Introduction to Construction Dispute Resolution Conflict Management Plan

Introduction to Construction Dispute Resolution Conflict Management Plan Feniosky Peña-Mora Gilbert W. Winslow Career Development Associate Professor of Information Technology and Project Management MIT Room 1 -253, Phone (617)253 -7142, Fax (617)253 -6324 Email: feniosky@mit. edu Intelligent Engineering Systems Laboratory Center for Construction and Research Education Department of Civil and Environmental Engineering Massachusetts Institute of Technology

Definitions n WHAT • Assessing Susceptibility of Each Project to Conflicts and Gravity of the Conflicts • Developing Cost Effective Ways for Conflict Avoidance and Dispute Control • Presenting Complete, Unbiased and Unanimous Plans n WHO • Owner, Owner’s Representatives, Designers, Lawyers, Contractors n WHY • Responsibility Allocation and Reduction of Court Proceedings n HOW • Identify the Potential Sources of Conflict • Analyze the Severity and the Impacts of Conflicts • Match the Conflict with a Corresponding DART 2 • Draft Plan, Review and Revise it Continuously Introduction to Construction Dispute Resolution Chapter 10: Conflict Management Plan © Peña-Mora, et. al. 2002

Case Study : Brock’s Plans n Real Estate Development (Family Business): Mainly Department and Retail Stores Projects (US$1 to US$10 Million) n No Previous Experience in Hotel Development Business n US$20, 000 Million Hotel Development Project n Funding Provided by Developer and Banks n Excellent Reputation and Willingness of Banks to Finance n Negotiated Cost Basis , Plus Fee Equal to 3. 5% of Total Construction Costs n Completion of 90% of Design at Contract Award 3 Introduction to Construction Dispute Resolution Chapter 10: Conflict Management Plan © Peña-Mora, et. al. 2002

Case Study : Kelly’s Plans n Senior Procurement Officer for the State Aviation Administration n US$1. 5 Billion Fast-Tracked Capital Improvement Program : 19 Contracts (US$20 Million - US$ 400 Million) n Interdependent Schedules and Overlapping of Design and Construction Phases n Fixed Price, Design-Bid-Build Projects, Operation and Maintenance 4 Introduction to Construction Dispute Resolution Chapter 10: Conflict Management Plan © Peña-Mora, et. al. 2002

Important Issues n How Should Kelly and Brock Go About Planning to Identify, Avoid, Monitor and Control Any Potential Conflict? n How Should Brock’s Approach Differ From Kelly’s Approach? n Could These Both Use the Same Methodology? n Are There Restrictions on What Dart Each of Them Could Use? 5 Introduction to Construction Dispute Resolution Chapter 10: Conflict Management Plan © Peña-Mora, et. al. 2002

Outline Ø Conflict Management Process n Identifying Possible Conflicts • Effect of Delivery System on Identifying Conflicts n Analyzing Identified Conflicts • Probability of Occurrence • Impact of Conflict • Combined Conflict Exposure n Designing the Management Plan • Prioritizing and DART Implementation • Identification : Who Is Responsible? • Cost/Benefit Issues • Contingency Plan • Computer Applications n 6 Importance of Review • Conflict Resolution Indexes Introduction to Construction Dispute Resolution Chapter 10: Conflict Management Plan © Peña-Mora, et. al. 2002

Conflict Management Process n Objective • Look at Each Project Individually • Assess How Much Conflict You Will Encounter • Assess How Severe Is the Conflict • Present Cost Effective Ways to Avoid Conflicts • Mitigate Impact of Conflict • Resolve Disputes 7 Introduction to Construction Dispute Resolution Chapter 10: Conflict Management Plan © Peña-Mora, et. al. 2002

Common Steps Conflict Identification Conflict Analysis Design and Implement Conflict Management Monitor and Review Plan Peña-Mora, et. al, 2002 8 Introduction to Construction Dispute Resolution Chapter 10: Conflict Management Plan © Peña-Mora, et. al. 2002

