Conflict Avoidance and Resolution Across a Capital Portfolio

© Leo Hura, All Rights Reserved, December 2008

Introduction

As this essay was being written the global economy was experiencing one of the most frightening recessions of our lives.  In these tough economic times, which have not been experienced since the Great Depression every capital project approved must be a success. Every capital dollar must be spent with the greatest care and as an investment to meet priority business objectives. 

Capital project execution and spending is the responsibility of team leaders who rely on a diverse team and contractors.  And, one of the greatest challenges to successful project management, but unfortunately one of the least addressed, is managing conflict.  As Governor of Hawaii, Linda Lingle stated in her proclamation for Conflict Resolution Day 2008 “No area of human endeavor is free from disagreement.”  Avoiding and resolving disputes during project execution is critical.  In this article we discuss conflict in projects and suggest the use of professional conflict avoidance and resolution specialists and their processes.  Quoting Governor Lingle again, “When competing interests clash, a professional in the field of conflict resolution can make all the difference.”

John Lennon’s “Imagine” provides a perfect theme for conceptualizing owner/contractor conflict management programs.  Imagine a “claims free” capital project portfolio where projects meet time, cost, safety, performance, and quality objectives and generate zero claims.  Turning imagination into reality requires advance preparation and implementation of a conflict management process aligned with project objectives designed to avoid and resolve conflict during execution. A conflict management program between owners and contractors, covering projects initiated under a master agreement, for a critical large project, or applicable a manufacturer’s capital portfolio is a program no manufacturer or contractor should be without.

Professional Third Party Conflict Management Training and Service Providers

Capital Governance Committees (CGC) have enormous responsibility for meeting business objectives through successful execution of projects in their capital portfolios.  Pharmaceutical manufacturer’s capital project portfolios consist of hundreds of projects valued at hundreds of millions of dollars.  On the contractor’s side, projects are generated because, as a selected firm, it demonstrates expertise, comes with a good reputation and has the trust of its owner clients. 

For manufacturer and contractor, project costs continue to escalate.  Profit margins continue to be squeezed while “time to delivery” requirements get tighter and tighter. One project claim or failure due to unresolved conflict can undo hard work and goodwill. One dispute, resulting in a claim, can irreversibly damage reputations and ruin relationships. 

We believe conflict management avoidance and resolution services should be developed and delivered by professional conflict resolution training and service providers for reasons we discuss in this article.  Professional dispute avoidance and resolution services, built on project management professionals and commercial arbitrators experienced and skilled in conflict management, should:

• Train owners and contractor project teams in utilizing conflict resolution skills and provide dispute avoidance and resolution processes.
• Contract with owner/contractor groups for on-call dispute resolution services.
• Contract to provide on-site visits to ascertain whether conflicts are impacting project activities and apply appropriate levels of intercession to resolve.
• Provide skilled experts for integration into capital project management teams and processes.  At this level of service dispute avoidance and resolution professionals would provide training, on-call conflict management services, on-site presence and team visits by conflict resolution professionals.

Background

Origins and Nature of Conflict and Dispute.

Conflict amongst humans is as old as the Bible.  Cain slew Abel. Since then, humans have been killing each other too regularly when in dispute.  On the project side, Noah’s ark must have been accomplished on time and with the required quality without mention of any disputes.  If there were disputes, just remember Who interceded.  Thankfully humans have developed peaceful means for resolving disputes through negotiation and tools like contracts to specify the processes we can use to avoid and resolve conflict.

Psychologists studying behavior are comparing our negotiating skills with those of other mammals including chimpanzees.  Research reveals chimps do rudimentary negotiating which has parallels in humans. However, language, as one critical difference, sets us apart.  Our ability to communicate with each other gives humans added capabilities to deal with conflict chimps can’t achieve.  So why is it we sometimes make monkeys out of ourselves when in conflict?  One reason is our tendency to set-up barriers in conflict situations.  Some examples of barriers include:

• Lack of trust. 
• Emotions that focus disputants on people rather than issues or interests. 
• Significant differences in perspective followed by taking rigid “positions” blocking our ability to problem solve.
• People with different negotiation skills which lead to imbalances resulting in one party to refuse to negotiate. 

