adjudication Yes Common Fast Low Yes Yes (until
completio
n or
Arb/Lit)
Yes Statutory
adjudication
is
construction
specific
Stage 3
Arbitration Yes Common Contingen
t
Contingen
t
Yes Yes Yes
25
Expert
Determinatio
n
No Fairly
Common
Fast Moderate Yes Yes Yes
Litigation Yes Common Slow High No Yes Yes
26
Comparison of litigation, with construction adjudication, arbitration and mediation
It is useful to compare and contrast the major dispute resolution techniques in areas where the
characteristics of each technique are highlighted. Litigation, Construction Adjudication,
Arbitration and Mediation are compared under the following headings:
• Formality
• Speed
• Flexibility
• Cost
• Confidentiality
• Relationships
• Control and Choice
• Solutions
Formality
Mediation is an informal process; the parties may agree to certain mediation rules but they are
at liberty to amend any rules. It is often said that the parties are in control of the settlement, but
the mediator is in charge of the process There is no requirement to produce specified
information before the mediation can commence, neither is there a requirement to spend
resources filing and serving documents. Mediation is informal and uncomplicated.
Construction adjudication is an informal process and the procedure is, within certain bounds, at
the discretion of the adjudicator. Arbitration has been criticised for mimicking litigation; many
steps have been taken to redress this and arbitrations are less formal, nevertheless arbitration
may be considered formal and complicated when compared with mediation. Litigation is,
properly, a highly formalised process with specialised rules; non-compliance may prevent
litigation proceeding. Resources have to be committed in filing and serving documents.
Litigation is a highly formal and complicated process.
Speed
In mediation the timing is within the control of the parties; subject to the availability of suitable
and acceptable mediators mediation may take place as quickly as the parties desire. The length
of the mediation is similarly in the control of the parties; they can agree to stay as long, or as
briefly, as required. The great majority of mediations are restricted to one working day or less.
Construction adjudication operates under very tight timescales laid down by legislation; see
above the maximum time from notice to decision is 35 days which may be extended by
agreement to 49 days. Speed is often claimed as a feature of Arbitration; however the reality is
that the availability of all the parties involved, not least the arbitrators, dictate that the process
is often protracted. Litigation is often an infuriatingly slow process; in many jurisdictions
advisors talk in terms of years rather than months as the timescale for trial dates. Although
many great strides have been taken in many countries to address this, in the UK the Civil
Procedure Rules following the Woolf Review of Civil Justice is a particular example, time
continues to be an issue.
Flexibility
Mediation is a flexible process; all arrangements can be changed if necessary if it becomes
apparent that this is necessary. Arbitration can share much of this flexibility and the 1996
27
Arbitration Act has given arbitrators wide ranging powers to achieve flexibility. Adjudicators
too have much scope for flexibility. Litigation is an inflexible process, specific steps must be
taken to initiate and progress matters.
Cost
Mediation is an inexpensive process; this is achieved and facilitated by the informality and
speed of the process. The amount of lawyer involvement can be reduced if the parties agree
and in many cases the cost of preparing for mediation is marginal to the other preparation. The
parties can share the costs associated with the mediation in an agreed fashion. Construction
adjudication can be an inexpensive process as a result of the tight timescales. Arbitration can
certainly help in reducing costs and dealing with a dispute in a proportionate manner. In
comparison to litigation it must be remembered that while the state pays for majority of the
courts and judge’s costs s in many cases, in arbitration the parties must pay the arbitrators costs.
Litigation is an expensive process; this is dictated by the formality and slowness of the process.
There are many, many examples of the disproportionate costs of litigation. Amongst the most
famous is the Dickens’s Bleak House example of Jarndyce v Jarndyce where the parties
disputing a will expended the entire legacy in legal costs when they disputed the terms of the
will!
Confidentiality
Here things are clear; in construction adjudication, arbitration and mediation all matters are
confidential. This is an important issue for commercial disputes where the parties often wish
to avoid publicity and to keep commercial confidentialities. There is an issue often where
arbitration awards are the subject of appeal or referral to the courts; then all matters will become
public. Litigation is a public matter and though civil commercial litigation seldom attract
tabloid press interest; it is clear that litigation can expose confidential issues.
Relationships
Again a clear difference: Mediation is a non-adversarial process while litigation and arbitration
are both adversarial. Construction adjudication may avoid the dysfunctional aspects of
adversarialism. In facilitative mediation [see Chapter 6] the parties do not seek to convince the
neutral that they are in the right; or that others are in the wrong. The emphasis of facilitative
mediation is on the parties’ interests as opposed to parties’ rights. As a result mediation need
not affect working relationships in an adverse manner. Sometimes mediation may improve
relationships as parties achieve an improved understanding of underlying interests and
concerns. Litigation and Arbitration on the other hand are not conducive to even maintaining
relationships let alone improving them. Opposing parties aim to convince the tribunal that the
law and the facts support their argument to the detriment of the other side; this seldom helps
relationships and often destroys them. Construction adjudication allows the power imbalance
in relationships to be dealt with in that weaker sub-contractors have a clear route to deal with
more powerful contractors.
Control and Choice
In mediation the control of the dispute always remains with the parties and the choice is theirs.
Who will be the mediator; where will the mediation take place; when will it take place; and
who will attend. Mediation is a voluntary process and the parties remain in control. This control
28
means that the parties have to ‘buy in’ to the settlement and any resolution becomes their own
settlement. Litigation, Construction adjudication and Arbitration hands over the dispute to the
lawyers and the judge or arbitrator or adjudicator. The process passes control and choice in a
similar fashion.
Solutions
The essential difference is that mediation allows for creative solutions to disputes; during a
mediation a wide range of issues can be addressed or uncovered. These issues can include past
unresolved matters and even future intentions. The solutions to the issues can take many forms,
and are not restricted to payment of money; they can be as creative as the parties to the dispute.
Mediated agreements have included:
• Apologies
• Future Business Arrangements
• Revamped Commercial Arrangements
Litigation and Arbitration cannot allow for creative solutions but must be limited to the legal
remedies available. Construction adjudication is similarly restricted by legal remedies but does
allow prompt solutions which permit the project to be completed.
The government’s pledge to ADR
In the UK the result of this comparison of techniques, and a desire to make savings by
optimising efficiency in dispute resolution, was that on 23 March 2001 the Government made
a pledge that government departments will only go to court as a last resort. Instead, they will
settle their legal disputes by mediation (or arbitration) whenever possible. Government
departments and agencies will settle legal cases by ADR techniques in all suitable cases
whenever the other side agrees. The pledge is worth repeating in full18:
Settlement of Government Disputes through Alternative Dispute Resolution
"Government departments and agencies make these commitments on the resolution of disputes
involving them:
Alternative Dispute Resolution (ADR) will be considered and used in all suitable cases
wherever the other party accepts it.
In future, Departments will provide appropriate clauses in their standard procurement contracts
on the use of ADR techniques to settle their disputes. The precise method of settlement would
be tailored to the details of individual cases.
Central Government will produce procurement guidance on the different options available for
ADR in Government disputes and how they might be best deployed in different circumstances.
This will spread best practice and ensure consistency across Government.
Departments will improve flexibility in reaching agreement on financial compensation,
including using an independent assessment of a possible settlement figure.
18 http://www.justice.gov.uk/publications/docs/alternative-dispute-resolution-08-09.pdf
29
There may be cases that are not suitable for settlement through ADR, for example, cases
involving intentional wrongdoing, abuse of power, public law, Human Rights and vexatious
litigants. There will also be disputes where, for example, a legal precedent is needed to clarify
the law, or where it would be contrary to the public interest to settle.
Government Departments will put in place performance measures to monitor the effectiveness
of these undertakings."
23 March 2001
The requirement to put in place monitoring measures was felt by many to be the crucial issue
for government departments. Not only were they encouraged to use the pledge but their use
would be monitored. The monitoring reports make interesting reading; the latest report at
March 2010 states:
“During the reporting period 2008/09, ADR has been used in 314 cases with 259 leading to
settlement, saving costs estimated at £90.2m”19
In addition to this monitoring; the principle that litigation should be a last resort has the approval
of the courts; in Frank Cowl and other v Plymouth City Council20, Lord Woolf said:
“… insufficient attention is paid to the paramount importance of avoiding litigation
whenever this is possible.”
Why Commercial Projects Go Wrong: The Construction Example
It certainly seems that commercial projects do go wrong; everyone knows that, it is one of the
problems of commercial. As an example we might consider the construction industry in the
UK where the problems are writ large. These problems have intrigued, one might say obsessed,
the industry and government for 50 years. Reports on construction are nothing new and even
an incomplete list of reports since the Second World War makes depressing reading:
A simplistic analysis of all these reports finds three key areas. Construction has a reputation
for producing products which are: not to the quality expected; over budget and over programme.
What is the problem with construction? That much is easy, the industry has a poor image and
is renowned for products which are:
• Poor Quality
• Over Budget (Expensive)
• Over Programme (Late)
Stella Rimington tells this with stunning clarity in her book ‘An Open Secret21’.about her time
in MI5:
19 http://www.justice.gov.uk/publications/docs/alternative-dispute-resolution-08-09.pdf 20 [2001] ADR.L.R. 12/14 21 Rimmington, S. (2002) Open Secret: The Autobiography Of The Former Director-General Of MI5, Arrow
30
“Like all huge building projects, particularly in the public sector, the Thames House
Refurbishment had been fraught with difficulties … It was clear that dealing with the
building industry was just as tricky as dealing with the KGB.”
Construction projects are poor quality, late and expensive. Another feature is the
preponderance of disputes, often described as ‘adversarial attitudes’. Many would question the
evidence for any of these problems, but here let’s restrict the questioning to the disputes issue.
The adversarial attitudes problem is often expressed as received wisdoms about construction.
Simply put there exist received wisdoms that:
1. Construction suffers more contractual disputes than other industries;
2. The occurrence of disputes has risen recently and continues to rise;
3. The performance of the industry is adversely affected by the disputes.
The received wisdoms are repeated throughout the construction literature. For a contemporary
confirmation in the UK see Latham and National Audit Office22; the same is repeated
internationally23. However there is little empirical work to test the received wisdoms and
random theorising is allowed to pass unchallenged. It is intriguing that in an area accustomed
to the rigours of evidence, both legally and scientifically: the law and academia, this has been
allowed to pass with barely a murmur of protest. This evidential sloppiness peaked, during the
debate which accompanied the introduction of Housing, Grants Construction and Regeneration
Act in the United Kingdom; and the introduction of Construction adjudication when the
Department of the Environment (1996) claimed inter alia:
“... there is compelling anecdotal evidence that adjudication would reduce overall project
costs.”24
It is suggested that the phrase ‘compelling anecdote’ is an oxymoron.
Disputes and conflict on projects, or contracts, are unpleasant, they divert valuable resources
from the overall aim, which must be completion: on time, on budget and to the quality specified.
In addition, they generally cost money and take time and they can destroy relationships, which
may have taken years to develop. Commerce and its management needs to recognise both
Conflict Management and Dispute Resolution.
Explanation or prediction of commercial disputes
That lots of the literature states that dispute avoidance is to be preferred is self evident. One
clear example:
22 Latham, M. (1994) Constructing the Team, HMSO, London , National Audit Office (2001) Modernising
Construction. HMSO, London.
23 Kumaraswamy, M. (1997b) Conflicts, Claims and Disputes in Construction. Construction Law Journal, 13,
21-34 24 Department of the Environment (1996) Making the Scheme for Construction Contracts. A consultation paper
issued by the Department of the Environment, London
31
“The best solution is to avoid disputes.”25
If we deal with this issue of avoiding disputes; if we seek to avoid disputes it is axiomatic that
we seek to predict, because by prediction we can take the necessary action to avoid. Prediction
is at the very heart of the scientific method of research and we might look to other disciplines
for guidance on predictive research. Medicine is an example a mature scientific discipline
where predictive techniques have developed a concept of preventative medicine. Medical
science has a well-established branch of aetiology: the study of the causes, for example, of a
disease. The word comes from the Greek ‘aitia’, a cause, plus ‘logos’, a discourse.
An aetiological approach might throw new light on construction disputes. Continuing the
analogy with medicine, construction disputes represent the dysfunctionality of conflict and,
therefore, the disease on the body of construction. Aetiology has thrown new light on many
problems of medical disease providing important clues to the understanding of the nature of the
disorder and promoting advances in diagnosis, treatment and prevention.
Diagnosis is the act of identifying a disease from its symptoms or signs; in construction
disputes, the symptoms of dispute currently are not considered, only when a dispute has
manifested itself are the parties concerned with the dispute and then only with the resolution of
that dispute. Treatment of the dispute, following most dictionary definitions and not the
medical concept, is the application of the techniques or actions in specified situations.
Treatment of disputes is, therefore, the application of the techniques of conflict management
and dispute resolution. Prevention is the act that is used to avoid disease and, in the argument
presented here, is prevention is made possible by the prediction of the occurrence of disputes.
So the suggestion is for a predictive model. Why do disputes arise? And when? And what
causes them? If this could be forecast then disputes could be avoided and if not the most
efficient technique could be used for their resolution. This fits in with the existing theory that
conflict is all around and dysfunctional conflict becomes dispute.
The Marxist view that conflict is an inevitable part of the struggle for scarce resources.
The traditional student essay is: Conflict and dispute are inevitable, discuss. The Marxist view
is that conflict is an inevitable part of the struggle for scarce resources. The Popperian26 view
that we can’t say if disputes are inevitable since this requires a prediction of the future; and we
can’t predict the future. Or as Neil Bohr said prediction is difficult particularly if it involves the
future.
Cost of Conflict and Dispute
In the wider academic field there is considerable interest in the cost of conflict; Nobel prize
winner James Stiglitz is one of many who have considered the Cost of Conflict a tool which
attempts to calculate the price of conflict to the human race27. But what of the cost of conflict
and disputes to industry and commerce? In November 2008, Lord Justice Jackson was
appointed to lead a fundamental review of the rules and principles governing the costs of civil
25 Latham, M. (1994) Constructing the Team, HMSO, London 26 Popper, K. (2010), The Poverty of Historicism, Routledge 27 Blimes, L. and Stiglitz, J. (2008) The Three Trillion Dollar War: The True Cost of the Iraq Conflict,
Norton & Company.
32
litigation and to make recommendations in order to promote access to justice at proportionate
cost. His findings were published in January 201028. What of costs as a heuristic, is there a
simple estimate [perhaps by a percentage] of costs of say litigation? Such analyses are difficult
to find, but they have been attempted.
Lord Woolf in his report 29includes a study of costs in Official Referees’ Cases, while Fenn and
Black (1999)30 indicate that costs may lie in the range of 19-25% of the amount in dispute
(where this amount exceeds £100,000). Fenn and Black also indicate perhaps 6% of
construction contracts produce disputes of such severity that the courts or arbitrators are
involved. As a guide therefore if the construction industry output in 2009 is taken at £123B31
then perhaps £7.4B is in dispute which generate costs in the range of £1.402-1.845B. The
potential for improvements in construction is obvious, acknowledging the simplicity of the
argument and calculation. £1.402-1.845B which might be spent on construction disputes either
by clients or contractors adds to the price of construction works. The £1.402-1.845B is either
added to client’s costs or to contractors’ prices. In the context of the recent Comprehensive
Spending Review and the current economic climate, it’s more pertinent than ever to be looking
at this.
Whatever the cost of dispute; the cost is something that should be avoided.
The Intriguing Case of the Dabbawallah
Dabbawallah is a Hindi word meaning person with a box, a Dabbawallah is a person in the
Indian city of Mumbai who is employed collecting the freshly cooked food in lunch boxes from
the residences of the office workers in the suburbs, and delivering them to the offices.
Sometimes the word tiffin wallah is used Tiffin is an obsolete (obsolete in English but not in
Indian English) word for any light meal.
Each day in Mumbai up to 200,000 lunch boxes are moved, from home to office and the empties
back again by up to 5,000 dabbawalahs. The fee paid to the dabbawallah is nominal; most
dabwallahs are illiterate. Mistakes, and therefore conflict or dispute, are almost unheard of;
estimates are less than one in six million deliveries produce mistake.
Mumbai is one of the most densely populated cities in the world and long journeys to work by
its inhabitants are commonplace. Many Indian office workers prefer to eat home cooked food
at lunchtime but it would be impossible for them to travel home. A system developed whereby
lunch boxes from home containing food are collected in the morning, delivered to the office
workers at lunch time and the (same) empty lunch boxes returned to home in the afternoon.
28 http://www.judiciary.gov.uk/Resources/JCO/Documents/jackson-final-report-140110.pdf accessed 23rd
October 2010.
29 Woolf, Lord, (1995), Access to Justice, Interim Report to the Lord Chancellor on the civil justice system in
England and Wales, HMSO
30 Fenn, P. and Black, M. (1999), ‘A Survey of Domestic Construction Arbitration in the UK’, Arbitration, Vol 65
Number 3 p217-228 The Chartered Institute of Arbitrators
31 http://www.statistics.gov.uk/downloads/theme_commerce/CSA-2009/Opening-page.pdf
33
The system works like this:
A collecting dabbawallah collects dabbas [boxes] from home; these are taken to a
sorting place and sorted and bundled then placed on trains for the city. Dabbas are
marked with a colour or symbol
The train dabbawallah conveys the dabbas to the city and delivers and hands them to a
local dabbawallah.
The local dabbahwallah delivers the dabbas to the office.
In the afternoon by the reverse process dabbas are delivered back to the homes in the suburbs
for use the next day. Dabbas are mostly stackable circular metal containers. Each Dabba has a
unique mark indicating the origins, the travel route and the destination of the box. Each box can
change hands many times and may travel on many trains in the course of its daily journey.
If you subscribe to the view that conflict and dispute are inevitable; how then do you explain
the dabbawallah? By any standard a dispute ratio of 1 in 6 million is effectively no disputes;
it’s in the noise. There has been considerable interest in the dabbawallahs from academics and
industry. Harvard business review 32pointed to the illiteracy rate of the dabbawalahs and
wondered if high tech approaches might learn from the simplicity and elegance of the colour
coding and symbol approach that the illerate dabbawallahs had produced., Forbes magazine
found the dabbahwallah’s reliability to be that of a six sigma standard; A six-sigma process is
one in which 99.99966% of the products manufactured are statistically expected to be free of
defects.
Some have pointed to the organisational structure of the dabbahwallahs’ collective as an
explanation of the success and the absence of disputes. Everyone who works within this system
is treated as an equal and working to the same values. Regardless of a dabbawala's function,
everyone gets paid the same and works to towards the same outcome. If we return to Marx’s
Conflict Theory the basic reason for dispute is removed.
32 Menor, L. Ramasastry,C. (2004) Dabbawallahs of Mumbai. HBR Case Study, Publication date: Apr 26, 2004.
Prod. #: 904D11-PDF-ENG
34
Chapter 3: Conflict Management and Dispute Avoidance
This chapter uses the terminology or taxonomy developed in Chapter 2; and talks of Conflict
Management and Dispute Avoidance, rather than Conflict Avoidance.
Conflict Management and Dispute Avoidance are used in a variety of techniques some used
consciously and some subliminally to avoid the escalation from normal conflict into dispute.
Examples include: risk management to ensure that risks are identified; analysed and managed;
procurement strategies to ensure that risks are appropriately allocated and contractual
arrangements to allow sensible administration. Specific examples include: Clearer Project
Definition; Equitable Risk Allocation; Improved Procurement and Tendering Procedures;
Partnering and Relationship Contracting.
It might be argued that this chapter is far and away the most important chapter in the course;
and that Conflict Management and Dispute Avoidance are more important than Dispute
Resolution. It is clear just by looking at the range of books on dispute resolution that general
interest is in dispute resolution; perhaps this can be explained by the fact that Conflict
Management and Dispute Avoidance are obvious things; they don’t need to be stated. Conflict
Management and Dispute Avoidance is Project Management is Human Nature is done all the
time. Well if that’s is the case it could be done better.
35
Introduction [Procurement and Contracts]
Some would say procurement and contracts are central to Conflict Management and Dispute
Avoidance. But before starting on the bewildering language of procurement it is worth
considering contracts because at the heart of procurement is contract.
Procurement is about obtaining goods and services required from external organisations. It
breaks down into two main activities:
– Strategic decisions in terms of make or buy [see transactional cost economics];
work breakdown structure and which parts of the project are allocated to what
type of organisations; allocation of principle risks; how these organisations are
paid and incentivised to perform; the degree of co-operation required between
participating organisations and how they are selected etc.
– The selection procedure itself to select the ‘best fit’ organisations for their part
of the project.
If the decision is made to buy rather than to make then a product or service will have to be
purchased; and that product or service requires a contract.
Contracts
Simply contracts might be categorised as:
• Lump Sum
• Measure and Value (ad-measurement)
• Cost Reimbursement (Cost Plus)
All standard form contracts can be categorised in this way. Examples of standard forms and
their categorisation include
• Lump sum Institution of Chemical Engineers, the red book, fourth edition, 2001
• Measure and Value Institution of Civil Engineers 7th Edition
• Cost Reimbursable, Institution of Chemical Engineers the green book, third edition,
2002
36
Figure 4 tries to show these types by risk apportionment, this is greatly simplified:
Majority of Risk Majority of Risk
To Client To Contractor
Figure 4 Types of Contract by risk apportionment
• Lump Sum
– [Risk Mostly with Client]
• Measure and Value
– [Risk Mostly shared Client/Contractor]
• Cost Reimbursement
– [Risk Mostly with Contractor]
Lump sum
Here the work is clearly identifiable and quantifiable and the extent, boundaries and detail of
the work are known.
• Examples:
– Providing a product or good or service where the work is clearly identifiable.
Extension to a house
Measure and Value
Here although the work is clearly identifiable the extent, boundaries and detail of the
work are not clear and the quantities may change.
• Examples:
– Providing a product or good or service where the work is clearly identifiable but
the extent, boundaries and detail of the work are not clear and the quantities may
change. New railway line between Manchester and London
Lump Sum Contract
Measure and Value
Cost Reimbursement
37
Cost Reimbursement [Cost Plus]
Here the work is NOT clearly identifiable or quantifiable; the extent, boundaries and detail of
the work are not clear
• Examples:
– Providing a product or good or service where the work is NOT clearly
identifiable or quantifiable; the extent, boundaries and detail of the work are not
clear. Emergency work or asbestos removal from government offices
Procurement
Procurement is the process by which the resources (goods and services) required by a project
are acquired. It includes:
• the development of the procurement strategy
• preparation of contracts
• selection and acquisition of suppliers
• management of the contracts
Contracts and Procurement as Conflict Management and Dispute Avoidance
Good contracts and good procurement are fundamentals; without these in place, parties may
have the wrong partner, and be unsure of their rights and obligations, and motivated to perform
to different objectives. Consequently, the chances of a successful project are diminished and
the prospects of dispute increase.
Good contracts and procurement can help drive a project towards success through selection of
the right parties, under the right contract strategy which aligns the parties’ motivations under
clear contract terms. Therefore Contracts and procurement are central to Conflict Management
and Dispute Avoidance
Procurement at its simplest is how to go about obtaining the goods and services needed from
external organisations. It breaks down into two main activities:
Strategic decisions in terms of make or buy; which parts of the project are allocated to what
type of organisations; allocation of principle risks; how these organisations are paid and
incentivised to perform; the degree of co-operation required between participating
organisations and how they are selected etc.
The selection procedure itself. This selects the organisations for particular parts of the
project. This is often described as ‘best fit’.
Having chosen the ‘best fit’ organisation, a contract then needs to put in place which reflects
these strategic decisions and above all, accurately and sufficiently describes with clarity what
it is wanted that organisation to deliver, by when and for how much. It also needs to describe
how change, which inevitably comes to varying degrees with a project, will be assessed and
implemented. This contract then needs to be managed.
In an era of technology and complexity, few organisations deliver projects, let alone major ones,
with no external help. Where the goods or services are predefined or simple, the contract and
procurement process is relatively easy. When procuring complex projects, with evolving needs
and which may involve tangible and intangible deliverables it becomes much more
complicated.
Conflict Management and Dispute Avoidance the Techniques
There are many techniques; perhaps they are merely codification of what everyone knows:
action is required to avoid conflict from escalating into dispute. Some of the techniques are
used consciously and some are subliminal. Which should be chosen here? Of course it’s
38
arbitrary; perhaps the best statement is: It might be argued that this chapter is far and away the
most important chapter in the book; and that Conflict Management and Dispute Avoidance are
more important than Dispute Resolution. Examples examined here include: risk management
to ensure that risks are identified; analysed and managed; procurement strategies to ensure that
risks are appropriately allocated and contractual arrangements to allow sensible administration.
Specific examples include: Clearer Project Definition; Equitable Risk Allocation; Improved
Procurement and Tendering Procedures; Partnering and Relationship Contracting.
Back to the argument that this chapter is far and away the most important chapter in the book;
and that Conflict Management and Dispute Avoidance are more important than Dispute
Resolution. However it is clear just by looking at the range of books on dispute resolution that
the general interest is in dispute resolution; how can this be explained? Perhaps by the fact that
Conflict Management and Dispute Avoidance are obvious things; they don’t need to be stated.
Conflict Management and Dispute Avoidance is Project Management is Human Nature is what
is done all the time. If that’s the case examples around us and the disputes we see indicate it
could be done better. Universities should run courses in Conflict Management and Dispute
Avoidance; authors should write books on Conflict Management and Dispute Avoidance and
practitioners should develop more techniques of Conflict Management and Dispute Avoidance.
That the courses, books and techniques are few is an intriguing question
Specific examples
The examples considered are: Clearer Project Definition; Equitable Risk Allocation; Improved
Procurement and Tendering Procedures; Partnering and Relationship Contracting.
For each example a definition is provided; the key indicator is stated; the costs associated are
outlined and some indication of the international status is given.
Clearer Project Definition
Definition: Defining a project is a process of selection and reduction of the ideas and
perspectives of those involved into a set of clearly defined objectives, key success criteria and
evaluated risks. Key Indicator: Clear and accurate definition of a project is one of the most
important actions available to ensure project success .Cost: There are costs associated with
clearer project definition but the benefits and savings far outweigh these costs. International
Status: Clearer project definition is a widely used technique in the UK, the USA, Australia,
Canada and other common law and civil jurisdictions. The UK Construction Best Practice
Programme makes Clearer Project Definition and Better Briefing one of its action areas and
special interest group
In all commercial projects the client must brief the contractor about what is expected. Often
there will be a formal or written brief or series of briefs that may form part of a tender document.
Briefing is the process through which the client and the contractor explore, develop and
communicate the client's requirements.
Briefing should include:
• establishing objectives and/or business case;
• examining other means of achieving them before deciding to build or produce;
• spending time at the beginning to define what is wanted, when and for how long,
changes later are expensive;
39
• establish any budget and/or time limitations;
• prioritise time, cost and quality;
• take care to choose the people to represent, advise and work for the project. They should
be qualified, experienced and able to work well with each other;
• identify the risks involved, quantify them and confirm budget identify the cost of the
project over the period of intended use (whole or life cycle costing);
• identify the options;
• monitor progress and performance and be ready to deal with the unexpected.
Briefing takes place throughout the commercial process from project inception to completion.
It is important that the client is actively involved at all stages to ensure that the project meets
requirements. Critical decisions are often taken during the early stages of the project and full
client participation in these is essential. Adequate time and resources must be applied in a
productive way for briefing to be effective. Much depends on interpersonal and managerial
skills and these must be developed to meet the demands of a particular project and set of
participants. Factors such as client experience, complexity of organisation, organisational
culture, rate of organisational change, project complexity and degree of project development
all need to be taken into consideration. Several areas in which there is scope for improvement
in briefing practice have been identified. These include optimising client’s often extensive in-
house commercial expertise and control over its projects, managing the project dynamics,
appropriate user involvement, appropriate team building and appropriate visualisation
techniques. Where a client has no expertise then appropriate expertise must be procured from
outside.
Briefing may be more successful if it is approached with:
• carefully thought out requirements;
• the essential information provided at each stage of the project;
• a flexible approach balancing the requirement for quality with the concern to control
costs and meet deadlines;
• trusting relationships
Clear and accurate definition of a project is one of the most important actions that can be taken
to ensure a project's success. The clearer the objective the more likely that it can be achieved.