Conflict Space n The Conflict Management Plan Should be Able to Handle at the Same Time • The Cumulative Effect of Conflicts Throughout the Project Life Cycle • The Different Conflicts at Different Stages of the Dispute Resolution Ladder at a Specific Time 9 Introduction to Construction Dispute Resolution Chapter 10: Conflict Management Plan © Peña-Mora, et. al. 2002

Conflict Space Degree of Conflict litigation Dispute Resolution Ladder arbitration mediation Standing neutral negotiation Cumulative Effect of Conflict Project Life Cycle Peña-Mora, et. al, 2002 10 Introduction to Construction Dispute Resolution Chapter 10: Conflict Management Plan © Peña-Mora, et. al. 2002

Outline ü Conflict Management Process Ø Identifying Possible Conflicts • Effect of Delivery System on Identifying Conflicts n Analyzing Identified Conflicts • Probability of Occurrence • Impact of Conflict • Combined Conflict Exposure n Designing the Management Plan • Prioritizing and DART Implementation • Identification : Who Is Responsible? • Cost/Benefit Issues • Contingency Plan • Computer Applications n 11 Importance of Review • Conflict Resolution Indexes Introduction to Construction Dispute Resolution Chapter 10: Conflict Management Plan © Peña-Mora, et. al. 2002

Identifying Possible Conflicts n Review of the Common Sources of Conflict 12 Peña-Mora, et. al, 2002 Introduction to Construction Dispute Resolution Chapter 10: Conflict Management Plan © Peña-Mora, et. al. 2002

Outline ü Conflict Management Process ü Identifying Possible Conflicts Ø Effect of Delivery System on Identifying Conflicts n Analyzing Identified Conflicts • Probability of Occurrence • Impact of Conflict • Combined Conflict Exposure n Designing the Management Plan • Prioritizing and DART Implementation • Identification : Who Is Responsible? • Cost/Benefit Issues • Contingency Plan • Computer Applications n 13 Importance of Review • Conflict Resolution Indexes Introduction to Construction Dispute Resolution Chapter 10: Conflict Management Plan © Peña-Mora, et. al. 2002

Effect of Delivery System on Identifying Conflicts n Identify the Potential Conflicts that Need to be Avoided n Select a Delivery System that Minimizes Such Conflicts 14 Introduction to Construction Dispute Resolution Chapter 10: Conflict Management Plan © Peña-Mora, et. al. 2002

Example: Selection of a Delivery System n Stephenson (1996) • Establish a Detailed List of Potential Conflicts Based on Historical Data or Personal Experience • Identify the Relationships Between the Participants (For Ex, Owner-CM, Owner-Designer) • For Each Delivery System, Match the Potential Conflict with the Concerned Relationships and Give it a Specific Number of Points • Add up the Total Number of Points for Each Delivery System 15 and Choose the Best Approach Introduction to Construction Dispute Resolution Chapter 10: Conflict Management Plan © Peña-Mora, et. al. 2002

Outline ü Conflict Management Process ü Identifying Possible Conflicts ü Effect of Delivery System on Identifying Conflicts Ø Analyzing Identified Conflicts • Probability of Occurrence • Impact of Conflict • Combined Conflict Exposure n Designing the Management Plan • Prioritizing and DART Implementation • Identification : Who Is Responsible? • Cost/Benefit Issues • Contingency Plan • Computer Applications n 16 Importance of Review • Conflict Resolution Indexes Introduction to Construction Dispute Resolution Chapter 10: Conflict Management Plan © Peña-Mora, et. al. 2002

Analyzing Identified Conflicts n Probability of Occurrence of Conflicts n Impact of Potential Conflicts on Project 17 Introduction to Construction Dispute Resolution Chapter 10: Conflict Management Plan © Peña-Mora, et. al. 2002

