1. CPR’S DISPUTE PREVENTION INITIATIVE James P. Groton Sutherland Asbill & Brennan LLP (Retired) Member, CPR Dispute Prevention Exploratory Group

2. Key Concepts “An ounce of prevention is worth a pound of cure” “Prevention is the highest and best form of dispute resolution”

3. The Problem Disputes cost too much The transaction costs of dispute resolution through litigation, arbitration and even mediation are enormous: –Direct costs: Lawyers, evidence gathering, travel, witnesses, arbitrators, mediators... –Indirect costs: Management and personnel time and salaries –Hidden costs: Broken business relationships, damage to reputation These costs severely impact profits

4. The Best Solution: Prevention Most of these costs can be avoided In fact, most disputes can be prevented, managed and controlled Most managers know how to control business costs and how to manage production, quality, and safety Most ADR professionals and lawyers know how to resolve disputes through ADR procedures and litigation But, unfortunately, few have learned how to prevent disputes

5. CPR’s Prevention Initiative A New CPR Conflict Prevention Initiative: REDUCING DISPUTES THROUGH WISE PREVENTION PROCESSES An ounce of prevention is worth a pound of cure A stitch in time saves nine Be prepared Fortune favors the prepared mind FIX THE PROBLEM, NOT THE BLAME It usually costs less to avoid getting into trouble than to pay for getting out of trouble The highest and best form of dispute resolution is dispute prevention Dispute resolution co$t$ money. Dispute prevention $ave$ money.

6. CPR-Recommended Approaches Proactively anticipate sources of potential problems Incorporate into contracts processes that will: –Prevent problems from occurring –Control problems to keep them from escalating into disputes These practices are based upon successful construction industry experience as well as recent experience in other businesses

7. CPR Prevention Practice Materials Supporting the CPR Dispute Reduction Initiative: PREVENTION PRACTICE MATERIALS An ounce of prevention is worth a pound of cure A stitch in time saves nine Be prepared Fortune favors the prepared mind FIX THE PROBLEM, NOT THE BLAME It usually costs less to avoid getting into trouble than to pay for getting out of trouble The highest and best form of dispute resolution is dispute prevention Dispute resolution co$t$ money. Dispute prevention $ave$ money.

8. Tools and Contract Language CPR’s Initiative Paper and Practice Materials: –Teach how businesses can prevent and control disputes –Describe available tools and techniques –Provide illustrative contract language

9. PREVENTION  Realistic Risk Allocation  Incentives for Cooperation  Disputes Potential Index  Partnering NEGOTIATION  Direct Negotiations  Step Negotiations STANDING NEUTRAL  Dispute Review Board  Individual Standing Neutral  Initial Decision Maker  Project Neutral  Standing Mediator  Standing Arbitrator (binding) NONBINDING RESOLUTION  Mediation  Mini-trial  Advisory Opinion  Advisory Arbitration PRIVATE BINDING RESOLUTION  Binding Arbitration  Private Judge LITIGATION  Judge / Jury / Special Master  Court-Annexed Alternative Dispute Resolution Prevention and Cooperation Stage Dispute Control Stage Facilitated Resolution Stage Binding Resolution Stage Dispute Prevention and Resolution Steps

10. Disputes Don’t Just “Happen” They evolve from: A problem A difference of opinion A disagreement A dispute which, if not immediately resolved, requires intervention by some form of mediation, an arbitration, or litigation

11. Needed: An Immediate Intervention Process If problems are neglected, they can cost a lot Having an immediate intervention process can keep a problem from escalating into disagreement If a disagreement can be resolved before it becomes a dispute, it costs relatively little

12. Importance of Having a Process Already in Place Before a dispute arises, parties can rationally and mutually agree on processes for dealing with disputes But once a dispute has developed, it’s difficult to get parties to agree to anything Without a process in place, chaos can ensue Immediate availability of a process –Absorbs the shock of unexpected events –Channels the problem onto a constructive track –Discourages game-playing, delaying tactics –Encourages parties to resolve problem by themselves