Defining a project is a process of selection and reduction of the ideas and perspectives of those
involved into a set of clearly defined objectives, key success criteria and evaluated risks.
This definition process should culminate in the production of a Project Definition document,
sometimes called a Project Charter. The Project Definition document should be approved and
issued by a manager with the authority to apply organisational resources to the project activities.
Therefore, the seniority of the manager or the management team will be commensurate with
the size, cost and business value of the project. As a minimum, the Project Definition should
include a statement of the purpose that the project seeks to address and the description of the
product, service or deliverable objectives that will be its output.
One way to define a project is for the project leader to ask a standard set of questions of the
project team, colleagues with particular expertise and senior managers. The questions might
fall into:
The Purpose (or Mission)
Examples: Reason for doing the project; What is the project about in broad terms?
40
Who wants it done and why?; What is its title?
Deliverables
The fundamental objective of a project is to deliver something new.; what is being delivered?
Better briefing has been a recurring theme for the construction industry. Examples of better
briefing in can be found in Architectural literature and at Constructing Excellence the single
organisation charged with driving the change agenda in construction in the UK.
Equitable Risk Allocation
Definition: Equitable Risk Allocation is a process where the risk is allocated to the party best
able to control and manage that risk. Key Indicator: Equitable Risk Allocation has been
identified as one of the strategies that would reduce the incidences of claims and disputes. Cost:
The costs of implementing Equitable Risk Allocation (e.g. the risk identification and allocation
process) are recognised but the benefits and savings far outweigh these costs. International
Status: Equitable Risk Allocation is a widely used technique in many countries. It is favoured
in the UK, the USA, Australia, Canada and other common law and civil jurisdictions. There are
few countries untouched by Equitable Risk Allocation; although in many countries and in many
sectors there remains much ignorance of the benefits to be obtained from this practice
Once again construction is an innovative trail blazer in this area of Conflict Management and
Dispute Avoidance. Construction project management involves the planning, organising,
directing, and controlling of company resources for the completion of a project development.
Project success is usually measured by the achievement of the time, cost, quality and
maximising resource utilisation. The achievement of these objectives can also be measured by
the incidences of claims and disputes and their resolution. Dispute prevention is then one of the
major tasks in construction project management. Equitable risk allocation has been identified
as one of the strategies that would reduce the incidences of claims and disputes.
Every risk has an associated price visible or hidden. Visible costs appear in project bids as
contingency or insurance costs and can be compared. Onerous contract conditions promote
hidden costs. Hidden costs (in terms of time and money) include:
• the cost of restricted bid competition;
• the cost of increased claims/disputes;
• the cost of replacing a lesser quality contractor who is more likely to unknowingly
accept a grossly inequitable risk allocation;
• the cost of operating an adversarial owner-contractor relationship in terms of final
product quality, cooperative implementing of change order processing, reputation, and
• ultimate project outcome.
The client has an essential role in improving working relationships, contract execution and
overall project performance, by the decisions made regarding risk allocation. The general
conclusion is that the use of onerous contract provisions that cause the contractor to assume
inequitable, unbearable and uncontrollable risks will directly and negatively impact the owner
contractor working relationship.
Beyond equitable allocation of risk there are additional steps a client can take to improve
working relationships. The development of project problem-solving teams with client and
contractor’s personnel to anticipate potential project problems and provide workable solutions
41
in advance. Another suggestion is to give increased authority to the client’s on-site project
manager so decisions can be made at levels closer to the work.
Risk and uncertainty are inherent in projects; the potential for damage can be limited through
proactive and systematic risk management. The generally accepted international procedure is
that it is necessary to allocate risks in an equitable manner between the parties to the contract
to ensure successful project delivery. The problem, or course, is what constitutes equitable risk
allocation? the following are common considerations:
• Which party can best control the events that may lead to the risk occurring?
• Which party can best manage the risk if it occurs?
• Is it preferable for the employer to retain an involvement in the management of the risk.
• Which party should carry the risk if it cannot be controlled?
• Whether the premium charged by the party accepting a risk is likely to be reasonable
and acceptable.
• Whether the party accepting a risk is likely to be able to sustain the consequences if the
risk occurs.
• Whether, if the risk is transferred, it leads to the possibility of risks of different nature
being transferred back.
If these considerations are applied, it should be possible to achieve clear and realistic terms that
are acceptable to the employer and on which contractors are prepared to tender at prices which
do not contain contingencies for unclear terms or for significant risks which are not possible to
estimate with some certainty or which are unlikely to
materialize. An acceptable "formula" for risk allocation, might run as follows:
A party should bear a risk where:
• It is in her control, i.e., if it comes about it will be due to wilful misconduct or lack of
reasonable efficiency or care; or
• She can transfer the risk by insurance and allow for the premium in settling her charges
to the other party... and it is most economically beneficial and practicable for the risk to
be dealt with in that way; or
• The preponderant economic benefit of running the risk accrues to her; or
• To place the risk on her is in the interests of efficiency (which includes planning,
incentive, innovation) and the long term health of the industry on which that depends;
or
• If the risk occurs, the loss falls on her in the first instance.
The job of trying to balance the principles in practice is the hard one; but with a set of declared
principles rather than undeclared, there is a standard to refer to.
Improved Procurement and Tendering Procedures
Definition: This is a statement of intent rather than something capable of definition.
Improvements to procurement and tendering will allow all the parties to manage conflict and
avoid dispute whilst increasing profits or increasing returns to society. Key Indicator: The key
indicator is Improved Procurement and Tendering Procedures does not necessarily mean that
lowest initial tender price equates with best value. Cost: There are many direct costs of
Improved Procurement and Tendering Procedures (e.g. the administration of the procedures)
42
but the benefits and savings far outweigh these costs. International Status: Improved
Procurement and Tendering Procedures are the aim and objectives of many countries. There
are schemes in the UK, the USA, Australia Canada and other Common Law and Civil
Jurisdictions.
Throughout the world, industries demonstrate similar structures; e.g. in developed economies
construction accounts for 10-15% of GDP and in developing economies often 30+%. In either
case the industries are often fragmented i.e. design and production are separated and many small
firms or organisation exist to service a few large enterprises. The proportion of public sector
expenditure varies by country but remains high; even in economies, which have sought to
reduce public expenditure. As a measure of sub-contracting the countries within the European
Union are dominated by small and medium enterprises such that the entire construction
industries of each nation are composed of small firms (less than 10 employees) and the majority
of the work is carried out by sub-contracting. The situation is the same in many other countries.
In many countries it is not uncommon for large contractors to employ no site staff at all and to
subcontract entire operations.
Public sector procurement in many nations remains dominated by competitive tender where
lowest bid wins. There are many developments to avoid such systems because of their
inefficiencies but the requirements of public accountability and probity make change slow. In
addition the structural problems of industries dominated by small companies produce
conservatism.
Finance: Many nations have attempted to reduce public expenditure and therefore reduce
taxation. In order to maintain public services these countries have a need for private finance
into public schemes. A variety of procurement systems have developed to assist this: design,
build, fund and operate (DBFO); build operate own (BOO); build operate own and transfer
(BOOT); Public Finance Initiatives (PFI), Public Private Partnerships (PPP). The structural
problems with industries described above hinder the efficient use of such schemes and steps
have to be taken to remove the structural inefficiencies. In the UK construction industry for
example these steps are coordinated by Construction Excellence programme and include
Supply Chain Solutions. Many of these developments are mirrored elsewhere.
The move away from lowest price tendering is seen by many as a major development and in
many countries there have been developments which allow the assessment of
tenders on criteria other than just on price.
Partnering and Relationship Contracting
Definition: Partnering is very simple in concept. It is just people working together - a voluntary
system of handling normal, everyday problems in a mutually agreeable manner before they turn
into major issues that create disputes. Partnering can be either strategic (long term) or project
(short term). Some consider that strategic partnering is inappropriate for public sector or
government contracts because of accountability issues, the need to share work among
Government service providers and secure low pricing through competitive tendering. Key
Indicator: Partnering is clear conflict management and dispute avoidance. The Partners share
a common goal to achieve project success. Effective partnering requires the use of skilled
facilitators to break down existing barriers and pre-conceptions. Cost: There are additional
costs associated with partnering (e.g. a facilitator is often used) but the benefits and savings
43
where partnering is successful far outweigh these costs. International Status: Partnering is a
widely used technique in many countries. It is favoured in many states of the USA, Canada,
and Australia and in the UK. There are few countries untouched by partnering; although in
many countries and in many sectors there is limited knowledge or experience of how partnering
works.
It is usual to make a split between strategic partnering (or long term partnering) and project
partnering (or short-term partnering). Strategic Partnering can raise many problems for public
sector works. Partnering can be defined as an informal process bringing together all the parties
in a collaborative effort. They meet on a regular basis to review progress and deal with any
problems and potential disputes from the moment they become apparent. The focus is on
conflict management and dispute avoidance. The building of the partnering team may be
facilitated by an outside facilitator. The US Army Corps endorsed partnering in 1990, saying
"Clearly, the best dispute resolution is dispute prevention ... By taking the time at the start of
the project to identify common goals, common interests, lines of communication, and a
commitment to cooperative problem solving, we encourage the will to resolve disputes and
achieve project goals." Army Corps of Engineers, Policy Memorandum 11, 7 August 1990.
It is important to note that partnering is a voluntary system. Some ask why partnering cannot
be made a requirement; but this is against the entire spirit of partnering - if it is not a voluntary
agreement by all parties, it is just another contract provision. This does not downplay the
importance of the Contract through Partnering, rather it attempts to ensure that all players with
valuable experience to share are allowed to participate cooperatively in the process.
Partnering attempts to establish a working relationship among all team members based on
cooperation and teamwork and achievement of mutual goals and objectives. Partnering is a
concept that every contract has an implied covenant of good faith and fair dealing, and through
the exercise of that agreement, the stakeholders strive to create a synergy of purpose to solve
problems for the good of the project.
The Project Partnering process creates a new team-building environment, which fosters better
communication and problem solving, and a mutual trust between the participants. These key
elements create a climate in which issues can be raised, openly discussed, and jointly settled,
without getting into an adversarial relationship. Through this process of teamwork and problem
solving on a project, key goals are set. The partners want the quality of the work to be right the
first time, the project to be completed on time, the final cost to be within budget, and
disputes/litigation to be minimized.
The real impetus for partnering is the fact that the people involved in implementation have
discovered that it works. A review of cases in which partnering has been used shows dramatic
time and cost savings.
Definition: Relationship Contracting is a process to establish and manage the relationships
between parties that aims to: remove barriers, encourage maximum contribution and allow the
parties to achieve success. Key Indicator: Relationship Contracting is based on achieving
successful project outcomes. There are some core values or guiding principles: Commitment;
Trust; Respect; Innovation; Fairness and Enthusiasm. Cost: There are additional costs
associated with Relationship Contracting (e.g. the facilitator), but the benefits and savings far
outweigh these costs. International Status: Relationship Contracting is a widely used technique
44
in some countries, notably in Australia. Serious concerns remain about the use of Relationship
Contracting in Public Sector projects on grounds of public accountability.
Relationship contracting is based on achieving successful project outcomes, including:
• Completion within cost;
• Completion on time;
• Strong people relationships between the parties resulting from mutual trust and
cooperation, open and honest communication;
• Optimum project life cycle cost;
• Achieving optimum standards during construction and project lifetime for:
o Safety
o Quality
o Industrial relations
o Environment
o Community relations
Relationship contracting establishes a working relationship, which is designed to deliver
optimum commercial benefits to all the parties. It is founded on the principle that there is a
mutual benefit to the client and the contractor to deliver the project at the lowest cost. To
achieve this, the relationship between the client and the contractor cannot be taken for granted.
Even if they have worked together before and have established a close working relationship it
is still crucial that they build the relationship for each specific project. In order to do this the
relationship must be founded on strong mutually held core values and guiding principles. These
are summarised as Core Values & Guiding Principles.
Commitment: Total commitment to achieving the project goals which is actively
promoted by senior management of all parties.
Trust: To work together in a spirit of good faith, openness cooperation and not to
seek to apportion blame.
Respect: The interests of the project take priority over the interests of the parties.
Innovation: To couple innovative or breakthrough thinking with intelligent risk taking
to achieve exceptionally good project outcomes.
Fairness: To integrate staff from all parties on the basis of fairness and the best
qualified for the job.
Enthusiasm: To engender enthusiasm for professional duties and the project’s
social activities.
An alternative view of Conflict Management and Dispute Avoidance
Remember definitions are crucial and there are other views on conflict management. Mostly
these involve implementing strategies to limit the negative aspects of conflict. Again most
conflict management seeks to enhance learning and group outcomes management effectiveness
or performance in organizational setting. Conflict Management is not concerned with
eliminating all conflict or avoiding conflict. Conflict can be valuable to groups and
organizations.
45
If you like; conflict can be good and therefore needs managing; dispute is always bad and must
be avoided. The classification of conflict offered in chapter 2 is of functional and dysfunctional
conflict. Dispute might be considered dysfunctional conflict.
46
Dispute Avoidance; Avoiding Disputes; Conflict Management - The Terminal 5 Case
Study33
Heathrow Airport is the largest airport in the world. It’s a major part of the UK economy,
155,000 people work there or otherwise earn their living from it and 68 million passenger pass
through it each year. A new terminal was required Two decades of planning, design and
construction resulted in the opening of Terminal 5 project on time, on budget and safely. What
was behind it? At the time the construction industry had a pitiful reputation for success on
major projects.
On the one hand: ground–breaking management thinking and lessons learnt from leaders, the
client and integrated supply chain teams, this involved over 50,000 people from 20,000
companies. On the other hand nothing more than straight forward dispute avoidance. A
different commercial contract and approach by the client, BAA, enabled the construction phase
to go to plan, and to be opened in 2009, a year early, saving a billion pounds.
Many adjectives were used to describe BAA’s Terminal 5 (T5) programme at Heathrow airport:
‘a mega project’, ‘enormous’, ‘epic’, ‘historic’, ‘huge’, and ‘massive’. At the time of its
construction it was Europe’s largest and most complex construction project costing £4.3 bn.
Many clients when faced with a project as complex and challenging as T5 would have adopted
the well-established delivery approach common in the construction industry. However, driven
by a desire to reduce the costs of providing its airport facilities, BAA concluded that it could
improve T5’s delivery by adopting emergent project, risk and contract management
methodologies.
BAA chose to manage the project itself; and accept risk rather than contract out to a company
to manage for them, the common established approach.
To execute this retaining and managing risk, plus adopting a cost reimbursable form of contract,
BAA required a large, highly proficient internal project management team to manage the project
[some have described this as acting as an intelligent client]. Members of the project
management [more than 150!] team took an active role in the management of each integrated
(delivery) team. This concept had its roots in earlier BAA procurement, in the 1990s when
BAA developed partnering agreements; using framework agreements, which incorporated
integrated, team working. BAA entered into many construction and consultancy agreements
by the mid 90s. The model agreement had resulted in enhanced project predictability and
repeatability.
In the 1990s, BAA carried out research on large infrastructure projects in UK construction.
They looked at the outturn performance for things such as: Channel Tunnel; Jubilee Line
extension; British Library; Scottish Parliament and West Coast Main Line. In addition, between
2000 and 2002, BAA analysed every UK construction project (exceeding £1bn in value)
constructed during the preceding 10 years, plus every international airport projects completed
in the previous 15 years. As part of this study BAA investigated project processes and
organisation, and the influence of individual behaviour on project performance. The research
established that:
33 Further reading: Doherty, S. (2008), Heathrow’s Terminal 5: History in the making, Wiley
47
1. not one UK construction project (within the set parameters) had been delivered on
time, on budget, safely or met its specified quality standards. Based on their analysis
BAA predicted: “Terminal 5, a five-year build programme would probably be
about two years late, a cost target of £4.3 billion would probably be at least £1-
£1.5billion over budget, the quality would be variable and, statistically, 12 people
would die on site. None of those consequences were acceptable to BAA...”
(Matthew Riley, Supply Chain Director – BAA,34).
2. none of the international airport projects studied had functioned as designed when
initially opened.
3. all the projects studied had experienced significant contractual and financial
difficulties, and on each one the client had incurred immense reputational damage.
The study concluded that failure on projects the size of T5 was due to two main reasons:
1. Cultural confusion: organisational and management issues arising from ill defined
project parameters and the failure of purchasers to appreciate the needs of supply
chains.
2. The reluctance to acknowledge risk: rather than identifying and apportioning risk
appropriately at an early stage, traditional contracts generally sought to transfer risk
to the supply chain, which often resulted in lengthy legal disputes when supplier
performance did not meet the client’s aspirations:
“40 per cent of the cost of claims are the legal expenses.” (Matthew Riley,
Commercial Director T5 – BAA,35)
Alternatively, project success, came from:
project culture;
effective leadership;
supplier ‘behaviour’,
BAA thought that supplier behaviour both positive and negative, was
predominantly influenced by conditions of contract and anticipated profit margins. And BAA
concluded that a step-change in construction procurement best
practice was essential if T5 was to be successfully delivered. The strategy for the step change
was base on 4 key principles:
The client always bears and pays for the risk: irrespective of the contractual
arrangement adopted it is impossible to transfer risk:
“We realised that, to expose waste and manage the performance more
efficiently, we would have to actively hold all the risk. We realised you
cannot transfer corporate risks around that are so intrinsic to the success of
your company; risks that relate to the City or to airlines or regulators or to
34 Brass, R (2008) Flying in formation, Supply Management, 13 March
http://www.supplymanagement.com/EDIT/CURRENT_ISSUE_pages/CI_features_it
em.asp?id=17588 35 Fullalove, S (2004) NEC helps BAA deliver Heathrow T5, NEC Users’ group Newsletter,
Issue 30, August 2004
http://www.neccontract.com/newsletter/article.asp?NEWS_ID=512
48
your corporate citizenship. Those risks can't be transferred down a contract.
You're kidding yourself if you think they can, because, in each of those
examples we looked at, there were very few suppliers that went out of
business as a consequence of those project failures. The risk ultimately
comes back to the client organisation.” (Matthew Riley, Supply Chain
Director – BAA.
BAA retained full liability for all project risks:
“... we had to have a strategy that was, at its highest level, BAA holding all the risk all
the time, and in return we expected our suppliers to come
together as partners and work in an integrated team or teams. They came together to
deliver projects or products, and the financial consequences of risks were underpinned
by insurance policies that BAA took out directly with the market, on a strictly no-fault
basis.” (Matthew Riley, Supply Chain
Director – BAA,)
Suppliers’ profit levels were predetermined and fixed: BAA ring-fenced its
suppliers' profits and incorporated a gain-share arrangement, whereby efficiency savings could
be translated into higher margins.
Partners are worth more than suppliers: BAA, implemented an ‘Integrated Project Team
Approach’ embraced in a ‘Delivery Team Handbook’, which sought to create an appropriate
environment for team working, with the objective of: motivating, organising and generally
getting the best out of the talented people working on the project
The T5Contract
The main objective of the contract employed was to create a unique relationship under which
BAA retained all the risk relating to the project. Additionally, the contract needed to be flexible
as BAA appreciated that their requirements would change during the course of the contract.
The contract was designed to enable all participants to concentrate on:
the root cause of problems - not their effects
working within integrated teams to deliver success in an uncertain environment
the proactive management of risk rather than the avoidance of litigation
Disputes
As a result of BAA selecting a cost reimbursable contract, which incorporated pre-emptive risk
management, integrated teams and promoted a non-adversarial approach and no blame culture
there have been no reported payment disputes on the project
During the first week T5 was open, many flights were cancelled and many more items
of luggage mislaid. Why the construction project was such a success and the operational
[particularly baggage issues] such a spectacular failure will be raked over for years to come.
But this should not detract from the avoidance of all disputes on the substantive construction
project.
A much more comprehensive case study is made in Lowe (2011) Commercial Management in
Project Based Organisations, Wiley Blackwell.
49
Chapter 4: Bribery, Corruption and Professional Ethics
Summary
All the issues dealt with in this Chapter are ‘difficult’ in that they are sensitive and the potential
to embarrass individual and nations is self evident. I teach courses with many students from
many different nations, I was always reluctant to deal with the issues of corruption, bribery,
money laundering and ethics, but the students less so. Indeed, they showed that they wanted
to. At first, I took the cowards way out and simply avoided it. Then I referred to corruption by
research which ranked corruption by nation, that rank is Transparency Internationals. That
allows discussion of the rank, plus discussion of factors which might explain the rank. Do
developed nations perform better than developing? Do any geographical/legal/cultural factors,
and so on, play any part. Then for students what was the methodology and method employed
in establishing the rank.
Then we can consider the legislation in the UK, and it is the UK for once not just England,
because the legislation covers all the ‘home’ nations: England; Wales; Scotland and Northern
Ireland. The Bribery Act 2010: Act of the Parliament of the United Kingdom that covers the
criminal law relating to bribery
This chapter considers ethics via published codes from The Association For Project
Management [APM], The Institute of Civil Engineers [ICE], The Institution of Mechanical
Engineers [IMechE] and Royal Aeronautical Society [RAES]
This chapter considers what is bribery via UK legislation, what is corruption via the work of
Transparency International. The UK legislation considers bribery and corruption with money
laundering offences from 2010 forwards.
Once again this is an attempt to cover a huge topic and reduce it to one lecture and brief chapter
is too simplistic so CAVEAT this is a simplistic explanation.
50
Introduction
Why consider corruption, bribery and professional ethics at all? The United Nations estimated
amount of money laundered globally in one year is 2 - 5% of global GDP, or $800 billion - $2
trillion in current US dollars. https://www.unodc.org/unodc/en/money-
laundering/globalization.html
Engineering Projects and contracts are often identified as vehicles for corruption; be it bribery
or money laundering. In 2017 British engineering giant Rolls-Royce apologised will pay
£671m to settle corruption cases with UK and US authorities.
https://www.bbc.co.uk/news/business-38644114
Ethics and Professional Ethics
For our purposes, morals might be simplistically differentiated from ethics by: morals are
personal, imposed by ‘beliefs’ while ethics are a collective institutional code. Of course many
would disagree and often arguments are circular: ethics is what is morally right, the basis of the
Institute of Civil Engineers codes.
What is Ethics?
Ethics is : a system of accepted beliefs that control behaviour, the study of what is morally right
or not.
https://www.ice.org.uk/disciplines-and-resources/best-practice/civil-engineering-ethics-toolkit
So individuals have morals; intuitions impose ethics, of course the huge problem is: what if
your morals disagree with their ethics?
Many would simply say Morals, Moral Philosophy and Ethics are all the same thing, if you
want to debate that then the answer doesn’t lie here; perhaps you need to take a course in
Philosophy and read some of the great thinkers. Ethics or moral philosophy is a branch of
philosophy that "involves systematizing, defending, and recommending concepts of right and
wrong behaviour". Its not that we can’t do it here but maybe philosophers have being doing it
for centuries. We’ll see that Professional Institution struggle like everyone else, and any
attempt at definition often ends in circularity. Code of ethics rule number 1 Always behave in
an ethical manner.
The temptation in writing a code is to keep the rules at that high level. To be a Chartered X
members must act in an ethical manner, must always do the right thing.
What is the advantage to a professional institution. To clients; they have confidence that the
professional has followed a transparent code of ethics otherwise the professional would be
disciplined. To the professional; they carry the qualification and the prestige. A professional
who is not a member can theoretically do as they please; a member of a professional institution
is both guided by the intuitional ethics and held accountable by them. Breach the rules and you
are disciplined and even out.
We can look at most ethical rules via websites. If we compare APM IMechE ICE RAeS
The Association for Project Management, the chartered body for the project profession, is
committed to the highest standards of professional conduct and ethics for all project
professionals. All individual APM members (irrespective of their grade) and all Chartered
Project Professionals (ChPPs) commit to the APM Code of Professional Conduct which sets
out the standards of conduct expected of those working in the profession.
https://www.apm.org.uk/about-us/how-apm-is-run/apm-code-of-professional-conduct/
IN the APM Code of Conduct much guidance is given. Specifically 4. Standards of professional
conduct states: Members and ChPPs have personal responsibilities which go beyond those
immediately implied by their contract with employers or clients. Members and ChPPs shall:
a) act honestly and promptly and in such a manner to ensure that their client is not
misled, offering appropriate professional advice and guidance;
b) respect the confidentiality of their client information;
51
c) act in the best interests of their employer and clients in all business and professional
matters, taking account of the wider public interest concerns and those of any
employee or colleague;
d) exercise sound judgement and professional discretion to ensure the public interests are
safeguarded;
e) ensure that their professional skills are kept up-to-date and enhanced by continuing
professional development (CPD), training and education in accordance with the APM
CPD scheme;
f) claim expertise only in areas where their skills and knowledge are demonstrably
adequate;
g) declare and appropriately manage all matters which are, or could be construed as, a
conflict of interests;
h) not give or accept any gifts, payment or inducement of more than nominal value to or
from people with a business relationship with employers or clients, nor accept
inducements from third parties;
i) be accurate in reporting and realistic in forecasting;
j) accept responsibility for their actions; and
k) act with due skill, care and diligence.
All of these points are relevant but my emphasis is added at a and h. We can see corruption is
a vague concept, who decides: what is corrupt. But the guidance says act honestly and don’t
accept gifts. What is honestly? And any gift? Guidance is given again: of more than nominal
value. Some organisations set limits say less than <£50.
The Institution of Mechanical Engineers follow a similar system in their code, but summarise
under Code of Conduct - four principles.
Code of Conduct - four principles
• Practise competently and maintain up-to-date knowledge and skills
• Act with integrity and respect for others
• Promote sustainability
• Exercise engineering leadership
Institute of Civil Engineers
• All members shall discharge their professional duties with integrity and shall behave
with integrity in relation to all conduct bearing upon the standing, reputation and dignity
of the Institution and of the profession of civil engineering.
• All members shall only undertake work that they are competent to do.
• All members shall have full regard for the public interest, particularly in relation to
matters of health and safety, and in relation to the well-being of future generations.
4. All members shall show due regard for the environment and for the
• sustainable management of natural resources.
• 5. All members shall develop their professional knowledge, skills and
• competence on a continuing basis and shall give all reasonable
• assistance to further the education, training and continuing professional
• development of others.
RICS follow a similar approach with 5 summary ethical standards
• Act with integrity
• Always provide a high standard of service
• Act in a way that promotes trust in the profession
• Treat others with respect
• Take responsibility
52
Finally the Royal Aeronautical Society promotes high standards of ethical conduct among its
members.
Selflessness - Act solely in the interests of the Society as a charity.
Integrity - Avoid placing themselves under any obligation to people or organisations that might
try to inappropriately influence them in their work - members should not act or take decisions
in order to gain financial or other material benefits for themselves, their family, or their friends.
They must declare and resolve any interests and relationships.
Objectivity - Act and take decisions impartially, fairly and on merit, using the best evidence
and without discrimination or bias.
Accountability - Be accountable for their decisions and actions and must submit themselves to
the scrutiny if necessary to ensure this.
Openness - Act and take decisions in an open and transparent manner. Information should not
be withheld unless there are clear and lawful reasons for so doing.
Honesty - Be truthful.
Leadership - Exhibit these principles in their own behaviour and should actively promote and
robustly support the principles and be willing to challenge poor behaviour wherever it occurs.
Bribery and Corruption
Just as we met problems with definition in the last section around ethics. We encounter the
same problem here. This section considers bribery and corruption with the assistance of two
sources: Transparency International and UK legislation, and it is UK in this case not just
England and wales, via The Bribery Act 2010.
Transparency International: A global movement works in over 100 countries to end the injustice
of corruption by promoting transparency, accountability and integrity. They define corruption
as the abuse of entrusted power for private gain. In practice, that could mean anything from:
• A dictator bleeding their nation dry to fund a life of luxury for themselves and their
family while ordinary citizens struggle without basic public services.
• A doctor demanding a bribe from a patient before prescribing desperately needed
medication.
• An MP representing the interests of a company owned by a donor to their political party
over the interests of their constituents.
In the worst cases, corruption costs lives. An estimated $500billion of funding destined for
health services is lost to corruption every year. We know that corruption in the health sector
kills an estimated 140,000 children a year, fuels the global rise in antimicrobial resistance,
hinders the fight against HIV/AIDS and has hampered the ability to respond to COVID-19.