Examples n Probability of Occurrence of Conflicts • Assume that the Identified Sources of Conflict Are Misunderstandings, Unrealistic Expectations and Poor Communication, Compare the Two Cases: – Case 1 : Owner and Contractor With Previous Experience Together, in the Same Geographic Region – Case 2 : Owner Venturing into a Neighboring Country and Working with an Unfamiliar Contractor n Impact of Potential Conflicts on Project • Two Similar Projects With Introduction of Design Change Halfway Through Construction – Project 1 : Design-Bid-Build Approach – Project 2 : Design-Build Approach 18 Introduction to Construction Dispute Resolution Chapter 10: Conflict Management Plan © Peña-Mora, et. al. 2002

Outline ü Conflict Management Process ü Identifying Possible Conflicts ü Effect of Delivery System on Identifying Conflicts ü Analyzing Identified Conflicts Ø Probability of Occurrence • Impact of Conflict • Combined Conflict Exposure n Designing the Management Plan • Prioritizing and DART Implementation • Identification : Who Is Responsible? • Cost/Benefit Issues • Contingency Plan • Computer Applications n 19 Importance of Review • Conflict Resolution Indexes Introduction to Construction Dispute Resolution Chapter 10: Conflict Management Plan © Peña-Mora, et. al. 2002

Probability of Occurrence n Organizational Issues n Uncertainty 20 Introduction to Construction Dispute Resolution Chapter 10: Conflict Management Plan © Peña-Mora, et. al. 2002

Organizational Issues n Structure Conflict: Example: Contract Terms • Case 1 : Fair and Reasonable Allocation of Risk Low Probability • Case 2: Unfair, Unreasonable Allocation of Risk High Probability n Process Conflict: Example: Performance and Quality • Case 1: Cost-Plus, Quality Driven Projects, Inspection Staff Low Probability • Case 2: Competitive Bids Award to Lowest Bidder, Bad Reputation High Probability n People Conflict: Example: Management • Case 1 : Long Distinguish Solid Managers Low Probability 21 • Case 2 : Inexperienced Participants High Probability Introduction to Construction Dispute Resolution Chapter 10: Conflict Management Plan © Peña-Mora, et. al. 2002

Uncertainty n External Uncertainty : Example: Political Risks • Case 1 : Stable, Well Developed Governments Low Probability • Case 2 : Afghanistan During the Soviet Invasion Throughout the 1980’s High Probability n Internal Uncertainty : Example : Unforeseen Site Conditions • Case 1 : Open, Above Ground Projects with Adequate Investigation Low Probability • Case 2 : Lack of Subsurface Investigation for All Participants High Probability 22 Introduction to Construction Dispute Resolution Chapter 10: Conflict Management Plan © Peña-Mora, et. al. 2002

Outline ü Conflict Management Process ü Identifying Possible Conflicts ü Effect of Delivery System on Identifying Conflicts ü Analyzing Identified Conflicts ü Probability of Occurrence Ø Impact of Conflict • Combined Conflict Exposure n Designing the Management Plan • Prioritizing and DART Implementation • Identification : Who Is Responsible? • Cost/Benefit Issues • Contingency Plan • Computer Applications n 23 Importance of Review • Conflict Resolution Indexes Introduction to Construction Dispute Resolution Chapter 10: Conflict Management Plan © Peña-Mora, et. al. 2002

Impact of Conflict n Quantification Tools • Historical Data • Experience and Knowledge n Example • Weather: Low Impact in Construction ‘ Friendly’ Environment and High Impact in Areas Prone to Natural Disasters 24 Introduction to Construction Dispute Resolution Chapter 10: Conflict Management Plan © Peña-Mora, et. al. 2002

Outline ü Conflict Management Process ü Identifying Possible Conflicts ü Effect of Delivery System on Identifying Conflicts ü Analyzing Identified Conflicts ü Probability of Occurrence ü Impact of Conflict Ø Combined Conflict Exposure n Designing the Management Plan • Prioritizing and DART Implementation • Identification : Who Is Responsible? • Cost/Benefit Issues • Contingency Plan • Computer Applications n 25 Importance of Review • Conflict Resolution Indexes Introduction to Construction Dispute Resolution Chapter 10: Conflict Management Plan © Peña-Mora, et. al. 2002

