Effect of Culture, Risk, and Trust on the Selection of Dispute Resolution Methods

Preliminary Investigation of the Impact of Project Delivery Method on Dispute Resolution Method Choice in Public Highway Projects

By: Ghada M. Gad, Ayodeji K. Momoh, Behzad Esmaeili, & Douglas G. Gransberg.Vancouver, BCJune 8, 2015

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BackgroundObjectivesMethodologyResults & AnalysisConclusionsOutline

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10 to 30 percent of construction projects have serious disputes

1 in 4 projects have claims

Transactional costs for dispute resolution may total $4 - $12 billion per year. 3

(FFC 2007)

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Paradoxically, experts frequently refer to the construction industry as being on the innovative edge regarding dispute resolution4

(ENR 2000)

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Is this TRUE???traditional PDMs and low bid process adversarial relationships

alternative PDMs

collaborative environments & less disputes 5

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CostTimeQualitySustainabilityPDMsDISPUTES & DRMs?

BackgroundResults & AnalysisConclusionsObjectivesMethodologyMany research studies investigated the alternative PDMs impact on cost, schedule, quality, and sustainability, there is limited research to empirically investigate disputes and the dispute resolution process choice.

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Design-Bid-BuildDesign-BuildCMRPPPs, IPDs, .PDMsDRMsArbitrationDRBs

NegotiationLitigationMediation

BackgroundResults & AnalysisConclusionsObjectivesMethodologyMany research studies investigated the alternative PDMs impact on cost, schedule, quality, and sustainability, there is limited research to empirically investigate disputes and the dispute resolution process choice.

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PDM research at a glancePerformance assessment time & cost performance of 60 projects from Florida DOT (Minchin et al. 2013).schedule, cost, quality, and owner satisfaction (Warne 2005, Shrestha e al. 2012). how quality is handled in DB projects (Gransberg et. al. 2008).Arizona DB projects quality study (Ernzen and Feeney 2002)quality qualifications assessment in DB solicitation documents (Gransberg and Molenaar 2004) FHWA national study on DB contracting effectiveness from different states taking the lead on DB (FHWA 2006)

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BackgroundResults & AnalysisConclusionsObjectivesMethodology

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PDM & DisputesFederal Facilities Council (2007) compiled a report of presentations given by speakers who are experts in resolving construction disputes 1. Presentation by Blumenfeld on Pentagon renovationProjects transferring more risk to contractor and using a low-bid process are more prone to having claims. Contracts should portray realistic risk assignment rather than convey the bargaining powers of the parties. IDisputes causes could be attributable to contracting/ bidding strategy such as low bid process, poorly developed contracts, and lack of Pm procedures9

BackgroundResults & AnalysisConclusionsObjectivesMethodologyFederal Facilities Council (2007) >>> compiled a report of presentations given by speakers who are experts in resolving construction disputes. Using the Pentagon renovation project, the report highlighted how projects transferring more risk to contractor and using a low-bid process are more prone to having claims. 9

PDM & DisputesFederal Facilities Council (2007) compiled a report of presentations given by speakers who are experts in resolving construction disputes

2. Presentation by Barshop on Methods for Reducing ClaimsIn contrary to perception that fewer claims are anticipated in shared risk contracts, no difference was seen between claims frequency on shared risk versus contractor-allocated risk contracts. Arbitration encouraged inflated claim values while other forms such as DRBs and mediation did not affect claim frequency.10

BackgroundResults & AnalysisConclusionsObjectivesMethodologyFederal Facilities Council (2007) >>> compiled a report of presentations given by speakers who are experts in resolving construction disputes. Using the Pentagon renovation project, the report highlighted how projects transferring more risk to contractor and using a low-bid process are more prone to having claims. 10

PDM & DisputesTwo other studies, in Malaysia & in UKAlternative PDMs reduced disputes frequency (Ndekugri and Turner 1994, Yusof et al. 2011).