Corruption has been a driving force behind some of the deadliest conflicts in recent history by
helping create the conditions in which these conflicts can thrive. It perpetuates poverty,
inequality and injustice, wastes funds that could be spent on development and security, and
facilitates the operations of extremist groups and organised crime syndicates. Even after the
shooting has stopped, the legacy of corruption can scupper peace settlements, as elite networks
born in conflict jostle for political and economic control.
All this is taken from their website: https://www.transparency.org.uk/
Perhaps the most useful feature of transparency Internationals’ work for PMs, they rank
corruptions in a survey regularly:
£100 billion of dirty money passes through UK systems and services every year.[i]
87,000 land titles in England and Wales are owned by opaque corporate structures that hide the
true owners.[ii]
53
76% think wealthy individuals often use their influence on Government for their own
interests.[iii]
Just 52 people made a sixth of all declared UK political donations between 2001 and 2016.[iv]
£1.27 billion is lost annually to fraud, bribery and corruption in the NHS.[v]
[i] https://www.nationalcrimeagency.gov.uk/news/national-economic-crime-centre-leads-
push-to-identify-money-laundering-activity
[ii] https://www.globalwitness.org/en/press-releases/100bn-of-property-in-england-and-wales-
is-secretly-owned-estimates-show/
[iii] https://www.transparency.org/en/gcb
[iv] https://www.transparency.org.uk/publications/take-back-control
[v]
https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/
file/859362/nhscfa-annual-report-and-accounts-2018-2019.pd
The UK’s role in corruption
Here in the UK, people often assume that corruption is not a problem. But because Britain –
particularly London - is an important financial and diplomatic hub, the impact of UK corruption
spreads far beyond our borders. When UK companies bribe officials overseas, it fuels
corruption and inequality in countries where most of the population lives in poverty. When
corrupt politicians and businesspeople steal public funds and launder them through British
banks and property, it means fewer schools, hospitals and roads for millions around the world.
In addition to the UK’s corruption footprint overseas, conflicts of interest, bribery and political
‘pay for access’ scandals have reinforced a perception amongst the British public that
politicians and big business are only looking out for themselves and cannot be trusted. This
distrust undermines our institutions, companies, local government and our politics.
Countries by Transparency’s rank
Visit the website to view the results. In summary Transparency’s rank of ?? countries has a top
three i.e. the least corrupt countries as:
New Zealand
Denmark
Finland
While the bottom three i.e. the most corrupt
Syria
South Sudan
Somalia
Make of that what you can
Bribery, Corruption and Money Laundering Legislation
The Bribery Act 2010: Act of the Parliament of the United Kingdom that covers the criminal
law relating to bribery. Introduced to Parliament in the Queen's Speech in 2009 after several
decades of reports and draft bills, the Act received the Royal Assent on 8 April 2010 following
cross-party support. Its difficult to say more than examine the legislation Bribery Legislation
https://www.legislation.gov.uk/ukpga/2010/23/contents .
The Money Laundering Regulations (MLR) 2017 sets out the additional obligations of private
sector firms working in areas of higher money laundering risk. They aim to stop criminals using
professional services to launder money by requiring professionals to take a risk-based
approach. MLR does this via The United Kingdom (UK) money laundering offences are
created by Part 7 of the Proceeds of Crime Act 2002 (POCA) and include: the principal money
laundering offences (ss 327–329); and. the reporting offences which, with one exception, only
apply to those operating in the “regulated sector” (ss 330–332)
https://www.legislation.gov.uk/uksi/2017/692/made
54
What are the take aways for all professionals? Engineers or Project Managers
If you are a member of a professional institution? Examine and comply with the Code of ethics
or whatever form they take. If you are employed, then your firm will have a compliance officer
or lawyer; inform them and consult them. If you are self-employed, then you need a compliance
officer and a lawyer. If you bribe someone either at home or abroad you have committed a
crime; If someone bribes you, either at home or abroad both of you have committed a crime.
What constitutes either a bribe or money laundering? Well go back to the Code [what is morally
wrong] and or the legislation. Perhaps the mantra is: offer nothing as an inducement no matter
how trivial, accept nothing as an inducement no matter how trivial. Good luck.
55
Chapter 5: Negotiation
Summary
Whilst there is an inordinate amount of literature on the practice of negotiation there are few
theories of negotiation. The theory that does exist flows from a famous book produced from
research at Harvard University Getting to Yes36. The theories are mainly principled negotiation
and positional negotiation, Getting to Yes says: principled = good; positional = bad. It is
useful to think in terms of a continuum. Negotiation is a continuum with positional negotiation
and principled negotiation at either ends of the continuum.
If thought about in terms of the stages of Conflict Management [and Dispute Avoidance] and
Dispute Resolution; then negotiation can take place at any time and might be described as very
common or ubiquitous.
This is an area plagued by acronyms and buzz words the most common are BATNA Best
Alternative To a Negotiated Agreement and WATNA Worst Alternative To a Negotiated
Agreement.
36 Fisher, R., and Ury, W., (1981) Getting to Yes, Random House
56
Introduction
This chapter introduces some of the theories of negotiation, mainly principled versus positional
negotiation; once again it is useful to think in terms of a continuum. Negotiation is a continuum
with positional negotiation and principled negotiation at either ends of the continuum.
A character in Molière; Monsieur Jordain was delighted to learn that he had been speaking
prose all his life; he thought that prose was something special. Equally most people negotiate
throughout their lives without realising that they are negotiating and without any training.
There are three commonly perceived attributes that most men claim to do, and do well, without
any training:
▪ Drive
▪ Make Love
▪ Negotiate
It appears strange that most countries require men to pass a test only to be allowed to drive, the
others need no training and no licence!
This chapter considers some aspects of negotiation; unfortunately, or predictably, negotiation
suffers the same fashions and fads as many management areas. Be wary of the fads and
fashions; or in academic terms demonstrate organised scepticism. A glossary is provided.
The internet revolution has of course touched negotiation; and negotiation via a variety of
platforms is available. For a useful starting point for web-based negotiation try any search
engine.
Glossary of Negotiation Terms
Like any theory or practice negotiation uses many terms in its own way. Perhaps because there
is so much literature in the field, and so little theory, negotiation suffers or enjoys [depending
on your viewpoint] many, many terms. It would be impossible to cover them all but here is a
list. Every book on negotiation, and there are many, will introduce its own.
Aardvark Negotiation: negotiation between two aardvarks always the first in any alphabetical
list.
Anchoring and Adjustment: from Neuro Linguistic Programming Anchoring and adjustment
is a psychological rule of thumb [heuristic] that influences the way people intuitively assess
probabilities. In Negotiation it is used to describe an opening position, from which a negotiator
incrementally moves away from (by gains or losses) during a negotiation.
Agenda: A plan for how a negotiation will progress; it can be formal and obvious, or informal
and subtle. A negotiation agenda can be used to control the negotiation meeting.
Aspiration Point: Optimal settlement point that a negotiator hopes to achieve; the target.
Bargaining Zone/Negotiation Window: The gap between the respective resistance points of
each party.
57
BATNA (Best Alternative To a Negotiated Agreement): This is a back-up plan and is a key
feature of Principled Negotiation from Getting to Yes.
Cherry picking: Generally this is the act of pointing at individual cases or data that seem to
confirm a particular position, while ignoring a significant portion of related cases or data that
may contradict that position. In negotiation it is taken as the act of picking the items which suit
and maintaining that these do not affect any of the other items up for negotiation.
Consistency Principle: The need to appear consistent in beliefs, feelings and behaviours; a
negotiator's strong psychological need to be consistent with prior act and statement.
Culture: Culture is often used as a term to describe so much. Like the elephant it is hard to
define and describe but you know it when you see it. You must understand the other party[ie]’s
culture.
Distributive Negotiation: A negotiation technique and/or type that seeks to gain at the
opponent's loss. Any situation in which one person's gain is exactly equal to the opponent's
loss is considered distributive. Getting to Yes makes the analogy of a pie and in the distributive
approach each negotiator is battling for the largest possible piece of the pie.
Dyadic Negotiation: Two party negotiation. A negotiation between two persons, as opposed to
negotiations in which more parties are involved [Multi Party].
Expanding the Pie: Finding resources to include in a negotiation that fulfil both party's needs.
Golden Bridge: A strategy by which a negotiator makes his or her opponent's positive decision
as easy as possible. This tactic comes from Getting Past No. Build your opponent a golden
bridge to retreat across.
Good Guy Bad Guy: good guy/bad guy is a tactic of team negotiation where one member of the
team acts as a bad guy by using anger and threats. The other negotiator acts as a good guy by
being considerate and understanding. The good guy blames the bad guy for all the difficulties
while trying to get concessions and agreement from the opponent.
Intimidation: Intimidation can take many forms: physical appearance; environmental; use of
outside experts or legal authorities; use of hostages; status; threats.
Kinesics: The study of movements, including posture. The most common example is body
language. This area if often further complicated by culture e.g Westeners negotiating with
Easteners.
Inaction Anxiety: Self-imposed pressure to achieve an agreement at any cost. Often leads a
negotiator to strike a deal rather than walk away and choose instead the BATNA.
Integrative Negotiation: A negotiation technique and/or type that seeks to expand the pie,
finding a win-win settlements. In an integrative negotiation, one person's gain is not necessarily
another person's loss.
Interests: The concerns underlying a position.
58
Issues: Negotiable items that will be included in the formal agreement.
Lateral thinking: is thinking through indirect and creative channels using reasoning and logic
that is not immediately obvious and involving ideas that may not be obtainable by using only
traditional steps. The term was coined by Edward de Bono37.
Limited Authority: A negotiating tatcic whereby a negotiator says he cannot make a decision
and must resort to a higher authority.
Linkage Effect: When one deal point of a negotiation is attached to another.
Multi Party Negotiation: More than two party negotiation. A negotiation between more than
two persons, as opposed to negotiations in which two parties are involved [Dyadic Negotiation].
Negotiating Roles: Different people in a negotiating team can have different roles
such as primary negotiator, Kinesics and paralanguage expert, etc.
Negotiation Window/ Bargaining Zone: The gap between the respective resistance points of
each party.
Neuro-Linguistic Programming (NLP): an approach to psychotherapy and organizational
change based on "a model of interpersonal communication chiefly concerned with the
relationship between successful patterns of behaviour and the subjective experiences (esp.
patterns of thought) underlying them" and "a system of alternative therapy based on this which
seeks to educate people in self-awareness and effective communication, and to change their
patterns of mental and emotional behaviour". It was founded by Richard Bandler and John
Grinder. It is not without controversy
Non-verbal cues: Body language that gives away how a person is feeling and what s/he is
thinking. This is closely related to kinesics.
Package: An offer which has many elements.
Paralanguage: Variations in speech : pitch, loudness, tempo, tone, duration, laughing, crying
… how things are said.
PATNA (Probable Alternative To a Negotiated Agreement) a key feature of Principled
Negotiation from Getting to Yes.
Position: Statement of what a person/party wants in a negotiation.
Positional negotiation: Positional negotiation strategy is, essentially, a manipulative approach
designed to intimidate the other party to lose confidence in their own case and to accept
demands.
Principled negotiation: this grew from alternatives to positional negotiation, a famous book
Getting to Yes, Fisher and Ury (1991) sets out a concept of "Principled Negotiation" with the
main points being:
37 de Bono, E., (1991) Thinking Course, Penguin
59
• Separate the People from the Problem
• Focus on Interests, Not Positions
• Invent Options for Mutual Gain
• Select from Among Options by Using Objective Criteria
Reciprocity Principle: Occurs when a negotiating party feels obligated to return in kind what
the other side has offered or given them. This principle might result in on side making a
concession because the other side has done the same.
Resistance Point (RP): The point beyond which a person/party will not go. The lower limit of
the range of acceptable negotiation outcomes (also Bottom line).
Salami tactics: a divide and conquer process of threats and alliances used to overcome
opposition.
Strategy and Tactics: from military theory put shortly tactics might win the battle but strategy
wins the war.
Team Negotiation: Different people in a negotiating team can have different roles
such as good guy bad guy, primary negotiator, expert e.g. Kinesics and paralanguage expert ,
etc.
WATNA (Worst Alternative To a Negotiated Agreement) a key feature of Principled
Negotiation from Getting to Yes.
Winner's Curse: From Game Theory - The winner's curse is a phenomenon where in short, the
winner will tend to overpay. The winner may overpay or be 'cursed' in one of two ways: the
pays more than the value of the asset such that the winner is worse off in absolute terms; OR
the value of the asset is less than anticipated, so the winner may still have a net gain but will be
worse off than anticipated. In Negotiation the winner’ s curse occurs when the aspiration point
is set too low, a deal is accepted and the negotiator wonders whether the opponent would have
given a better deal.
Zorrilla Negotiation: negotiation between two Spanish Romantic poet and dramatists always
the last in any alphabetical list.
Negotiation Theory and Skills
It is common for theorists to talk of two negotiation theories or strategic approaches to
negotiation:
• Positional negotiation; and
• Principled negotiation.
The terms positional and principled negotiating are not exclusive and in other reading material
you may find them replaced with any of the following:
Positional = competitive; compromise; Principled = interest-based; co-operative; collaborative
Also note that negotiations may be divided into two types:
60
• Dispute negotiation, focused on resolving past facts; and
• Transaction negotiation, focused on reaching agreement for the future.
While it is often helpful to appreciate this difference between dispute negotiation and
transaction negotiation, it is also beneficial to appreciate that many negotiation situations
involve the resolution of both past issues as well as planning future relations. The theories and
strategic approaches are generic and can be applied to either disputes or transactions. Mediation
often involves past dispute negotiation linked to future transactions.
Distinguish Strategic Approach from Personality
There may be some correlation between negotiation approaches and personality style, but the
two do not necessarily go together. A positional negotiator may be very pleasant to work with
in terms of demeanour, but can utilize extremely competitive tactics. Negotiator's pleasantries
may themselves be part of an overall manipulative approach. A principled negotiator may be
rather difficult or awkward in terms of personality, yet effectively utilize interest-based,
problem-solving strategies in negotiation.
It is often argued that the most effective negotiators will have a wide array of negotiation skills,
both positional (competitive) and principled (problem-solving), and will effectively mix and
match these approaches depending upon what the negotiator believes will work best with a
particular "negotiating partner" depending on the specific issue being negotiated and depending
on the nature of the overall negotiating relationship (one-time transaction or continuing
relations). This approach might be likened to the contingency approach to mediation described
in Chapter 6
Another view of negotiation is that certain strategies and behaviours are intended to create value
(integrative and principled approaches) whereas other strategies and behaviours are intended to
claim value (principled and competitive approaches).
The Positional Approach
Positional negotiation strategy is, essentially, a manipulative approach designed to intimidate
the other party such that they lose confidence in their own case and are pressurised to accept
the other side’s demands. This approach is characterized by the following:
• High opening demands;
• Threats, Tension and Pressure;
• Stretching the facts;
• Sticking to positions;
• Being tight lipped;
• Desire to outdo, outmanoeuvre the other side; and
• Desire for clear victory.
When a Positional negotiator is asked how they will know that they have reached a good
agreement, they may reply that the agreement is better than fair.
What is positional negotiating?
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A positional approach involves adopting a position and aiming to negotiate an agreement whilst
remaining as close to that position as possible. Most people are familiar with positional
negotiating but it allows for only limited and fairly predictable negotiating. Negotiators
adopting a positional style will assume that only one party can emerge from the negotiation a
clear winner. This is often termed the "WIN/LOSE" approach. Positional negotiating is
characterised by:
• Extreme opening positions
• Emphasis on rights
• Aggression
• Predictable negotiating positions
Assumptions of the Positional Approach
There are certain assumptions, that lie behind the Positional approach to negotiation. This
"distributive" world view includes the following assumptions:
• Negotiation is the division of limited resources;
• One side's gain is the other's side's loss; and
• A deal today will not materially affect choices available tomorrow.
Risks of the Positional Approach
While Positional negotiation tactics are often effective in "claiming" already defined value,
there are also certain risks. Foremost among these risks are damage to the negotiating
relationship and a lessened overall likelihood of reaching agreement. The disadvantages of the
Positional style include:
• Confrontation leads to rigidity;
• There is limited analysis of merits of dispute and relevant criteria for resolving issues;
• There is limited development of solution alternatives;
• Difficulty in predicting the outcome of the competitive approach or control the process;
• Competitors are generally blind to joint gains;
• Competitors threaten their future relations;
• Competitors are more likely to have impasse and increased costs.
The Integrative Approach and The Harvard Negotiation Project
Before considering Principled Negotiation it is worth examining integrative negotiation and the
Harvard Negotiation Project (HNP) since Principled Negotiation is a result of both integrative
negotiation and the (HNP).
The integrative, collaborative or problem-solving approach to negotiation has been described
as "enlightened self-interest," rather than the "egocentric variety." This approach consists of
joint problem-solving, where gains are not necessarily viewed as at the expense of the other
party.
Assumptions of the Integrative Approach
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There is a different view behind the integrative approach to negotiation. The primary
assumptions of the integrative approach are the following:
• Some common interests exist between parties;
• Negotiation is benefited by a full discussion of each participant's perspective and
interests; and
• We live in an integrated and complex world and our problems can be best resolved
through application of our best intelligence and creativity.
Risks of the Integrative Approach
Risks of the integrative approach are based upon the common sense observation that "it takes
two to collaborate." If one party is unwilling to participate in integrative, problem solving
negotiation, the more collaborative negotiator may put themselves at risk in the following ways:
• The negotiator will be forced to either "give in" or adopt a competitive stance;
• The negotiator may see themselves as a failure if they do not reach
• agreement; and
• The negotiator lays themselves open by honestly disclosing information that is not
reciprocated.
The Harvard Negotiation Project
The Harvard Negotiation Project's mission is to improve the theory, teaching, and practice of
negotiation and dispute resolution, so that people can deal more constructively with conflicts
ranging from the interpersonal to the international.
The Project, or HNP as it is commonly known, was created in 1979 and was one of the founding
organizations of the Program on Negotiation consortium. The work of HNP routinely moves
back and forth between the worlds of theory and practice to develop ideas that practitioners find
useful and scholars sound. In general, HNP's work can be grouped into four categories: theory
building; education and training; real-world intervention; and written materials for
practitioners. A sampling of HNP activities in each category follows.
Theory Building
HNP is perhaps best known for the development of the theory of "principled negotiation," as
presented in Getting to YES: Negotiating Agreement Without Giving In, by Roger Fisher, Bill
Ury, and Bruce Patton. Getting to YES shows negotiators how to separate relationship issues
from substance and deal with the latter by focusing on interests, not positions; inventing options
for mutual gain; and using independent standards of fairness to avoid a bitter contest of will.
Real-World Intervention
HNP tested its theories in practice, often in the heat of some of the world's most intransigent
conflicts. From South Africa to Latin America, the Middle east to the Balkans, HNP worked
with individuals and governments on initiatives ranging from injecting a single idea at a crucial
time to initiating and framing an entire process for dealing with a conflict.
A technique called "facilitated joint brainstorming" was tested with on a dispute between
Ecuador and Peru to generate new options that both sides could jointly present for agreement.
The conference led to a peace initiative that ultimately settled a highly contentious border
dispute that had persisted for 50 years and resulted in numerous armed conflicts.
Of course you can find more at the HNP website.
Principled Negotiation
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Principled negotiation was a product of HNP and grew from the alternatives to positional
bargaining offered by the integrative approach. In their book, Getting to Yes, Fisher and Ury
set forth their concept of Principled Negotiation. A brief summary of the main points of
principled negotiation includes:
• Separate the People from the Problem
• Focus on Interests, Not Positions
• Invent Options for Mutual Gain
• Select from Among Options by Using Objective Criteria
Separate the People from the Problem
Fisher and Ury suggest that we are all people first and that there are always substantive and
relational issues in negotiation and mediation. They describe means of dealing with relational
issues, including considering each party's perception (for example by reversing roles); seeking
to make negotiation proposals consistent with the other party's interests; making emotions
explicit and legitimate; and through active listening.
Focus on Interests, Not Positions
Positions may be thought of as one dimensional points in a space of infinite possible solutions.
Positions are symbolic representations of a participant's underlying interests. To find out
interests, you may ask questions like: "What is motivating you here?" "What are you trying to
satisfy" or "What would you like to accomplish?" You may also ask: "If you had what you are
asking for (your position), what would that experientially get you - what interests would that
satisfy?"
In negotiation, there are multiple, shared, compatible, and conflicting interests. Identifying
shared and compatible interests as "common ground" or "points of agreement" is helpful in
establishing a foundation for additional negotiation discussions. Principles can often be
extrapolated from "points of agreement" to resolve other issues. Also note that focusing on
interests tends to direct the discussion to the present and future, and away from the difficulties
of the past. If we have learned anything about the past, it is that "we can not change it." The
past may help us to identify problems needing solution, but, other than that, it does not tend to
yield the best solutions for the future.
Invent Options for Mutual Gain
Before seeking to reach agreement on solutions for the future, Fisher and Ury suggest that
multiple solution options be developed prior to evaluation of those options. The typical way of
doing this is called brainstorming. In brainstorming, the parties, with or without the mediator's
participation, generate many possible solution before deciding which of those best fulfil the
parties' joint interests. In developing options, parties look for mutual gains.
Select from Among Options by Using Objective Criteria
Using objective criteria (standards independent of the will of any party) is where the label
"principled negotiation" comes from. Fisher and Ury suggest that solution selection be done
according to concepts, standards or principles that the parties believe in and are not under the
control of any single party. Fisher and Ury recommend that selections be based upon such
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objective criteria as precedent, tradition, a course of dealing, outside recommendations, or the
flip of a coin.
The advantages of principled negotiating
The main advantages of principled negotiation are that it:
• Maintains relationships
• Achieves satisfactory / efficient agreements
• Is Flexible
• Can redress power imbalances
Principled negotiation can be seen unlikely to provoke the aggression that may be shown in
positional negotiating; the emphasis is on mutually beneficial agreements and there is no need
for undue competitiveness. Parties can negotiate in an atmosphere conducive to ending on good
terms with each other.
Principled negotiating can achieves satisfactory and efficient agreements since the parties are
not limited to the narrow confines of rights based arguments. The agreement can meet as many
of the parties needs as they have been prepared to reveal.
The nature of principled negotiating means that there can be flexibility over what and who is
included in the negotiation..
Where a significant power imbalance exists, principled negotiating may establish that interests
of the powerful party make their dependence upon the less powerful party surprisingly strong.
The disadvantages of principled negotiating
Of course there exists potential for disadvantage. Principled negotiating can take time to reach
a settlement. The ultimate result should justify the time spent but parties engaged in principled
negotiating may need to be prepared to exercise patience. Principled negotiating is often far
more complex than its positional counterpart. More effort will be required of parties both in
preparing for and during the negotiation. It may take a number of attempts before people feel
comfortable negotiating in this way, especially for those people who regard themselves as
having a good track record with their positional bargaining approach. Since it can take longer
and is likely to demand, overall, more labour hours, it may be seen as being the more expensive
option. However, the cost should be looked at in the context of the whole negotiation and, we
have seen that the end result should be a much better agreement than would otherwise have
been achieved.
Some Issues in Principled Negotiating
What if the other party is more powerful? - Developing a BATNA
In the event that the other party has some negotiating advantage, Fisher and Ury suggest that
the answer is to improve the quality of your "best alternative to a negotiated agreement" (your
BATNA). For example, if you are negotiating for a job and want to make a case for a higher
wage, you improve your negotiating power by having another job offer available, or at least as
a possibility.
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What if They Won't Play or Use Dirty Tricks
Fisher and Ury's answer to the resistant competitive negotiator is to "insist" on principled
negotiation in a way that is most acceptable to the competitor. The principled negotiator might
ask about the competitor's concerns, show he or she understands these concerns, and, in return,
ask the competitor to recognize all concerns. Following the exploration of all interests, Fisher
and Ury suggest inducing the competitive negotiator to brainstorm options and to think in terms
of objective criteria for decision-making.
Another way of thinking about encouraging principled or integrative bargaining is to think in
terms of matching, pacing, leading and modelling. To get a negotiator to shift orientations, it is
critical that they first experience themselves as fully heard in terms of content, intensity and
emotion. By so matching and pacing with a negotiator (asking a few clarifying questions), the
negotiator will become more open to your lead and modelling of productive means of
negotiating.
Converting Positions to Interests to Positive Intentions
Negotiating parties tend to come to negotiation with well-rehearsed positional statements about
the truth of the situation. As wise negotiators, we know that we want to assist all parties to get
below their positions to achieve a full understanding of their respective interests. If you view
negotiating parties as, essentially, survivors, wanting to improve their situations, you may be
able to assist negotiating parties to recognize that even the most difficult interests, like revenge
and anger, can be understood in terms of positive intentions, such as a desire for
acknowledgment and respect. So reframed, the negotiation effort can become a joint search for
mutually acceptable solutions to the parties identified positive intentions. This reframing of the
entire mediation effort can dramatically shift the entire atmosphere of your negotiation.
Some Negotiation Basics and Negotiation Tactics
A bit like the three things that affect property values [location, location and location] Some
argue that three things are important in negotiation: preparation; preparation and preparation.
Other important areas in negotiation and negotiation tactics include:
• Negotiation Power
• Opening Offers
• Stages of Negotiation
Preparation
To help preparation a framework of questions might be made, including:
• The causes of the dispute.
List the causes of the dispute: is it in focused on resolving past facts; or is it a
Transaction negotiation, focused on reaching agreement for the future.
• The range of interventions which may be helpful.
List the interventions which might be helpful for a successful negotiation: tactics and
strategy.
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• The Parties Needs, Concerns and Goals.
Describe each party's needs, concerns and goals; and which of these need urgent
attention. Rank the needs, concerns and goals e.g. from “vital” to “desirable”. Describe
any needs, concerns, and goals that are shared; independent; or in conflict. Prepare a
WATNA and BATNA for each party.
• What are the facts associated with the dispute
Describe the facts and the evidence supporting the facts. List any facts that are agreed
upon. Discuss the degree of clarity on agreed, disputed and missing facts that is
necessary for advice/negotiations to begin.
• Rules and Objective Criteria
Evaluate the range of rules and Objective Criteria which may apply to this situation and
list the pros and cons.
• Outcomes
Describe the range of outcomes that are possible , would any alternative logic help e.g.
Lateral thinking. Discuss the client's targeted or preferred outcome. What outcomes
will be resisted (the resistance point).
• Dynamics
Consider who should
engage in preliminary meetings (for example parties, experts).
be present at the negotiation; who should not be present?
Consider what is known about the preferred negotiation style of all parties involved.
Check what authority to settle each party has. What influential people exist in the
background. Consider the past patterns of interaction; are there any fears exist about a
negotiation meeting. List the documents that need to be prepared/submitted/read by
whom? By what deadlines'?. Consider to what extent complex alleged facts, evidence,
arguments pro and con, precedents, interests and needs and agreements be summarised
visually.
Negotiation Power
Negotiation power simply put might the ability of the negotiator to influence the behaviour of
another: to get what you want. There are endless theories about power in negotiation.
Commentators discuss a variety of aspects and qualities of negotiation power. But you have
power over another to the extent that you can get another to do something that the other would
not otherwise do
Opening Offers
Two vital and interrelated questions for practising negotiators and for students seeking to
understand, systematise and measure negotiator behaviour are: Who should make the first offer;
and what form should that offer take?
Who should make the first offer
Many negotiators try to avoid making the first offer; or begin with an exaggerated or ludicrous
offer or they respond to offers with an exaggerated response. This is a natural feature of
positional negotiation and is greatly alleviated by principled negotiation. Like real men don’t
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eat quiche there is a feeling that real negotiators don’t make the first offer. Using the techniques
of Principled Negotiation reminds negotiators that what matter in the principle rather than the
position taken on first offer or indeed who makes that offer. In Chapter 7 Game Theory offers
a solution to this perennial problem: Making the first move gives a party the opportunity to
frame the negotiation and establish precedence.
What form should the first offer take
There are three classic ways to open negotiations:
• soft high (the maximalist opening);
• firm reasonable (the "equitable" opening);
• problem solving.
Each opening has a number of predictable and well documented advantages and disadvantages.
It is essential that skilled negotiators:
• know how to open by any one of these methods.
• even thought they may have a preferred style, are able to use all three openings with
confidence.
