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In construction disputes, an organization must make difficult decisions about whether to negotiate, settle, or pursue other methods of dispute resolution. These decisions involve uncertainty or risk about the possible outcomes and the associated costs. The probability of certain outcomes varies depending on the facts and circumstances of the dispute. Anecdotal and actual data provide the historic perspective and an indication of the probability of certain events occurring. A stochastic model based on decision trees and estimated damages, awards and legal cost is proposed to provide a confidence level for a range of financial outcomes. Sensitivity analysis can be used to understand the model sensitivity to certain assumptions. New information or external decisions may suggest a change in the outcome probabilities, resulting in a change in the dispute resolution strategy. With this information and analysis, an organization is better informed when selecting and implementing a dispute resolution strategy.
This paper starts with a discussion of dispute resolution strategies generally before moving to a description of the model developed for this article. The discussion of possible strategies focuses on the myriad of approaches and varier)' of subtleties inherent in the dispute process. The second half focuses on describing a systematic methodology of managing and evaluating these infinite possibilities to develop a planned and reasoned approach to a particular dispute.
DISPUTE RESOLUTION STRATEGIES
Dispute resolution strategies have typically taken one of two basic forms: litigation or some form of alternative dispute resolution (ADR). ADR itself comes in many flavors, but broadly speaking it falls into three categories: negotiation, mediation and arbitration. Congress when passing the Alternative Dispute Resolution Act broadly defined ADR as "any process or procedure, other than an adjudication by a presiding judge, in which a neutral third parly participates to assist in the resolution of issues in controversy, through processes such as early neutral evaluation, mediation, minitrial and arbitration..." Taken together, litigation and the three basic forms of ADR, create a sliding scale of dispute resolution mechanisms with varying degrees of transactional costs and manageability.
Decision Making Authority Remains with the Parties
Negotiation-Negotiation has been formally defined as the "process of submission and consideration of offers until [an] acceptable offer is made and accepted." In the vernacular of the ADR industry, negotiation denotes...