PARTNERINGNew Dimensions in Dispute

Prevention and Resolution

By Mark E Appel

The author is the vice presidentof the AAA's Denver regionaloffice, l-le is a past-president ofthe Colorado Council ofMediators and MediationOrganizations and is an adjunctprofessor at the University ofDenver College of Lav\/ and atUniversity College, Universityof Denver.

Partnering is a collaborative contract-ing process. It could be argued that part-nering is not alternative dispute resolu-tion (ADR), but rather an effective man-agenient process using ADR methodolo-gy. Indeed, the primary focus of partner-ing is dispute prevention, as opposed todispute resolution. Since no relationshipis without some conflict, however, theprocess also focuses on the adoption ofefficient and effective dispute resolutiontechniques.

Partnering was created in response toa perception that, too often, the contract-ing process is designed and implementedin an adversarial atmosphere where col-lective needs and interests are either sub-ordinated to individual needs, or ignoredentirely. This leads to mistrust, a lack ofopen communication, and ultimately,conflict. The partnering process respondsby creating a framework for team build-ing, where open communications andcommitments to common goals, mutualrespect and trust can be developed.

Construction contracting exists in a largely adversarialatmosphere where "collective needs and interests are either,subordinated to individual needs, or ignored entirely." The .result? Closed lines of communication, mistrust and escalat-ing disputes. A growing need to counter this divisiveness hasled to the evolution of partnering, a team-building processbased upon mutual trust and respect that nips conflict in thebud and fosters harmonious relationships among owners andcontractors. ••[••• ^ / :<- '« . \ \ « * \ \ ' '_ .

A Brief History

The partnering process was createdin the private sector construction indus-try. In his article, "Partnering inGovernment Contracts, The Ultimate inDispute Resolution?" {]Norld Arhitrationand Mediation Report, October 1990),David P. Johnson, Senior Counsel, U.S.Army Corps of Engineers, traces partner-ing to contracts involving DuPontEngineering and Elour Daniel in the mid-1980s.

Reasons given by corporations andtheir contractors for using partnering aremany, and include the following:

• focus on quality products and ser-vices;reduce costs ("value engineering");fewer field changes and /o r re-work;flexible resource utilization;create competitive advantage;increase project safety;maximize profits for all parties; andencourage innovation.

Positive Expectations

In 1989, the construction industry cre-ated a task force to study the partneringprocess. In the report which ensued, 91%of the contractors and 86% of the ownerssurveyed agreed that with partnering,projects schedules will be more depend-able. Survey respondents were less opti-mistic regarding expectations of improve-ment in project safety (contractors 73%;owners 43%). But, in perhaps the mostcompelling statistical endorsement, con-tractors and owners agreed that withpartnering project costs are reduced by5% and owner's costs by at least 10%.

Recent significant growth in the useof the partnering process has occurred ingovernment contracting. Owners include

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Readings inPartneringF. Carr, "Partnering: DisputeAvoidance the Army Corps ofEngineers Way," The Punchtist,American ArbitrationAssociation, Vol. 14, No. 33(1991).

"Drafting Dispute ResolutionClauses: A PracticalGuide,"American ArbitrationAssociation (1992}.

L. Edelman, etal.. "Partneringin the U.S. Army Corps ofEngineers," IWR Pamphlet 91-ADR.-P-4 (December 1991).

R. Fisher and W. Ury, Gettingto Yes, Houghton Mifflin Co.(1981).

"In Partnering a Creative NewADR Concept, Talk and TeamSpirit Are the Fundamentals,"38 ALTERNATIVES, Vol. 9, No.3 (March 1991).

"In Search of PartneringExcellence," ConstructionIndustry Institute, special publi-cation, 17.1 (July 1991).

"Partnering, A Concept forSuccess," The AssociatedGeneral Contractors ofAmerica (September 1991).

P. Scholtes, The TeamHandbook, How to Use Teamsand Improve Quality, JoinerAssociates Inc. (1988).

State and municipal public works andtrarisportation departments, as well as theU.S. government. One of the earliest his-torical proponents of partnering was theU.S. Army Corp of Engineers. Accordingto Lester Edelman of the Corps, there arecurrently about 150 separate partneringprograms in effect in government con-struction and supply contracts.