• practise in damage-free simulations using alternative methods.
• negotiate with the other side, before the first offers are made, about which of the three
forms of opening is most appropriate. (This may require considerable education of the
other side.)
• be able to articulate openly the well-known advantages and disadvantages of each form
of opening.
• openly or by known coded messages identify to the other side which of the three
openings appears to have been used. For example, negotiators use a number of codes to
indicate a high soft opening:
• On the current facts, our client would be prepared to settle for...
• Our client is claiming ...
Stages of Negotiation
Like everything associated with negotiation there are many stages offered by many authors
suggesting that there are predictable stages through which most negotiations pass. Four stages
are suggested here summarised as:
Stage One: Orientation and positioning
Here working relationship is established and initial negotiating positions adopted
Stage Two: Argument, compromise and search for alternative solutions
Once the orientation and positioning is established argument and persuasion can proceed as the
parties search for alternative solutions and seek concession.
Stage Three: Emergence and crisis
Now the pressure for agreement builds and if crisis occurs then deadlock awaits.
Stage Four: Agreement or final breakdown
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Deadlock or basic agreement occurs the parties can wrap up the details
These four stages demand further thought. Are there any factors which speed up or slow down
the stages? Can the crisis stage be managed, alleviated, avoided? Are there any management
styles that appear to be more or less effective? The proponents of Principled Negotiation argue
that Getting to Yes offers a solution.
Online Negotiation
As one might expect there are opportunities presented by the use of negotiation via the Internet.
There are many companies offering their services as intermediaries and their servers as space
for negotiation; these are often secure negotiation rooms and platforms. Online teaching of
negotiation is also widely available try ant search engine
Facilitated Negotiation
It is obvious that the parties quite often cannot communicate between themselves. This is
obvious from our social affairs;, our business affairs and our political affairs. An analogy often
made in mediation is the chemical one. Sometimes chemical reaction cannot take place unless
a catalyst is present; or they take place more slowly. That catalyst is not part of the process and
is not altered but it needs to be there. The same is true of negotiations; sometimes a catalyst
third party is required
Facilitated negotiation uses a neutral, objective person as that catalyst in negotiation sessions
to help the parties reach an agreement more quickly. This neutral has the goal of advancing
discussions by ensuring that the parties understand each others' positions and facilitating
settlement strategies. During negotiation, the primary aim of a facilitator is communication
rather than settlement. Thus, the facilitator encourages parties to reach a settlement on their own
without the facilitator's influence and makes no judgments or suggestions on how to settle the
dispute under negotiation.
Win Win Negotiation
How Principled Negotiation Helped the Columbia River Salmon
Southern California Edison Co. and Bonneville Power Administration created a joint
partnership which allowed both parties to meet their objectives and helped the salmon in the
Columbia River.
Southern California Edison Co generated power from the Hydroelectric plant they ran on the
Columbia River. Bonneville Power Administration generated power from traditional coal and
oil fired plants. During the summer running the traditional plants added greatly to the smog
problems in Southern California. Also during the summer months the young salmon ran in the
river and low water levels made them more vulnerable to predators and more likely become
disoriented and to lose their way.
Bonneville drew water from the river to run their turbines; this reduced river levels and as a
consequence reduced hydroelectric generation. The two companies Southern California Edison
Co. and Bonneville Power Administration created a joint partnership. Bonneville drew less
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water in the summer months ,hydroelectric generation increased as river levels rose which also
gave the optimum conditions for the young salmon just as they needed it. The joint partnership
saw power optimised with less pollution in the summer and increased salmon viability.
Collaboration brought increased efficiency and helped the environment truly a win win.
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Chapter 6: Mediation Principles
Introduction
This section introduces the history of mediation and the types of mediation commonly
encountered. These are Facilitative; Evaluative; Settlement and Transformative. The styles
are compared and again the concept of a continuum is used to explain the different styles
and models of mediation. The position of the Chartered Institute of Arbitrators is explained:
a facilitative model of Mediation in favoured since this is the most successful and robust of
the mediation types and mediators trained and experienced in facilitative models can apply
other techniques and models on an ad-hoc basis. The use of mediation styles and models
must be contingent on the dispute.
At the end of this section you will be able to:
Explain the different mediation styles and models
Facilitative
Evaluative
Settlement
Transformative
Discuss the arguments for and against the different mediation styles and models
Facilitative
Evaluative
Settlement
Transformative
Evaluate the use of the different mediation styles and models
Facilitative
Evaluative
Settlement
Transformative
Discuss the contingent model of the mediation
Mediation History and Types
Early mediation theory recognised only one type of mediation. The mediator or neutral,
whilst remaining in control of the process, merely facilitated the parties’ negotiation in an
attempt to assist the parties to create their own solution. This became known as Facilitative
(or Interest Based) Mediation.
Following from facilitative mediations some parties, and some mediators, recognised that
in certain situations there would have to be consideration of parties’ rights and that parties
unable to reach a facilitated solution would require some help via an evaluation. This
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developed Evaluative (or Rights Based) mediation. In a similar vein a Settlement Based
mediation model developed.
In the 1990’s mediation developed further the initial facilitation when mediators and
theorists developed a school of Transformative Mediation. Here the mediator by
empowering the parties allows all parties or their relationships to be transformed during the
mediation.
The Chartered Institute of Arbitrators teaches a facilitative model of Mediation in training
courses for mediators. It is the opinion of the ADR committee, and this is supported by
mediation research, that the facilitative model is the most successful and robust of the
mediation types. Further mediators trained and experienced in facilitative models can apply
other techniques and models on an ad-hoc basis. The experience of the Chartered Institute
is that mediators trained in settlement models and evaluative models are not as able to apply
facilitative models. Therefore; facilitation first and then the mediator may choose to
proceed with other techniques and types
Facilitative Mediation (Interest Based)
In facilitative mediation, the mediator structures a process to assist the parties in reaching a
mutually agreeable resolution. The mediator asks questions; validates and normalizes
parties' points of view; searches for interests underneath the positions taken by parties; and
assists the parties in finding and analyzing options for resolution.
The facilitative mediator does not make recommendations to the parties, give advice or
opinion as to the outcome of the case, or predict what a tribunal would do in the case. The
mediator is in charge of the process, while the parties are in charge of the outcome.
Facilitative mediators want to ensure that parties come to agreements based on information
and understanding. They hold joint sessions with all parties present so that the parties can
hear each other's points of view, but hold private meeting (caucuses) regularly with the
parties where they explore options and test the parties’ positions. Facilitative mediators seek
for the parties to have the major influence on decisions made, rather than the parties’
advisors; legal or otherwise.
Evaluative Mediation (Rights Based)
In evaluative mediation the mediator assists the parties in reaching resolution by pointing
out the weaknesses of their cases, and predicting what a tribunal would be likely to do.
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Based on the parties’ rights an evaluative mediator makes formal or informal
recommendations to the parties as to the outcome of the issues. Evaluative mediators are
concerned with the rights of the parties rather than needs and interests, and evaluate based
on concepts of fairness. Evaluative mediators meet most often in separate meetings with the
parties and their advisors, practicing "shuttle diplomacy". They help the parties and advisors
evaluate their legal position and the costs versus the benefits of pursuing a legal resolution
rather than settling in mediation. The evaluative mediator structures the process, and
directly influences the outcome of mediation.
Settlement Mediation
Settlement mediation (compromise mediation) takes as its main objective encouragement
of incremental bargaining, towards a compromise a central point between the parties
positional demands. Mediators employing the settlement model control both the parties and
the process; the mediator seeks to determine the parties’ bottom line. Then through
persuasive interventions the mediator moves the parties off their initial positions to a
compromise point.
Transformative Mediation
Transformative mediation is the newest concept based on the values of "empowerment" of
each of the parties as much as possible, and "recognition" by each of the parties of the other
parties' needs, interests, values and points of view. The potential for transformative
mediation is that any or all parties or their relationships may be transformed during the
mediation. Transformative mediators meet with parties together, since only they can give
each other "recognition".
In some ways, the values of transformative mediation continue and expand those of early
facilitative mediation, in its interest in empowering parties and transformation. Modern
transformative mediators want to continue that process by allowing and supporting the
parties in mediation to determine the direction of their own process. In transformative
mediation, the parties structure both the process and the outcome of mediation, and the
mediator follows their lead.
Arguments for and Against
Proponents say facilitative and transformative mediation empower parties, help the parties
take responsibility for their own disputes and the resolution of the disputes. Critics say that
facilitative and transformative mediation takes too long, and too often ends without
agreement. There are legitimate worries that outcomes can be contrary to standards of
fairness and that mediators in these approaches cannot protect the weaker party.
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Proponents of transformative mediation say that facilitative and evaluative mediators put
too much pressure on clients to reach a resolution. They believe that the clients should
decide whether they really want a resolution, not the mediator.
Proponents of evaluative mediation say that clients want an answer when they are unable to
reach agreement, and they want to know that their answer is fair. Critics of evaluative
mediation say that its popularity is due to the lawyers and advisors who choose evaluative
mediation because they are familiar with the process. They believe that the clients would
not choose evaluative mediation if given enough information to make a choice. They also
worry that the evaluative mediator may not be correct in the evaluation of the case.
Mediators tend to feel strongly about these styles of mediation and there is a healthy and
useful debate. The opinion of The Chartered Institute of Arbitrators is reiterated: facilitation
is a robust and effective model and from that basis mediators can proceed on a contingency
basis. There is no one model rather a selection of techniques which can be employed
depending on the circumstances. There appear to be more concerns about evaluative and
transformative mediation than facilitative mediation. Facilitative mediation appears
acceptable to almost everyone, although some find it less useful or more time consuming.
However, much criticism has been levelled against evaluative mediation as being coercive,
top-down, heavy-handed and not impartial. Transformative mediation is criticized for being
too idealistic, not focused enough, and not useful for business or court matters.
Another concern is that many lawyers and clients do not know what they may get when
they end up in a mediator’s office. Some people feel that mediators ought to disclose prior
to clients appearing in their offices, or at least prior to their committing to mediation, which
style or styles they use. Other mediators want the flexibility to decide which approach to
use once they understand the needs of the particular case.
Styles versus. Continuum
Section 2 shows conflict and dispute in terms of a continuum and this is used again to
differentiate between conciliation and mediation. Again the differences in mediation styles
and models might be seen as more a continuum than distinct differences, from least
interventionist to most interventionist. It would seem that in general mediators are on a
continuum from transformative to facilitative to evaluative mediation, but are not squarely
within one camp or another.
THE MEDIATION PROCESS
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CIVIL AND COMMERCIAL MEDIATION
BACKGROUND
This section provides a history of ADR and introduces civil and commercial mediation.
This workbook is concerned with Civil and Commercial Mediation and procedures that are
generally thought to be recent and alternative forms of dispute resolution. As with many
developments there are problems with definition, the workbook defines ADR, distinguishes
between conflict and dispute and outlines the history of ADR.
At the end of this section you will be able to:
Describe and explain the history of ADR
Describe the process of mediation
Discuss the frequently asked questions (FAQs) about mediation
Discuss how to work with a mediator
Definitions
There are many definitions of ADR
Alternative Dispute Resolution
Amicable Dispute Resolution
Appropriate Dispute Resolution
Another Disappointing Result
Another Damn Rip-Off
In the UK because of the long history of arbitration; the term ADR has normally been taken
to those techniques alternative to litigation and arbitration i.e. arbitration is not ADR. This
has caused confusion since arbitration in the USA is considered ADR! The water has been
further muddied by the Lord Chancellor's Department Current Consultation Paper
Alternative Dispute Resolution - a Discussion Paper which states:
The phrase Alternative Dispute Resolution now covers a variety of processes that
provide an alternative to litigation through the courts, and can be used to resolve
disputes where those involved would be unlikely to resort to the courts.
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ADR processes include arbitration, early neutral evaluation, expert determination,
mediation, and conciliation. A description of how these processes work is included at the
glossary. At least for some, negotiation within the processes of litigation forms part of the
ADR repertoire, with important links to existing litigation practice.
Other more formal mechanisms for resolving disputes such as the private sector
ombudsman schemes, utility regulators, trade association arbitration schemes in certain
trade sectors, and even tribunals can also provide alternatives to the courts in some
circumstances.
The various processes have very different characteristics. It can, sometimes be unhelpful
and confusing to group them together under one heading. A useful distinction is that
between processes in which a neutral third party makes a decision and those where the
neutral offers an opinion, and/or seeks to bring to the parties to an agreement. Here the term
"alternative adjudication" is used to encompass decision-making processes other than
litigation through the courts, such as arbitration, and expert determination, ombudsmen and
regulators. "Assisted settlement" is used to encompass processes designed to help the parties
come to an agreement, such as mediation, conciliation, and early neutral evaluation. Of
course, it is possible to have hybrid processes. "Med-arb", for example, describes a process
where there is an initial agreement to mediate the dispute and, if that fails to achieve
settlement, to submit outstanding issues to arbitration. In addition, some ombudsman
schemes incorporate mediation into their procedures.
In this context, the word "alternative" conveys only that these are methods of dispute
resolution which are not those in general use in litigation (which is why, for some,
negotiation does not fall within the ADR territory). It does not imply that the use of ADR
techniques is in some way second-best to going to court. A case has been made for referring
instead to appropriate dispute resolution, to reflect the arguments that some ADR techniques
are better suited to the needs of some cases or litigants than court proceedings. The term
"Alternative Dispute Resolution" is, however, probably now so well established that there
is little prospect of changing it.
Of course some of the procedures now considered as ADR are considered elsewhere in this
course; and discussing what constitutes ADR is one of life’s more meaningless and pointless
activities. This workbook is mainly concerned with Commercial Mediation but the next
Section also considers:
Med-Arb
Mini-trial (Executive Tribunal)
Early Neutral Evaluation
Expert Determination
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Dispute Review Boards
Dispute Review Advisers
History Of ADR
There exists a widely held belief that ADR is a recent development, and that the techniques
referred to as ADR came from the USA. An interesting variant, variously quoted, is that
society and culture may affect dispute resolution; the most common manifestation of this
being that ‘Eastern’ cultures are less attracted to confrontation and therefore ADR came
form the East. Evidence for the first belief is contained in just about every section of Fenn
and Gameson (1992) and the second belief is widely alluded to in the same book.
Of course the widely held belief that ADR is a modern development is simplistic but the
fact that the American Bar Association (ABA) noted in 1985 a dearth of scholarship on the
historical aspects of ADR (See Sanchez 1996), indicates that a revival in interest in ADR
took place in the mid 1980’s. This is often the date ascribed by many of the ADR advocates
when recounting the widely held belief on the development of ADR.
From the ABA note of the lack of research into the history of ADR came a research
programme. That research considered dispute processing in Anglo-Saxon England, one of
the earliest stages on English legal history. The central findings of the research are that the
Anglo-Saxons used an array of dispute resolution processes. The array included processes,
which might be compared with:
Negotiation
Adjudication
Arbitration
Mediation
Further these processes were available to the parties during the life of an action on a dispute-
processing continuum. The processes and the inter-relationships of the dispute-processing
continuum were aimed at fostering respect for the legal processes and effecting the peaceful
and enduring resolution of disputes and promoting the reconciliation of the parties.
It could be argued that the recent interest in ADR shares many of these sentiments. Perhaps
not the fostering of respect for the law and legal processes since business, commerce and
industry have become more sophisticated. Many people would argue that commercial
77
people have no interest in the majesty of the legal process; their concern is for the effective
resolution of disputes; both peaceful and enduring. At the heart of the ADR philosophy has
been the reconciliation of the parties in order that they might have continuity in their
commercial affairs.
ADR is not a recent development and although it suits many people to claim truth in the
‘widely held belief’ the history of ADR can be reliably traced to 5th Century England.
COMMERCIAL MEDIATION
Facilitative mediators are reluctant to provide decisions or recommendations, indeed some
mediators will not. Mediation lies at the facilitative end of the spectrum. Any settlement,
which occurs, is the parties' own and the analogy of chemical catalysts is often made. A
catalyst makes a reaction take place between two or more chemicals; the catalyst is not
affected or changed by the reaction. Sometimes the reaction will take place without the
catalyst and the effect is to speed up and sometimes the reaction will not take place without
the catalyst. The analogies with mediation are obvious.
Mediation is the most widely used and accepted ADR technique. Whilst there is no
prescriptive mediation process, the typical stages in a mediation might be:
A brief written summary of the matter in dispute is presented in advance to the mediator;
The parties meet with a mediator for an initial joint meeting including perhaps a brief oral
presentation by the parties;
Caucus sessions, where the mediator has private meetings with the party in turn. During the
caucuses the mediator often shuttles backwards and forwards to clarify issues and search
for settlement possibilities. This process is often termed shuttle diplomacy;
Plenary sessions are called to either continue negotiations directly, to conclude agreement,
or where the process is unsuccessful to conclude a mediation.
Most mediators agree to a contingency approach to mediation; that is there is no set
procedure but the procedure is tailored to suit the parties and the dispute in question. This
often means that mediation is conducted without joint meetings and the mediators play a
variety of roles. The mediator may act as a mere facilitator, there purely to assist
communications. Alternatively the mediator acts as a deal maker, to assist the parties in
finding overlap in their bargaining positions or encouraging concession and compromise.
Perhaps the mediator acts more as a problem solver assisting the parties in designing and
searching for creative solutions. The mediator may act as transformer transforming the
dispute by allowing the parties a fresh in-sight into the issues and their positions. The final
78
role of the mediator maybe as an adjudicator or assessor to provide the parties with an
appraisal of the merits of the cases on a legal, technical or even common sense standpoint.
Frequently Asked Questions: Mediation
How does it work?
Mediation involves a third party neutral taking the role of facilitator, evaluator or
transformer in helping parties to reach a settlement to a dispute
What is the process at a mediation?
There is no set procedure but the typical stages in a mediation could be:
A brief written summary of the dispute submitted in advance by the parties to the mediator
;
An initial joint meeting where the parties make an oral presentation;
The mediator holds private meetings with the parties; this is often likened to shuttle
diplomacy with a mediator shuttling back and forward to clarify issues and clarify
settlement possibilities. Sometimes these sessions are known as caucuses;
Further joint meetings either to continue negotiations directly or draw up an agreement or
to conclude the mediation.
What is the role of the mediator?
Mediators play a variety of roles:
Facilitator - assisting communications and negotiations;
79
Dealmaker - assisting the parties by comparing bargaining positions or outlining
concessions;
Problem solver - assisting the parties by suggesting creative alternatives, options
and solutions;
Transformer - transforming the dispute by allowing the parties to develop a fresh in-
sight into the issues and their positions.
Evaluator - an adjudicator or an assessor providing the parties with an evaluation
either: legal; technical; or commercial, by way of an appraisal of their cases and
positions.
Does the mediator produce an enforceable award?
Most mediators act as facilitator and any settlement is the parties' own settlement, it is
unusual for mediators to produce awards. The process is thought to be non-binding,
consensual and non-adjudicative.
How can it work if it is not enforceable?
Mediation works because the presence of an independent third party neutral helps all parties
concentrate on reaching a settlement. Once a settlement is agreed it can be converted into
an enforceable contract like any other settlement agreement. Mediators can help in the
process of formalizing in the settlement.
How are mediators trained?
A variety of organizations provide training for mediators. The leaders in commercial
mediation are:
80
INTERNATIONAL: THE CHARTERED INSTITUTE OF ARBITRATORS
WWW.ARBITRATORS.ORG AND THE CENTRE FOR EFFECTIVE DISPUTE
RESOLUTION (CEDR)
USA: THE AMERICAN ARBITRATION ASSOCIATION
Formal training for mediators has historically been a two-stage process. The first stage is
an academic treatment of mediation practice and procedure followed by assessment during
role-play and scenarios. After successful completion of the first stage mediators then go on
to undertake a pupillage, where they take part in a number of mediation under the
supervision of an experience mediator. The pupil mediators are again assessed by the
experienced mediators for entry on to a panel of mediators when they can then take referrals
in their own right.
Who are the mediators?
One school of thought says that good mediators are trained in dispute resolution, and
therefore need not necessarily know or understand the details of the dispute. Proponents of
this school point to America where undergraduate and postgraduate courses in dispute
resolution and in mediation exists. In the UK most mediators are drawn from a broad range
of disciplines and will have received a special training in mediation. Mediators can therefore
bring with them the specialisms of architecture, construction, the law, surveying etc to help
with construction disputes.
What about confidentiality?
It is normal for mediation providers and the mediators to require the parties and the mediator
to sign a confidentiality agreement. This ensures the process is treated as a without prejudice
negotiation on a strictly confidential basis. The mediator cannot be called afterwards to give
evidence of what took place. Where parties are particularly concerned about confidentiality
in joint meetings, the mediation can be conducted by means of separate meetings between
the mediator and each party.
An example of the confidentiality clause common in mediation agreements is shown below:
The mediation is to be conducted on a confidential basis and on a without prejudice
basis unless and until, and to the extent that, the parties otherwise jointly agree.38
38 JCT 98, PN 28/95.
81
Proposing mediation indicates a negotiating weakness?
Proposing mediation is not a sign of weakness but a suggestion of confidence on the
proposing party's ability to put their cards on the table and negotiate a positive commercial
solution. The effect a neutral third party mediator has on dispute negotiations is often
underestimated. However the initiation of getting mediation going can be difficult because
parties are often unfamiliar with mediation. This can be alleviated by including mediation
clauses in commercial contracts, and or allowing the first approach for mediation to come
from an ADR provider.
When is the best time to suggest mediation?
As there is no single process of mediation there is no single correct time in the dispute to
suggest mediation. However the earlier the process can begin the more likely the parties are
to achieve savings in costs and time; and notably the less likely is that the parties will have
become entrenched in their positions and into the adversity of dispute. It might be
appropriate to delay suggesting mediation where one party suspects that the other party is
not seriously interested in reaching a solution, or if a party still needs time to gather
information for its case. The following points are worth considering
A mediator may be able to help the parties in managing the information gathering and case
evaluation process;
Mediation does not ordinarily involve the examination or cross-examination of witnesses,
but takes an overall commercial approach given the need to arrive settlement;
Mediation can be used not only for the initial attempt settlement but it can be tried again
later when circumstances change;
There are few risks in attempting mediation and the parties can always abandon the process
if it proves unproductive;
Most mediations, and most mediators, will only last a day at very most three days to assess
settlement possibilities.
How much does mediation costs?
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How long is a piece of string. The service of trained experience mediators can be secured
from the leading ADR providers at reasonable commercial costs (starting at £50 per party
per hour). It is normal that the parties bear their own costs of the mediation proceedings
and share the fees of the mediator. There are often few additional costs in preparing for
mediation, and mediation can assists in the information gathering process so that any costs
are marginal.
The benefits of mediation
The benefits of mediation are often summarised under the six C's
Consensual - parties agree to seek business solutions assisted by their advisers and a neutral
mediator.
Control - the parties agree a timetable, procedure, and the agenda. The outcome is a
contractual agreement or consent award.
Cost savings - the emphasis is on key issues not on exhausting every avenue to substantiate
a case or to refute the other side's evidence before the tribunal.
Continuing business relations - the emphasis is on the communication of interests between
the parties, on solving the problem, and on commercial business solutions.
Confidentiality - ADR meetings are private, and should be used to explore creative solutions
and agree pragmatic settlements.
Creative - in ADR commercial and business solutions are not limited by legal rules. Current
and future interests and any other aspects can be explored to achieve a solution.
How to work with a mediator
Prepare
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Prepare your case in sufficient detail to allow you to negotiate effectively while
concentrating on essentials. Mediation is not a binding adjudicative process, you do not
need to explore every eventuality in case it might be relevant.
Summarise the core issues
Prepare a brief written summary of the dispute and your case, summarised the core issues
and evidence. Include documents which are essential to the case, if there are tricky legal or
technical question as part of the dispute agree upon an independent assessment by a third
party. The Mediator a can help in appointing the independent assessor, or by using the
parties' expert reports point the parties towards a settlement.
RECOGNISE THE VARIOUS ROLES MEDIATORS MAY HAVE TO PLAY
Mediators play a variety of roles to assist the parties:
Facilitator - there to purely assist communication;
Deal maker - helping parties find overlap in their bargaining positions or encouraging
concessions;
Problem solver - assisting in the search for creative options;
Transformer - to transform the dispute and open up creative avenues for settlement;
Adjudicator assessor - providing the parties with legal technical appraisal of the merits of
their case.
It is important to the parties work closely with a mediator in private sessions in order to
make best use of the mediator's skills.
CONFIDENTIALITY
Indicate clearly which information you expect a mediator to keep confidential in discussions
with other party. The mediator will normally assume that communications in a caucus; are
confidential unless otherwise indicated.
LIMIT THOSE ATTENDING
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Limit the numbers of staff and representatives attending the mediation; to those decision-
makers and professional advisers who can contribute to the settlement of the dispute. If
evidence or input from others is required, particularly experts, they can be brought in as and
when necessary.
COMPLEX ISSUES
If the case involves many parties or complex technical and legal issues, considering
agreeing with the other party to the use co-mediators or to an assessor working with
mediator.
FLEXIBILITY
Be prepared to be flexible. The mediation will only reach a settlement if the parties bring a
genuine willingness on for new solutions take and give concessions, in the interests of
achieving a settlement. Argue your best case to protect your rights but do so with an open
mind and a view towards pragmatic alternatives by a mediated settlement. If you're looking
for a third party to adjudicate or give an award you should not be in mediation.
MEDIATION AND THE LAW
This section introduces the relationship between the law and Mediation. In the UK the
concept of caucusing (private meetings between the neutral and the parties) is unique to
mediation; in that in the mainstream processes of arbitration and adjudication such an
approach would inevitably bring about a breach of natural justice invalidating any award or
decision. The attitude of UK judiciary and government in examined and it is shown that
there has been a strong recent move towards supporting ADR and therefore Mediation.
At the end of this section you will be able to:
Consider ADR and Mediation in terms of national laws
Discuss the special features of mediation in relation to the law
Discuss the UK judiciary and government attitude towards supporting Mediation and ADR
INTRODUCTION
In June 1991 the Master of the Rolls delivered a speech to the London Common Law and
Commercial Bar Association in which he maintained:
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ADR is a PR man’s dream. It conjures up visions of a factor ‘X’ which will do for
dispute resolution what it is said to have done for washing powder. The truth is that
there is no factor ‘X’. Indeed, I doubt whether there is any such thing as ADR. It
simply an umbrella term or a ‘buzz’ word covering any new procedure or
modifications of old procedures which anyone is able to think up
That there has been a sea change in opinion amongst the senior members of the judiciary
and the Lord Chancellor can be seen when this 1991 view is considered against The Lord
Chancellor's Department Current Consultation Paper Alternative Dispute Resolution - a
Discussion Paper 39.
In determining the role of ADR, it is important to consider the principles on which
the reforms to the civil court procedures were based. In his interim report, Lord
Woolf set out the basic principles, which should be met by a civil justice system so
that it ensures access to justice. These are that the system should be just in the
results it delivers, procedures should be fair and, together with cost, proportionate
to the nature of the issues involved. The system should deal with cases with
reasonable speed, be understandable to those who use it, be responsive to the needs
of those who use it, and should provide as much certainty as the nature of particular
cases allows. And the system should be effective, i.e. adequately resourced and
organised so as to give effect to the previous principles.
The Lord Chancellor believes that these principles should also be used in examining
ways of dealing with disputes outside the court system.
The result of this consultation was a pledge to use ADR.
MEDIATION AND NATIONAL LAWS
The use of mediation, or ADR, does not remove the need for the parties to know the legal
system within which they are operating. The legal system is vital to their rights and
obligations. It is important therefore that a mediator knows the legal system within which
the mediator operates. This begs the question; does the mediator need to be a lawyer? There
is no easy answer to the question; but some might argue that where specific and vulnerable
rights and obligations exist and need protecting, then a specialist lawyer mediator is
required. The obvious example is family disputes involving children.
