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Reducing Construction Costs: Uses of Best Dispute Resolution Practices by Project Owners: Proceedings Report 5 Washington Metropolitan Area Transit Authority Successful Uses of Dispute Resolution Best Practices Summary of a Presentation by P. Takis Salpeas Assistant General Manager, WMATA Capital Projects The Washington Metropolitan Area Transit Authority’s (WMATA’s) Metrorail system is a landmark in civil engineering history, one of 40 “Projects of the Century” recognized in November 2002 by the American Society of Civil Engineers. Among its peer projects in national infrastructure are the Hoover Dam, the Panama Canal, the Empire State Building, the Brooklyn and Golden Gate Bridges, and the Erie Canal. This project, constructed in three phases, encompassing 103 miles of track and 83 stations throughout the Washington, D.C., metropolitan region, cost $18 billion (in 2002 dollars). WMATA is the only public agency in the United States with a Board of Directors from three jurisdictions (Virginia, Maryland, and the District of Columbia). To build this system, the agency awarded more than 350 major prime contracts using the design/bid/build project delivery system and a sealed/low bid procurement method. Only one design-build/best value contract was awarded for building the last of the eight rail car maintenance and storage facilities for the 103-mile system on the Green Line (at a cost of $125 million). With three decades of phased projects, the WMATA system represents the largest underground construction project undertaken since World War II. The first phase had 90 million constructor labor hours; the second phase, 24 million; and the third phase, 18 million. The typical WMATA project was prone to conflict due to the complexity of the projects and the involvement of at least 20 prime contractors. As early as 1971, WMATA’s Board of Directors decided that the policy of WMATA, in the interest of timely and economical resolution of contractual disputes, would be to provide for an administrative appeal from adverse decisions of the contracting officer. The original policy, seen as the most timely and economical, was to resolve construction disputes through an established board of contract appeals. The U.S. Army Corps of Engineers Board of Contract Appeals (ENG BCA) was the first board used, and after a merger in 2000, the Armed Services Board of Contract Appeals (ASBCA) replaced ENG BCA. DISPUTE RESOLUTION EXPERIENCE Prior to using dispute resolution boards (DRBs) and partnering, changes were not priced until the work was long completed. Changes were based on costs incurred, and the parties were required to devote substantial resources to resolving numerous outstanding charges and claims, thereby increasing costs and delaying payments. The contracting officer was responsible for final decisions on disputes, and hundreds of final decisions were issued. Sometimes claims were denied because contractors failed to submit all of the required information. By 1985, WMATA had 350 cases before the Army Corps of Engineers Board of Appeals, and the average resolution time was five years beyond contract completion. As a result of delays in resolving
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Reducing Construction Costs: Uses of Best Dispute Resolution Practices by Project Owners: Proceedings Report change orders, contractors either gave less competitive bids or did not bid at all. The disputes began accumulating and draining a significant amount of resources. Payment processing often required a great deal of administrative support—lawyers, auditors, procurement people, and other support departments. Costs escalated, and sometimes it took years to resolve the more complex disputes. WMATA’s initial efforts to research alternative methods for resolving claims began in 1985 with draft contract provisions for a mini-trial. The effort was inspired in part by the success of the Army Corp of Engineers’ mini-trial procedures and WMATA’s desire to find an alternative to the ENG BCA process. WMATA’s real success with dispute resolution came in 1992, after the federal government enacted the alternate dispute resolution (ADR) law (Public Laws 101-552; 102-354). The agency had several champions at different levels to further advance the use of ADR and convince the WMATA Board of Directors to give the new process a chance to reduce the backlog of cases. The following anticipated benefits were a motivating factor: Early resolution of disputes, A climate of understanding and environment of cooperation between the parties, A reduced backlog of issues and claims, Limited posturing by the parties, Simple, transparent, consensual procedures, and Cost effectiveness. Former and current directors of WMATA’s Office of Construction led the effort to establish DRB and partnering provisions that have been part of all major construction contracts since 1993. Most recently, management has encouraged the expansion of dispute resolution to include mediation, in addition to the current