Chapter 7
Impasse and Alternative
Dispute Resolution (ADR)
7-2
Possible Negotiation Outcomes
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In general, negotiations will likely result in:
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Agreement – both parties achieve gains
No Agreement – one party walks away
exercising its BATNA
Impasse – both parties continue to desire an
agreement but reach impasse
Alternative Dispute Resolution – at impasse
parties seek a third party to move discussions
forward
Negotiation Process
Continuum
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7-3
Impasse should not be viewed as the
endpoint of discussion, but as a point that
leads to a method of ADR, and then
settlement:
Preparation
Opening Offer
Bargaining
Impasse
ADR
Settlement
Negotiation Skills
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7-4
Skill 7.1: View an impasse as a temporary
situation
Skill 7.2: Anticipate settlement pressure, but
follow your BATNA
Skill 7.3: If an impasse occurs, consider
mediation
Skill 7.4: If negotiation and/or impasse fail,
consider arbitration
Skill 7.5: If appropriate consider hybrid forms of
ADR
7-5
Chapter Case: Hunt Manufacturing
Company
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Douglas Hunt at age 70 decided to sell his
company, Hunt Mfg. Co.
Rick Thomas, a Hunt board member sought to
acquire HMC, but his “due diligence” process
uncovered a sexual harassment suit
Lynn Stephen, former HMC sales director,
claimed a “hostile work environment”
7-6
Chapter Case: Hunt Manufacturing
Company (cont.)
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Investigation by HMC’s, HR director confirmed
the incidents
Insurance company agreed to pay a claim up to
$250,000 if Stephan and HMC agree to
mediation
Douglas Hunt suffered a massive heart attack
and HMC board contacted Thomas – who agreed
to an acquisition if the lawsuit was settled
ADR: Overview
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7-7
Increasingly negotiators when at an impasse turn to a
third party (ADR)
ADR = an alternative to litigation, in which a neutral
third party utilizes mediation, arbitration, or a hybrid
form of the two
ADR – now commonly used in a variety of fields:
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Labor-management
Commercial disputes
Landlord-tenant
Small claims
Employment issues
Family disputes
Neighbor vs. neighbor
International business
What Are Common Causes of
Negotiation Impasse?
1.
2.
3.
4.
5.
7-8
No real ZOPA – thus no possible settlement
point
Entrenchment – by one or both parties in their
position(s) (“heat of the battle”)
Unskilled negotiators – fail to discover a
proposal with mutual gains
One or more parties had no real intention to
settle
Settlement pressure – as a negotiation
approaches a party’s resistance point and
possible deal they feel pressure and walk away
7-9
Why Has ADR Increased in Use?
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To achieve a settlement, compared to
litigation, ADR:
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Cost: often less than litigation
Complexity of issues: parties can choose a
knowledgeable third party
Time: often is faster
Confidentiality: mediation, in particular, is a
private process (courts are public)
Avoid disastrous decision: mediation, in
particular, can keep a party from “losing” a
decision because the parties develop the final
decision
7-10
Contract Clause Specifying the Use of Mediation and
Arbitration to Settle International Disputes
Any dispute, controversy, or claim arising out of or in
connection with this contract, or the breach, termination, or
invalidity thereof, shall first be referred to mediation in accordance
with the Rules of the Mediation Institute of the Stockholm
Chamber of Commerce, unless one of the parties objects. If one
of the parties objects to mediation, or if the mediation is
terminated, the dispute shall be finally resolved by arbitration in
accordance with the Rules for Expedited Arbitration of the
Arbitration Institute of the Stockholm Chamber of Commerce. The
place of arbitration will be Indianapolis, Indiana, the language to
be used in the arbitral proceedings shall be English, and the
arbitral tribunal shall be composed of a single arbitrator.
Mediation
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Evolved over the past 30 years as the preferred
method of conflict resolution
Alternative Dispute Resolution Act of 1998
requires local rules
Defined: Mediation includes three elements:
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7-11
1. A private, confidential process
2. Third party (neutral)
3. Facilitation of a mutually acceptable resolution
Mediator does not usually offer proposals or have
any authority to force agreement
Mediator Sources
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7-12
Federal Mediation and Conciliation
Services (FMCS)
American Arbitration Association (AAA)
Local governments
University-based centers
Non-profit associations
7-13
Steps in the Mediation Process
1. Request by the parties of mediator services
2. Initial conference to explain role of mediator,
rights of parties
3. Schedule of session(s) of private meeting(s)
4. Formal retainer is set by an Agreement to
Mediate; fee shared, ground rules
7-14
Steps in the Mediation Process
5. Information gathered by the parties
6. Facilitation by the mediator; OSLO- orientation;
story telling by two parties; listing of issues;
outline resolutions of issues
7. Settlement is reached, mutual agreements
determined by the parties
8. Agreement may/may not be signed by the
parties and submitted to their attorneys, court
Approaches to Mediation 7-15
(in ascending order of intervention by the mediator)
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Collaborative mediation: Mediator in joint
