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Introduction to Construction Dispute Resolution Stage 2: Negotiation Feniosky Peña-Mora Gilbert W. Winslow Career Introduction to Construction Dispute Resolution Stage 2: Negotiation 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: [email protected] edu Intelligent Engineering Systems Laboratory Center for Construction and Research Education Department of Civil and Environmental Engineering Massachusetts Institute of Technology

Definitions n WHAT • Participants’ Interaction for Problem Resolution n WHO • Participants in Definitions n WHAT • Participants’ Interaction for Problem Resolution n WHO • Participants in All Levels of Management n WHY • Mutual Acceptable Solution • Avoidance of Conflict Escalation • Time and Money Saving, Relationship Rescue n HOW • Distinction Between Positions and Interests 2 • Negotiation Style and Techniques Congruent With Atmosphere Introduction to Construction Dispute Resolution Chapter 5: Negotiation © Peña-Mora, et. al. 2002

Highway Interchange Project n n Design-bid-build Contract, 3 ½ Year Project n Major Participants: Highway Interchange Project n n Design-bid-build Contract, 3 ½ Year Project n Major Participants: Owner, Program Manager, General Contractor, Designer n Major Impedance: Interference With 10 Other Contracts n High Risk of Schedule Delays n Construction Starting up With Incomplete Design Due to Tight Schedule n 13 Major Design Changes After Bid Award n 3 Underground Highway Interchange Construction Project Main Change Order Related to the Closure of the Tunnels; 21% Price Increase From Original Contract Price Introduction to Construction Dispute Resolution Chapter 5: Negotiation © Peña-Mora, et. al. 2002

Case Study: Important Issues n Could the Owner Have Foreseen the Change Orders Before Case Study: Important Issues n Could the Owner Have Foreseen the Change Orders Before Construction Startup? n Could This Change Order Be Handled in a Non Confrontational Manner? n Could This Change Order Be Resolved Through Simple Negotiations at the Jobsite? n Should the General Contractor Take a Hard Position on Some of the Issues that the Owner Would Consider More Important? n What Are the Interests/positions of the Owner or the Contractor? n What Are the Sources of Power of the Negotiating Parties? n Are the Interests of the Owner and the Contractor Aligned? 4 Introduction to Construction Dispute Resolution Chapter 5: Negotiation © Peña-Mora, et. al. 2002

Outline Ø The Field of Negotiation n Positions versus Interests n Negotiation Styles n Outline Ø The Field of Negotiation n Positions versus Interests n Negotiation Styles n Preparation n Step Negotiation n Structured Negotiations n Facilitated Negotiations/Meetings 5 Introduction to Construction Dispute Resolution Chapter 5: Negotiation © Peña-Mora, et. al. 2002

The Field of Negotiation n Theories of Negotiation Taught in Business and Law School The Field of Negotiation n Theories of Negotiation Taught in Business and Law School Programs n Negotiation as the Second Stage Following Prevention and the First Phase in Dispute Resolution n Negotiations Defined as Communications between Parties in an environment of Trust, Collaboration and Objective Alignment to Get Jointly a Solution to a Problem Acceptable by All Parties n Result : Fair and Amicable Settlement Through Communication, Win/win Outcome n No Involvement of a Third-Party 6 Introduction to Construction Dispute Resolution Chapter 5: Negotiation © Peña-Mora, et. al. 2002

Outline ü The Field of Negotiation Ø Positions versus Interests n Negotiation Styles n Outline ü The Field of Negotiation Ø Positions versus Interests n Negotiation Styles n Preparation n Step Negotiation n Structured Negotiations n Facilitated Negotiations/Meetings 7 Introduction to Construction Dispute Resolution Chapter 5: Negotiation © Peña-Mora, et. al. 2002

Positions vs. Interests n Focus in Negotiations on Individual and Collective Interests rather than Positions vs. Interests n Focus in Negotiations on Individual and Collective Interests rather than Positions • Example of a Position: “He wants $100, 000 for the change order now. ” • Example of an Interest: “Although he is willing to do the extra work, he is low on cash and cannot fund the work. ” n n A “Zero Sum” Solution is When Benefits for One Party Are Expenses for the Other n 8 Interest-Based Negotiations Leading to “Non-Zero Sum” Solutions and Avoiding Court “Positional” Bargaining as a Common Practice in Construction: Assuming a Position and Defending it Based on Contract Clauses and Law Introduction to Construction Dispute Resolution Chapter 5: Negotiation © Peña-Mora, et. al. 2002