13. PREVENTION  Realistic Risk Allocation  Incentives for Cooperation  Disputes Potential Index  Partnering NEGOTIATION  Direct Negotiations  Step Negotiations STANDING NEUTRAL  Dispute Review Board  Individual Standing Neutral  Initial Decision Maker  Project Neutral  Standing Mediator  Standing Arbitrator (binding) NONBINDING RESOLUTION  Mediation  Mini-trial  Advisory Opinion  Advisory Arbitration PRIVATE BINDING RESOLUTION  Binding Arbitration  Private Judge LITIGATION  Judge / Jury / Special Master  Court-Annexed Alternative Dispute Resolution Prevention and Cooperation Stage Dispute Control Stage Facilitated Resolution Stage Binding Resolution Stage Prevention and Cooperation Stage

14. Cooperation and Problem Prevention Tools One of the best ways to prevent disputes is to create an atmosphere of cooperation through –Establishing clear communications –Using techniques for encouraging cooperation, alignment of interests and teamwork These can improve relationships, prevent some problems, and keep some disputes from arising –Consider inserting from the following: Realistic allocation of risks (CPR has a monograph on this) –Incentives to encourage cooperation –Partnering (CPR has a monograph on this)

15. Objective of Partnering: Cooperation

16. Example of an Incentive Plan A bonus pool, to be paid: –If objectives (e.g. cooperation) are achieved –But -- payable either to everyone, or no one Has a remarkable effect on behavior Minimizes sources of disputes

17. PREVENTION  Realistic Risk Allocation  Incentives for Cooperation  Disputes Potential Index  Partnering NEGOTIATION  Direct Negotiations  Step Negotiations STANDING NEUTRAL  Dispute Review Board  Individual Standing Neutral  Initial Decision Maker  Project Neutral  Standing Mediator  Standing Arbitrator (binding) NONBINDING RESOLUTION  Mediation  Mini-trial  Advisory Opinion  Advisory Arbitration PRIVATE BINDING RESOLUTION  Binding Arbitration  Private Judge LITIGATION  Judge / Jury / Special Master  Court-Annexed Alternative Dispute Resolution Prevention and Cooperation Stage Dispute Control Stage Facilitated Resolution Stage Binding Resolution Stage Dispute Control Stage

18. Problem-Solving and Control Tools Good communications Open sharing of information Negotiation / step negotiations –Step Negotiations create incentives for solution Standing Neutral, for “real time” resolution

19. Essence of All Standing Neutral Processes Critical elements of a Standing Neutral, Standing Mediator or Standing Arbitrator: 1.Early mutual selection and confidence in the neutral 2.Continuous involvement by the neutral 3.Prompt action on any submitted disputes

20. Results from Using a Standing Neutral 1.Rarely is neutral required to act 2.When neutral does act, it’s a “reality check” 3.Neutral recommendations are almost never appealed 4.98.7% success in achieving resolution of submitted disputes 5.A surprisingly effective dispute prevention tool 6.Remarkably inexpensive

21. Conclusion Billions of dollars are wasted on dispute-related costs Disputes can be prevented Effective tools and techniques exist Through the proactive and preventive approach organizations can, in their contracts –Encourage cooperation and teamwork –Prevent and control disputes Doing so will lead to improved performance

22. A Paradigm Shift CPR urges a shift –From “reaction” (resolution) –To “proactive action” (prevention) CPR has provided the practice tools and sample language So that business dealings can continue without disruption

23. Dispute System Design A smart contractual dispute system will include stepped processes for: –Encouraging cooperation and prevention –Immediate control of problems and incipient disputes –Backstop binding dispute resolution

24. Needed: Further Research Research is needed to improve this new concept: –Need case studies, examples –Need better understanding of why and how: Problems arise and become differences of opinion Differences of opinion become disagreements Disagreements escalate into disputes With this kind of understanding, we can develop more effective mechanisms to contain and prevent disputes