Partnering is well-suited to govern-ment contracting. Historically, relation-ships between government owners andcontractors consisted of equal parts fearand loathing. For example, exhibits froman arbitration hearing showing that boththe public owner and general contractorhired claims experts within one month ofthe project start date were an acute indi-cation of the level of each party's mis-trust, lack of communication and ultimateneed for dispute resolution services.From the public owner's perspective, vig-ilance may be based upon a legitimateconcern for the public's interest.However, where mistrust is substitutedfor vigilance, disputes inevitably result.

Part of the problem is the sealed bid,fixed price contracts that have become theindustry standard. Prior to the bid beinglet, precious little communication takesplace between the owner and prospectivecontractors. After the project begins, com-munications are often stilted, with eachside seeking to protect its own perceivedinterests. Getting contracting partners tothink and act as a team is a central tenetto the Corp of Engineers' adoption of thepartnering process.

Another factor is the sheer weight ofbureaucracy which often slows the deci-sion-making process. This is particularlyproblematic in an industry where timingis critical in terms of cost efficiency, profitand loss. It is ironic that purposeful,deliberate decision-making aimed at costeffectiveness may instead be fueling thecontention process.

How Partnering Works

The decision to partner should bemade prior to creation of the contract.Having evaluated the status quo in termsof quality, cost containment and facility

Historically, relationships between government ownersand contractors consisted of equal parts fear andloathing.

of communication, and having made adecision to pursue partnering, the processcan be committed to in the bidding pro-cess (t*. ., government contracting), ornegotiated after careful selection of a suit-able partner. An agreement to partnershould include at least the following ele-ments:

• Goals of the partnering relationship:project performance;project quality;project relations.

• Necessary organizational involve-ment:

commitment to project "team";time frame for selection of partner-

ing retreat facilitator;time frame for participation in the

partnering retreat;commitment to good faith participa-

tion in the partnering process.• Necessary individual involvement:

principals of contracting parties;key project decision-makers;key line decision-makers.

To better illustrate the elements of asuccessful partnering agreement, a sam-ple provided by the American ArbitrationAssociation is reproduced on page 50. Apartnering agreement provided by theU.S. Army Corps of Engineers appears onpage 51.

Keep in mind a critical distinctionthat the partnering process does not serveas a substitute for the parties' contract.The contract creates expectations, legalrights and obligations. The element whichis missing, and what partnering does seekto create, is a sound working relationship.

Is there any interplay between part-nering and contractual liabilities? Whiletypically seen as two distinct aspects ofthe contracting parties' relationship, itwould seem that some effect on contrac-tual relations is likely, perhaps evendesirable. Purported aims of partneringinclude open communication, innovation,and risk and reward sharing. Thesebecome problematic where the underly-ing contract engages in one-sided riskshifting. For example, a contract whichindemnifies the owner, at the expense ofthe contractor, for mistakes in value engi-neering reached through joint communi-cations might serve as a disincentive tomeaningful partnering.

Elements Of Partnering

The core element of partnering is thepartnering retreat. Before the job getsunderway, key decision-makers fromeach of the contracting parties participate

48 JUNE 1993

in a several-day workshop away fromtheir places of business. There, they canget to know each other, listen to eachother's priorities, and come to understandthe needs ^nd interests of their projectpartners. In an effective partneringretreat, the participants will also developthe hallmarks of a successful workingrelationship: open communications, trust,a willingness to work through problems,explore options and create solutions.

To get off on the right foot, the retreatshould be scheduled as soon as practica-ble after the contract is let. One importantearly decision is the selection of partici-pants for the partnering retreat.

Who attends the retreat is in somerespects a iheasure of the contract's com-plexity. A general rule of thumb is that allpersons whose decisions will have signifi-cant impact upon a project's quality,timeliness or cost should be invited.

litator

of a neutral facilitator greatlyprospects for a successful

Retreat Fac

The ustenhancesretreat. Having no vested interest in theproject allows the neutral facilitator toexplore contract concerns, as well as therespective partners' needs and interests.

in a non-threatening manner. A skilledfacilitator can also be of assistance by:

• building camaraderie, a sense of"we";

• creating an atmosphere where cre-ative, innovative thinking isencouraged;

• keeping the focus on problems andoff of people; and

• securing a broad set of project aims(charter or compact).