Positions vs. Interests : Example n A Position-Based Negotiation Between SUB and GC: • Positions vs. Interests : Example n A Position-Based Negotiation Between SUB and GC: • • GC: You will finish as scheduled. • SUB: I need two extra weeks. • GC: You cannot have two weeks. • SUB: If I do not get two weeks, I will not be able to finish on time. • n SUB: I will not be able to finish on time. GC: No, you will finish according to the contract or we will collect damages and replace you. An Interest-Based Negotiation Between SUB and GC: • • GC: Why Can’t you finish as promised? What are the reasons? • SUB: My supplier will not be able to deliver the materials until next week, causing me to finish two weeks behind schedule. • GC: As you know, the schedule is very tight for this project and there is little float available. Are there any other suppliers who can deliver on time? • SUB: Yes, but they are more expensive, more than the damages incurred by finishing late. • 9 SUB: I will not be able to finish on time. GC: Although you are responsible for meeting the milestone, I understand your dilemma. Let me see what I can do. I know some other suppliers that might be able to help. Introduction to Construction Dispute Resolution Chapter 5: Negotiation © Peña-Mora, et. al. 2002

Negotiation Aspects n Substantive: Money, Time, Long-term Market n Procedural: Confidentiality, Protocol, Administration n Negotiation Aspects n Substantive: Money, Time, Long-term Market n Procedural: Confidentiality, Protocol, Administration n Psychological: Need for Respect, Status, Security, Recognition 10 Hollands, 1989 Introduction to Construction Dispute Resolution Chapter 5: Negotiation © Peña-Mora, et. al. 2002

Outline ü The Field of Negotiation ü Positions versus Interests Ø Negotiation Styles n Outline ü The Field of Negotiation ü Positions versus Interests Ø Negotiation Styles n Preparation n Step Negotiation n Structured Negotiations n Facilitated Negotiations/Meetings 11 Introduction to Construction Dispute Resolution Chapter 5: Negotiation © Peña-Mora, et. al. 2002

Negotiation Styles n Avoiding: Ignoring Worthless Problems n Competing: Refusing to Budge n Accommodating: Negotiation Styles n Avoiding: Ignoring Worthless Problems n Competing: Refusing to Budge n Accommodating: Meeting the Interests of Requests of the Other Side n Compromising: Finding the Middle Ground When All Parties Have Valid Complaints n Collaborating: Finding a Common Ground 12 Introduction to Construction Dispute Resolution Chapter 5: Negotiation © Peña-Mora, et. al. 2002

Examples of Negotiation Styles n Avoiding: Compare the two situations • Situation 1 : Examples of Negotiation Styles n Avoiding: Compare the two situations • Situation 1 : Union Workers are upset because there are only 20 bathrooms on-site instead of 22. -This Problem is not worth a lot of time. • Situation 2 : Union Workers are upset because there are 20 bathrooms on-site and no female bathrooms. - This may be a legitimate problem that should not be ignored. n Competing: Compare the two positions • Sub requests some leniency in meeting certain safety requirements. • GC firmly refuses because he /she is responsible for safety on construction site. - Adequate Usage of the Competing Style 13 • Sub continues with the competing style. -Unwise Position Introduction to Construction Dispute Resolution Chapter 5: Negotiation © Peña-Mora, et. al. 2002

Examples of Negotiation Styles n Accommodating: Refer to the Previous Example • The SUB Examples of Negotiation Styles n Accommodating: Refer to the Previous Example • The SUB Should Take an Accommodating Style So He Reaches an Acceptable Outcome Even If He Is at Fault n Compromising: Adverse Weather Conditions • Contractor Asks 10 -day Time Extension. • Owner Thinks That the Weather Does Not Impede the Work. • Both Parties Compromise: the Contractor Is Given a 6 day Time Extension n 14 Collaborating: Contractor and Designer Brought Into the Project Early to Give Their Input and Help Steer the Project Based on Their Expertise Introduction to Construction Dispute Resolution Chapter 5: Negotiation © Peña-Mora, et. al. 2002

Outline ü The Field of Negotiation ü Positions versus Interests ü Negotiation Styles Ø Outline ü The Field of Negotiation ü Positions versus Interests ü Negotiation Styles Ø Preparation n Step Negotiation n Structured Negotiations n Facilitated Negotiations/Meetings 15 Introduction to Construction Dispute Resolution Chapter 5: Negotiation © Peña-Mora, et. al. 2002

