New and evolving methods of alternative dispute resolution (ADR) known as 'collaborative law' and 'co-operative law' are gaining momentum among construction industry players as they are practical and cost effective methods for resolving disputes. These tools provide a 'perfect fit' with the best practice dispute avoidance strategies widely promoted within the construction industry which aim to facilitate a non-adversarial, open and co-operative approach to problem solving.
In this article, we look closely at 'collaborative law' and 'co-operative law', the philosophy behind these methods of ADR, and how they work in practice.
The high cost of contractual disputes
By its own admission, the Australian construction industry is prone to a culture of threats and adversarial attitudes. It is said this culture often polarises the project participants resulting in mistrust, disengagement, poor communication, antagonism and other counter-productive behaviours1. Dispute resolution within this environment often comes at great cost to the parties involved.
The Co-operative Research Centre (CRC) for Construction Innovation (part of the Australian Government's Cooperative Research Program Centre focused on the needs of the property, design and construction sectors) recently estimated that the costs associated with disputes on projects was a massive $5.4 billion per year. The direct 'back end' costs, including the lawyers, the experts and the parties' management time required to resolve those disputes is estimated to range from about $600 million to $800 million per year. Accordingly, the direct costs of resolving those disputes amount to some $6 billion per year2.
Construction Industry Best Practice Project
In early 2009, under the guidance of CRC for Construction Innovation, key construction industry players set out to identify and communicate to other industry stakeholders, improved people management strategies and practical initiatives to better manage and avoid expensive contractual disputes. The project team devised an industry approved best practice guideline to dispute resolution.
Project participants included Curtin University of Technology, the John Holland Group, Leighton Contractors, Queensland Department of Main Roads, Queensland Department of Public Works, RMIT University, Thiess, Department of Main Roads WA, the Association of Consulting Engineers Australia, the Australian Procurement and Construction Council, the Civil Contractors Federation and the Australian Constructors Association.
In April 2009 the participants released the 'Draft Guide to Best Practice for Dispute Avoidance and Proactive Issue Resolution'. The Draft Guide was the first draft in a process of industry consultation. The end product, the Guide to Leading Practice for Dispute Avoidance and Resolution (Guide) was released nationally by the CRC on 17 November 2009 starting in Sydney.
The Guide outlines the need for a broad cultural shift within the industry by participants adopting 'Proactive Issue Resolution' methods. Proactive issue resolution methods aim to avoid and minimise disputes by encouraging project participants to work together to develop an open communication strategy and a genuine commitment to resolving issues in a co-operative and timely manner as they arise. The focus is on maintaining open communication and a co-operative approach.
Implementing proactive issue resolution strategies and the role of collaborative law
The Guide identifies that industry best practice is to utilise proactive issue resolution methods managed either directly through the project team, or by engaging an independent third party facilitators such as Dispute Resolution Boards (DRBs) or a project mediator. Although it is acknowledged that DRBs and mediation are useful ADR tools, arguably these are more effective when utilised as part of a much broader and more flexible collaborative law process.
A collaborative law process allows specialist lawyers to be engaged by the respective parties as part of the proactive issue resolution process before the issues in dispute are cemented and the parties respective positions clearly defined. Too often lawyers are engaged after the parties' battle lines are already drawn and where the opportunity for open forum discussion and meaningful negotiation has passed.
What is collaborative law?
Collaborative law is a relatively new form of ADR used very successfully in the area of Family Law. The cornerstone of collaborative law is that the lawyer/client retainer agreement specifies that the lawyer/client relationship is restricted to the collaborative process and is automatically terminated if the matter is taken to Court by either party to the process. It is a condition that prevents the lawyers involved in the collaborative process, or any member of their firm, from acting for either party in the event that either party withdraws from the collaborative process and pursues formal litigation.
Collaborative law is different from mediation in that the parties and their specialist lawyers work together from the outset through a series of four-way meetings to explore resolution of the dispute. The sole aim of the negotiation process is problem solving rather than constructing a case or maintaining an adversarial position.
The lawyers are engaged as facilitators to assist the parties to try and understand each other, the legal and factual issues involved, and attempt to achieve the originally intended contractual outcomes by exploring a range of potential solutions. The lawyers and project participants together are all responsible for gathering information, facts and opinions and exploring possible solutions that are future focussed and ultimately acceptable to both of the disputing parties.
Much is derived from the parties' commitment to the collaborative process as participation in the process itself encourages the culture of cooperation, open communication and a team environment. The aim is that the parties themselves work to best achieve the originally intended contract outcomes. The process is managed primarily by the lawyers as facilitators which has the benefit of taking the pressure off the project participants.
Negotiations are generally carried out in meetings attended by the disputing parties and their respective lawyers, constituting the 'settlement team'. The process allows for the settlement team to engage experts such as consultants and engineers to assist in better defining the issues in dispute. The experts engaged work impartially as part of the settlement team to help the parties make decisions on an informed basis.