Where relationships have historicallybeen adversarial, moving contracting par-ties out of their traditional competitivemind-sets and into a shared decision-making environment is quite a challenge.Early in the partnering retreat, the partiesshould engage in exercises that focusthem on reaching consensus and explor-ing interests. These skill-building sessionswill come in handy when the project getsunderway and the first problems arise.

Focus On Project Concerns

After some initial team and skill-building exercises, the parties should,with the assistance of the facilitator,spend some time surfacing any concernsthey may have with the project, andexploring potential solutions.

Partnering has led to com-pleted projects without anyformal disputes. Above,workers constructing a NewYork City hospital.

Rcprintod from r hapter39 of Th(} AltGrr^ativeDispute Resolution Prac-tice Guide (by Roth,Wulff and Cooper) withpermission of LawyersCooperative Publishing,a division of ThomsonLegal Pubdshing Inc.Copyright 1993.

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The AAA's Sample ClauseThe partr)eritig process "creates a framework for team buildlrig,

where open communications and commitments to common goals,mutual respect and trust can be developed." The partnering clausebelow reproduces the elements that should be incorporated into asuccessful partnering agreement:

In order to complete this contract most beneficially for all parties,the parties to this contract agree to form a partnering relationship.This partnering relationship will draw on the strengths of each partyin achieving a quality project. Within days of the date of execu-tion of this contract, the parties will request from the AmericanArbitration Association the appointment of a neutral facilitator forthe partnering retreat. The partnering retreat will take place as soonas is practicable, but in any case within days of the date of exe-cution of this contract. The parties to this contract agree to goodfaith participation in such partnering retreat. Individual participationin such partnering retreat shall be agreed upon by the parties, butshall include at least the following project personnel:

[list personnel names here]

The cost of administering the partnering retreat and the fees andexpenses of the partnering facilitator shall be borne equally by thecontracting parties.

All parties to the contract shouldcommit themselves to creating and sus-taining a quality project. Precepts of totalquality management (TQM) providemodels for product expectations and con-tract performance. For example, barriersmay need to be broken down betweenstrictly defined roles within project man-agement. In construction partnering, con-tractors need to be able to address con-cerns regarding design choices as w ell asconstruction materials and management.If defects are to be prevented, all mem-bers of the project team need to feel com-fortable during the partnering retreat tocomment on every aspect of the projectperformance.

Quality consciousness, as opposed tofear, must become a driving force forproject personnel. By creating an atmo-sphere in which product and project qual-ity comes first, management time oftenotherwise wasted on constant inspectionsand evaluations can be better utilized foranticipating problems and improvingproduct quality. Where quality becomes afocus, project re-work, inefficiency anddelays can be minimized, if not eliminat-ed altogether.

Value Engineering

Money is a powerful motivator.Whether the parties actually take part inexercises during the partnering retreatgeared at accomplishing cost savings forthe project, or whether the time-framelimits participants to only setting goals

regarding such value engineering, this isone topic that should be touched uponduring the course of the retreat. One sureway to create incentives is for projectmanagement to establish a policy andmethodology for sharing cost savingsrealized through value engineering.

A negotiation strategy currently find-ing favor in government contracting is"issue escalation."Contracting partiesagree that when disputes occur, theinvolved parties will negotiate a solution,or carry the problem up to their superiorsquickly. Issue escalation recognizes thatinertia in decision-making is counterpro-ductive. Additionally, encouraging par-ties to explain their rationale to superiorsmay create a joint desire to solve prob-lems rather than simply ignore them orpass them off.

Third-Party ADR

The partnering retreat provides aunique opportunity to do something thatcontracting parties rarely do, which is toacknowledge that disputes do occur, andthink about appropriate methods toresolve those disputes. For instance, theparties might start by looking at the dis-pute resolution provisions, if any, in theircontract.

Standard form contracts in the con-struction industry routinely reference atleast the arbitration process, and fre-quently incorporate the opportunity formediation as well as arbitration. Partiesshould consider whether such provisionsare adequate, or whether they should be"tailored" to meet the needs of the partic-ular contract. Instead of the classic use ofarbitration (work now, grieve later), theparties might agree to establish a disputereview board (DRB) or instant arbitrationprocess, to resolve disputes as they ariseon site.