Preparation n Determination of the Best Alternative To a Negotiated Agreement • Example: An Preparation n Determination of the Best Alternative To a Negotiated Agreement • Example: An Owner Negotiating with Contractor 1 for the Lowest Price on a Quality Guaranteed Contract- Bid Price=$100, 000. For the Negotiation with Contractor 2, the BATNA is $100, 000 n Identification of the Sources of Power of Each Party n Determination and Prioritization of Needs and Interests Prior to Facing the Other Party n Developing Solutions Acceptable to Both Sides 16 Introduction to Construction Dispute Resolution Chapter 5: Negotiation © Peña-Mora, et. al. 2002

Outline ü The Field of Negotiation ü Positions versus Interests ü Negotiation Styles ü Outline ü The Field of Negotiation ü Positions versus Interests ü Negotiation Styles ü Preparation Ø Step Negotiation n Structured Negotiations n Facilitated Negotiations/Meetings 17 Introduction to Construction Dispute Resolution Chapter 5: Negotiation © Peña-Mora, et. al. 2002

Step Negotiation Communication Lines Step 3 Level 3 (e. g. , V. P. Operations) Step Negotiation Communication Lines Step 3 Level 3 (e. g. , V. P. Operations) Level 2 (e. g. , Project Manager) Level 1 (e. g. , Field Supervisor or Project Engineer) Level 3 (e. g. , Senior Management) Step 2 Level 2 (e. g. , Project Representative Step 1 Level 1 (e. g. , Architect or Engineer) CONTRACTOR ORGANIZATION OWNER ORGANIZATION Peña-Mora, et. al, 2002 18 Introduction to Construction Dispute Resolution Chapter 5: Negotiation © Peña-Mora, et. al. 2002

Outline ü The Field of Negotiation ü Positions versus Interests ü Negotiation Styles ü Outline ü The Field of Negotiation ü Positions versus Interests ü Negotiation Styles ü Preparation ü Step Negotiation Ø Structured Negotiations n Facilitated Negotiations/Meetings 19 Introduction to Construction Dispute Resolution Chapter 5: Negotiation © Peña-Mora, et. al. 2002

Structured Negotiations Steps n Selection of Authorized Agents by Each Party n Final Settlement Structured Negotiations Steps n Selection of Authorized Agents by Each Party n Final Settlement of Some Disputed Items by Agents n Adjudication of Unresolved Disputed Items by a Third Party Neutral n Documentation of Decisions and Administration of Contract Changes 20 Introduction to Construction Dispute Resolution Chapter 5: Negotiation © Peña-Mora, et. al. 2002

Pros of Structured Negotiation n Process Control and Time Saving n Expertise of Agents Pros of Structured Negotiation n Process Control and Time Saving n Expertise of Agents 21 Introduction to Construction Dispute Resolution Chapter 5: Negotiation © Peña-Mora, et. al. 2002

Outline ü The Field of Negotiation ü Positions versus Interests ü Negotiation Styles ü Outline ü The Field of Negotiation ü Positions versus Interests ü Negotiation Styles ü Preparation ü Step Negotiation ü Structured Negotiations Ø Facilitated Negotiations/Meetings 22 Introduction to Construction Dispute Resolution Chapter 5: Negotiation © Peña-Mora, et. al. 2002

Facilitated Negotiations n Neutral third party acting as a facilitator n Two negotiation phases Facilitated Negotiations n Neutral third party acting as a facilitator n Two negotiation phases • Clear definition of both parties’ claims • Exploration of settlement strategies for a win/win outcome 23 Introduction to Construction Dispute Resolution Chapter 5: Negotiation © Peña-Mora, et. al. 2002

The Facilitator n Role of Facilitator • Channel of Communication • Translator of Position The Facilitator n Role of Facilitator • Channel of Communication • Translator of Position into Common Ground for Settlement n Facilitator’s Attributes as Specified by AAA • Impartiality and Trustworthiness • Basic Understanding of Construction • Solid Organizational Skills 24 • Knowledge Of ADR and Arbitration Introduction to Construction Dispute Resolution Chapter 5: Negotiation © Peña-Mora, et. al. 2002

Outline ü The Field of Negotiation ü Positions versus Interests ü Negotiation Styles ü Outline ü The Field of Negotiation ü Positions versus Interests ü Negotiation Styles ü Preparation ü Step Negotiation ü Structured Negotiations ü Facilitated Negotiations/Meetings 25 Introduction to Construction Dispute Resolution Chapter 5: Negotiation © Peña-Mora, et. al. 2002