What does conflict do?  Is it good, bad, or ugly?

Remember Clint Eastwood’s “The Good, the Bad, and the Ugly?”  In capital projects there are parallels to the movie. For capital portfolios the worst case scenarios include project failures impacting the business of a firm.  For contractors project failures can be just as catastrophic.  Situations turn really “ugly” as disputes proceed through to the post project “claims” process.  Boston’s Big Dig Project[1], a public sector project, could have been a pre-eminent example of “ugly”.  Even though it is a public sector project imagine it is your capital portfolio.  The Big Dig Project built a new central artery and tunnels for traffic in Boston.  It consisted of 50 design packages, 124 construction packages, 34 miscellaneous contracts, for a total of 208 contracts. The ultimate cost of the project is estimated to be about $15 billion.  By the end of the projects claims had piled up, with 5,000 open issues trending upwards and a claimed value of $600 Million and growing.

When conflict turns into dispute there is a chance the outcome will be “bad.”  Project teams can lose focus and critical resources can be diverted from regular duties to fight fires having an adverse ripple effect on field and line managers.  Senior managers can be surprised by a cost over run or time delay because project teams prove unable to timely and proactively resolve disputes.   

However, conflict in any human endeavor is not only natural. It is “good” when it leads to problem solving that avoids unresolved disputes that can lead to project problems and even post-project claims.  As an example, conflict is good when conflict vets a problem which would otherwise not be discussed until the problem impacts capital objectives.  Conflict is good when there is a positive attitude coupled with a view that conflict resolution should be a constructive experience for the project team.

As the situation in the Big Dig Project deteriorated decisions were made to introduce a structured negotiation and mediation program.  Claims teams were established with a reporting structure up through a steering committee of senior managers.  Experienced lawyers with construction expertise acted as the mediators.  If the issues were not resolved by the negotiation teams, they were elevated to the steering committee.  If the steering committee could not resolve the issues the issues were presented to the mediators in an evaluative mediation approach (that is, the mediators made an assessment of each party’s risk exposure).  Should a negotiation fail the matter was sent to a two or three member mediation panel.  With the exception of one contract, this process resulted in over $460 million in claims being settled through this process with an approximate cost for mediators of around $2MM.  The remaining $140 million in claims were settled using other processes or are still on-going.

n      Mediators presented reasoned evaluations to test Best Alternatives To a Negotiated Agreement (BATNA)

n      Parties could realistically test the merits of positions and assess risk exposure

n      Process, although streamlined, provided a fair approach to negotiate and resolve contentious issues.

A process involving structured negotiation and mediation worked with tremendous success at the scale of the Big Dig. The modification we are proposing for owner and contractor capital project portfolios is to utilize conflict resolution professionals to proactively deal with conflicts arising during project execution to meet schedule, budget, performance, and quality objectives and reduce and even eliminate post project claims. 

What are the implications of conflict, disputes, and claims on capital governance?

From an owner’s perspective, senior executives serving on Capital Governance Committees (CGC) are leaders, decision makers, and stewards of corporate resources.  CGC members are also conflict resolvers deciding which projects to approve, postpone, or not approve.  Further, CGC must ensure approved projects in their capital portfolios do not get mired in disputes, claims, and project failures.

In the past, a typical approach to conflict management has been to leave dispute resolution to project teams.  Where they fail, the practice has been to escalate disputes up the departmental chain. These informal processes have too often left CGC out of brewing disputes until they have already impacted a project with issues in dispute inexorably headed toward becoming claims.   

Reasons for a lack of conflict management programs may be the result of:

·         A mistaken belief a company does not have many conflicts or disputes so “why should we establish yet another program? 

·         The one or two projects that resulted in claims do not warrant yet another program.  It is enough to order a project review, develop and publish lessons learned and let time heal the wounds.” 

·         The alternative we suggest here is to avoid and resolve disputes proactively with project execution.

What’s wrong with the traditional approach to conflict management?

What’s problematic with traditional approaches to conflict management and what changes if external conflict resolution professionals are utilized?