Combined Conflict Exposure n Step 1 : Calculate Conflict Exposure=P(C)x L(C) Where: • P(C) Is the Probability of Occurrence • L(C) Is the Impact of Occurrence n Step 2: Group Conflicts Into Priority Levels: • Group A : 10 -20% of the Top Conflicts Accounting for Roughly 60% or More of the Total Potential Impact • Group B : Conflicts not in A or B • Group C : Large % of the Bottom Conflicts Accounting for 10% or Less of the Total Potential Impact 26 Introduction to Construction Dispute Resolution Chapter 10: Conflict Management Plan © Peña-Mora, et. al. 2002

Example: $200 M Project Risk Exposure: P(c) x L(c) Large Problem P(c)=0. 10 L(C)=$25 M Project (no mitigation strategy) Medium Problem P(c)=0. 20 L(C)=$5 M Small Problem P(c)=0. 70 L(C)=$1 M 2. 5 M 1 M 10. 5 M 0. 7 M 27 Introduction to Construction Dispute Resolution Chapter 10: Conflict Management Plan © Peña-Mora, et. al. 2002

Outline ü Conflict Management Process ü Identifying Possible Conflicts ü Effect of Delivery System on Identifying Conflicts ü Analyzing Identified Conflicts ü Probability of Occurrence ü Impact of Conflict ü Combined Conflict Exposure Ø Designing the Management Plan • Prioritizing and DART Implementation • Identification : Who Is Responsible? • Cost/Benefit Issues • Contingency Plan • Computer Applications n 28 Importance of Review • Conflict Resolution Indexes Introduction to Construction Dispute Resolution Chapter 10: Conflict Management Plan © Peña-Mora, et. al. 2002

Designing the Management Plan n Prioritize The Sources Of Conflict. n Implement Dart To Avoid/prevent Conflict Using Techniques In Stage 1 And Partnering. n Implement Dart To Resolve Conflict, Using Techniques In Stages 2 Through 5. n Identify Each Participant’s Role. n Perform A Cost/benefit Analysis Of The Conflict Management Plan. n Develop A Contingency Plan. n Review With All Participants And Update As Necessary. 29 Introduction to Construction Dispute Resolution Chapter 10: Conflict Management Plan © Peña-Mora, et. al. 2002

Outline ü Conflict Management Process ü Identifying Possible Conflicts ü Effect of Delivery System on Identifying Conflicts ü Analyzing Identified Conflicts ü Probability of Occurrence ü Impact of Conflict ü Combined Conflict Exposure ü Designing the Management Plan Ø Prioritizing and DART Implementation • Identification : Who Is Responsible? • Cost/Benefit Issues • Contingency Plan • Computer Applications n 30 Importance of Review • Conflict Resolution Indexes Introduction to Construction Dispute Resolution Chapter 10: Conflict Management Plan © Peña-Mora, et. al. 2002

Prioritizing and DART Implementation 31 Introduction to Construction Dispute Resolution Chapter 10: Conflict Management Plan © Peña-Mora, et. al. 2002

Outline ü Conflict Management Process ü Identifying Possible Conflicts ü Effect of Delivery System on Identifying Conflicts ü Analyzing Identified Conflicts ü Probability of Occurrence ü Impact of Conflict ü Combined Conflict Exposure ü Designing the Management Plan ü Prioritizing and DART Implementation Ø Identification : Who Is Responsible? • Cost/Benefit Issues • Contingency Plan • Computer Applications n 32 Importance of Review • Conflict Resolution Indexes Introduction to Construction Dispute Resolution Chapter 10: Conflict Management Plan © Peña-Mora, et. al. 2002

Identification: Who Is Responsible? n Agreement on Allocating the Responsibility for Conflicts • Through Contract Clauses • In Conflict Management Plan n Eliminating Confusion Between Clauses and Management Plan 33 Introduction to Construction Dispute Resolution Chapter 10: Conflict Management Plan © Peña-Mora, et. al. 2002

