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]
Intelligent Engineering Systems Laboratory
Center for Construction and Research Education
Department of Civil and Environmental Engineering
Massachusetts Institute of Technology
Definitions

WHAT
• Participants’ Interaction for Problem Resolution

WHO
• Participants in All Levels of Management

WHY
• Mutual Acceptable Solution
• Avoidance of Conflict Escalation
• Time and Money Saving, Relationship Rescue

HOW
• Distinction Between Positions and Interests
• Negotiation Style and Techniques Congruent With Atmosphere
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Introduction to Construction Dispute Resolution
Chapter 5: Negotiation
© Peña-Mora, et. al. 2002
Highway Interchange Project
3

Underground Highway Interchange Construction Project

Design-bid-build Contract, 3 ½ Year Project

Major Participants: Owner, Program Manager, General
Contractor, Designer

Major Impedance: Interference With 10 Other Contracts

High Risk of Schedule Delays

Construction Starting up With Incomplete Design Due to
Tight Schedule

13 Major Design Changes After Bid Award

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
4

Could the Owner Have Foreseen the Change Orders Before
Construction Startup?

Could This Change Order Be Handled in a Non
Confrontational Manner?

Could This Change Order Be Resolved Through Simple
Negotiations at the Jobsite?

Should the General Contractor Take a Hard Position on Some
of the Issues that the Owner Would Consider More
Important?

What Are the Interests/positions of the Owner or the
Contractor?

What Are the Sources of Power of the Negotiating Parties?

Are the Interests of the Owner and the Contractor
Aligned?
Introduction to Construction Dispute Resolution
Chapter 5: Negotiation
© Peña-Mora, et. al. 2002
Outline

The Field of Negotiation

Positions versus Interests

Negotiation Styles

Preparation

Step Negotiation

Structured Negotiations

Facilitated Negotiations/Meetings
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Introduction to Construction Dispute Resolution
Chapter 5: Negotiation
© Peña-Mora, et. al. 2002
The Field of Negotiation

Theories of Negotiation Taught in Business and Law School
Programs

Negotiation as the Second Stage Following Prevention and
the First Phase in Dispute Resolution

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

Result : Fair and Amicable Settlement Through
Communication, Win/win Outcome

No Involvement of a Third-Party
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Introduction to Construction Dispute Resolution
Chapter 5: Negotiation
© Peña-Mora, et. al. 2002
Outline

The Field of Negotiation

Positions versus Interests

Negotiation Styles

Preparation

Step Negotiation

Structured Negotiations

Facilitated Negotiations/Meetings
7
Introduction to Construction Dispute Resolution
Chapter 5: Negotiation
© Peña-Mora, et. al. 2002
Positions vs. Interests

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.”
8

Interest-Based Negotiations Leading to “NonZero Sum” Solutions and Avoiding Court

A “Zero Sum” Solution is When Benefits for One
Party Are Expenses for the Other

“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


9
A Position-Based Negotiation Between SUB and GC:
•
SUB: I will not be able to finish on time.
•
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.
•
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:
•
SUB: I will not be able to finish on time.
•
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.
•
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

Substantive: Money, Time, Long-term Market

Procedural: Confidentiality, Protocol,
Administration

Psychological: Need for Respect, Status, Security,
Recognition
10
Hollands, 1989
Introduction to Construction Dispute Resolution
Chapter 5: Negotiation
© Peña-Mora, et. al. 2002
Outline

The Field of Negotiation

Positions versus Interests

Negotiation Styles

Preparation

Step Negotiation

Structured Negotiations

Facilitated Negotiations/Meetings
11
Introduction to Construction Dispute Resolution
Chapter 5: Negotiation
© Peña-Mora, et. al. 2002
Negotiation Styles

Avoiding: Ignoring Worthless Problems

Competing: Refusing to Budge

Accommodating: Meeting the Interests of
Requests of the Other Side

Compromising: Finding the Middle Ground When
All Parties Have Valid Complaints

Collaborating: Finding a Common Ground
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Introduction to Construction Dispute Resolution
Chapter 5: Negotiation
© Peña-Mora, et. al. 2002
Examples of Negotiation Styles

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.
• Situation2 : 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.