Study of DRM provisions in standard contract forms Regardless of PDM, same dispute resolution provisions were used (Mante et al. 2012) Paper reinforced literature review >>> amount of research done related to PDM and dispute resolution is limited. 11

BackgroundResults & AnalysisConclusionsObjectivesMethodologyFederal Facilities Council (2007) >>> compiled a report of presentations given by speakers who are experts in resolving construction disputes. Using the Pentagon renovation project, the report highlighted how projects transferring more risk to contractor and using a low-bid process are more prone to having claims. 11

There are many DRMs, with varying hostility + many PDMs forms, some of which assumed to create collaborative environment less prone to disputes.

No consolidated research conducted to investigate the effect of PDMs choice on selection of DRMs or process, especially as related to public highway projects.12

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ObjectivesConduct a preliminary investigation on how PDMs choice has affected Department of Transportation (DOTs) selection ofdispute resolution methods (DRM)

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BackgroundResults & AnalysisConclusionsObjectivesMethodologyWe need to know how we are going to handle those in such a venerable environment we dont know much about How disputes are handled DRMS13

Research QuestionHow has the use of more collaborative forms of PDMs affected the selection of less adversarial Dispute Resolution Methods (DRMs)? 14

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Literature ReviewData CollectionData AnalysisQualitative StudyContent Analysis 3 State DOTsResearch Methodology15

BackgroundResults & AnalysisConclusionsObjectivesMethodologyThese three State DOTs were selected because they have a well-established DB process. CDOT started using DB on a few projects in the 1990's after obtaining FHWA Special Experimental Project Number 14 (SEP-14) Innovative Contracting program approval, however, in 1999, the Colorado State Legislation was officially obtained allowing DB use. As for FDOT, DB has been permitted by all agencies for all types of design and construction since 1997. ODOT represents also one of the early participants in SEP-14 in 1990, to test and evaluate DB, among other PDMs, as a potential effective method to deliver highway projects (DBIA, n.d.). Over the past few decades, DB has been increasingly used by ODOT in projects of different characteristics.15

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State DOTSpecification document - Issue DateTraditional project deliveryDB project deliveryColoradoStandard Specifications for Road and Bridge Construction 2011Standard Special Provision revising CDOTs Standard Specifications for Road & Bridge Construction- 11/6/2014RFP documents (Book 1 DB Contract Provisions) for the following projects:I-25/Cimarron Street (US 24) - 2014, I-25 North - 2012SH 285 Reconstruction - 2008FloridaStandard Specifications for Road & Bridge Construction - 01/2015Design-Build Specifications 09/08/2014OhioConstruction and Material Specifications 01/01/2013Revisions to 2013 Construction & Material Specifications for DB Projects12/31/2012

BackgroundResults & AnalysisConclusionsObjectivesMethodologyIn cases where it was not possible to locate the DB standard specification, DOT DB projects solicitation documents were studied to identify the dispute resolution process used. It was assumed that the specification document was for traditional PDM if no specific PDM was specified. Six state DOT specification/bid documents from the three DOTs, together with three FDOT solicitation documents, were analyzed to determine the process followed from the occurrence of the event giving rise to the claim until resolution of the claim using any form of DRM. 16

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State DOTSpecification document - Issue DateTraditional project deliveryDB project deliveryColoradoStandard Specifications for Road and Bridge Construction 2011Standard Special Provision revising CDOTs Standard Specifications for Road & Bridge Construction- 11/6/2014RFP documents (Book 1 DB Contract Provisions) for the following projects:I-25/Cimarron Street (US 24) - 2014, I-25 North - 2012SH 285 Reconstruction - 2008FloridaStandard Specifications for Road & Bridge Construction - 01/2015Design-Build Specifications 09/08/2014OhioConstruction and Material Specifications 01/01/2013Revisions to 2013 Construction & Material Specifications for DB Projects12/31/2012

how DOTs define the word claim and disputeprocess that precedes resorting to formal DRM, if statedformal DRM employed.