In litigation and other adjudicative processes e.g. Arbitration and Adjudication the tribunal
obtains authority from legislation; Arbitration Act 1996 and Housing, Grants Construction
and Regeneration Act 1996 respectively. Mediation depends on the agreement of the parties
39 See http://www.open.gov.uk/lcd/consult/civ-just/adr/indexfr.htm
86
for authority. There are initiatives where courts encourage mediation, these might be
described as court annexed; and in some jurisdictions, notably the USA, mandatory schemes
exist. You might check the position in your jurisdiction, the attitude of UK judiciary and
government has been to support ADR without providing for mandatory ADR. A
comprehensive review of ADR schemes can be found in Brooker and Lavers (2001).40
Special Features Of Mediation In Relation To The Law
There are many features of mediation which involve aspects of the law; in terms of England
and Wales one of the most pertinent, and certainly one at the heart of mediation, is the use
of private meetings between the mediator and the parties. These meetings are often known
as caucuses and their central role in mediation is widely acknowledged. Caucuses and
caucusing present special problems because of natural justice; the principles of natural
justice were derived from the Romans who believed that some natural principles of law
were self-evident or natural and did not require a statutory basis. One thing is certain that
the use of caucuses by a tribunal would be a clear breach of natural justice. This separates
mediation from Adjudication and Arbitration; and provides a powerful tool for mediators
which is not available for Judges; Arbitrators and other tribunals.
THE GOVERNMENT’S PLEDGE TO ADR
On 23 March 2001 the Government made a pledge that government departments will only
go to court as a last resort. Instead, they will settle their legal disputes by mediation (or
arbitration) whenever possible. Government departments and agencies will settle legal cases
by ADR techniques in all suitable cases whenever the other side agrees. The pledge is worth
repeating in full:
Government Departments and agencies make these commitments on the
resolution of disputes involving them:
Alternative Dispute Resolution will be considered and used in all
suitable cases wherever the other party accepts it.
In future, Departments will provide appropriate clauses in their
standard procurement contracts on the use of ADR techniques to settle
their disputes. The precise method of settlement will be tailored to
the details of individual cases.
Central Government will produce procurement guidance on the
different options available for ADR in Government disputes and how
40 Brooker, P. and Lavers, A. (2001), Commercial and Construction ADR: Lawyers Attitudes
and Experience, Civil Justice Quarterly, 20, October , p327-346.
87
they might be best deployed in different circumstances. This will
spread best practice and ensure consistency across Government.
Departments will improve flexibility in reaching agreement on
financial compensation, including using an independent assessment of
a possible settlement figure.
There may be cases that are not suitable for settlement through
ADR, for example cases involving intentional wrongdoing, abuse of
power, public law, human rights and vexatious litigants. There will
also be disputes where, for example, a legal precedent is needed to
clarify the law, or where it would be contrary to the public interest
to settle.
Government departments will put in place performance measures to
monitor the effectiveness of this undertaking.
The principle that litigation should be a last resort has the approval of the courts; in Frank
Cowl & other v Plymouth City Council, Lord Woolf said:
insufficient attention is paid to the paramount importance of avoiding litigation
whenever this is possible41
Following the Cowl case came Dunnett v Railtrack which emphasised the costs sanctions
likely to flow from a blunt refusal to consider ADR. The Claimant appealed against the
original judgment. At the hearing at which permission to appeal was granted the court told
the parties that they should attempt alternative dispute resolution. The defendant simply
refused to consider ADR and the matter proceeded to the hearing of the substantive appeal.
The appeal was dismissed, that is the defendant won, but received no costs award.42 It is
important here to remind that the matter of parties’ costs in the UK is dealt via the so-called
English rule; here the loser pays the winners costs. This of course has a special tactical
effect on the arguments for the use of ADR as a cost-saving device.
41 http://www.arbitrators.org/Institute/LawRep.htm 42 http://www.consensus.uk.com/mediationnews.html#cases
88
Chapter 7: ADR Processes and Game Theory
Summary
This chapter is a catch all chapter which attempts to describe the ADR techniques BUT NOT
Mediation which is included elsewhere. The problems with that approach. There are many,
many techniques; some very specialised. And since you started reading this
book/chapter/paragraph someone has invented a new one. And some are so specialised and
speculative. For example the Peter Fenn patented system where Peter Fenn is appointed at
£500/hour to resolve disputes by juggling and unicyclng.
There is therefore no attempt to include all the techniques; rather techniques are included on
the grounds of application or interest. Bearing that in mind, there is incredible interest in
Med/Arb but almost no application. Mini-trial (Executive Tribunal) is similar with but with
some big ticket application examples. Early Neutral Evaluation has widespread interest in the
USA and the UK; widespread application in the USA much less so in the UK. Expert
Determination, which is known by many names, is applied widely in some industries and carries
onerous health warnings; not because it is dangerous but parties must understand what they are
agreeing to, because it is agreement. Contracted or Project Mediation is included here rather
than a special case of mediation because it requires contract or project provision. Dispute
Review Boards again comes under many very similar names and the acronyms can be tortuous:
DRB’s, DAB’s and DRP’s amongst other. Finally Dispute Review Advisers are considered.
89
INTRODUCTION
There are many definitions of ADR
• Alternative Dispute Resolution
• Amicable Dispute Resolution
• Appropriate Dispute Resolution
• Another Disappointing Result
• Another Damn Rip-Off
In the UK because of the long history of arbitration; the term ADR has normally been taken to
mean those techniques alternative to litigation and arbitration i.e. arbitration is not ADR. This
has caused confusion since arbitration in the USA is considered ADR! The water has been
further muddied by the Lord Chancellor's Department Current Consultation Paper Alternative
Dispute Resolution - a Discussion Paper which states:
The phrase Alternative Dispute Resolution now covers a variety of processes that provide
an alternative to litigation through the courts, and can be used to resolve disputes where those
involved would be unlikely to resort to the courts.
ADR processes include arbitration, early neutral evaluation, expert determination, mediation,
and conciliation. A description of how these processes work is included at the glossary. At least
for some, negotiation within the processes of litigation forms part of the ADR repertoire, with
important links to existing litigation practice.
Other more formal mechanisms for resolving disputes such as the private sector ombudsman
schemes, utility regulators, trade association arbitration schemes in certain trade sectors, and
even tribunals can also provide alternatives to the courts in some circumstances.
The various processes have very different characteristics. It can, sometimes be unhelpful and
confusing to group them together under one heading. A useful distinction is that between
processes in which a neutral third party makes a decision and those where the neutral offers an
opinion, and/or seeks to bring to the parties to an agreement. Here the term alternative
adjudication is used to encompass decision-making processes other than litigation through the
courts, such as arbitration, and expert determination, ombudsmen and regulators. Assisted
settlement is used to encompass processes designed to help the parties come to an agreement,
such as mediation, conciliation, and early neutral evaluation. Of course, it is possible to have
hybrid processes. Med-arb, for example, describes a process where there is an initial agreement
to mediate the dispute and, if that fails to achieve settlement, to submit outstanding issues to
arbitration. In addition, some ombudsman schemes incorporate mediation into their procedures.
In this context, the word alternative conveys only that these are methods of dispute resolution
which are not those in general use in litigation (which is why, for some, negotiation does not
fall within the ADR territory). It does not imply that the use of ADR techniques is in some way
second-best to going to court. A case has been made for referring instead to appropriate dispute
resolution, to reflect the arguments that some ADR techniques are better suited to the needs of
some cases or litigants than court proceedings. The term "Alternative Dispute Resolution" is,
however, probably now so well established that there is little prospect of changing it. Navel
gazing of this type is great fun but of limited value.
90
Of course some of the procedures now considered as ADR are considered elsewhere in this
book; and discussing what constitutes ADR is one of life’s more meaningless and pointless
activities. This chapter considers:
• Med-Arb
• Mini-trial (Executive Tribunal)
• Early Neutral Evaluation
• Expert Determination
• Contracted or Project Mediation
• Dispute Review Boards
• Dispute Review Advisers
History Of ADR
There exists a widely held belief that ADR is a recent development, and that the techniques
referred to as ADR came from the USA. An interesting variant, variously quoted, is that society
and culture may affect dispute resolution; the most common manifestation of this being that
‘Eastern’ cultures are less attracted to confrontation and therefore ADR came from the East.
Evidence for the first belief is contained in just about every chapter of Fenn and Gameson
(1992)43 and the second belief is widely alluded to in the same book.
Of course the widely held belief that ADR is a modern development is simplistic but the fact
that the American Bar Association (ABA) noted in 1985 a dearth of scholarship on the historical
aspects of ADR44), indicates that a revival in interest in ADR took place in the mid 1980’s.
This is often the date ascribed by many of the ADR advocates when recounting the widely held
belief on the development of ADR.
From the ABA note of the lack of research into the history of ADR came a research programme.
That research considered dispute processing in Anglo-Saxon England, one of the earliest stages
on English legal history. The central findings of the research are that the Anglo-Saxons used
an array of dispute resolution processes. The array included processes, which might be
compared with:
• Negotiation
• Adjudication
• Arbitration
• Mediation
Further these processes were available to the parties during the life of an action on a dispute-
processing continuum. The processes and the inter-relationships of the dispute-processing
continuum were aimed at fostering respect for the legal processes and effecting the peaceful
and enduring resolution of disputes and promoting the reconciliation of the parties.
43 Fenn, P. & Gameson, R. (1992). Construction Conflict Management and Resolution, EF & N Spon London.
44 Sanchez, V. (1996) Towards a History of ADR: The Dispute Processing Continuum in Anglo Saxon England and
Today. The Ohio State Journal on Dispute Resolution, 11(1), 1-39.
91
It could be argued that the recent interest in ADR shares many of these sentiments. Perhaps not
the fostering of respect for the law and legal processes since business, commerce and industry
have become more sophisticated. Many would argue that commercial people have no interest
in the majesty of the legal process; their concern is for the effective resolution of disputes; both
peaceful and enduring. At the heart of the ADR philosophy has been the reconciliation of the
parties in order that they might have continuity in their commercial affairs.
ADR is not a recent development and although it suits many people to claim truth in the ‘widely
held belief’ the history of ADR can be reliably traced to 5th Century England.
Other ADR Processes
This part provides a outline of other ADR processes than civil and commercial mediation. The
forms of ADR considered are:
• Med-Arb
• Mini-trial (Executive Tribunal)
• Early Neutral Evaluation
• Expert Determination
• Dispute Review Boards
• Dispute Review Advisers
Med-Arb
Med Arb is a process that has been much debated in recent times, where if the Mediation fails
to produce settlement then the Mediator might take the role of Arbitrator. However, although
the idea is attracting interest there remain some fundamental matters of principle, which may
affect the validity of a binding award for such a tribunal. These include the argument that such
an award would be against the rules of natural justice in that a party to the process is unaware
of what is being said in one of the private caucusing sessions and is therefore unable to reply.
There is little evidence of the adoption of this method of dispute resolution but no doubt the
debate is likely to continue for some time. Some have wondered if the reverse process i.e. Arb
–Med would remove the issues of principle objection the problem with natural justice.
No other ADR technique attracts the same debate as Med-Arb. As the name suggests Med-Arb
is essentially a two-stage hybrid ADR process. During the first stage the parties attempt to settle
their dispute amicably using mediation, if settlement cannot be found then the parties move to
the second stage of arbitration. The essential characteristics, and the one that causes all the
debate, of this technique is that mediator in the first stage becomes the arbitrator for the final
and binding stage.
Med-Arb arises either through a contractual provision or by a party agreement once the dispute
has arisen. The proponents of Med-Arb argue the advantage that it combines the benefits of a
possible mediated settlement with the finality of arbitration.
Med-Arb recognizes that arbitration may not resolve all the issues between the parties but limits
the arbitration solely to the intractable disputes, thereby bringing the cost and time saving to
the parties.
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Conversely the detractors of Med-Arb express concerns over such a procedure, claiming that it
compromises the neutrals capacity to act initially as facilitator and then as the arbitrator, without
restricting the flow information. The fundamental objection to such an approach is that the
parties will not wish to reveal confidential information during caucuses with a mediator which
may then influence the arbitrators view of them during arbitration.
Notwithstanding the wide-ranging debate on Med-Arb, few seem to have any real experience
of the technique being used.
Executive Tribunal Or Mini-Trial
These are management based mediation assisted processes, the term mini-trial is favoured in
the USA and in the UK Executive Tribunal has been adopted. The procedure being a structured
settlement procedure combining negotiation, mediation and adjudication. Lawyers for each
party are given a limited time to make a presentation on the dispute, in the presence of senior
executives from each company. The executives are required to have the authority to settle the
dispute, and following the presentations they hold a meeting moderated by a neutral. The
neutral acts as facilitator towards a settlement and can if required offer either a binding or non-
binding opinion.
The mini-trial procedure in the USA developed from a large dispute over a period of 3 years
which had exchanged over 100,000 documents. In an attempt to settle the dispute an alternative
was suggested. The alternative was developed from the observation that often disputes develop
a self fulfilling dimension within organisations; in that the time involved and committed
becomes so large that the parties loose sight of the commercial reality of the dispute. Often
senior executives are appalled when they see the extent of the dispute.
The major benefits which are proposed are:
• Senior executives become involved and realise the nature and severity of the dispute;
• Senior executives are given an opportunity to hear the arguments from both sides;
• Senior executives are able to meet and discuss settlement;
• Senior executives are not constrained by legal min / lose remedies
few experiences have been documented45 and the few have been on major projects.; many are
confused about the process, believing that it relates to site negotiations which have reached the
point where company executives become involved.
Early Neutral Evaluation (ENE)
ENE is one of a number of forms of adjudicative and binding dispute resolution. These forms
might be though of running from an adjudicative neutral type of conciliation through to a system
of minitrial. There has been considerable interest in ENE due to a series of court initiatives.
There are few reports that the systems of ENE have been used in practice; but the evidence
supports the wider contention that the parties their Advisers, and the dispute resolvers:
adjudicators; arbitrators; conciliators; judges and mediators now have a continuum of
45 Gould, N., Capper, P., Dixon, G. and Cohen, M (1999) Dispute Resolution in the Construction Industry. Thomas
Telford Publishing, London.
93
techniques to use depending on the dispute in hand. A useful statement might be one applied
to every dispute technique described in this book:
ENE (insert any other technique) is simply one tool in the toolbox of dispute resolution.
ENE and the courts46
A Commercial Court Practice Statement of 10th December 1993 encouraged the parties to
disputes in the Commercial Courts to consider the use of ADR47. From then the judges in the
Commercial Court adopted a practice at the first interlocutory hearing when Directions were to
be given, of evaluating the action. If any of the issues were appropriate then attempts would be
made to settle the dispute by ADR. The judges considered if the parties had attempted ADR,
and if not they invited the parties to take positive steps to set in motion ADR procedures. As a
result of this Practice Statement changes were made to the standard questions to be answered
by the parties in preparation for the Summons for Directions. Similar changes were also made
as part of the pre-trial checklist. Cynics suggested that solicitors merely included the necessary
changes in order to comply with the letter of the Practice Statement; that they had no intention
of complying with or entering into the spirit.
A further Practice Direction issued by the Commercial Court48; stated that the judges of the
Commercial Court in conjunction with the Commercial Court Committee had considered
whether it was desirable that further steps should be taken to encourage the wider use of ADR.
The Practice Direction proposed that if after discussion with the parties’ representatives an
Early Neutral Evaluation is likely to assist in the resolution of the matters in dispute; then the
Judge may offer such ENE himself. Alternatively the Judge could arrange that another Judge
carry out the evaluation. Where the ENE was to be carried out by a Judge it was stated that the
Judge would, unless the parties agreed otherwise, take no further part in the proceedings.
Guidance notes published by the Commercial Court described ENE as:
The function of this procedure is to provide the parties to a dispute with a non-binding
assessment by a neutral of their respective chances of success were the litigation to be
pursued.
The initiative in the High Court might at first sight seem surprising, but as Judge Toulmin points
out those who are surprised will be equally surprised to discover that ENE is done as a matter
of course in Israel and New Zealand. Further the procedures in both countries are similar to the
UK and reports that the system appears to work well in both jurisdictions.
The procedure in ENE will necessarily vary in each case, but for the dispute put before the TCC
in June 1998 the following procedure was initiated in the Case Management Conference in
April 1998:
Agreed Statement of Issues and Chronology to be lodged at court by 1st June;
46 This section draws heavily on a paper to the Society of Construction Law 4th May 1999.
HHJ J Toulmin and Robert Stevenson, Early Neutral Evaluation in the Technology and
Construction Court. 47 Mr Justice Cresswell, The Times 10th December 1993. 48 Mr Justice Walker, The Times 7th June 1996.
94
Pleadings; and Defendant’s Response to be lodged at court by 1st June;
Case outline (10 pages maximum) to be lodged at court by 1st June;
ENE to be held in court 8th June;
Each side 30 minutes to open and respond;
60 minutes for Judge to question parties;
Period of reflection before Judge delivers assessment;
Nothing said at the ENE would be used in litigation or for any other purpose;
The Judge would be disqualified from any other involvement in the proceedings;
Each party to bear their own costs.
The Report of the Commercial Court Committee Acting Party on ADR February 1999
The report warned that only four such ENEs had been conducted in the Commercial Court (this
has been doubted by others49) and explained the low number by the lack of familiarity of the
parties and their Advisers. The report considered that ENE could only assist parties in cases
where there few distinct issues on which preliminary views could be readily expressed without
substantial presentations on the merits from either party. ENE could be a useful tool for the
Judge to encourage or persuade settlement.
ENE APPLICATION
At an early stage of the Case the parties may apply for ENE; the problems are that issues may
not be sufficiently clarified, or developed, to allow ENE. ENE may be more appropriate where
the parties’ position on particular issues have been defined and hardened such that they are only
likely to change on the authoritative view of a third party. For the neutral to be able to give a
view, and for that view to carry the necessary weight, all or most of the evidence, statements,
reports and documentation must be available to the neutral.
Timing of ENE is crucial. Too early and the parties have not had sufficient time to exchange
and appraise the evidence and may retain feelings that their position could be improved. Too
late and there will be little by way of cost savings.
Expert Determination (Submission to Expert, Reference to an Expert, Expert
Adjudication)50
Note that Statutory Construction Adjudication under the Scheme for Construction Contracts
and the Housing Grants, Construction and Regeneration Act is dealt with separately in Chapter
6.
These are long-established procedures in English law and have been used across a number of
industries. Examples include - accountants valuing shares in limited companies, valuers fixing
the price of goods, actuaries carrying out valuations for pension schemes, certifiers of liability
for on-demand performance bonds, certifiers under construction contracts and, Adjudicators
who are said to be acting “as expert and not as arbitrator”.
49 Genn, H. (1999), The Central London Count Court Pilot Mediation Scheme, LDCD 9/58. 50 See generally Kendall, J Dispute Resolution: Expert Determination (2nd Ed., 1996)
95
The law governing the extent to which the Courts may interfere in expert determination has
been reviewed in a number of recent cases. Jones v. Sherwood Computer Services Plc (1992)51
held that where parties had agreed to be bound by the report of an expert, the report, whether
or not it contained reasons for the conclusion in it, could not be challenged in the Courts on the
ground that mistakes had been made in its preparation unless it could be shown that the expert
had departed from the instructions given to him in a material respect.
Jones was followed in Nikko Hotels (UK) v MEPC (1991)52 held that if parties agree to refer
to the final and conclusive judgment of an expert an issue that either consists of a question of
construction or necessarily involves the solution of a question of construction, the expert’s
decision will be final and conclusive and, therefore, not open to review or treatment by the
Courts as a nullity on the ground that the expert’s decision on construction was erroneous in
law, unless it can be shown that the expert has not performed the task assigned to him. If he has
answered the right question in the wrong way, his decision will be binding.
Jones was also approved in the House of Lords in Mercury Communications Ltd v Director
General of Telecommunications (1996)53.
In British Shipbuilders v VSEL Consortium plc (1997)54, the principles were summarised:
Five principles govern the status of decisions of a person occupying the role of the expert:
Questions as to the role of the expert, the ambit of remit (or jurisdiction) and the character of
remit (whether exclusive or concurrent with a like jurisdiction vested in the Court) are to be
determined as a matter of construction of the agreement.
If the agreement confers upon the expert the exclusive remit to determine a question, the
jurisdiction of the Court to determine that question is excluded because for the purposes of
ascertaining the rights and duties of the parties under the agreement the determination of the
expert alone is relevant and any determination by the Court is irrelevant. It is irrelevant whether
the Court would have reached a different conclusion or whether the Court considers that the
expert’s decision is wrong, for the parties have in either event agreed to abide by the decision
of the expert.
If the expert in making his determination goes outside remit e.g. by determining a different
question from that remitted or in determination fails to comply with any conditions which the
agreement requires compliance with in making determination, the Court may intervene and set
the decision aside. Such a determination by the expert as a matter of construction of the
agreement is not a determination which the parties agreed should affect the rights and duties of
the parties, and the Court will say so.
51 [1992] 1 W.L.R. 277
52 [1991] 28 EG 86, itself approved by the Court of Appeal in The “Glacier Bay” [1996] 1 Lloyds Rep 370, 377 col.
2
53 [1996] 1 WLR 48
54 [1997] 1 Lloyd’s Rep 106
96
The Court may set aside a decision of the expert where (as in this case) the agreement so
provides if determination discloses a manifest error.
The salient features of the various processes, summarised as Expert Determination, are as
follows:
• The expert is not bound by the Arbitration Acts, in particular there is no statutory right
of appeal or determination of a preliminary point of law;
• The Court has no statutory powers to make interlocutory orders in aid of an expert;
• An expert’s determination is not enforceable as a judgment in the same way as an
Arbitrator’s award;
• The expert makes a decision on own expertise and investigations, and is not bound to
receive evidence or submissions from the parties, but is not in control of procedure, and
must comply with the terms of the underlying contract from which authority is derived;
• The expert is not bound to act judicially, but merely to avoid fraud or collusion and may
also be liable to the parties for negligence;
• The expert’s fees are only recoverable as a debt in the absence of an express term
conferring on the expert the ability to award costs against a party.
Expert determination is a private means of commercial dispute resolution. The parties to a contract
jointly instruct a third party to decide a dispute. Fernyhough (1997) has described the essentials
of the role of the expert as:
• No requirement to act judicially but may carry out investigation;
• No requirement to receive submissions or evidence;
• No legislation to cover process;
• No statutory right of appeal or review;
• No statutory right of registration of and enforcement of decision.
However the expert must act in accordance with the terms of his appointment (which may have
implied terms or incorporate parts of the contract) if his award is to be valid.
There is nothing new about expert determination, Kendall55 reports that it has been a feature of
English commercial and legal practice for at least 250 years. It is:
• A process by which parties instruct a third party to decide a particular issue
• A creature of contract
• The third party is selected for particular expertise
• Courts are reluctant to intervene, and have restricted to jurisdiction (Jones v Sherwood
1992); or where the expert has answered the wrong question
55 Kendall, J. (2008) Dispute Resolution: Expert Determination (4th Edition).Sweet and Maxwell, London.
97
The courts have recently considered the procedure of Expert Determination and have reiterated
and confirmed earlier judgements56.
CONTRACTED MEDIATION
Contracted Mediation is project-based mediation. A panel [provided for in the contract ] is set
up at the start of a project and actively seeks to facilitate the avoidance and resolution of any
contract difference throughout the project, before it can escalate into dispute and before parties
have started incurring any costs. Contracted mediation attempts to fuse team building, dispute
avoidance and dispute resolution in one procedure. The impartial contracted mediation panel,
perhaps consisting of one lawyer and one commercial expert who are both trained mediators,
is appointed at the outset of the project. The panel attends site meetings and conducts
workshops. The panel members therefore gain a working knowledge of the project and all actors
and stakeholders involved in and working on the project. This knowledge they assimilate allows
the panel to resolve contractual differences before they escalate, and provides for the
confidential, mediated resolution of disputes. The panel have access to the contract documents
and the parties involved.
Contracted mediation has been used on Jersey Airport, 57 where a civil engineering project
was the first contract undertaken with a Contracted Mediation Panel in place from the outset
to help prevent, mitigate and resolve disputes.
Dispute Review Boards, Dispute Review Panel, Dispute Adjudication Board and Dispute
Adjudication Panel
This is a particularly difficult technique because there are many techniques and the names are
very similar. Beware! Dispute Review Boards led the way and a description is given below;
but the variants are many e.g. FIDIC (International Federation of Consulting Engineers) uses
Dispute Adjudication Boards; The 2012 Olympics in London set up an Independent Dispute
Avoidance Panel AND for any dispute not avoided a Dispute Adjudication Panel. If confronted
with this kind of technique it is sensible to consider the power of the board or panel as agreed
in the contract. Is it binding or non binding? Is it binding until completion then something else
i.e. is it temporary binding; or is binding forever?
Dispute Review Board develop in the USA as a process where an independent board evaluate
disputes as they arise during the project being constructed or manufactured, and makes
settlement recommendations to the parties. The board is normally constituted at commencement
of the project and a typical scenario is where one board member is selected by each party and
they agree on an independent third; the referee or umpire. Failure by the parties to agree on the
umpire normally requires that the two board members then select the third member. The board
periodically visit the site and receive project information to ensure familiarity with the project
and the parties. The board meets regularly to discuss problems or disputes, hears presentations
from parties and suggests solutions.
Dispute Review Boards derive their authority from the underlying contract and may be
conferred with the power to produce advisory, interim binding or finally binding decisions. The
56 Owen Pell Ltd v Bindi (London) Ltd, Court of Appeal - Technology and Construction Court,
May 19, 2008, [2008] EWHC 1420 57 Stopping disputes before they start Commercial Lawyer Special Report, February 2001.
98
principal difference between a DRB and an Executive Tribunal will be the constitution of the
board/tribunal - the former will usually be independent of the parties, the latter will include
representative of each party.
The concept of DRB is usefully explained at the Dispute Resolution Board Foundation 58. There
are nine essential elements necessary for a DRB to be successful. If any of these elements are
missing, success is jeopardized. These elements are:
1. All three members of the DRB are neutral and subject to the approval of both parties.
2. All members sign a Three-Party Agreement obligating them to serve both parties
equally and fairly.
3. The fees and expenses of the DRB members are shared equally by the parties.
4. The DRB is organized when work begins, before there are any disputes.
5. The DRB keeps abreast of job developments by means of relevant documentation and
regular site visits.
6. Either party can refer a dispute to the DRB.
7. An informal but comprehensive hearing is convened promptly.
8. The written recommendations of the DRB are not binding on either party but are
admissible as evidence, to the extent permitted by law, in case of later arbitration or
litigation.
9. The members are absolved from any personal or professional liability arising from their
DRB activities.
Dispute Resolution Adviser (DRA)
The concept of DRA was developed by many commentators independently; a useful description
of the many and varied techniques can be found in Wall (1992). Colin Wall is a dispute
specialist in Hong Kong who has used the technique to run complicated and difficult
construction projects with many problems and complete with few major disputes. The system
of DRA run in Hong Kong will be described after the general themes common to the DRA
concept have been introduced.
THE CONCEPT
Colin Wall suggests that the idea of a Dispute Resolution Adviser (DRA) came from Clifford
Evans who in 1986 suggested the use of an independent intervener. This independent intervener
would be paid for equally by the employer and the contractor to settle disputes as they emerged;
rather than wait until the end of the contract. Any decision would be binding until the end of
the project and then either party could commence arbitration proceedings. Wall converted the
independent intervener into the DRA who does not make interim binding decisions but advises
on the means by which a settlement could be achieved. Power to settle rests with the parties.
The DRA’s first action is to deal with disagreements a site level, so that these can be addressed
before they develop into full blown disputes. This avoids the breakdown in working relationship
has which often takes place and then effects the rest of the protect, and it allows the issues to
be dealt with while they are fresh in the party's mind. Neither the parties or the DRA are limited
to legal decisions and commercial settlements could encompass wider solutions which are
mutually beneficial to all.
58 www.drb.org
99
The DRA system
The system developed by Wall in Hong Kong became the DRA system and was used on Hong
Kong Government Projects; notably the Queen Mary Hospital. The system is described as:
DRA system draws upon the independent intervener concept as modified by the dispute
adviser but provides a more flexible approach. It embodies the dispute prevention
techniques of the Dispute Review Board and Project Arbitration, it uses a partnering
techniques to re-orient the parties' thinking and encourages negotiation by using a
tiered dispute resolution process. It is based on giving parties maximum control by the
use of mediation techniques but also includes prompt short form arbitration which
encourages voluntary settlement and if necessary provides a final and binding
resolution to a dispute.