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

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

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 6day Time Extension

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

The Field of Negotiation

Positions versus Interests

Negotiation Styles

Preparation

Step Negotiation

Structured Negotiations

Facilitated Negotiations/Meetings
15
Introduction to Construction Dispute Resolution
Chapter 5: Negotiation
© Peña-Mora, et. al. 2002
Preparation

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 Contractor2,
the BATNA is $100,000

Identification of the Sources of Power of Each
Party

Determination and Prioritization of Needs and
Interests Prior to Facing the Other Party

Developing Solutions Acceptable to Both Sides
16
Introduction to Construction Dispute Resolution
Chapter 5: Negotiation
© Peña-Mora, et. al. 2002
Outline

The Field of Negotiation

Positions versus Interests

Negotiation Styles

Preparation

Step Negotiation

Structured Negotiations

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)
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

The Field of Negotiation

Positions versus Interests

Negotiation Styles

Preparation

Step Negotiation

Structured Negotiations

Facilitated Negotiations/Meetings
19
Introduction to Construction Dispute Resolution
Chapter 5: Negotiation
© Peña-Mora, et. al. 2002
Structured Negotiations Steps

Selection of Authorized Agents by Each Party

Final Settlement of Some Disputed Items by Agents

Adjudication of Unresolved Disputed Items by a Third Party
Neutral

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

Process Control and Time Saving

Expertise of Agents
21
Introduction to Construction Dispute Resolution
Chapter 5: Negotiation
© Peña-Mora, et. al. 2002
Outline

The Field of Negotiation

Positions versus Interests

Negotiation Styles

Preparation

Step Negotiation

Structured Negotiations

Facilitated Negotiations/Meetings
22
Introduction to Construction Dispute Resolution
Chapter 5: Negotiation
© Peña-Mora, et. al. 2002
Facilitated Negotiations

Neutral third party acting as a facilitator

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

Role of Facilitator
• Channel of Communication
• Translator of Position into Common Ground for
Settlement

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

The Field of Negotiation

Positions versus Interests

Negotiation Styles

Preparation

Step Negotiation

Structured Negotiations

Facilitated Negotiations/Meetings
25
Introduction to Construction Dispute Resolution
Chapter 5: Negotiation
© Peña-Mora, et. al. 2002
Highway Interchange Project

High Potential of Conflict Prior to Construction Startup

Delivery System (DBD) Incompatible With the Incomplete
Design

Changes, Variations and External Uncertainty

Incomplete Scope Definition-internal Uncertainty

Owner and Contractor With Similar Interests

Successful Interest Based Negotiation

Collaborative/compromising Strategy

Equitable Cost Compensation for the Contractor

$US 31 million Paid to Contractor at 80% Completion

An Independent 3rd Party Hired by the Owner to Verify the
Numbers

Construction Completion on Time
26
Introduction to Construction Dispute Resolution
Chapter 5: Negotiation
© Peña-Mora, et. al. 2002
Summary
27

Negotiation as the First Stage after the Occurrence of a
Dispute

Participants with High Degree of Control Over the Possible
Outcomes

Possible Involvement of a Third Party Facilitator

Interests Based rather than Positions Based Negotiations

Attempt to Reach a Non-zero Sum solution with a Win-win
Outcome

Different Negotiation Styles: Avoiding, Competing,
Accommodating, Compromising, Collaborating

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
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28
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[AAA, 1996] : American Arbitration Assiociation. Building Success for the 21st 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. 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 McCone, 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, c1987.
[Thomas, 1976]: Thomas, Kenneth. Handbook of Industrial and Organizational Psychology. Chicago.
Rand McNally 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