Generally speaking the collaborative law process follows the following steps:
- Identify what is important to the disputing parties and their interests.
- Identify the parties' concerns, and what information is required and what questions need answering to allow the parties to make informed decisions.
- Exchange and gather relevant information/engage experts as required to get all the facts on the table.
- Create the maximum number of possible solutions or alternatives for the parties.
- Evaluate the options and modify and refine them as the key issues become clearer.
- Negotiate an acceptable agreement to all parties.
- Finalise the dispute with closure in the required form.
How can collaborative law be applied to construction contracts?
Although the negotiation process can be flexible it usually involves the parties and their lawyers signing up to a side agreement (Participation Agreement) at the start of the project whereby all parties agree from the outset that they will not litigate or use threats of litigation to resolve any disputes that arise in connection with the contract. If ultimately the collaborative process fails and a party proceeds to formal litigation, both lawyers and their respective firms must withdraw from acting for the disputing parties going forward.
Contracting parties voluntarily accept more responsibility and accountability for dispute resolution when entering into a Participation Agreement. The Participation Agreement and negotiation process itself ensures parties have greater control over the dispute resolution process, and ultimately the outcome.
The collaborative process is usually described in the dispute resolution clause of the construction contract which is triggered by a party issuing a notice of dispute. Within a fixed number of days after issue of a notice of dispute, the parties agree to engage their respective collaborative lawyers to assist the parties to negotiate the dispute under the terms of the Participation Agreement.
The Participation Agreement should make an allowance for the appointment of relevant consultants and experts as part of the process as required, and set out a reasonable time-frame for the negotiation process to take place, usually about eight weeks, subject to any subsequent agreement reached by the parties. If the issues are not resolved after a fixed number of days from the commencement of the process, the settlement team may have the option to refer the matter to an independent mediation. The structure of the process is flexible and may be customised to the needs of the contracting parties on a case-by-case basis or project-by-project basis.
Collaborative law and changes to civil Procedure
Just as the construction industry has identified the need for a cultural shift away from reactive adversarial approaches to dispute resolution, so too the legal industry has identified the need for such a change, and now promotes greater implementation of various forms of ADR.
In late April 2009, the NSW Attorney General's Department released a Discussion Paper outlining a framework for the delivery of ADR services (Discussion Paper)3. The Discussion Paper encourages collaborative law practices in a greater range of civil matters and outlines themes that are consistent with those identified in the Guide, suggesting a shift from the use of traditional litigation methods to the use of co-operative negotiation tools to resolve disputes. An obvious benefit of the collaborative law process is the costs savings over formal litigation. Even where the collaborative law process fails, and the dispute becomes the subject of formal litigation, the issues in dispute are better defined for having been through the collaborative process, thereby saving time and money in the formal proceedings.
What is co-operative law?
The co-operative law model mirrors the collaborative law model, with the exception that no written warranty is provided by the lawyers involved disqualifying them if the matter proceeds to formal litigation. The co-operative law model is more appealing for Legal Aid organisations as it overcomes the disqualification requirement of the collaborative law model when negotiations between the parties break down and the matter proceeds to Court allowing the collaborative lawyers to remain involved. In this sense the co-operative law model is not only appealing to government lawyers, but also to private law firms because it removes the potential severing of the valuable client relationship when the negotiation process breaks down and litigation is commenced with new lawyers. This model may be more attractive to construction industry players who seek to avoid the potential cost of having to bring new lawyers up to speed with issues in dispute in the instance that the collaborative process fails and the dispute goes to formal litigation. However the avoidance of such costs can act as a very real and effective incentive for all parties (clients and lawyers) to ensure, as far as possible, that the collaborative law process works.
Industry players hold the key
Arguably the practical benefit of these emerging forms of ADR is not dependent upon whether or not a disqualification clause is included in a Participation Agreement, but rather depends upon the extent of the commitment of industry players to the concept of a collaborative process. If, in time, the strategies and procedures outlined in the Guide are adopted broadly across the construction industry, industry players will then be open to, and able to benefit from, these emerging methods of ADR which will in turn promote further cultural change within the industry toward proactive issue resolution.
Both the construction and legal industries in Australia have identified the need for major cultural change concerning dispute resolution methods, the concepts of proactive issue resolution, and a co-operative approach to problem solving, incorporating the use of specialist ADR methods to achieve this are earmarked by both camps as a way forward.
1. Draft Guide to Best Practice for Dispute Avoidance and Proactive Issue Resolution, Co-operative Research Centre (CRC) for Construction Innovation, released April 2009 pages 3 & 4.
2. Ibid at page 3.
3. ADR Blueprint- Discussion Paper, Framework for the delivery of alternative dispute resolution (ADR) services in NSW", NSW Attorney general's Department April 2009.
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