Outline ü Conflict Management Process ü Identifying Possible Conflicts ü Effect of Delivery System on Identifying Conflicts ü Analyzing Identified Conflicts ü Probability of Occurrence ü Impact of Conflict ü Combined Conflict Exposure ü Designing the Management Plan ü Prioritizing and DART Implementation ü Identification : Who Is Responsible? Ø Cost/Benefit Issues • Contingency Plan • Computer Applications n 34 Importance of Review • Conflict Resolution Indexes Introduction to Construction Dispute Resolution Chapter 10: Conflict Management Plan © Peña-Mora, et. al. 2002

Cost/Benefit Issues Risk Exposure P(c) x L(c) P(c) = 0. 10 Large Problem L(c) = $ 25 M Yes 0. 1 x 25 = 2. 5 M P(c) = 0. 20 Medium Problem L(c) = $ 5 M 0. 2 x 5 = 1 M P(c) = 0. 70 Small Problem L(c) = $ 1 M 0. 7 x 1 = 7 M P(c) = 0. 40 Large Problem L(c) = $ 25 M 0. 4 x 25 = 10 M + 2. 5 + 1 + 7 = 10. 5 M Partnering No P(c) = 0. 50 Medium Problem L(c) = $ 5 M 0. 5 x 5 = 2. 5 M P(c) = 0. 20 Minor Problems L(c) = $ 1 M 0. 1 x 1 = 1 M + 10 + 2. 5 + 1 = 13. 5 M 35 Introduction to Construction Dispute Resolution Chapter 10: Conflict Management Plan © Peña-Mora, et. al. 2002

Outline ü Conflict Management Process ü Identifying Possible Conflicts ü Effect of Delivery System on Identifying Conflicts ü Analyzing Identified Conflicts ü Probability of Occurrence ü Impact of Conflict ü Combined Conflict Exposure ü Designing the Management Plan ü Prioritizing and DART Implementation ü Identification : Who Is Responsible? ü Cost/Benefit Issues Ø Contingency Plan • Computer Applications n 36 Importance of Review • Conflict Resolution Indexes Introduction to Construction Dispute Resolution Chapter 10: Conflict Management Plan © Peña-Mora, et. al. 2002

Contingency Plan n List of Options of Both Parties n Strengths and Weaknesses of Conflict Management Plan n Identification of Areas Where No Conflict Mitigation Plan is Implemented n Backup in Case of the Unpredictable (Mainly Litigation) : “What If? ” Process 37 Introduction to Construction Dispute Resolution Chapter 10: Conflict Management Plan © Peña-Mora, et. al. 2002

Outline ü Conflict Management Process ü Identifying Possible Conflicts ü Effect of Delivery System on Identifying Conflicts ü Analyzing Identified Conflicts ü Probability of Occurrence ü Impact of Conflict ü Combined Conflict Exposure ü Designing the Management Plan ü Prioritizing and DART Implementation ü Identification : Who Is Responsible? ü Cost/Benefit Issues ü Contingency Plan Ø Computer Applications n 38 Importance of Review • Conflict Resolution Indexes Introduction to Construction Dispute Resolution Chapter 10: Conflict Management Plan © Peña-Mora, et. al. 2002

Computer Applications 39 Peña-Mora, et. al, 2002 Introduction to Construction Dispute Resolution Chapter 10: Conflict Management Plan © Peña-Mora, et. al. 2002

Outline ü Conflict Management Process ü Identifying Possible Conflicts ü Effect of Delivery System on Identifying Conflicts ü Analyzing Identified Conflicts ü Probability of Occurrence ü Impact of Conflict ü Combined Conflict Exposure ü Designing the Management Plan ü Prioritizing and DART Implementation ü Identification : Who Is Responsible? ü Cost/Benefit Issues ü Contingency Plan ü Computer Applications Ø 40 Importance of Review • Conflict Resolution Indexes Introduction to Construction Dispute Resolution Chapter 10: Conflict Management Plan © Peña-Mora, et. al. 2002