DRB process. Project managers are asked to recommend the dispute method that is most advantageous to their contracting process and specific project. Acceptance of the use of ADR techniques did not come easily. Initially the general counsel’s office did not support the process because of concerns that DRBs would favor contractors or “split the difference” in resolving claims, and that WMATA would be required to pay uncalled-for sums of money for resolution. However, WMATA’s top management pushed for and supported ADR, which made change ultimately possible. USE OF DISPUTE RESOLUTION BOARDS The addition of a DRB and partnering in contracts affords the parties an opportunity to solve issues during contract performance rather than after completion. Depending on the complexity of the contract, contractors and project teams receive a briefing to better understand the situation. If an issue emerges, project participants are all aware of what is happening and are in a position to help resolve the issue quickly and effectively. A DRB is especially effective in disputes over the merits of a claim because a neutral party can influence and guide both sides toward a mutually acceptable resolution. In a high-profile situation where public money is involved, it is important to resolve not only the issue, but also the appearance of conflict to avoid negative publicity. A recent major tunneling project illustrates the effectiveness of using a DRB. In this case, a contractor claimed a differing site condition. The issue was brought immediately before the DRB, which concurred that there was a differing site condition. Based on this decision, WMATA and the contractor negotiated a modification for extra work, and the contractor finished the work without a claim. By resolving this issue early, the parties removed the uncertainty regarding responsibility, and the work progressed with a clear understanding of which party was responsible for the additional costs. WMATA has used these techniques on all major projects (more than $20 million) and all at-risk projects. In a similar case, a contractor bypassed the DRB hoping to get full relief through the courts. He lost in front of a jury, appealed, lost the appeal, and petitioned the Supreme Court only to have his appeal
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Reducing Construction Costs: Uses of Best Dispute Resolution Practices by Project Owners: Proceedings Report finally denied. This contractor did not want to use the DRB or pursue partnering, and, as result, lost a lot of time and money. In complex projects, it is helpful to establish clear roles, responsibility, and accountability. When these elements are missing, it is easy to have problems or misunderstandings. For example, in one particular WMATA project, a major technology contract was awarded that did not make provisions for a DRB because it was a “Supply and Services” contract rather than a “Construction Form” contract. Four years into the job, there were many unresolved issues and the working relationship was not good. To avoid escalation of adversarial behavior, the contractor and WMATA agreed to include post-award DRB provisions in the contract. A better situation would have resulted if DRB provisions had been included in the original contract. WMATA does use traditional DRB formula exceptions. WMATA contracting officers can keep the DRB from hearing “precedent setting” issues. WMATA will not take policy matters with broader implications to the DRB for resolution (e.g., third party interference, the use of the Eichlay formula for calculating overhead). Once the dispute goes to the DRB, the contracting officer must accept or reject the DRB decision within 30 days. This is considered a “final decision” and can be appealed under the Disputes Clause to the Armed Services Board of Contract Appeals (ASBCA). The DRB decision can be considered as part of any subsequent appeal or litigation, but is not binding. WMATA has not litigated a DRB decision, so there is some uncertainty about how a Board of Contract Appeals might treat a DRB decision. When determining whether to use arbitration or litigation, WMATA follows the federal model: If a dispute is not resolved by the DRB, the contractor may request a final decision from the contracting officer. The final decision may be appealed to the ASBCA, which will render a written decision. The decision of the ASBCA may, in turn, be appealed to any court of competent jurisdiction (state and federal courts of D.C., Maryland, and Virginia) under the Wunderlich Standard. Under Wunderlich, the court’s review is limited to determining whether the decision is “fraudulent or capricious or arbitrary or so grossly erroneous as to necessarily imply bad faith, or is not supported by substantial evidence.” In summary, a DRB is necessary for any organization that undertakes major construction with major contractors in a complex environment. In general, DRBs and ADR are used to reduce conflict and produce quality projects.
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