sessions strives to get the parties to
understand the other side’s issues
Evaluative mediation: Mediator in separate
sessions outlines to each party the
strengths and weaknesses of their
positions
Directive mediation: Mediator allows
parties to only speak to him/her, feels
their passion. Mediator may suggest
settlement
7-16
Benefits of Mediation
1. Psychological – avoid stress, trauma of
arbitration, court; a third party has provided a
hearing
2. Savings in time and money – generally greater
than arbitration, court
3. Focus on issues – parties reevaluate their own
and others needs
4. Mediation works!
5. Control – of any settlement remains totally with
the parties
6. Confidentiality – all discussions are private,
occur only between the parties and mediator
Tactics for Success:
Rules for Mediators
7-17
1. Create a positive atmosphere – sit parties
together; caucus; identify mutual goals and
successes
2. Maintain neutrality – which is not always easy
3. Absorb conflict – remain calm, expressionless;
make reflective statements
4. Provide reality checks – do not give advice or
suggest solutions but ask if one is realistic
5. No conscience – don’t evaluate a solution as
“fair” or “good” or “best”; only job is to move
discussion forward
Arbitration
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Distinctly different from mediation
Defined: three critical elements
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7-18
The parties signed a contract requiring
arbitration to resolve conflicts
A neutral third party
Decision is final and binding
Federal Arbitration Act (1925) “Congress
declared a national policy favoring
arbitration over the…litigation process”
7-19
Two-Party, Single-Issue Negotiation
Steps in Arbitration
1.
2.
3.
4.
5.
6.
Preliminary hearing
Opening statements
Rules of evidence
Witnesses
Summation
Arbitrator’s award
and opinion
7-20
7-21
Advantages of Arbitration:
1. Parties get a decision – the “over factor”
can be great (the conflict is over)
2. Less costly in time/money than litigation
3. Neutral, third party decision maker
4. Parties have input in selection of arbitrator
7-22
Potential Disadvantages of
Arbitration
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“Playing God”: Arbitrators are generally
fact-oriented, impersonal decision-makers
The “chilling effect”: Negotiators that
expect arbitration may “cool” their efforts
Surface bargaining: Negotiators from the
start may not engage in serious bargaining
and seek an impasse and arbitration
7-23
Potential Disadvantages of
Arbitration (cont.)
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Final-Offer Arbitration:
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Both sides submit their last offer and the
arbitrator must choose one of the two
Can eliminate the “chilling effect”
Combined Method (traditional and final
offer)
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Arbitration may choose the settlement point
they believe is the best OR a final offer
Illustration of Three Arbitration Decision Methods:
Conventional, Final-Offer, and Combined
Two parties are disputing the value of a half-acre housing lot in a new
subdivision. Other half-acre lots have sold in the past year in the range of
$45,000 to $65,000 depending on exact size, location, flatness, existing
mature trees, proximity to a proposed park or power lines, and other
factors which affect desirability. The lot in question has no decided
advantage or disadvantage in comparison to other lots. To achieve a
quick resolution, the parties submitted the issue to arbitration. The last
positions of the parties as revealed to the arbitrator were Party A:
$25,000, and Party B: $80,000. The arbitrator then suggested a final-offer
process, which the parties accepted, and their final offers were Party A:
$45,000 and Party B: $68,000. The arbitrator, still not satisfied that he
could render a fair decision, suggested the combined process, which the
parties accepted. The arbitrator then carefully reviewed the distinct
attributes of the other lots that had recently sold in comparison to the lot
in question, and decided that $55,000 was the fair value.
Illustration of Three Arbitration Decision
Methods: Conventional, Final-Offer, and
Combined (cont.)
If conventional arbitration had been utilized, the arbitrator would have had a
more difficult time deciding a fair value since the last positions, $25,000 and
$80,000, were so far apart. Even if the decision was the same, $55,000 would
have represented a $30,000 “loss” to party A, and a $25,000 “gain” to party B.
If final-offer had been utilized the arbitrator would have been required to
choose either $45,000 or $68,000 as the value—a substantial variation from
what he believed to be the fair value of $55,000. By utilizing the combined
method, the arbitrator is able to select a value that he, as an impartial third
party, believes is fair, and is within a reasonable range of the two final offers
made by the parties.
A: Last
A: Final
Arbitrator’s
B: Final
B: Last
Position
Offer
Settlement
Offer
Position
__________________________X____________________________
$0
$25,000
$45,000
$55,000
$68,000
$80,000
Hybrid Forms of ADR
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7-26
Mediation-Arbitration (Med-Arb)
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Best known hybrid
Two steps:
(1) mediation with deadline,
(2) followed by arb if needed
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Arbitration-Mediation (Arb-Med)
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Newer hybrid
Two steps:
(1) arbitrator makes a decision and keeps it in a sealed envelope
(2) uses mediation (use arb decision if fails)
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Both hybrids can offer the advantages of
both methods