DRA system has distinct stages as shown in Figure 6. At the commencement of the project the
DRA undertakes partnering styled activities focused on building relationships with the parties
and that the same time encouraging teamwork. During the period of the project the DRA visit
the site on a regular basis in order to maintain a level of familiarity with the project and the
parties. At this stage the DRA also assists on the settlement of any disagreements, which may
have arisen between visits. During any formal disputes that occur the DRA attempts to facilitate
their settlement using a variety of techniques from mediation to expert determination in
particular areas. The DRA attempts to maintain a purely facilitative role in order to sustain the
impartial and neutral position, which has developed, therefore any evaluation is carried out by
another neutral third party and not the DRA.
100
Disagreement
↓
Partnering and informal resolution activities
↓
Formal dispute
↓
Good faith negotiations with the site personnel without the DRA
↓
Notice of dispute
↓
The DRA and site personnel attempt to resolve a dispute
↓
DRA's report
↓
Senior management meeting
101
↓
Short form of arbitration
↓
Arbitration award
FIGURE 6 AN OUTLINE OF THE DRA SYSTEM
If disputes proceed beyond settlement at site level, the DRA produces a report outlining the
nature of the dispute has and the parties' cases. This report may contain a non-binding
recommendation or an evaluation of the dispute. Parties are given opportunities to check the
accuracy of the report and comment providing an important chance for them to review their
position before the report is passed to senior management. Senior Management will then be
able to obtain a clear picture of the dispute and hopefully bring an unemotional perspective to
the problem. Again at this level the DRA may continue to facilitate the resolution of the dispute
by assisting the senior managers.
If the matter remains unresolved 14 days after the DRA report then a short form of arbitration
may be employed. This takes place within 28 days of the end of the senior management efforts,
and the arbitrator is selected by the parties, perhaps assisted by the DRA. The rules of the short
form arbitration include the following key elements:
• One issue or a limited number of issues, conducted in one day per issue
• Each party is given the opportunity to present
• Each party is given equal time to be present
• The arbitrator produces an award in a very short period which is final and binding
• Dispute concerning time or money are resolved using final offer arbitration where the
arbitrator must select one or the other picture
The Queen Mary Hospital project raised numerous problems yet there were no dispute which
proceeded to short form arbitration, producing a large savings in time and money.
Game Theory
History
Although there were discussions before John von Neumann in the early part of the 20th century
von Neumann is usually credited as the inventor of Game Theory via his work culminating in
a book in 1944: Theory of Games and Economic Behavior by von Neumann and Morgenstern59.
59 Von Neumann, J. and Morgenstern, O, (1944), Theory of Games and Economic Behavior,
Princeton UP.
102
This book showed amongst other things that social interaction and events can be described,
and explained, by models taken from games of strategy. Two types of game are normally
described: zero sum and non-zero sum.
In Zero sum games an individual does better at another's expense. A zero-sum game is a
mathematical representation of a situation in which a participant's gain or loss is exactly
balanced by the losses or gains of the other participant(s). If the total gains of the participants
are added up, then the total losses are subtracted, they will add up to zero. The often quoted
example is one from Principled Negotiation; cutting a pie is zero-sum game, because taking a
larger slice reduces the amount of pie available for others. Zero–sum games are most often
solved with the minimax theorem from von Neuman’s theory or with Nash equilibrium from
another famous game theorist John Nash.
In non zero sum games the situation changes and becomes where one gain (or loss) does not
necessarily result in another’s loss (or gain). Where the winnings and losses of all players do
not add up to zero and everyone can gain. This is the derivation of the truly awful phrase win
win situation. The Principled Negotiation talk is of expanding the pie so that everyone can get
more. A famous example of a non zero sum game is the Prisoner’s Dilemma
The early work characterised by von Neumann contains the method for finding mutually
consistent solutions for two-person zero-sum games. This early Game Theory concentrated on
cooperative games and the optimal strategies for groups of individuals with the presumption
that they can enforce agreements.
In the 1950’s, Game Theory was much used in strategy issues and its applications were focussed
on the cold war. About this time the first discussion of the prisoner's dilemma appeared, and an
experiment was undertaken on this game at the RAND corporation. The RAND corporation is
a non profit organisation best described by its mission:
The RAND Corporation is a non profit institution that helps improve policy and decision
making through research and analysis.
RAND focuses on the issues that matter most such as health, education, national
security, international affairs, law and business, the environment, and more. With a
research staff consisting of some of the world's preeminent minds, RAND has been
expanding the boundaries of human knowledge for more than 60 years.
As a nonpartisan organization, RAND attracts wide respect for operating independent of
political and commercial pressures. Of course much more can be found at the RAND website.
Around the same time, John Nash developed theories around non-competitive games as well as
von Neumann’s work on competitive games. The most famous was known as Nash
equilibrium, and Nash’s life was summarised in biography and a famous film A Beautiful
Mind60. This had much wider application to a wider variety of games than the work of von
Neumann.
Through the 1960s , Game Theory continued its development and the first of many Nobel
Prizes was awarded. Nobe prizes are a useful performance indicator to the importance of an
academic discipline and Game Theory has been a fertile ground for Nobel Laureates.
In the 1970s, Game Theory started to see widespread application in other disciplines notably at
first in biology. Now Game Theory is used extensively in many disciplines. So much in fact
it’s all things to all men It’s human behaviour; it’s mathematics; it’s economics; it’s philosophy;
it’s computer science; it’s logic; it’s all things to all men. This chapter considers Game Theory
in terms of the behaviour of firms under conflict and dispute.
There has been considerable recent interest in the use of Game Theory to explain firms’
behaviour; one measure is the Nobel Prizes awarded for work in the area. While there are many
60 Nasar, S., (1998), A Beautiful Mind, Simon and Schuster, New York.
103
examples of Game Theory applications, the most famous Game Theory example is The
Prisoner’s Dilemma
THE PRISONERS' DILEMMA
The game gets its name from the following hypothetical situation: imagine two criminals
arrested under the suspicion of having committed a crime together. However, the police do not
have sufficient proof in order to have them convicted. The two prisoners are isolated from each
other, and the police visit each of them and offer a deal: the one who offers evidence against
the other one will be freed. If none of them accepts the offer, they are in fact cooperating against
the police, and both of them will get only a small punishment because of lack of proof. They
both gain. However, if one of them betrays the other one, by confessing to the police, the
defector will gain more, since he is freed; the one who remained silent, on the other hand, will
receive the full punishment, since he did not help the police, and there is sufficient proof. If
both betray, both will be punished, but less severely than if they had refused to talk. The
dilemma resides in the fact that each prisoner has a choice between only two options, but cannot
make a good decision without knowing what the other one will do.
Ancient and modern views on strategy
A common definition of tactics and strategy points towards the military influence in their
development. Tactics win the battle: Strategy wins the war. Sun Tzu was an ancient military
figure in China from the 8th century BC . Sun Tzu was a general, a strategist and philosopher
and is widely believed to have authored the Art of War, perhaps the most famous military
treatise of all. Other developing fields with an interest in strategy e.g. Politics and Management
borrowed from military strategy and tactics. Niccolò Machiavelli wrote a famous political
treatise The Prince. It is intriguing how both books have remained so influential and
Machiavelli’ s name has passed into our language as a description of a cunning or duplicitous
person Machiavellian. The Art of War is quoted and used frequently; here is Sun Tzu on
strategy and tactics:
Strategy without tactics is the slowest route to victory. Tactics without strategy is the
noise before defeat.
Management thinking picked up these ideas from Sun Tzu and there exists a view that business
and commerce is like war therefore strategy in commerce is redolent with Sun Tzu’s thinking.
Game Theory argues against this as the last chapter indicated. While military strategy might
be considered win: lose. Game Theory offers a solution that allows both sides to win. win: win.
The Art of War
Of course the danger in any document more than two thousand years old and written in another
language is that nuances are lost over time and in translation. The headings given here for
chapters are from three separate translations61.
Chapter 1: Laying Plans/The Calculations/ Detail Assessment and Planning
61 Giles, L., The Art of War by Sun Tzu , El Paso Norte Press, 2007, Wing R. (2008)., The Art
of Strategy, Main Street Books, Washington, Chow-Hou Wee (2003). Sun Zu Art of War: An
Illustrated Translation with Asian Perspectives and Insights. Pearson Education Asia Pte Ltd.
104
This chapter explores the fundamental factors and elements that determine the outcomes of
military engagements. Sun Tzu stresses that war is a very grave matter for the state.
Chapter 2: Waging War/The Challenge/ Waging War
This chapter explains the economics of warfare, success requires winning decisive engagements
quickly. In a move centuries before others have become concerned with cost, Sun Tzu advises
that successful military campaigns are aware of the cost of competition and conflict.
Chapter 3: Attack by Stratagem/The Plan of Attack /Strategic Attack
In this chapter Sun Tzu defines the source of strength as unity not size.
Chapter 4: Tactical Dispositions/Positioning/ Disposition of the Army
Sun Tzu explains the importance of defending existing positions until capable of advancing
from those positions in safety.
Chapter 5:Energy/Directing/ Forces Military Manoeuvres
Sun Tzu advocates the use of creativity and timing.
Chapter 6: Weak Points and Strong/Illusion and Reality /Weaknesses and Strengths
Sun Tzu explains how opportunities arise caused by the relative weakness of the enemy in a
given area.
Chapter 7:Manoeuvring/Engaging The Force / Military Manoeuvres
Sun Tzu explains the dangers of direct conflict and how to win confrontations when they are
forced.
Chapter 8: Variation in Tactics/The Nine Variations/ Variations and Adaptability
Sun Tzu describes the need for flexibility in responses.
Chapter 9: The Army on the March/Moving The Force/Movement and Development of Troops
Sun Tzu describes how to respond to differing situations. This Chapter pays great attention to
evaluating the intentions of others.
Chapter 10: Terrain/Situational Positioning/ Terrain
Sun Tzu looks at general areas of resistance and the six types of ground positions that arise
from them. Here is one of Sun Tzu’s most famous sayings:
It is a military axiom not to advance uphill against the enemy.
Chapter 11: The Nine Situations/The Nine Situations /The Nine Battlegrounds d
Sun Tzu describes the nine common situations in a campaign, from scattering to deadly, and
the specific focus required to successfully navigate them.
Chapter 12: The Attack by Fire/Fiery Attack/Attacking with Fire
Sun Tzu explains the general use of weapons and the specific use of the environment as a
weapon.
Chapter 13: The Use of Spies/The Use of Intelligence/ Intelligence and Espionage
Sun Tzu focuses on the importance of developing good information sources and managing
information.
Sun Tzu is popular and has been rediscovered many times. Business books apply Sun Tzu’s
lessons to many things; e.g. office politics and corporate strategy62. It is reported that Japanese
companies make the book required reading for their key executives63.
62 See for example McNeilly, M., (1996) Sun Tzu and the Art of Business: Six Strategic
Principles for Managers, New York:Oxford University Press. 63 Kammerer, P., 2006, The Art of Negotiation, South China Morning Post (April 21, 2006).
105
Other than arguing against the employment of warlike [military] imagery in commerce and
business; Game Theory has many techniques, ideas and benefits. Just two are given here: Tacit
Bargaining and Information Escrow.
Tacit bargaining
Tacit bargaining64 was first formally described by Thomas Schelling, another Nobel Laureate,
to cover those examples in negotiation that ‘just’ happen. Situations were people have intuitive
information; where bargaining takes place in which communication is incomplete or
impossible. Schelling gives the following examples:
When asked to pick any number at random 4 in 10 people picked the number 1;
When asked to predict a coin toss the overwhelming majority call heads;
When asked to pick an amount of money almost all people chose a figure divisible by 10;
When people where told that they had to meet someone else – but had to guess the time – almost
all chose noon.
Conversely many people have an incorrect view on combined probabilities. The tale is told of
a bidder for the UK National Lottery. As a USP [Unique Selling Point] the bidder suggested
that their bid would make every player who guessed 6 numbers in the lottery a millionaire. It
was pointed out that each week 20,000 chose to play the numbers 1, 2, 3, 4, 5 and 6. And that
if that sequence came up the company would not be able to honour the prize. But 1, 2, 3, 4, 5
and 6. will never come up. It was then pointed out that this combination was just as likely as
any other; and that the financers could not back the proposal
People concede to convention without even knowing it, tacitly, and noticeably when faced with
unfamiliar customs. It is natural to want to abide by notions of fairness and precedence. Don’t
rock the boat. This is further examined in psychology as Groupthink which occurs within
groups of people. Group members try to minimize conflict and reach a consensus decision
without critical evaluation of alternative ideas or viewpoints.
The importance for negotiation is that old question: who should make the first offer? Counter
intuitively it is generally an advantage to make the first move in a negotiation, even though
most people are reticent to do this. Making the first move gives a party the opportunity to frame
the negotiation and establish precedence.
Further insight gained from research into tacit bargaining is that often an outsider can be more
effective; often sales teams will include starters and closers. The starter begins the sales pitch
and passes the customer to the closer. The customer sees the closer as an outsider and is more
agreeable to the closing.
Information Escrow
Information Escrow was proposed by game theorists at Harvard65 and has immediate
applicability in negotiation which has been picked up by mediators particularly those offering
Settlement Mediation techniques [see Chapter 6].
64 Schelling, T. (1980). The Strategy of Conflict , Harvard University Press. 65 Baird, Gertner and Picker (1998), Game Theory and Law, Harvard University Press.
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Escrow comes from an old French word [meaning scrap of paper] and is best known in
American legal speak. It generally refers to a trusted third part who holds something on trust.
The usual example is funds held in a separate account.
A formal definition might be: an arrangement where an independent trusted third-party receives
and disburses money and/or documents for two or more transacting parties, with the timing of
such disbursement by the third-party dependent on the performance by the parties of agreed-
upon contractual provisions.
In an Information Escrow, each side makes an offer to a neutral third party. As an example:
the parties to a dispute appoint a third party neutral to receive their offers. The claiming party
offers to accept £3M to settle the matter; privately and in confidence to the third party. The
other party privately to the third party offers to pay up to £5M to settle the matter. Since the
offers cross a deal may be done at £3M and settlement reached. If the offers do not cross then
neither party learns what the other’s offer was. In addition the neutral third party may utilise
facilitative techniques to attempt to bring the parties together in other ways. Some worry about
the ethical problems that face the third party neutral since she alone knows the offers and in this
example why settle at £3M why not £4.95M?
Conclusion
Game Theory might then be thought as being at the heart of Conflict Management and Dispute
Resolution for if the only option was win: lose then the only option would be dominance;
throughout this book the option of integration is pursued. This started in Chapter 2 where Mary
Parker Follett’s development to functional conflict started in the early part of the 20th Century
with ideas of integration in conflict where each side refocuses their efforts so that the problem
is solved and neither side loses. Chapter 5 describes how negotiation theory developed this
integrative approach into a principled approach in Getting to Yes where focus is on the parties’
interests and not their positions. Chapter 6 continues this; facilitative mediators developed
skills whereby their presence encouraged Integration. Chapter 9 describes how the Game
Theory application of Co-opetition suggests that Cooperation and Collaboration really are the
only hope. Game Theory has developed in many areas to foster new solutions: in economics;
in business; in law; in science and engineering. What then can it offer Conflict Management
and Dispute Resolution ? Everything … predicting the future is difficult [see Chapter 2] but
the success of Game Theory in other fields must mean new developments in Conflict
Management and Dispute Resolution. This is a developing area; put aside your cynicism, but
not your scepticism, and embrace the developments.
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8. Cooperation and Collaboration
Summary
Should a distinction be made between cooperation and collaboration? It is clear that the
‘fashion’ of the time is both. No distinction is made here; dictionary definitions are very similar
although usage often starts to indicate that collaboration introduces more sinister
implications. That is cooperation indicates healthy team work activities while collaboration
begins along the road of collusion and conspiracy that ends with monopoly. This chapter
considers how the trend towards cooperation [for example via partnering or alliancing] came
about; how it affects conflict and dispute; why competitive organisations would cooperate and
the ‘third’ way of combining cooperation and competition. This third way has been described
as Co-opetition where the best features of both competition and cooperation are combined.
This chapter introduces concepts of game theory which are taken further in the next chapter.
In a competitive environment when would cooperation break out? And why? It seems
counterintuitive; in dynamic capitalism competitors cooperate! It goes against all reasoning or
logic. Perhaps the nature of man as the only philanthropic and altruistic animal is more right
than we thought.
Examples are drawn from a very famous book The Evolution of Cooperation, here the argument
is that the evolution of cooperation requires that firms and organisations will cooperate if there
is a sufficiently large chance that they will meet again in order that they have a stake in their
future interaction. Given these circumstances cooperation evolves in three stages:
• cooperation will be initiated if firms have the opportunity for future interaction;
cooperation will NOT be initiated by scattered firms who have little chance of future
interaction;
• cooperation will thrive where many other strategies are being tried;
• cooperation once established will protect itself from competitive strategies.
This cooperation theory has many organisational and political applications not least for the
purposes of this book; the cooperation of commercial organisations thereby reducing conflict
and disputes.
Examples are given of cooperation in the most extraordinary circumstance: in the first world
war cases of live and let live where opposing troops simply did not shoot each other providing
the restraint was reciprocated. In Northern Ireland after years [centuries] of intractable conflict
cooperation broke out. A brief case of a major alliance in the airline sector is given.
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Introduction
There is a strong current fashion for Cooperation and Collaboration as a method to manage
conflict and avoid disputes. That trend comes from many things: economic theory; contract
[legal] theory and game theory.
Economic theory treats people as rational beings but clearly human beings do not always act
rationally. To cope with this irrationality economist developed theories of
Bounded rationality: the idea that in decision making, rationality of individuals is limited by:
the information they have; their minds; and the finite amount of time they have to make
decisions. ‘Traditional’ economic theory also dictates that markets are efficient and as a result
firms will always contract out the work rather than make. This is often described as the make
or buy decision. Transaction Cost Analysis changed this thinking and the plethora of cost
associated with ‘buying’ when factored in change the dynamics of make or buy.
Contract theory where law and economics come together studies how parties and stakeholders
construct contractual arrangements. This is generally subject to what is described as
asymmetric information. That is where one party has more or better information than the other.
This creates an imbalance of power in transactions which can sometimes cause the transactions
to go wrong. If you seek a theoretical background to this book there you have it; the parties to
a commercial contract often have information asymmetry which causes conflict. A logical
development from the make or but decision is towards firms combining to cooperate.
Cooperation and collaboration
Does a distinction need to be made? Again the problem that has dogged this book rears it head;
the problem of definition. The dictionary definitions of cooperation and collaboration are very
similar but there are usage hints which begin to indicate that collaboration introduces more
sinister implications. Cooperation indicates healthy team work activities while collaboration
begins along the road of collusion and conspiracy that ends with monopoly. No distinction is
made in this book, there is debate – read the debate for a summary try Yeung et al (2007)66.
The term collaboration is not used here.
Dynamic capitalism dictates competition and that firms will not cooperate; they have no
incentive, in fact the incentive is to be selfish. But cooperate they do; examples include:
partnering; alliancing; and relational contracting all forms of a generic collaborative working
or contracting
Partnering, alliancing and relational contracting
As with lots of developments in contracts and procurement it is difficult to find clear definitions
and therefore to distinguish between these three areas which are sometimes collected under the
heading of Relational Contracting. So with that in mind the following definitions are offered
which might both be seen as developing concepts of collaborative working.
66 Yeung et al (2007), The definition of alliancing in construction as a Wittgenstein family-resemblance concept
International Journal of Project Management 25. 219–231
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Partnering: Partnering is very simple it is just people working together - a voluntary system of
handling normal, everyday commercial problems in a mutually agreeable manner before they
turn into major issues that create disputes. Partnering is normally either: strategic (long term)
or project (short term). Many feel that strategic partnering is inappropriate for public sector or
government because of accountability issues.
Alliancing: a relationship entered into by two or more parties in which their interests are aligned
on a legally enforceable basis of shared gain/pain and 'no blame' to deliver outstanding project
performance.
Relationship Contracting: a process to establish and manage the relationships between parties
that aims to: remove barriers; encourage maximum contribution; and allow the parties to
achieve success.
So these definitions have at their heart concepts of collaboration. You can read many more
definitions and theory in the literature. Relationship contracting is based on achieving
successful project outcomes, including:
• Completion within budget
• Completion on time
• Strong people relationships between the parties resulting from mutual trust and
cooperation, open and honest communication
• Optimum project life cycle cost
• Achieving optimum standards during the project lifetime for:
o Safety
o Quality
o Industrial relations
o Environment
o Community relations
Relational contracting establishes a business relationship which is designed to deliver optimum
commercial benefits to all the parties; it is founded on the principle that that cooperation
delivers a mutual benefit to the parties and they are incentivised to deliver the project at the
optimum cost, on time and to the quality specified. To achieve this the relationship between
the client and the contractor cannot be taken for granted; even if they have worked together
before and have established a close business relationship it is still crucial that they build the
relationship for each specific project. In order to do this the relationship must be founded on
strong mutually held core values and guiding principles. These are summarised as:
Core Values Guiding Principles
Commitment Total commitment to achieving the project goals
which is actively promoted by senior management
of all parties
Trust To work together in a spirit of good faith,
openness cooperation and not to seek to apportion
blame
Respect The interests of the project take priority over the
interests of the parties
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Innovation To couple innovative or breakthrough thinking
with intelligent risk taking to achieve
exceptionally good project outcomes
Fairness To integrate staff from all parties on the basis of
fairness and the best qualified for the job
Enthusiasm To engender enthusiasm for professional duties
and the project’s social activities
The success of Relational Contracting depends on the willingness of both parties to commit to
the change at an individual and project level.
The Fundamentals of Relationship Contracting67
A list of the fundamentals of Relationship Contracting shows some familiar issues:
1. Alignment of Goals
2. Risk Allocation
3. Clearly Defined Project Scope
4. Form of Contract
5. Integrated Project Team
6. Gainshare/Painshare
7. Open Honest Communications/Behaviour/Change of Attitude
8. Public Sector Issues
9. Facilitators
10. Legal Advisers
11. Third Party Advisers
Conflict and Dispute in Relational Contracting
Relational contracts have not eradicated contract dispute this is clear from the contracts which
include the usual panoply of dispute resolution provisions see for example the Joint Contracts
Tribunal (JCT) - Constructing Excellence Contract one of the range of JCT contracts which
includes the standard dispute resolution provisions. Further evidence is available from the
literature where the usual papers, academic and practitioner, debate the range of dispute
resolution provisions, for example see Yates and Duran 68 .
The Problems and Benefits of Cooperation
The problems of cooperation might be seen as the absence or lack of benefits that go with
competition. These include:
67 Relationship Contracting: Optimising Project Outcomes, The Australian Constructors
Association
http://www.constructors.com.au/publications/rc_general/Relationship%20Contracting%20Opt
imising%20Project%20Outcomes.pdf 68 Yates and Duran (2007) Utilizing Dispute Review Boards in Relational Contracting: A Case Study, J. Profl.
Issues in Engrg. Educ. and Pract. 132, 334.
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1. Lower prices for consumers
2. Discipline on supplier firms in the market [which assists them to keep or drive their
costs down]
3. Improvements in technology – with positive effects on production methods and costs
4. Consumer choice
5. Supplier invention and innovation
6. Improvements to the quality of service for consumers
7. Increased [and better] information for consumers allowing people to make more
informed choices
On the other hand the benefits of cooperation include:
1. Greater efficiency
2. Economies in tendering
3. Increased [and better] information for suppliers allowing them to make more informed
tender choices
4. Economies of and in scale
5. Access to cooperators expertise
A Third Way: Coopetition
Has it got to be competition OR cooperation? The holy grail is to attain the benefits of both
without losing too much; without gaining too many of the problems. A newly coined phrase
not yet in general usage but in the process of entering common use, a neologism, to describe
this is coopetition69. Coopetition occurs when companies work together. They may share
common parts of their business where they do not believe they have competitive advantage and
where they can share common costs. Many examples of companies employing coopetition are
given for instance: Intel; Nintendo; AMEX. The case study most often cited is the arrangement
between Peugeot Citroën and Toyota to share components for a new city car - simultaneously
sold as the Peugeot 107, the Toyota Aygo, and the Citroën C170.
There are further examples e.g. public sector procurement groups such as those developed in
Northern Ireland recently. In addition the development of public sector mergers and cooperation
whereby for example groups of housing associations or charities work together under formal
agreements to develop ways of combining their resources or buying power while retaining their
independence in terms of the services that they provide Those bigger group structures are
notoriously difficult to develop because of the perceived competition between organisation and
because no small independent public sector organisation wants to lose their ‘ethos’ in a much
larger group
69 Nalebuff and Brandenburger (2002), Co-opetition, Profile Books, London. 70 http://en.wikipedia.org/wiki/Coopetition
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When will cooperation break out
This section draws heavily on a famous book and you are implored to read it. The Evolution of
Cooperation 71. The question is repeated directly from that book:
Under what conditions will cooperation emerge … this question has intrigued people
for a long time. And for good reason. We all know that people are not angels, and that
they tend to look after themselves and their own first. Yet we all know that cooperation
does occur and our civilization is based upon it. But in situations where each individual
has an incentive vto be selfish, how can cooperation ever develop?
The answers to these questions have formed our philosophy, our politics and our systems of
government. Great attention is given to the absence or presence of a central controlling
authority and arguments about the correct and proper scope of government have centered on if
cooperation could be expected without an authority to police the situation. The Evolution of
Cooperation found that cooperation, based on reciprocity, can emerge if firms have a chance to
meet again. So that they have a stake in their future interaction. However cooperation will NOT
be initiated by scattered firms who have little chance of future interaction. Once initiated
cooperation will thrive where many other strategies are being tried; and once running
cooperation established will protect itself from competitive strategies.
So cooperation will break out if there are sufficient firms in the market place so that firms have
a chance of affecting any future interaction, once its up and running cooperation will thrive
where many other strategies are being tried; and once running cooperation established will
protect itself from competitive strategies
71 Axelrod, R. (1990), The Evolution of Cooperation, Penguin Books, London.
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Examples of extraordinary cooperation
1. First world war cases of live and let live
During the first world war there are famous examples of the troops holding ceasefires at
Christmas culminating in games of football between the opposing troops in ‘no-mans’ land.
What is less widely known is the extraordinary cooperation over long periods of where
opposing troops simply did not shoot each other providing the restraint was reciprocated.72
Cooperation broke out because the opposing troops were so close they could see each other and
in a way knew each other; restraint was initiated and reciprocated. Axelrod paints it as an
example of the iterated Prisoner’s Dilemma [see the next chapter].
Considerable etiquette developed, Axelrod describes how complex rules were laid down and
elaborate apologies delivered. The following lists some of the quotations, full details can be
found in Axelrod.
Live and let live
There are examples of extraordinary cooperation. During the first World War the Western
Front [a five-hundred-mile line in France and Belgium] was the scene of bloody battles for a
few yards of territory; many lives would be lost for a few yards of advance and then these gains
would be surrendered. However between these advances and retreats, and sometimes even
during them; at many places along the Western Front the enemy soldiers often exercised
considerable restraint; going as far as simply not shooting at each other. This became known
as: Live and let live.
A British staff officer on a tour of the trenches remarked that he was:
astonished to observe German soldiers walking about within rifle range behind their
own line. Our men appeared to take no notice. I privately made up my mind to do away
with that sort of thing when we took over; such things should not be allowed. These
people evidently did not know there was a war on. Both sides apparently believed in the
policy of "live and let live." (Dugdale (1932)73).
This is no isolated example. The live-and-let-live system was widespread in trench warfare and
it flourished. The officers tried to stop it but it persisted. How can cooperation emerge despite
great antagonism between the players? Perhaps the conscripts were not persuaded by the view
of the officers and used tactics within their power to cooperate. The average infantryman
confirmed the view that mindless slaughter was not in their interests and should be avoided by
cooperation.
The real reason for the quietness of some sections of the line was that neither side had
any intention of advancing in that particular district.... If the British shelled the
Germans, the Germans replied, and the damage was equal: if the Germans bombed an
72Ashworth, A. (1980), Trench Warfare 1914-1918/: The Live and Let Live System, Holmes
and Meier, New York. 73 Dugdale, G. , (1932), Langemarck and Cumbrai, Wilding and Son, Shrewsbury.