In a substantial contract, the pricepaid to have neutrals available for hear-ing and resolution during the course ofthe contract may be well worth the dol-lars saved in delay damages, should theirservices be needed. Parties might also atthis time establish qualifications forpotential neutrals, and set the timeframeand parameters for the information shar-ing necessary to make such processeseffective.

Project Charter (Compact)

The last act of participants in thepartnering retreat is drafting and signing-off on a project charter. Charters typically

50 JUNE 1993

look more like compacts than contracts,committing the parties to broad projectgoals. Some of these goals can be easilymeasured. Others, while less tangible, arearguably every bit as essential to the ulti-mate success of the process. Concep-tually, it might be preferable to organizethe charter into separate sections whichaddress partnering relations, dispute res-olution design and performance objec-tives. Agreements commit the parties tobroad project goals such as:

Partnering Relations• surface project concerns as soon as

possible;• communicate openly and honestly;• treat all partners with respect;• commitment to joint problem solv-

ing;• make decisions quickly at lowest

possible level.Dispute Resolution Design• commitment to avoid litigation;• commitment to resolve conflicts at

lowest possible level;• commitment to ADR.Project Performance• finish on time;• finish on budget;• focus on project safety;• commitment to project quality;• commitment to maximize cost sav-

ings/value engineering.

In order to ensure that the goals iden-tified in the project are met, the parties, aspart of the partnering retreat, shoulddevelop an implementation plan includ-ing objective criteria to measure againstperformance, and evaluation forms to beused at monthly meetings to measuresuccess in reaching performance stan-dards.

For example, if project quality is oneof the performance objectives, a standardfor the number of field changes oramount of re-work might be the appro-priate measure of performance. Likewise,if project safety is important, the severityor number of injuries on the project canbe a measure of success. Successful part-nering relationships can be neither devel-oped nor sustained absent the support oftop executives, as well as continuing fol-low-up to monitor partnering success andget the project back on track when prob-lems occur. Any party to the partneringrelationship should be able to convenemeetings quickly, and whenever neces-sary. Additionally, ongoing meetings toevaluate both successes and problemsshould be scheduled.

Prospects for Partnering

What types of projects are ripe for theuse of partnering? Major corporationsand the government have extended theiruse of the process to non-constructionrelated functions. For example. Proctorand Gamble has successfully incorporat-ed the process into its diaper businesspurchasing services. The U.S. ArmyCorps of Engineers has used partneringin its long-term supply contracts.

Several common themes such asenhanced communication, shared risksand rewards, increased quality and costcontainment run through the variousrationales offered by proponents of theprocess.

Because the partnering process takestime, money, and commitment, its use todate has been limited to large, long-termcontracts and projects. Given its recog-nized benefits, partnering should workwell in any long-term commercial ven-ture involving subcontracting, partner-ships, or joint ventures. Partnering mightwork well between subsidiaries of thesame corporation.

Partnering should prove especiallyuseful in international ventures, wherethe contracting parties' already divergentinterests are often further confused bycultural and communication barriers.Pioneered by the construction industry,the promise of partnering far exceeds itsuse to date. •

The Army's ClauseThe U.S. Army Corps of Engineers helped to pave the way for

the use of partnering as a means of dispute prevention and earlyresolution. The following sample partnering clauses appear in theArmy Corps of Engineers IWR Pamphlet 91 ADR-P-4 (Dec, 1991):In order to complete this contract most beneficially for both parties,the Government proposes to form a Partnering relationship with theContractor. This Partnering relationship will draw on the strengths ofeach party in an effort to achieve a quality project done right the firsttime, within budget and on schedule. The Partnering relationshipwill be bilateral and participation will be totally voluntary. Any costsassociated with Partnering will be shared equally with no change incontract price.In order to most effectively accomplish this contract, the Govern-ment is encouraging the formation of a cohesive partnership withthe contractor and its subcontractors. This partnership will strive todraw on the strengths of each organization in an effort to achieve aquality project done right the first time, within budget, and onschedule. This partnership will be bilateral in make-up, and partici-pation will be totally voluntary. Any costs associated with effectingthis partnership will be agreed to by both parties, and will be sharedequally with no change in contract price. , ' " * ' * * 1 i l 11 * * * i

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