Traditional Approach	Professional Conflict Resolution Programs
Conflict in a capital portfolio is informal and fragmented with different functional managers involved.	Skilled professionals work within a process designed to fit capital project portfolios.
Owner or contractor driven conflict management programs may not be viewed as objective.	Owners and contractors mutually agree on a conflict management process and independent professionals to train their personnel and provide services.
Functional managers are not conflict resolution professionals and would have a very difficult time handling conflicts across a capital portfolio.	Professionals in conflict resolution merge subject matter expertise with conflict resolution skills. Their primary responsibility is to avoid and resolve disputes.
Personnel inside a corporation or contractor cannot but have their firm’s interests as core considerations.	Independent professionals without conflicts of interest can provide greater objectivity.

What are key concepts of a conflict avoidance and dispute resolution process?

Conflict Resolution training and service providers need to:

·         treat a contract for conflict resolution services as a trust

·         strive to achieve zero post project claims viewing each unresolved dispute an unsatisfied “need” requiring post-project issue resolution follow-up and services to avoid claims 

·         hate surprises and impacts of unresolved disputes almost as much as CGC and their contractor counterparts.  In other word providers should be passionate about their work and their mission.

Conflict Management professionals should be independent contractors having, with few exceptions for exceptional conflict problem solvers, subject matter expertise in project management.  They should have demonstrated their overall skills in rigorous qualifying programs.  Besides project expertise and experience they should be selected for their ability to be effective negotiators, facilitators, and mediators in major and multi-project environments. 

Their role is to work with owners and contractors in establishing conflict avoidance and resolution programs and processes, monitor capital projects for telltale signs of conflict, and effectively intercede in potential and actual disputes.  Their intercession could be evaluative (resulting in a recommendation) or facilitative (allowing those involved in the dispute to resolve the problems found through negotiations).

Conflict management professionals should work with a joint owner and contractor steering committee which has final decision making power to agree to, or reject agreements reached in the conflict management process.

Conflict management professionals should offer training to include communications and negotiation skills for project team members.  They should make training easily implementable through on or off-site training or via the internet.  They should assess knowledge retention via hypothetical role playing scenarios or workshops.  Training should be available to include owner and contractor functional department personnel focused on development of skills to manage conflict and assess project team conflict management process knowledge and readiness.

Training and service agreements should be flexible, covering single, mega or critical projects of vital importance or a group of projects, for example, generated under a master agreement between owner and contractor.

Conclusion and Summary

Capital project portfolios represent ever more precious commitments of scarce corporate resources for owners and a diminishing number of projects for contractors. Project managers must have the best management tools for their project to succeed.  A conflict avoidance and resolution program is a critical tool.  An organized process involving conflict resolution professionals is a critical need when direct negotiations between owner and contractor are failing.  For owners and contractors it is essential to establish conflict management processes that are proactive and matched to the business objectives set by CGC and Contractor Management.  Although owners can attempt to lead conflict management programs, we propose that it is prudent to engage conflict management professionals mutually agreed to by owners and contractors.  Don’t imagine a claims free capital portfolio with zero claims, make it happen by creating and utilizing conflict management programs serviced by conflict resolution professionals. 

About the Author

Leo Hura, JD, Mediator lives and works from Hawaii. He practices as a mediator in a variety of business with business, business with client, and interpersonal disputes.  He retired in 2004 from Merck & Co. after 25 years of service in the Manufacturing Division.  During his Merck career Leo handled some of the Divisions toughest capital project including Timpilo®, for which he won a Merck Chairman’s Award for the completion and start-up of a facility designed for the Merck ophthalmic line.  He was senior technical advisor to manufacturing to Merck’s Japanese subsidiary.  He has significant overseas experience working in multicultural environments.  He is active in ISPE serving on the Project Management COP Steering Committee.  He has written a number of articles on the subject of conflict resolution in the pharmaceutical industry as well as about voluntary mediation.  His degrees include a B.S. in engineering and a JD in law.  He was 2008 President of the Association of Conflict Resolution Hawaii and on the Board of Directors for Hawaii Kai Chamber of Commerce.  He is a member of BNI, a business networking organization, Hawaii Kai Chapter.   His web page can be found at www.mediate.com/mediatewithlh .