Importance of Review n Importance of Review and Acceptance of the Plan by All the Parties n Objective of Review at Various Stages of Project Life Cycle : Inform All the Parties and Make Them Partners in the Process 41 Introduction to Construction Dispute Resolution Chapter 10: Conflict Management Plan © Peña-Mora, et. al. 2002

Outline ü Conflict Management Process ü Identifying Possible Conflicts ü Effect of Delivery System on Identifying Conflicts ü Analyzing Identified Conflicts ü Probability of Occurrence ü Impact of Conflict ü Combined Conflict Exposure ü Designing the Management Plan ü Prioritizing and DART Implementation ü Identification : Who Is Responsible? ü Cost/Benefit Issues ü Contingency Plan ü Computer Applications ü 42 Importance of Review Ø Conflict Resolution Indexes Introduction to Construction Dispute Resolution Chapter 10: Conflict Management Plan © Peña-Mora, et. al. 2002

Conflict Resolution Indexes Peña-Mora et al. , 2001 43 Introduction to Construction Dispute Resolution Chapter 10: Conflict Management Plan © Peña-Mora, et. al. 2002

Review Process Peña-Mora et al. , 2001 44 Introduction to Construction Dispute Resolution Chapter 10: Conflict Management Plan © Peña-Mora, et. al. 2002

Outline ü Conflict Management Process ü Identifying Possible Conflicts ü Effect of Delivery System on Identifying Conflicts ü Analyzing Identified Conflicts ü Probability of Occurrence ü Impact of Conflict ü Combined Conflict Exposure ü Designing the Management Plan ü Prioritizing and DART Implementation ü Identification : Who Is Responsible? ü Cost/Benefit Issues ü Contingency Plan ü Computer Applications ü 45 Importance of Review ü Conflict Resolution Indexes Introduction to Construction Dispute Resolution Chapter 10: Conflict Management Plan © Peña-Mora, et. al. 2002

Kelly’s Plan 46 Introduction to Construction Dispute Resolution Chapter 10: Conflict Management Plan © Peña-Mora, et. al. 2002

Brock’s Plan 47 Introduction to Construction Dispute Resolution Chapter 10: Conflict Management Plan © Peña-Mora, et. al. 2002

Summary n Conflict Management Plan • Vital Step in Construction Projects • Often Overlooked • Conceived in the Planning Phase and Reviewed Throughout Project Life Cycle • Identifying Conflicts and Analyzing Their Impacts • Prioritizing Conflicts • Application of Dispute Avoidance Techniques • Design of a Resolution Procedure • Allocation of Risks Between Participants 48 Introduction to Construction Dispute Resolution Chapter 10: Conflict Management Plan © Peña-Mora, et. al. 2002

References n [Pena-Mora et al. , 2001] : Pena-Mora, Feniosky and Tamaki, Tadatsugu (2001). Effect of Delivery Systems on Collaborative Negotiations for Large-Scale Infrastructure. ASCE Journal of Management in Engineering, Vol. 17 (2), April 2001. n [Peña-Mora et al, 2002] : Peña-Mora, F. , Sosa, C. , and Mc. Cone, S. Introduction to Construction Dispute Resolution. Prentice Hall, New Jersey, 2002 n [Stephenson, 1996] : Stephenson, R. (1996). Project Partnering for the Design and Construction Industry. Wiley. New York. 1996. Pfleeger, Shari Lawrence. Software engineering: Theory and Practice. Upper Saddle River, NJ. Prentice Hall. 2001. Jalote, P. An integrated approach to software engineering. New York. Springer. 1997. Braude, Eric J. Software engineering: An object-oriented perspective. New York. Wiley. 2001. 49 Introduction to Construction Dispute Resolution Chapter 10: Conflict Management Plan © Peña-Mora, et. al. 2002