BackgroundResults & AnalysisConclusionsObjectivesMethodologyIn cases where it was not possible to locate the DB standard specification, DOT DB projects solicitation documents were studied to identify the dispute resolution process used. It was assumed that the specification document was for traditional PDM if no specific PDM was specified. Six state DOT specification/bid documents from the three DOTs, together with three FDOT solicitation documents, were analyzed to determine the process followed from the occurrence of the event giving rise to the claim until resolution of the claim using any form of DRM. 17

FDOTODOTDISPUTECLAIMHow DOTs define the word Claim and Dispute?18CDOT disagreement concerning contract price, time, interpretation of the Contract, or all three between the parties at the project level regarding or relating to the ContractA separate demand by Contractor for: time extension disputed by CDOT, or payment of money or damages. A claim will cease to be a Claim upon resolutionNo definition found

written demand submitted to the Department by Contractor seeking additional monetary compensation, time, or other adjustments to Contract, the entitlement or impact of which is disputed by the Department.Disagreements, matters in question and differences of opinion between the Departments personnel and the Contractor.Disputes that are not settled through initial steps of Dispute Resolution & Administrative Claim Process. The Dispute becomes a Claim when the Contractor submits a Notice of Intent to File a Claim.

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What is (1) the process that precedes resorting to formal DRM, if stated and (2) the formal DRM employed?19

Colorado

Partnering was listed as an integral process in DB projects but not in DBB projects.

BackgroundResults & AnalysisConclusionsObjectivesMethodologyCheck of 27 or 42 projects?19

What is (1) the process that precedes resorting to formal DRM, if stated and (2) the formal DRM employed?20

Florida

In DBB projects - other than Statewide DRB to be used under specific work disputes- >> no mention of DRM if contractor is not in agreement with engineers decision

In DB specifications, however, non-binding DRB was added as an option to be used generally.

BackgroundResults & AnalysisConclusionsObjectivesMethodologyCheck of 27 or 42 projects?20

What is (1) the process that precedes resorting to formal DRM, if stated and (2) the formal DRM employed?21

Ohio

ODOT did not amend the dispute resolution section in its DB specification.

BackgroundResults & AnalysisConclusionsObjectivesMethodologyCheck of 27 or 42 projects?21

Survey General Information22

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Some states (e.g. CDOT) must be acknowledging alternative PDMs necessitate use of a more amicable dispute resolution process while others are using mitigation/partnering efforts (ODOT) regardless of PDM.

A stepped process in general is preferred in all states with some form ADR (DRB mostly and mediation sometimes) being used before resorting to litigation.

This study addresses an important knowledge gap and paves the way for future in-depth studies regarding dispute prevention and minimization and alternative PDMs.

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Conclusions

BackgroundResults & AnalysisConclusionsObjectivesMethodologyIt is anticipated that early resolution of disputes through transparent procedures in an environment that fosters understanding, communication, and cooperation will ultimately result in less disputes escalating to claims.23

External validity of study is limited to three states DOTs (Colorado, Florida, and Ohio);

This study was limited to conducting content analysis on current documents and lacks empirical support

This study just looked at DRMs provided by owners and does not provide any insight towards the behavior of stakeholders in a project. 24

Limitations

BackgroundResults & AnalysisConclusionsObjectivesMethodologyWhile, the contribution of the study is significant, there are several limitations that need to be addressed in future studies. First, the external validity of study is limited to three states DOTs (Colorado, Florida, and Ohio); therefore, other studies should be conducted to explore DRM being followed in the remaining DOTs not only in the standard specification but also as pertinent to the project specifics. Second, this study was limited to conducting content analysis on current documents and lacks empirical support; future studies should be conducted to collect empirical data from completed projects and analyze the impact of various project delivery methods and dispute resolution process on disputes occurrence and resolution. Third, this study just looked at the DRMs provided by owners and does not provide any insight towards the behavior of stakeholders in a project. There is a common belief that more integrated PDMs provide a more collaborative environment and as a result reduce potential of disputes in a project.24

RecommendationsTest statistically the hypothesis that more integrated PDMs provide more collaborative environment and as a result reduce potential of disputes in a project.

Examine how choice of a stepped process versus the other affect the numbers of claim that evolve and the number of claims that move to litigation and how, if any, the stepped process help reduce the number of claims in these DOTs compared to others. 25

BackgroundResults & AnalysisConclusionsObjectivesMethodologyIn addition, how flexible is it for the contractor to negotiate changes in the dispute resolution contract clause. This would be especially significant when there are regulations that define the DRM process application in the country. Also, 25

Thank you

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