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advanced piece of trench and killed five Englishmen, an answering fusillade killed five
Germans. (Belton Cobb (1916)74).
How did this cooperation get started; how did it establish and propagate itself? Early in the war
it seems there were times in the day when cooperation to avoid fighting would benefit all sides.
Mealtimes were an obvious example.
The quartermaster used to bring the rations up... each night after dark; they were laid
out and parties used to come from the front line to fetch them. I suppose the enemy were
occupied in the same way; so things were quiet at that hour for a couple of nights, and
the ration parties became careless because of it, and laughed and talked on their way
back to their companies. (King P (1938)75).
These mealtime cooperations flourished and led to the famous Christmas fraternizations of
1916. The following months brought direct truces which were arranged by simple shouts or by
signals.
In one section the hour of 8 to 9 A.M. was regarded as consecrated to "private business,"
and certain places indicated by a flag were regarded as out of bounds by the snipers on
both sides. (Morgan (1916)76).
It would be child's play to shell the road behind the enemy's trenches, crowded as it
must be with ration wagons and water carts, into a bloodstained wilderness... but on
the whole there is silence. After all, if you prevent your enemy from drawing his rations,
his remedy is simple: he will prevent you from drawing yours. (Hay (1916)77).
2. Northern Ireland
The history of Northern Ireland has occupied much better texts than this; and any attempt at
summarising would be bound for failure and to cause offence. Suffice to say that after years
[centuries] of intractable conflict in Northern Ireland cooperation broke out. The Northern
Ireland example is held up as how optimism must prevail; if they can form an agreement there
and cooperate then agreement and cooperation is possible anywhere. It is cooperation and
agreement of optimism.
Alliancing Case Study: Star Alliance a Global Airline Alliance
The Star Alliance network was established in 1997 as the first truly global airline alliance to
offer worldwide reach, recognition and seamless service to the international traveller. Its
acceptance by the market has been recognised by numerous awards, including the Air Transport
World Market Leadership Award, Best Airline Alliance by both Business Traveller Magazine
and Skytrax. The member airlines are: Adria Airways, Aegean Airlines, Air Canada, Air China,
Air New Zealand, ANA, Asiana Airlines, Austrian, Blue1, bmi, Brussels Airlines, Continental
Airlines, Croatia Airlines, EGYPTAIR, LOT Polish Airlines, Lufthansa, Scandinavian Airlines,
74 Belton Cobb, G., (1916), Stand to Arms, Darton and Co, London. 75 King., P., (1938) The War the Infantry Knew, PS King , London. 76 Morgan, J., (1916), Leaves from a Field Notebook, MacMillan, London. 77 Hay, I., (1916), The First Hundred Thousand, Blackwood, London.
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Singapore Airlines, South African Airways, Spanair, SWISS, TAM Airlines, TAP Portugal,
Turkish Airlines, THAI, United and US Airways. Air India, Avianca-TACA, Copa Airlines and
Ethiopian Airlines have been announced as future members. Overall, the Star Alliance network
offers 21,000 daily flights to 1,160 airports in 181 countries.
Star Alliance has 70 staff, managing the co-ordination of the alliance of 27 airlines with a
combined turnover of $157 billion. A fundamental tenet of the Alliance is Innovation in their
service provision which began with the development of a Technology Innovation Advisory
Council in 2008, this featured world-leading technology vendors and academic input from
Massachusetts Institute of Technology. The technology-led approach brought success and
consequently in 2010, the Advisory Council evolved into a corporate innovation group, with a
more ‘bottom up’ approach of encouraging and promoting staff involvement in innovation,
creating ‘real solutions to actual problems’. One of the first activities this group undertook was
to form an ‘innovation community’ of volunteers from the member airlines around a web-based
system, currently with 1100 members of varying levels of participation. Primarily this has
supported idea generation and concept development, although already some ideas from this
community have moved into product development phase.
Game Theory
Summary
The previous chapter used a technique developed from Game Theory: Co-opetition. This
chapter describes more of the history of Game Theory. And discusses the ancient and modern
views on strategy. Recent thinking links Game Theory with strategic thinking. Game Theory is
the art of anticipating an opponent’s next move, and understanding that a competitor is
attempting the same thing.
One of the most quoted texts on strategy is an ancient Chinese military treatise that is attributed
to Sun Tzu78. Sun Tzu is often quoted in business and management and reflects the thinking
that says commerce is similar to war. A quotation from Gore Vidal is often given:
It is not enough to succeed. Others must fail.
This presented in Game Theory terms as Win: Lose.
Current thinking links Game Theory and strategy79. The Game Theory applications to strategy
[particularly co-opetition] reflect the current thinking that commerce is similar to life: we have
to get along; there is no alternative. The quotation to illuminate this is from a financier Bernard
Baruch:
You don’t have to blow out the other fellows light to let your own shine.
This presented in Game Theory terms as Win: Win.
Game Theory might then be thought as being at the heart of Conflict Management and Dispute
Resolution for if the only option was win: lose then the only option would be dominance;
throughout this book the option of integration is pursued. Mary Parker Follett started this in
78 The Art of War is an ancient Chinese military treatise that is attributed to Sun Tzu 79 Dixit, A., and Nalebuff, B., (2008), The Art of Strategy, Norton, New York.
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the early part of the 20th Century with ideas of integration in conflict where each side refocuses
their efforts so that the problem is solved and neither side loses. Negotiation theory developed
this integrative approach into a principled approach where focus is on the parties’ interests and
not their positions. Facilitative mediators developed skills whereby their presence encouraged
this.
Game Theory has developed in many areas to foster new solutions: in economics; in business;
in law; in science and engineering. What then can it offer Conflict Management and Dispute
Resolution ? Everything, predicting the future is difficult [see Chapter 2] but the success of
Game Theory in other fields must mean new developments in Conflict Management and
Dispute Resolution . Examples are given here of Game Theory in negotiation [tacit bargaining]
and Game Theory in law [information escrow].
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Chapter 9: Dispute Avoidance
Techniques
There are many techniques; perhaps they are merely codification of what everyone knows:
action is required to avoid conflict from escalating into dispute. Some of the techniques are
used consciously and some are subliminal. Which should be chosen here? Of course it’s
arbitrary; perhaps the best statement is: It might be argued that this chapter is far and away the
most important chapter in the book; and that Conflict Management and Dispute Avoidance are
more important than Dispute Resolution. Examples examined here include: risk management
to ensure that risks are identified; analysed and managed; procurement strategies to ensure that
risks are appropriately allocated and contractual arrangements to allow sensible administration.
Specific examples include: Clearer Project Definition; Equitable Risk Allocation; Improved
Procurement and Tendering Procedures; Partnering and Relationship Contracting.
Back to the argument that this chapter is far and away the most important chapter in the book;
and that Conflict Management and Dispute Avoidance are more important than Dispute
Resolution. However it is clear just by looking at the range of books on dispute resolution that
the general interest is in dispute resolution; how can this be explained? Perhaps by the fact that
Conflict Management and Dispute Avoidance are obvious things; they don’t need to be stated.
Conflict Management and Dispute Avoidance is Project Management is Human Nature is what
is done all the time. If that’s the case examples around us and the disputes we see indicate it
could be done better. Universities should run courses in Conflict Management and Dispute
Avoidance; authors should write books on Conflict Management and Dispute Avoidance and
practitioners should develop more techniques of Conflict Management and Dispute Avoidance.
That the courses, books and techniques are few is an intriguing question
Specific examples
The examples considered are: Clearer Project Definition; Equitable Risk Allocation; Improved
Procurement and Tendering Procedures; Partnering and Relationship Contracting.
For each example a definition is provided; the key indicator is stated; the costs associated are
outlined and some indication of the international status is given.
Clearer Project Definition
Definition: Defining a project is a process of selection and reduction of the ideas and
perspectives of those involved into a set of clearly defined objectives, key success criteria and
evaluated risks. Key Indicator: Clear and accurate definition of a project is one of the most
important actions available to ensure project success .Cost: There are costs associated with
clearer project definition but the benefits and savings far outweigh these costs. International
Status: Clearer project definition is a widely used technique in the UK, the USA, Australia,
Canada and other common law and civil jurisdictions. The UK Construction Best Practice
Programme makes Clearer Project Definition and Better Briefing one of its action areas and
special interest group
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In all commercial projects the client must brief the contractor about what is expected. Often
there will be a formal or written brief or series of briefs that may form part of a tender document.
Briefing is the process through which the client and the contractor explore, develop and
communicate the client's requirements.
Briefing should include:
• establishing objectives and/or business case;
• examining other means of achieving them before deciding to build or produce;
• spending time at the beginning to define what is wanted, when and for how long,
changes later are expensive;
• establish any budget and/or time limitations;
• prioritise time, cost and quality;
• take care to choose the people to represent, advise and work for the project. They should
be qualified, experienced and able to work well with each other;
• identify the risks involved, quantify them and confirm budget identify the cost of the
project over the period of intended use (whole or life cycle costing);
• identify the options;
• monitor progress and performance and be ready to deal with the unexpected.
Briefing takes place throughout the commercial process from project inception to completion.
It is important that the client is actively involved at all stages to ensure that the project meets
requirements. Critical decisions are often taken during the early stages of the project and full
client participation in these is essential. Adequate time and resources must be applied in a
productive way for briefing to be effective. Much depends on interpersonal and managerial
skills and these must be developed to meet the demands of a particular project and set of
participants. Factors such as client experience, complexity of organisation, organisational
culture, rate of organisational change, project complexity and degree of project development
all need to be taken into consideration. Several areas in which there is scope for improvement
in briefing practice have been identified. These include optimising client’s often extensive in-
house commercial expertise and control over its projects, managing the project dynamics,
appropriate user involvement, appropriate team building and appropriate visualisation
techniques. Where a client has no expertise then appropriate expertise must be procured from
outside.
Briefing may be more successful if it is approached with:
• carefully thought out requirements;
• the essential information provided at each stage of the project;
• a flexible approach balancing the requirement for quality with the concern to control
costs and meet deadlines;
• trusting relationships
Clear and accurate definition of a project is one of the most important actions that can be taken
to ensure a project's success. The clearer the objective the more likely that it can be achieved.
Defining a project is a process of selection and reduction of the ideas and perspectives of those
involved into a set of clearly defined objectives, key success criteria and evaluated risks.
This definition process should culminate in the production of a Project Definition document,
sometimes called a Project Charter. The Project Definition document should be approved and
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issued by a manager with the authority to apply organisational resources to the project activities.
Therefore, the seniority of the manager or the management team will be commensurate with
the size, cost and business value of the project. As a minimum, the Project Definition should
include a statement of the purpose that the project seeks to address and the description of the
product, service or deliverable objectives that will be its output.
One way to define a project is for the project leader to ask a standard set of questions of the
project team, colleagues with particular expertise and senior managers. The questions might
fall into:
The Purpose (or Mission)
Examples: Reason for doing the project; What is the project about in broad terms?
Who wants it done and why?; What is its title?
Deliverables
The fundamental objective of a project is to deliver something new.; what is being delivered?
Better briefing has been a recurring theme for the construction industry. Examples of better
briefing in can be found in Architectural literature and at Constructing Excellence the single
organisation charged with driving the change agenda in construction in the UK.
Equitable Risk Allocation
Definition: Equitable Risk Allocation is a process where the risk is allocated to the party best
able to control and manage that risk. Key Indicator: Equitable Risk Allocation has been
identified as one of the strategies that would reduce the incidences of claims and disputes. Cost:
The costs of implementing Equitable Risk Allocation (e.g. the risk identification and allocation
process) are recognised but the benefits and savings far outweigh these costs. International
Status: Equitable Risk Allocation is a widely used technique in many countries. It is favoured
in the UK, the USA, Australia, Canada and other common law and civil jurisdictions. There are
few countries untouched by Equitable Risk Allocation; although in many countries and in many
sectors there remains much ignorance of the benefits to be obtained from this practice
Once again construction is an innovative trail blazer in this area of Conflict Management and
Dispute Avoidance. Construction project management involves the planning, organising,
directing, and controlling of company resources for the completion of a project development.
Project success is usually measured by the achievement of the time, cost, quality and
maximising resource utilisation. The achievement of these objectives can also be measured by
the incidences of claims and disputes and their resolution. Dispute prevention is then one of the
major tasks in construction project management. Equitable risk allocation has been identified
as one of the strategies that would reduce the incidences of claims and disputes.
Every risk has an associated price visible or hidden. Visible costs appear in project bids as
contingency or insurance costs and can be compared. Onerous contract conditions promote
hidden costs. Hidden costs (in terms of time and money) include:
• the cost of restricted bid competition;
• the cost of increased claims/disputes;
• the cost of replacing a lesser quality contractor who is more likely to unknowingly
accept a grossly inequitable risk allocation;
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• the cost of operating an adversarial owner-contractor relationship in terms of final
product quality, cooperative implementing of change order processing, reputation, and
• ultimate project outcome.
The client has an essential role in improving working relationships, contract execution and
overall project performance, by the decisions made regarding risk allocation. The general
conclusion is that the use of onerous contract provisions that cause the contractor to assume
inequitable, unbearable and uncontrollable risks will directly and negatively impact the owner
contractor working relationship.
Beyond equitable allocation of risk there are additional steps a client can take to improve
working relationships. The development of project problem-solving teams with client and
contractor’s personnel to anticipate potential project problems and provide workable solutions
in advance. Another suggestion is to give increased authority to the client’s on-site project
manager so decisions can be made at levels closer to the work.
Risk and uncertainty are inherent in projects; the potential for damage can be limited through
proactive and systematic risk management. The generally accepted international procedure is
that it is necessary to allocate risks in an equitable manner between the parties to the contract
to ensure successful project delivery. The problem, or course, is what constitutes equitable risk
allocation? the following are common considerations:
• Which party can best control the events that may lead to the risk occurring?
• Which party can best manage the risk if it occurs?
• Is it preferable for the employer to retain an involvement in the management of the risk.
• Which party should carry the risk if it cannot be controlled?
• Whether the premium charged by the party accepting a risk is likely to be reasonable
and acceptable.
• Whether the party accepting a risk is likely to be able to sustain the consequences if the
risk occurs.
• Whether, if the risk is transferred, it leads to the possibility of risks of different nature
being transferred back.
If these considerations are applied, it should be possible to achieve clear and realistic terms that
are acceptable to the employer and on which contractors are prepared to tender at prices which
do not contain contingencies for unclear terms or for significant risks which are not possible to
estimate with some certainty or which are unlikely to
materialize. An acceptable "formula" for risk allocation, might run as follows:
A party should bear a risk where:
• It is in her control, i.e., if it comes about it will be due to wilful misconduct or lack of
reasonable efficiency or care; or
• She can transfer the risk by insurance and allow for the premium in settling her charges
to the other party... and it is most economically beneficial and practicable for the risk to
be dealt with in that way; or
• The preponderant economic benefit of running the risk accrues to her; or
• To place the risk on her is in the interests of efficiency (which includes planning,
incentive, innovation) and the long term health of the industry on which that depends;
or
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• If the risk occurs, the loss falls on her in the first instance.
The job of trying to balance the principles in practice is the hard one; but with a set of declared
principles rather than undeclared, there is a standard to refer to.
Improved Procurement and Tendering Procedures
Definition: This is a statement of intent rather than something capable of definition.
Improvements to procurement and tendering will allow all the parties to manage conflict and
avoid dispute whilst increasing profits or increasing returns to society. Key Indicator: The key
indicator is Improved Procurement and Tendering Procedures does not necessarily mean that
lowest initial tender price equates with best value. Cost: There are many direct costs of
Improved Procurement and Tendering Procedures (e.g. the administration of the procedures)
but the benefits and savings far outweigh these costs. International Status: Improved
Procurement and Tendering Procedures are the aim and objectives of many countries. There
are schemes in the UK, the USA, Australia Canada and other Common Law and Civil
Jurisdictions.
Throughout the world, industries demonstrate similar structures; e.g. in developed economies
construction accounts for 10-15% of GDP and in developing economies often 30+%. In either
case the industries are often fragmented i.e. design and production are separated and many small
firms or organisation exist to service a few large enterprises. The proportion of public sector
expenditure varies by country but remains high; even in economies, which have sought to
reduce public expenditure. As a measure of sub-contracting the countries within the European
Union are dominated by small and medium enterprises such that the entire construction
industries of each nation are composed of small firms (less than 10 employees) and the majority
of the work is carried out by sub-contracting. The situation is the same in many other countries.
In many countries it is not uncommon for large contractors to employ no site staff at all and to
subcontract entire operations.
Public sector procurement in many nations remains dominated by competitive tender where
lowest bid wins. There are many developments to avoid such systems because of their
inefficiencies but the requirements of public accountability and probity make change slow. In
addition the structural problems of industries dominated by small companies produce
conservatism.
Finance: Many nations have attempted to reduce public expenditure and therefore reduce
taxation. In order to maintain public services these countries have a need for private finance
into public schemes. A variety of procurement systems have developed to assist this: design,
build, fund and operate (DBFO); build operate own (BOO); build operate own and transfer
(BOOT); Public Finance Initiatives (PFI), Public Private Partnerships (PPP). The structural
problems with industries described above hinder the efficient use of such schemes and steps
have to be taken to remove the structural inefficiencies. In the UK construction industry for
example these steps are coordinated by Construction Excellence programme and include
Supply Chain Solutions. Many of these developments are mirrored elsewhere.
The move away from lowest price tendering is seen by many as a major development and in
many countries there have been developments which allow the assessment of
tenders on criteria other than just on price.
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Partnering and Relationship Contracting
Definition: Partnering is very simple in concept. It is just people working together - a voluntary
system of handling normal, everyday problems in a mutually agreeable manner before they turn
into major issues that create disputes. Partnering can be either strategic (long term) or project
(short term). Some consider that strategic partnering is inappropriate for public sector or
government contracts because of accountability issues, the need to share work among
Government service providers and secure low pricing through competitive tendering. Key
Indicator: Partnering is clear conflict management and dispute avoidance. The Partners share
a common goal to achieve project success. Effective partnering requires the use of skilled
facilitators to break down existing barriers and pre-conceptions. Cost: There are additional
costs associated with partnering (e.g. a facilitator is often used) but the benefits and savings
where partnering is successful far outweigh these costs. International Status: Partnering is a
widely used technique in many countries. It is favoured in many states of the USA, Canada,
and Australia and in the UK. There are few countries untouched by partnering; although in
many countries and in many sectors there is limited knowledge or experience of how partnering
works.
It is usual to make a split between strategic partnering (or long term partnering) and project
partnering (or short-term partnering). Strategic Partnering can raise many problems for public
sector works. Partnering can be defined as an informal process bringing together all the parties
in a collaborative effort. They meet on a regular basis to review progress and deal with any
problems and potential disputes from the moment they become apparent. The focus is on
conflict management and dispute avoidance. The building of the partnering team may be
facilitated by an outside facilitator. The US Army Corps endorsed partnering in 1990, saying
"Clearly, the best dispute resolution is dispute prevention ... By taking the time at the start of
the project to identify common goals, common interests, lines of communication, and a
commitment to cooperative problem solving, we encourage the will to resolve disputes and
achieve project goals." Army Corps of Engineers, Policy Memorandum 11, 7 August 1990.
It is important to note that partnering is a voluntary system. Some ask why partnering cannot
be made a requirement; but this is against the entire spirit of partnering - if it is not a voluntary
agreement by all parties, it is just another contract provision. This does not downplay the
importance of the Contract through Partnering, rather it attempts to ensure that all players with
valuable experience to share are allowed to participate cooperatively in the process.
Partnering attempts to establish a working relationship among all team members based on
cooperation and teamwork and achievement of mutual goals and objectives. Partnering is a
concept that every contract has an implied covenant of good faith and fair dealing, and through
the exercise of that agreement, the stakeholders strive to create a synergy of purpose to solve
problems for the good of the project.
The Project Partnering process creates a new team-building environment, which fosters better
communication and problem solving, and a mutual trust between the participants. These key
elements create a climate in which issues can be raised, openly discussed, and jointly settled,
without getting into an adversarial relationship. Through this process of teamwork and problem
solving on a project, key goals are set. The partners want the quality of the work to be right the
first time, the project to be completed on time, the final cost to be within budget, and
disputes/litigation to be minimized.
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The real impetus for partnering is the fact that the people involved in implementation have
discovered that it works. A review of cases in which partnering has been used shows dramatic
time and cost savings.
Definition: Relationship Contracting is a process to establish and manage the relationships
between parties that aims to: remove barriers, encourage maximum contribution and allow the
parties to achieve success. Key Indicator: Relationship Contracting is based on achieving
successful project outcomes. There are some core values or guiding principles: Commitment;
Trust; Respect; Innovation; Fairness and Enthusiasm. Cost: There are additional costs
associated with Relationship Contracting (e.g. the facilitator), but the benefits and savings far
outweigh these costs. International Status: Relationship Contracting is a widely used technique
in some countries, notably in Australia. Serious concerns remain about the use of Relationship
Contracting in Public Sector projects on grounds of public accountability.
Relationship contracting is based on achieving successful project outcomes, including:
• Completion within cost;
• Completion on time;
• Strong people relationships between the parties resulting from mutual trust and
cooperation, open and honest communication;
• Optimum project life cycle cost;
• Achieving optimum standards during construction and project lifetime for:
o Safety
o Quality
o Industrial relations
o Environment
o Community relations
Relationship contracting establishes a working relationship, which is designed to deliver
optimum commercial benefits to all the parties. It is founded on the principle that there is a
mutual benefit to the client and the contractor to deliver the project at the lowest cost. To
achieve this, the relationship between the client and the contractor cannot be taken for granted.
Even if they have worked together before and have established a close working relationship it
is still crucial that they build the relationship for each specific project. In order to do this the
relationship must be founded on strong mutually held core values and guiding principles. These
are summarised as Core Values & Guiding Principles.
Commitment: Total commitment to achieving the project goals which is actively
promoted by senior management of all parties.
Trust: To work together in a spirit of good faith, openness cooperation and not to
seek to apportion blame.
Respect: The interests of the project take priority over the interests of the parties.
Innovation: To couple innovative or breakthrough thinking with intelligent risk taking
to achieve exceptionally good project outcomes.
Fairness: To integrate staff from all parties on the basis of fairness and the best
qualified for the job.
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Enthusiasm: To engender enthusiasm for professional duties and the project’s
social activities.
Dispute Avoidance; Avoiding Disputes; Conflict Management - The Terminal 5 Case
Study80
Heathrow Airport is the largest airport in the world. It’s a major part of the UK economy,
155,000 people work there or otherwise earn their living from it and 68 million passenger pass
through it each year. A new terminal was required Two decades of planning, design and
construction resulted in the opening of Terminal 5 project on time, on budget and safely. What
was behind it? At the time the construction industry had a pitiful reputation for success on
major projects.
On the one hand: ground–breaking management thinking and lessons learnt from leaders, the
client and integrated supply chain teams, this involved over 50,000 people from 20,000
companies. On the other hand nothing more than straight forward dispute avoidance. A
different commercial contract and approach by the client, BAA, enabled the construction phase
to go to plan, and to be opened in 2009, a year early, saving a billion pounds.
Many adjectives were used to describe BAA’s Terminal 5 (T5) programme at Heathrow airport:
‘a mega project’, ‘enormous’, ‘epic’, ‘historic’, ‘huge’, and ‘massive’. At the time of its
construction it was Europe’s largest and most complex construction project costing £4.3 bn.
Many clients when faced with a project as complex and challenging as T5 would have adopted
the well-established delivery approach common in the construction industry. However, driven
by a desire to reduce the costs of providing its airport facilities, BAA concluded that it could
improve T5’s delivery by adopting emergent project, risk and contract management
methodologies.
BAA chose to manage the project itself; and accept risk rather than contract out to a company
to manage for them, the common established approach.
To execute this retaining and managing risk, plus adopting a cost reimbursable form of contract,
BAA required a large, highly proficient internal project management team to manage the project
[some have described this as acting as an intelligent client]. Members of the project
management [more than 150!] team took an active role in the management of each integrated
(delivery) team. This concept had its roots in earlier BAA procurement, in the 1990s when
BAA developed partnering agreements; using framework agreements, which incorporated
integrated, team working. BAA entered into many construction and consultancy agreements
by the mid 90s. The model agreement had resulted in enhanced project predictability and
repeatability.
In the 1990s, BAA carried out research on large infrastructure projects in UK construction.
They looked at the outturn performance for things such as: Channel Tunnel; Jubilee Line
extension; British Library; Scottish Parliament and West Coast Main Line. In addition, between
2000 and 2002, BAA analysed every UK construction project (exceeding £1bn in value)
constructed during the preceding 10 years, plus every international airport projects completed
80 Further reading: Doherty, S. (2008), Heathrow’s Terminal 5: History in the making, Wiley
125
in the previous 15 years. As part of this study BAA investigated project processes and
organisation, and the influence of individual behaviour on project performance. The research
established that:
1. not one UK construction project (within the set parameters) had been delivered on
time, on budget, safely or met its specified quality standards. Based on their analysis
BAA predicted: “Terminal 5, a five-year build programme would probably be
about two years late, a cost target of £4.3 billion would probably be at least £1-
£1.5billion over budget, the quality would be variable and, statistically, 12 people
would die on site. None of those consequences were acceptable to BAA...”
(Matthew Riley, Supply Chain Director – BAA,81).
2. none of the international airport projects studied had functioned as designed when
initially opened.
3. all the projects studied had experienced significant contractual and financial
difficulties, and on each one the client had incurred immense reputational damage.
The study concluded that failure on projects the size of T5 was due to two main reasons:
1. Cultural confusion: organisational and management issues arising from ill defined
project parameters and the failure of purchasers to appreciate the needs of supply
chains.
2. The reluctance to acknowledge risk: rather than identifying and apportioning risk
appropriately at an early stage, traditional contracts generally sought to transfer risk
to the supply chain, which often resulted in lengthy legal disputes when supplier
performance did not meet the client’s aspirations:
“40 per cent of the cost of claims are the legal expenses.” (Matthew Riley,
Commercial Director T5 – BAA,82)
Alternatively, project success, came from:
project culture;
effective leadership;
supplier ‘behaviour’,
BAA thought that supplier behaviour both positive and negative, was
predominantly influenced by conditions of contract and anticipated profit margins. And BAA
concluded that a step-change in construction procurement best
practice was essential if T5 was to be successfully delivered. The strategy for the step change
was base on 4 key principles:
The client always bears and pays for the risk: irrespective of the contractual
arrangement adopted it is impossible to transfer risk:
“We realised that, to expose waste and manage the performance more
81 Brass, R (2008) Flying in formation, Supply Management, 13 March
http://www.supplymanagement.com/EDIT/CURRENT_ISSUE_pages/CI_features_it
em.asp?id=17588 82 Fullalove, S (2004) NEC helps BAA deliver Heathrow T5, NEC Users’ group Newsletter,
Issue 30, August 2004
http://www.neccontract.com/newsletter/article.asp?NEWS_ID=512
126
efficiently, we would have to actively hold all the risk. We realised you
cannot transfer corporate risks around that are so intrinsic to the success of
your company; risks that relate to the City or to airlines or regulators or to
your corporate citizenship. Those risks can't be transferred down a contract.
You're kidding yourself if you think they can, because, in each of those
examples we looked at, there were very few suppliers that went out of
business as a consequence of those project failures. The risk ultimately
comes back to the client organisation.” (Matthew Riley, Supply Chain
Director – BAA.
BAA retained full liability for all project risks:
“... we had to have a strategy that was, at its highest level, BAA holding all the risk all
the time, and in return we expected our suppliers to come
together as partners and work in an integrated team or teams. They came together to
deliver projects or products, and the financial consequences of risks were underpinned
by insurance policies that BAA took out directly with the market, on a strictly no-fault
basis.” (Matthew Riley, Supply Chain
Director – BAA,)
Suppliers’ profit levels were predetermined and fixed: BAA ring-fenced its
suppliers' profits and incorporated a gain-share arrangement, whereby efficiency savings could
be translated into higher margins.
Partners are worth more than suppliers: BAA, implemented an ‘Integrated Project Team
Approach’ embraced in a ‘Delivery Team Handbook’, which sought to create an appropriate
environment for team working, with the objective of: motivating, organising and generally
getting the best out of the talented people working on the project
The T5Contract
The main objective of the contract employed was to create a unique relationship under which
BAA retained all the risk relating to the project. Additionally, the contract needed to be flexible
as BAA appreciated that their requirements would change during the course of the contract.
