www.NAEPnet.org
CONSTRUCTION AND RENOVATION
DISPUTE RESOLUTION
Mediation, Arbitration, Litigation?
Terms and Conditions
Damages – Liquidated vs. Actual
C. G. “Sonny” Jester
Managing Director
FTI Consulting
Construction Solutions
Robert Ferguson
Vice President
Hill International, Inc
Facilities Institute
July 9 - 12, 2012
Houston, Texas
Construction and Renovation Claims
General Trends
• Disputes of all types were up in 2010
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Contract
Regulatory
Financial entity insolvency
Whistleblower
Patent Infringement
Labor & Employment
• All up in the Engineering and Construction sector
Facilities Institute
July 9 - 12, 2012
Houston, Texas
Construction and Renovation Claims
Industry Trends
• Increase in E&O claims
o Less design, more turnaround
• Increase in bond claims
o Defects from boom times
• Increase in not paying last draw
o More equity demanded by lenders
o Increase in lien claims
Facilities Institute
July 9 - 12, 2012
Houston, Texas
Construction and Renovation Claims
2011 Trends
• Overall 2011 claims down from 2010
o Except for internal investigations and regulatory actions
• But most predictions are for an increase over the next
12 months
o Reasons? Stricter regulation and growth
o Economy dropped 20% as reason for concern
• Contract litigation remains significant concern
o Along with labor and employment
Facilities Institute
July 9 - 12, 2012
Houston, Texas
Financial Concerns
• Fewer entities willing to initiate litigation
o But litigation costs increasing
o 39% of billion dollar companies in US hit with
1 or more suits with claims over $20M
• Specific cost concerns
o E-discovery
o Outside Counsel costs
• Intangible Cost
o Disruption
Facilities Institute
July 9 - 12, 2012
Houston, Texas
Responses to Financial Concerns
• Make costs more predictable
o Alternative Fee Arrangements jumped again
last year
o Contingent or Conditional Fees
• Reward based fees
o Fixed Fee or Capped Fee
o Blended Rates
• In House Staffing increasing
o More outside counsel—spread the work
Facilities Institute
July 9 - 12, 2012
Houston, Texas
• Higher construction costs
o But less ability to pass along
o AGC 14Jul11—construction materials up 8.3%
over 12 mos., but price of finished buildings up
an average of 2%
o Increase in Defects claims
• More Contractors going under
o Increase in Lien claims
o Bond claims and increase in completion costs
Facilities Institute
July 9 - 12, 2012
Houston, Texas
• 28Jul11, AIA projected a 5.6% decline in
nonresidential construction spending
o But also forecast a 6.4% increase in 2012
• 7Jul11, AIA reported that the lack of new
architectural work continued in mid-2011
o But there is research showing a dramatic
increase in early 2011 of new multifamily
residential projects
Facilities Institute
July 9 - 12, 2012
Houston, Texas
How does this translate to higher ed procurement?
• UK study shows:
o Litigation involving procurement tenders in
higher ed increased over past 3 years…
500%
Facilities Institute
July 9 - 12, 2012
Houston, Texas
• Companies providing services to universities
increasingly adversarial
• Transparency paramount
o Anything can be spun as favoritism or
improper contact
• Move toward collaborative buying
o More to lose potentially with each tender
opportunity
Facilities Institute
July 9 - 12, 2012
Houston, Texas
What does this all mean?
• You and your institution are more likely to get
challenges if not claims
• Government regulation gives more venues and
more bases for claims
• Poor economy makes each contract more
important
• Litigation climate makes it more acceptable to
pursue a claim
o Less loyalty
Facilities Institute
July 9 - 12, 2012
Houston, Texas
Examples
• Texas Education Code
• Specific procurement procedures
o Best value procurement
Facilities Institute
July 9 - 12, 2012
Houston, Texas
How do we resolve these claims?
• First and foremost…
Develop a Risk Identification
and Mitigation plan…
And AVOID the Risk if possible
Facilities Institute
July 9 - 12, 2012
Houston, Texas
How do we resolve these claims?
Alternatives to Litigation
• Litigation remains preferred mode of
resolution
o Except in international disputes
• Versus Arbitration
o History and trends in how arbitration
perceived
Facilities Institute
July 9 - 12, 2012
Houston, Texas
Litigation Pros and Cons
• “Litigation…a process whereby one gives up
their skin in the hopes of retaining their bones.”
• Defined process with established rules and
time frames
• Put your future in hands of a decision maker
who is not versed in your industry
• Appeals possible
• Expensive process
o Counsel and experts
o Ties up your people and finances
Facilities Institute
July 9 - 12, 2012
Houston, Texas
Arbitration Pros and Cons
• Less formal
o Adaptable to your situation
• Shorter time frames
o More cost effective
• Expert decision makers
o Solomon-like decisions
o Virtually NO APPEAL
Facilities Institute
July 9 - 12, 2012
Houston, Texas
Alternative Dispute Resolution
• Mediation…the most recognized
o Different Types
o Advantages/disadvantages of each
• Med-Arb Proceeding
o Process and advantages
Facilities Institute
July 9 - 12, 2012
Houston, Texas
ADR
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AIA - Initial Decision Maker
FIDIC – high level negotiations
Dispute Review Boards
Private ADR process/procedures
o Examples
Facilities Institute
July 9 - 12, 2012
Houston, Texas
CHOOSING YOUR DISPUTE RESOLUTION METHOD
Contractual form vs. Proprietary concept
• Not mutually exclusive
• Should be set and clear from contract
o With defined and considered rules
• But process should not be pro forma
• Should be bought into by contractors, consultants,
subs and suppliers
o Incorporated into all contracts
o Published in tender/bid documents
Facilities Institute
July 9 - 12, 2012
Houston, Texas
You Have a Claim, and Are into the ADR Process…
Now What?
• What types of damages are recoverable?
o How are they calculated?
o Is there any certainty?
Facilities Institute
July 9 - 12, 2012
Houston, Texas
Liquidated vs. Actual Damages
• Liquidated Damages
o Contractual entitlement
o How calculated?
o Penalty vs. reasonable estimation?
• Actual Damages
o How do you establish?
o Standard in litigation (state/federal) vs.
mediation and/or arbitration
Facilities Institute
July 9 - 12, 2012
Houston, Texas
What else can you recover?
• Costs of pursuing or defending claim?
• Consequential damages?
o Have you waived?
• Interest?
• Insurance or bond premiums?
• Damages for delay?
• Damage to your reputation?
• Lost revenue?
o Tuition or grants or other?
Facilities Institute
July 9 - 12, 2012
Houston, Texas
Final Recommendations…
• Don’t wait for claim to come to you
• Have a plan
o Addressed before you put out the RFP
o With a defined process
o That anticipates your risks and how to mitigate
or minimize that risk to you
o And that allows you to AVOID the Dispute as
first option
• Or resolve with as much predictability as possible
Facilities Institute
July 9 - 12, 2012
Houston, Texas
Thank you…
Questions?
Facilities Institute
July 9 - 12, 2012
Houston, Texas