Highway Interchange Project n n Delivery System (DBD) Incompatible With the Incomplete Design n Highway Interchange Project n n Delivery System (DBD) Incompatible With the Incomplete Design n Changes, Variations and External Uncertainty n Incomplete Scope Definition-internal Uncertainty n Owner and Contractor With Similar Interests n Successful Interest Based Negotiation n Collaborative/compromising Strategy n Equitable Cost Compensation for the Contractor n $US 31 million Paid to Contractor at 80% Completion n An Independent 3 rd Party Hired by the Owner to Verify the Numbers n 26 High Potential of Conflict Prior to Construction Startup Construction Completion on Time Introduction to Construction Dispute Resolution Chapter 5: Negotiation © Peña-Mora, et. al. 2002

Summary n n Participants with High Degree of Control Over the Possible Outcomes n Summary n n Participants with High Degree of Control Over the Possible Outcomes n Possible Involvement of a Third Party Facilitator n Interests Based rather than Positions Based Negotiations n Attempt to Reach a Non-zero Sum solution with a Win-win Outcome n Different Negotiation Styles: Avoiding, Competing, Accommodating, Compromising, Collaborating n 27 Negotiation as the First Stage after the Occurrence of a Dispute Three Techniques in the Negotiation Process : Step, Structured and Facilitated Negotiations Introduction to Construction Dispute Resolution Chapter 5: Negotiation © Peña-Mora, et. al. 2002

References n n n n 28 n [AAA, 1996] : American Arbitration Assiociation. Building References n n n n 28 n [AAA, 1996] : American Arbitration Assiociation. Building Success for the 21 st Century: A Guide to Partnering in the Construction Industry. Dispute Avoidance and Resolution Task Force of the American Arbitration Association. 1996. [Berman, 1995] : Berman, Gary S. , (1995). Facilitated Negotiation, An Effective ADR Technique. Dispute Resolution Journal pp. 18 -29. April-June [Boskey, 1993] : Boskey, James B. , (1993). Blueprint for Negotiations. Dispute Resolution Journal pp. 8 -19. December [Fisher, 1981] : Fisher, Roger, Getting to yes : negotiating agreement without giving in / Boston: Houghton Mifflin, 1981. [Hill, 1995] : Hill, Richard, (1995). Non-Adversarial Mediation. Dispute Resolution Journal pp. 43 -46. July [Hoctor, 1989] : Hoctor, David, (1989). Techniques for the Resolution of Major Construction Contract Disputes. Public Utilities Fortnightly Vol. 123 (9) pp. 26 -30. April 27 [Hollands, 1989] : Hollands, David S. FIDIC Provision for Amicable, Settlement of Disputes. International Construction Law Review. Issue 1. pp. 33 -43. 1989 [Kane, 1992] : Kane, Christopher. Mitigation Construction Contract Disputes. Public Utilities Fortnightly. Vol. 130 (1). pp. 11 -12. July 1992. [Langeland, 1995] : Langeland, Erik, (1995). The Viability of Conciliation in International Dispute Resolution Journal pp. 34 -41. July [Lewicki et al. , 1985] : Lewicki, Roy. Negotiation : readings, exercises, and cases / Homewood, Ill. : R. D. Irwin, 1985. [Peña-Mora et al, 2002] : Peña-Mora, F. , Sosa, C. , and Mc. Cone, S. Introduction to Construction Dispute Resolution. Prentice Hall, New Jersey, 2002. [Susskind et al. , 1987] : Susskind, Lawrence. Breaking the impasse : consensual approaches to resolving public disputes / New York : Basic Books, c 1987. [Thomas, 1976]: Thomas, Kenneth. Handbook of Industrial and Organizational Psychology. Chicago. Rand Mc. Nally College Pub. Co. , 1976. [Treacy, 1995] : Treacy, Thomas B. , (1995). Use of ADR in the Construction Industry. Journal of Management in Engineering Vol. 11 (1) pp. 58 -63. January/February, 1995. [Ury et al. , 1988] : Ury, William. Getting disputes resolved : designing systems to cut the costs of conflict / San Francisco : Jossey-Bass, 1988. Introduction to Construction Dispute Resolution Chapter 5: Negotiation © Peña-Mora, et. al. 2002