The contract was designed to enable all participants to concentrate on:
the root cause of problems - not their effects
working within integrated teams to deliver success in an uncertain environment
the proactive management of risk rather than the avoidance of litigation
Disputes
As a result of BAA selecting a cost reimbursable contract, which incorporated pre-emptive risk
management, integrated teams and promoted a non-adversarial approach and no blame culture
there have been no reported payment disputes on the project
During the first week T5 was open, many flights were cancelled and many more items
of luggage mislaid. Why the construction project was such a success and the operational
[particularly baggage issues] such a spectacular failure will be raked over for years to come.
But this should not detract from the avoidance of all disputes on the substantive construction
project.
A much more comprehensive case study is made in Lowe (2011) Commercial Management in
Project Based Organisations, Wiley Blackwell.
127
128
Chapter 10: Comparison Of Dispute Resolution Techniques
INTRODUCTION
This section introduces the difference between conflict, disputes and the concepts of conflict
management and dispute resolution. A continuum of conflict and disputes and the techniques
of dispute resolution are outlined. The techniques predominantly practised tion Adjudication;
Arbitration and Mediation are introduced, and a comparative analysis is made.
At the end of this section you will be able to:
Discuss the stages of dispute resolution
Evaluate the process and strategies of:
o Construction Adjudication;
o Arbitration;
o Mediation.
Compare and contrast the key dispute resolution techniques of Construction Adjudication,
Arbitration, Mediation with Litigation in the areas of:
o Formality
o Speed
o Flexibility
o Cost
o Confidentiality
o Relationships
o Control and Choice
o Solutions
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Conflict management and dispute resolution techniques
The range of conflict management and dispute resolution techniques include:
Conflict avoidance: a variety of techniques some used consciously and some subliminal to
avoid the escalation from normal conflict into dispute. Examples might include: risk
management to ensure that risks are identified; analysed and managed; procurement strategies
to ensure that risks are appropriately allocated and contractual arrangements to allow sensible
administration.
Negotiation: this is easily the most common form of dispute resolution, carried out in many
forms every day by just about everybody. In negotiation the parties themselves attempt to settle
their differences using a range of techniques from concession and compromise to coerce and
confront.
Mediation: a private and non-binding form of dispute resolution where an independent third
party [neutral] facilitates the parties reaching their own agreement to settle a dispute. Mediation
is often a structured process where the settlement becomes a legally binding contract.
Conciliation: a process of mediation where the neutral proposes a solution. In the same way
that we distinguished between a continuum of conflict and dispute; a continuum of mediation
and conciliation shows mediation at one facilitative end and conciliation at the other evaluative
end of the continuum.
Med-arb: is a combination of mediation and arbitration where the parties agree to mediate but
if that fails to achieve a settlement the dispute is referred to arbitration. The same person may
act as mediator and arbitrator in this type of arrangement.
Dispute Resolution Adviser (DRA): The concept of DRA is the use of an independent
intervener. This independent intervener is paid for equally by the employer and the contractor
to settle disputes as they emerged; rather than wait until the end of the contract.
Dispute Review Boards (and Dispute Review Panel): Dispute Review Board is a process
where an independent board evaluate disputes.
Neutral evaluation: a private and non-binding technique where a third party neutral (often
legally qualified, gives an opinion on the likely outcome at trail as a basis for settlement
discussions.
Expert Determination (Submission to Expert, Reference to an Expert, Expert
Adjudication): these are long-established procedures in English law and have been used across
a number of industries. Examples include - accountants valuing shares in limited companies,
valuers fixing the price of goods, actuaries carrying out valuations for pension schemes,
certifiers of liability for on-demand performance bonds, and Adjudicators who are said to be
acting “as expert and not as arbitrator”.
Mini-Trial (or Executive Tribunal): This is a voluntary non-binding process. The parties
involved present their respective cases to a panel comprised of senior members of their
organisation. The panel is assisted by a neutral facilitator and has decision making authority.
After hearing presentations from both sides, the panel ask clarifying questions and then the
facilitator assists the senior party representatives in their attempt to negotiate a settlement.
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Adjudication: this refers to Statutory Adjudication in Construction Disputes as set out in the
Housing Grants, Construction Regeneration Act 1996. Here decisions of an adjudicator are
binding on the parties at least until a further process is invoked (Arbitration or Litigation).
Arbitration: a formal, private and binding process where disputes are resolved by an award of
independent tribunal [third party or parties, the arbitrator or arbitrators]. The tribunal is either
agreed by the parties or nominated by a further independent body: e.g. a court or a professional
institution The Chartered Institute of Arbitrators.
Litigation: the formal process whereby claims are taken through court and conducted in public;
judgements are binding on the parties subject to rights of appeal.
This is by no means an exhaustive or exclusive list; you will undoubtedly find others, the
references in the reading list contain many other examples. Indeed one definition of ADR is
Appropriate Dispute Resolution and there may be a ‘killer application’ yet to be devised. You
will see from Figure 1 that at the dispute end of the continuum lies violence, hopefully we will
not have to consider this option.
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The Stages of Conflict Management and Dispute Resolution
The stages of conflict management and dispute resolution are usefully described in a document
produced by the Office of Government Commerce: Dispute Resolution Guidance which can
be viewed and downloaded from the internet at http://www.ogc.gov.uk. The stages are:
• Stage 1: Negotiation
• Stage2: Non Binding Techniques and Processes
• Stage 3: Binding Techniques and Processes
The Principal Stages and The Dispute Resolution Options are shown below
132
STAGE 1 STAGE 3 STAGE 2
NEGOTIATION
Mediation
Conciliation
Neutral Evaluation
DRA’s etc
Adjudication
Expert
Determination
Arbitration
Litigation
133
METHOD COMMON
LAW/
STATUTE
BASIS
FREQUENCY
OF USE
SPEED COST CONFIDENTIALIT
Y
BINDING ADVERSARIAL SPECIAL
FEATURES
Stage 1
Negotiation No Very Common
Ubiquitous
Varies Low Yes No No Can continue
throughout
the dispute
Stage 2
Mediation No Common Fast Low Yes No (unless
agreed)
No
Conciliation No Fairly Common Fast Low Yes No (unless
agreed)
No Often
included
with
mediation
Neutral
Evaluation
No Infrequent Fast Low Yes No No
Adjudication Yes Common Fast Low Yes Yes (until
completion
or Arb/Lit)
Yes Statutory
adjudication
is
construction
specific
Stage 3
Arbitration Yes Common Contingent Contingent Yes Yes Yes
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Expert
Determination
No Fairly Common Fast Moderate Yes Yes Yes
Litigation Yes Common Slow High No Yes Yes
Stage 1
Negotiation No Very Common
Ubiquitous
Varies Low Yes No No Can continue
throughout
the dispute
Stage 2
Mediation No Common Fast Low Yes No (unless
agreed)
No
Conciliation No Fairly Common Fast Low Yes No (unless
agreed)
No Often
included
with
mediation
Neutral
Evaluation
No Infrequent Fast Low Yes No No
Adjudication Yes Common Fast Low Yes Yes Yes construction
specific
Stage 3
Arbitration Yes Common Contingent Contingent Yes Yes Yes
Expert
Determination
No Fairly Common Fast Moderate Yes Yes Yes
Litigation Yes Common Slow High No Yes Yes
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Three ‘core’ processes of dispute resolution and a spectrum of dispute resolution
It is useful to consider the problem from a different angle, Authors talks of three core
techniques, which may be employed in the resolution of disputes. Firstly, negotiation, which
refers to the problem solving efforts of the parties. Second, third party intervention, which does
not lead to a binding decision being imposed on the parties, finally the adjudicative process,
the ultimate outcome of which is an imposed binding decision. Such an approach has been
adopted by Green and Mackie (1995), who refer to the “three pillars” of dispute resolution.
The discrete techniques may be introduced under one of the three pillars, depending upon the
main characteristics of the particular technique; see Figure 5 below:
Figure 5: 'The Dispute Resolution Landscape'
Negotiation Mediation Adjudication
Facilitative Evaluative mediation mediation
Mini-trial or executive tribunal
Med-Arb Consensus- building
Variations on 'neutral expert’ types of process
Conciliation Litigation Arbitration
Expert determination Adjudication Ombudsmen
Dispute Review Boards
Neutral fact-finding Expert appraisal
Early neutral evaluation
Source: Mackie, K. Miles, D. and Marsh, W. (1995)
Arguably, all dispute resolution techniques are built upon three basic principal methods:
negotiation, mediation/conciliation, and some form of adjudicative umpiring process.
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Outline Of The 3 Dispute Resolution Techniques
This section provides an outline of the 3 dispute resolution techniques predominantly offered.
• Construction Adjudication
• Arbitration
• Mediation
What follows is a simple introduction to each technique, followed by a comparison.
137
Construction Adjudication (under the Housing Grants Construction and Regeneration Act
1996)
The Housing Grants Construction and Regeneration Act received Royal Assent on 24th July
1994. Those parts relating to construction (Part II of the Act) commenced on 1 May 1998.
The Act sets out a framework for a system of adjudication; all construction contracts must meet
minimum criteria and if they fail the Scheme for Construction Contracts will apply.
STATUTORY ADJUDICATION - THE PROCESS
Under Part II of the Housing Grants, Construction and Regeneration Act 1996 a party to a
construction contract is unilaterally given the right to refer a dispute arising under the contract
to adjudication. The Act only applies to "construction contracts" which fall within the detailed
definition of Section 104 For example, "architectural design, surveying work or to provide
advice on building, engineering, interior or exterior decoration or the laying out of landscape
in relation to construction operations" are included within the scope of the Act, whilst contracts
of employment are expressly excluded. In addition, a construction contract is defined to
include an agreement to carry out "construction operations". Construction operations are
further defined in Section 105 to include a wide variety of general construction related work
together with a list of notable exceptions. A further notable exception is a construction contract
with a residential occupier. The provisions only apply where the construction contract is in
writing.
Section 108 sets out the minimum requirements for an adjudication procedure. These may be
summarised as follows:
Notices: A party to a construction contract must have the right to give a notice at any time of
his intention to refer a particular dispute to the adjudicator.
Appointment: A method of securing the appointment of an adjudicator and furnishing him
with details of the dispute within seven days of the notice is mandatory.
Time scales: The adjudicator is then required to reach a decision within 28 days of this referral.
It will not be possible to agree in advance of any dispute that additional time may be taken for
the adjudication. There are only two exceptions to this rule. First the adjudicator may extend
the period of 28 days by a further 14 days if the party referring the dispute consents. Second,
a longer period can be agreed by consent of all the parties. Such agreement can only be reached
after the dispute has been referred
Act impartially: The adjudicator is required to act impartially.
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Act inquisitorially: The Act requires that the adjudicator "takes the initiative in ascertaining
facts and the law". This gives the adjudicator power to investigate the issue in whatever manner
he or she deems appropriate given the short time scale available.
Binding nature: The decision of the adjudicator is binding until the dispute is finally
determined by legal proceedings, by arbitration or by agreement. Phillip Capper (1997)
suggests that "the 'until' formulation gives an unfortunate interim air to the decision almost
inviting the view that it ought to be reopened at a later stage" The Act does, however, go on
to say that the parties may agree to accept the decision of the adjudicator as finally determining
the dispute.
Immunity: The adjudicator cannot be held liable for anything done or omitted in the discharge
of his function as an adjudicator unless acting in bad faith. This protection is extended to any
employee or agent of the adjudicator.
In addition to this basic procedural framework the Act further requires that any construction
contract complies with the provisions of the scheme for construction contracts.
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Arbitration
Arbitration is a process, subject to statutory controls, whereby formal disputes are determined
by a private tribunal of the parties’ choosing. According to Stephenson, Lord Justice Sir Robert
Raymond provided a definition some 250 years ago which is still considered valid today
(Stephenson, D. A: 1998)
"An arbitrator is a private extraordinary judge between party and party, chosen by their mutual
consent to determine controversies between them, and arbitrators are so called because they
have an arbitrary power; for if they observe the submission and keep within due bounds, their
sentences are definite from which there lies no appeal."
The Arbitration Act 1996
The Aim of the Arbitration Act
Five main objectives underlie the Act:
1. To ensure that arbitration is fair, cost-effective and rapid.
2. To promote party autonomy, in other words to respect the parties choice.
3. To ensure that the courts’ supportive powers are available at the appropriate
times.
4. To ensure that the language used is user friendly and clearly accessible.
5. To follow the model law wherever possible.
The first of these objectives is included in section one of the Act:
"The provisions of this part are founded on the following principles, and shall be construed
accordingly -
a) The objective of arbitration is to obtain the fair resolution of disputes by an
impartial tribunal without unnecessary delay or expense;
b) The Parties should be free to agree how their disputes are resolved, subject only
to such safeguards as are necessary in the public interest;
c) In matters governed by this part of the Act the court should not intervene except
as provided by this part."
Mediation
Mediation is a way of settling disputes in which a third party, known as a mediator, helps both
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sides to come to an agreement which each considers acceptable. Mediation can be
‘evaluative’, where the mediator gives an assessment of the legal strength of a case, or
‘facilitative’, where the mediator concentrates on assisting the parties to define the issues.
When a mediation is successful and an agreement is reached, it is written down and forms a
legally binding contract, unless the parties state otherwise.
The Chartered Institute teaches a facilitative model in its training courses on the basis that this
is considered the most successful of the techniques. Any settlement, which occurs, is the
parties' own and the analogy of chemical catalysts is often made. A catalyst makes a reaction
take place between two or more chemicals; the catalyst is not affected or changed by the
reaction. Sometimes the reaction will take place without the catalyst and the effect is to speed
reaction and sometimes the reaction will not take place without the catalyst. The analogies
with mediation are obvious.
Mediation is the most widely used and accepted ADR technique. Whilst there is no
prescriptive mediation process, the typical stages in a mediation might be:
1. A brief written summary of the matter in dispute is presented in advance to the
mediator;
2. The parties meet with a mediator for an initial joint meeting including perhaps
a brief oral presentation by the parties;
3. Caucus sessions, where the mediator has private meetings with the party in turn.
During the caucuses the mediator often shuttles backwards and forwards to clarify
issues and search for settlement possibilities. This process is often termed shuttle
diplomacy;
4. Plenary sessions are called to either continue negotiations directly, to conclude
agreement, or where the process is unsuccessful to conclude a mediation.
Most mediators agree to a contingency approach to mediation; that is there is no set procedure
but the procedure is tailored to suit the parties and the dispute in question. This often means
that mediation is conducted without joint meetings and the mediators play a variety of roles.
The mediator may act as a mere facilitator, there purely to assist communications. Alternatively
the mediator acts as a deal maker, to assist the parties in finding overlap in their bargaining
positions or encouraging concession and compromise. Perhaps the mediator acts more as a
problem solver assisting the parties in designing and searching for creative solutions. The
mediator may act as transformer transforming the dispute by allowing the parties a fresh in-
sight into the issues and their positions. The final role of the mediator maybe as an adjudicator
or assessor to provide the parties with an appraisal of the merits of the cases on a legal, technical
or even common sense standpoint.
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Comparison of Litigation, with Construction Adjudication, Arbitration and Mediation
It is useful to compare and contrast the major dispute resolution techniques in areas where the
characteristics of each technique are highlighted. Litigation, Construction Adjudication,
Arbitration and Mediation are compared in the areas of:
• Formality
• Speed
• Flexibility
• Cost
• Confidentiality
• Relationships
• Control and Choice
• Solutions
Formality
Mediation is an informal process; the parties may agree to certain mediation rules but they are
at liberty to amend any rules. There is no requirement to produce specified information before
the mediation can commence neither is there are requirement to spend resources filing and
serving documents. Mediation in informal and uncomplicated.
Adjudication is an informal process and the procedure is, within the bounds of natural justice,
at the discretion of the adjudicator.
Arbitration has been criticised for mimicking litigation; many steps have been taken to redress
this and arbitrations are less formal, nevertheless arbitration may be considered formal and
complicated when compared with mediation.
Litigation is, properly, a highly formalised process with specialised rules; non-compliance may
prevent litigation proceeding. Resources have to be committed in filing and serving
documents. Litigation is a highly formal and complicated process.
Speed
In mediation the timing is within the control of the parties; subject to the availability of suitable
and acceptable mediators mediation may take place as quickly as the parties desire. The length
of the mediation is similarly in the control of the parties; they can agree to stay as long, or as
briefly, as required. The great majority of mediations are restricted to one working day or less.
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Adjudication operates under very tight timescales laid down by the Act; see above the
maximum time from notice to decision is 35 days which may be extended by agreement to 49
days.
Speed is often claimed as a feature of Arbitration; however the reality is that the availability of
all the parties involved, not least the arbitrators, dictate that the process is often protracted.
Litigation is often an infuriatingly slow process; in many jurisdictions advisors talk in terms of
years rather than months as the timescale for trial dates. Although many great strides have
been taken in many countries to address this, in the UK the Civil Procedure Rules following
the Woolf Review of Civil Justice is a particular example, time continues to be an issue.
Flexibility
Mediation is a flexible process; all arrangements can be changed if necessary if it becomes
apparent that this is necessary. Arbitration can share much of this flexibility and the 1996
Arbitration Act has given arbitrators wide ranging powers to achieve flexibility. Adjudicators
too have much scope for flexibility
Litigation is an inflexible process, specific steps must be taken to initiate and progress matters.
Cost
Mediation is an inexpensive process; this is achieved and facilitated by the informality and
speed of the process. The amount of lawyer involvement can be reduced if the parties agree
and in many cases the cost of preparing for mediation is marginal to the other preparation. The
parties can share the mediator’s costs and the cost of the venue in an agreed fashion.
Adjudication can be an inexpensive process as a result of the tight timescales.
Arbitration can certainly help in reducing costs and dealing with a dispute in a proportionate
manner. In comparison to litigation it must be remembered that while the state pays for the
judge, and rooms in many cases, in arbitration the parties must pay the arbitrators costs.
Litigation is an expensive process, this is dictated by the formality and slowness of the process.
There are many, many examples of the disproportionate costs of litigation amongst the most
famous is the Dickens example of Jaryndyce v Jarndyce where the parties disputing a will
expended the entire legacy in legal costs when they disputed the terms of the will!
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Confidentiality
Here things are clear; in adjudication, arbitration and mediation all matters are confidential.
This is an important issue for commercial disputes where the parties often wish to avoid
publicity and to keep commercial confidentialities. There is an issue often where arbitration
awards are the subject of appeal or referral to the courts; then all matters will become public.
Litigation is a public matter and though civil commercial litigation seldom attract tabloid press
interest; it is clear that litigation can expose confidential issues.
Relationships
Again a clear difference. Mediation is a non-adversarial process while litigation and arbitration
are both adversarial. Adjudication may avoid the dysfunctional aspects of adversarialism.
In mediation the parties do not seek to convince the neutral that they are in the right; or that
others are in the wrong. The emphasis of facilitative mediation is on the parties’ interests as
opposed to parties’ rights. As a result mediation need not affect working relationships in an
adverse manner. Often mediation can improve relationships as parties achieve an improved
understanding of underlying interests and concerns.
Litigation and Arbitration on the other hand are not conducive to even maintaining
relationships let alone improving them. Opposing parties aim to convince the tribunal that the
law and the facts support their argument to the detriment of the other side; this seldom helps
relationships and often destroys them.
Adjudication allows the power imbalance in relationships to be dealt with in that weaker sub-
contractors have a clear route to deal with more powerful contractors.
Control and Choice
In mediation the control of the dispute always remains with the parties and the choice is theirs.
Who will be the mediator; where will the mediation take place; when will it take place; and
who will attend. Mediation is a voluntary process and the parties remain in control. This
control means that the parties have to ‘buy in’ to the settlement and any resolution becomes
their own settlement.
Litigation, Adjudication and Arbitration hands over the dispute to the lawyers and the judge or
arbitrator or adjudicator. The process passes control and choice in a similar fashion.
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Solutions
The essential difference is that mediation allows for creative solutions to disputes; during a
mediation a wide range of issues can be addressed or uncovered. These issues can include past
unresolved matters and even future intentions. The solutions to the issues can take many forms,
and are not restricted to payment of money, they can be as creative as the parties to the dispute.
Mediated agreements have included:
• Apologies
• Future Business Arrangements
• Revamped Commercial Arrangements
Litigation and Arbitration cannot allow for creative solutions but must be limited to legal
remedies available.
Adjudication is similarly restricted by legal remedies but does allow prompt solutions which
permit the project to be completed.
The comparison is shown below in outline in Table 1
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Dispute
Technique
Mediation Adjudication Litigation Arbitration
Area
Formality Informal Informal Formal Formal
Speed Fast Fast Slow Contingent
Flexibility Good Good Poor Contingent
Cost Inexpensive Inexpensive Expensive Contingent
Confidentiality Yes Yes No Yes
Adversarial No Contingent Yes Yes
Party Control Yes No No No
Party Choice Yes No No Contingent
Creative Solutions Yes No No No
Table: Litigation Compared With Construction Adjudication, Arbitration and
Mediation
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Chapter 11: International law and International Disputes
This is a confusing term and for our purposes we can assume that there is no such thing. Public
International Law governs the relationship between states and international entities. Engineers
and PMs will seldom be involved in such matters. Private international law, which addresses
the questions of (1) which jurisdiction may hear a case, and (2) the law concerning which
jurisdiction applies to the issues in the case. English Law and lawyers term this conflict of
laws. The conflict is which court has jurisdiction? And which law applies. Parties can choose
the law and the jurisdiction which applies to their project, usually via their contract. The
phrase:
The Agreement and these Conditions shall be governed by and construed in accordance
with the law of England and Wales, the parties agree to submit to the exclusive
jurisdiction of the Courts of England and Wales in respect of any dispute which arises
out of or under this Agreement.
Is commonly seen in contracts. The parties actively seek English Law and the English Courts.
Why parties would do that is a complex issue, and will be returned to later [in Chapter 11].
You might consider it: Why would the parties to our imaginary project seek English Law and
English Courts?
Remember our infrastructure project in an African country:
• funded by the World Bank;
• designed by engineers from Scotland (United Kingdom);
• project management by an organisation from the USA;
• procurement arranged by quantity surveyors from Australia;
• construction management by an organisation from England;
• sub-contractors from Holland, Malaysia and the African country;
Why would it be subject to the law of England; with any disputes to be dealt with a variety of
procedures culminating in International Arbitration in London? The law in England and Wales,
the legal system in England and Wales and English [and Welsh] Lawyers is a great contributor
to UK plc. In 2016 The Law Society said:
Net exports of legal services have also grown in value by an average of 5.6 per cent
per annum over the last 10 years, to £3.6 billion in 2014. The legal services sector is a
net exporter, helping to offset the UK's overall balance of payments deficit. English and
Welsh law is the choice of law internationally and England and Wales is the jurisdiction
of choice.
In some quarters there is a tendency to blame lawyers for lots of things. A line from William
Shakespeare's Henry VI, Part 2, Act IV, Scene 2. Says "The first thing we do, let's kill all the
lawyers”. I am not in that camp. Some lawyers may read this book to point out my, many,
puerile errors. Go easy on me, I am your fan.
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International Arbitration
International Arbitration is selected by many of the world's leading international companies;
they insert an arbitration clause into their agreements with trading partners, and opt to have
disputes in connection with the contract decided by private tribunals ('arbitral tribunals') rather
than litigating them in national courts.
The problem of definition which is present throughout this module comes up again. There is
no uniform definition; but many arbitrations which might be considered ‘international’:
1. Wholly foreign case e.g. arbitration between the parties, one from Germany and one
from China, to a project in Spain. The arbitration held in Paris; the arbitration in French;
the arbitrator [or one of the tribunal ] is French
2. A foreign case e.g. arbitration between the parties, one from Germany and one from
China, to a project in Spain. The arbitration held in London; the arbitration in English;
the arbitrator [or one of the tribunal ] is English;
3. A foreign case e.g. arbitration between the parties, one from England and one from
China, to a project in Spain. The arbitration held in Paris; the arbitration in French; the
arbitrator [or one of the tribunal ] is French
4. A foreign case e.g. arbitration between the parties, one from England and one from
China, to a project in Spain. The arbitration held in London; the arbitration in English;
the arbitrator [or one of the tribunal ] is English.
The most common reasons for opting for international arbitration are:
that arbitration awards (broadly equivalent to a court judgment) are easier to enforce
internationally and cannot so easily be dragged to appeal for years;
that neither party is willing to have disputes decided by the other party's national courts;
that the parties are keen to have their disputes resolved privately.
International arbitration allows parties to have their disputes decided by a neutral tribunal,
which can be made up of legal and/or industry experts of the parties' own choosing, using
procedures which they can influence. The normal procedure is for the tribunal to be composed
of three arbitrators. One from each party and one neutral umpire.
Lex Mercatoria
Literally the Law Merchant; some argue that international disputes should not be subject to any
national law but to international concepts of commercial law. These concepts are collectively
known as Lex Mercatoria
Delocalisation or Territoriality
The proponents of delocalisation argue that international commercial arbitration should be
completely independent of any form of state control, except perhaps at award enforcement.
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The courts are not to become involved in any way with the arbitration. The delocalisationists
have not found widespread acceptance83.
The proponents of territoriality [the generally accepted view] argue that arbitration cannot be
conducted in a vacuum and some things cannot be left to the parties:
• Appointment of the tribunal [e.g. when the parties cannot agree];
• Removal of an arbitrator [e.g. for bias or other misconduct]
• Provide assistance [e.g. enforcing attendance of witness]
• Establish if an award is valid and final
The use of international commercial arbitration
International commercial arbitration is a complex and important topic, a survey carried out by
PriceWaterHouseCooper produced a report: International Arbitration: Corporate Attitudes and
Practices 200884.Respondents to the survey displayed a strong preference for International
Arbitration, as an alternative to transnational litigation, to resolve international disputes.
Arbitration is perceived as a private and independent system, largely free from external
interference. In certain industries, such as shipping, energy, oil and gas or insurance,
International Arbitration is the most commonly used dispute resolution mechanism.
Beyond International
Now what about disputes in space.
83 Moses, M. (2008), The Principles and Practice of International Commercial Arbitration,
CUP, Cambridge. 84 http://www.pwc.co.uk/eng/publications/international_arbitration_2008.html
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Chapter 12: Conclusion
There has been a change in society’s attitude to conflict management and dispute resolution;
not least that there has been a shift from confrontation to problem-solving. ADR techniques,
and in particular facilitative mediation, provide the parties, their advisors and the specialist in
dispute resolution with a portfolio of approaches to use where appropriate. At the same time
commerce and industry is seeing a move from the old transactional approach to business; where
one party sells a good or service to the other, towards a relationship approach. The current
fashion is one for long term relationships and so called win-win approaches. Critics would say
that business and commerce cannot be win-win; by their very nature there will be winners and
losers. Perhaps they are both right and what is required is win-not lose or winners and not
losers? ADR again offers all the actors the opportunity to use a toolbox of techniques when
appropriate. The ADR zealots would have us believe that ADR offers a panacea; the truth is
nothing of the sort but ADR does offer alternatives. Using all the definitions quoted earlier
ADR offers alternatives when appropriate to forge amicable solutions.
ADR is not the cause but a product of significant changes in society, it is the beneficiary of the
trend towards problem-solving and away from confrontation. There is widespread evidence
that disputants prefer ADR processes and the opportunity for significant participation. Phillips
(1997) provides compelling empirical evidence of the benefits ADR brought to the USA
construction industry to back up the commonplace anecdote.
The benefits of ADR are:
• Business relationships are preserved in constructive negotiation as opposed to
adversarial battles;
• Disputes are resolved much quicker, days rather than months;
• Cost and Time savings can be made;
• Confidentiality is preserved;
• More and better options for settlement are developed;
• Management time is better used;
• The procedures are flexible and the parties retain control.
It is not long ago that professionals: engineers, project managers etc had few options to consider
when managing conflict and disputes. Few studied the topics and standard forms allowed few
options. Management moved on; procurement; forms and practices moved on with them. Now
the professionals have many choices. What lies next.
Peter Fenn Manchester 2020 the year everything change? How has Covid changed Conflict
Management and Dispute Resolution?
