We're now ready to begin our look at the two building blocks for all of ADR, arbitration and then mediation. So let's start with a question. Have you ever been involved in an arbitration? Or more specifically the question is have you ever signed an arbitration agreement? Think about that for a second, answer yes or no. If you answered no, that means that you have probably never purchased auto insurance. That means you've used a credit card. That means you've probably never used Ebay. Never used Amazon. Never purchased anything on Amazon. Because if you've done any of these things, you have signed an arbitration agreement. In other words, arbitration is embedded in a lot of our everyday transactions. That's the fine print that you and I never read when we sign up for a service. Here, for example, is the Amazon agreement that you agreed to if you use Amazon. What is actually involved in an arbitration? I think the best way to look at that and analyze it is to look at a video of an arbitration. This is a 15 minute video, it's going to be a little complicated at the beginning so let me give you a very quick briefing. What we have here is a dispute between the owner of some real estate and a contractor. The owner hired the contractor to build a building. Problem is after the construction started the owner made some design changes. And as a result the contractor's claiming an additional $55,000. Also there's a subcontractor involved who did some plumbing work hired by the contractor who also had to make changes and these cost an additional $95,000. So the owner has refused to pay and this matter is now in arbitration. As you look at the video, please keep these questions in mind, which I want to address after the video. First of all if you were the arbitrator, how would you decide the case? Second, are than any surprises in the arbitration? Is this what you expected from an arbitration? Third, does the arbitrator have to be a lawyer? Fourth, do the parties, or would you have to be represented by a lawyer in an arbitration? And finally, it's litigation procedure followed in arbitration so please think of those questions as you watch this video. [MUSIC] Didn't you tell me that the arbitrator's a lawyer. >> Mm-hm. >> I'm concerned that he won't be able to understand what I'm trying to say in there. And that could jeopardize the whole arbitration. >> Yeah, and what I understand is that you want to make sure that we have an arbitrator that is knowledgeable about construction. >> Mm-hm. >> I agree. Mr. Holiban, he's well qualified in that regard. He was educated and he worked as a construction engineer before he ever became a lawyer. And his law practice has been concentrated in construction. And he is an experienced arbitrator, so that's why we put him number one on the list of potential arbitrators that the AAA gave us. >> Well, as long as he understands construction, I feel comfortable. >> Good morning everyone, I'm Steve Van Leer, the American Arbitration Association's tribunal administrator on this case, and it's nice to me you all face to face after talking so many times on the telephone. You've all met David Halbrown, the arbitrator. So at this time I will turn it over to him. Mr. Halbrown. >> Thanks very much Steve, and good morning to everybody. I understand that the subcontractor has a claim against the contractor, and the contractor has a claim over against the owner. >> I've read each of the claims and the answers to them so I'm generally familiar with where we're all starting from. I also understand that the sub-contractor has a contract with a contractor. Contractor has a contract with the owner. And that each contract has in it an arbitration agreement. But that since all claims arise out of the same set of facts, everybody's agreed to arbitrate both claims together. So thanks for that and we are ready to go. As you know this is an informal proceeding, the formal rules of evidence do not apply and the basic rule of just common sense. So you should stick to the point and the facts that count so we get to the meat of it all quickly and move along. And I know you'll all do that. Now, I understand [INAUDIBLE] asked that each of you has an opening statement to tell us your view of the case and that'll be very helpful. So Miss Crittenden for the sub contractor, if you'll start first the complainant. And then the contractor Mr. Madison. And finally the owner. We're ready please proceed. >> Thank you Mr. Havren. As you know I represent Meade Mechanical, a plumbing subcontractor in connection with this project Mead Mechanical had a contract with the general contractor to install all of the plumbing fixtures in the building. We received a work schedule from the general contractor and were well under way in performing under the contract when we received a stop work notice from the owner as a result of design changed proposed by the owner. At that point, we got our cruise off the project. Got him into other jobs. And waited for the design changes to be delivered. Once we received those, it was apparent that we had to go back in and redo a lot of the work that had already been done. The cost of this additional work totaled approximately $95,000. Nevertheless, we went back in, we got the work done in accordance with the new plans and on time and submitted our bill to the general contractor. From that point forward we have received nothing but delays. We have not been paid. Apparently the owner is taking the position that he is not responsible for these charges because none of the work would had to have been redone If the original work schedule had been complied with. For his part, the general contractor tells us that he had the right to vary that work schedule, and in fact, had the right to be ahead of schedule, if that was necessary and that he also discussed all of this with the owner before the design modifications were actually implemented. We don't really know or care whose position is correct. We simply want to be paid for the work which we have already done and that is why we have initiated these proceedings. >> Thank you Ms. Crittenden. Mr. Madison will you please call your first witness. >> Yes. As our first witness I'd like to call my client Mike London of London Construction. >> Mr. London, please raise your right hand. Do you solemnly swear to tell the whole truth, and nothing but the truth? Yes I do. >> Thank you. Mr Madison please proceed. >> Mr London would you please explain to the arbitrator the substance of your agreement with the owner Mr Baker. >> Yes It was not a complicated project. I agreed to build Mr Baker's building for him. It was an office building for a lump sum price. My price was based on the plans and specifications that he first asked prior to bid. >> Did you begin to work? >> Well, yes. We were given the notice to proceed and we started on the project right away with the foundations. Our subcontractor Meade mechanical was also doing some of their preliminary work And the pipe chases which are in the foundation. >> How did the work progress? >> Well, we were well in to the sub-contractings, the middle phase and we were in good shape in respect to our schedule. >> Did any delay occur in the work? Well, we gave the owner our schedule. And we were beating the milestones on that schedule when Mr. Baker called us on the telephone and told us to stop work because he was redesigning some of the work. >> Mike, this is Bill Baker calling. I wanted to let you know that I've decided to make some structural changes on our building. Now we'll need to stop work for awhile til we get it straightened out. >> Bill you know we've started on the foundations and the mechanical sub contractor has got some completed work out there as well. >> I think based on our job walk last week, Meade has about 35% of their roughing done and we're forming and pouring the first half of the grade beams. Anyway I know that if any your changed work affects the work already completed, it's going to mean some extra cost, and it's going to have to be from your account. >> Well Mike the changes really shouldn't affect the work in place of this, but then as the schedule shows, but any event if there's a problem let me know what the cost will be. >> I will, but I'm concerned that if the redesign takes any length of time at all, it's going to meet a delay and extra cost. I've scheduled some heavy mechanical equipment to be delivered and my labor agreements are coming up in June. >> Well, I really don't think we'll be help up too long, but, in any event, you let me know. Okay? >> Okay, I will. It was almost four months since my conversation with Mr. Baker that we received the revised drawings and structural changes. Of course, we took the revised drawings and forwarded them to our subcontractor, Meade Mechanical. But, the structural changes required a substantial amount of the plumbing and mechanical work, which had already been done, to be ripped out and re-done. For instance, it required changes in the locations of the block-outs, grade beams, and so forth. It was almost six months since the owner told us to stop work. That he ordered us to resume work. In addition to our subcontractor's claim, we incurred extra costs in the area of extra supervision and coordination of the work. >> Well would you please tell the arbitrator the costs that you incurred as a result of the six month delay, and the changes that were made in the work? I prepared a record of our labor, and material costs. It itemmizes and breaks down our extra costs in the area of extra-supervision, remobilization, and escalation, not including Meade Mechanical's claim, our claim in extra costs amounts to $55,000. >> Mr as the contractor's next exhibit, I'd like to submit this summary of the costs that were incurred in connection with the delay of the changed work. I've already given a copy to Mr. Hogan, the owner's lawyer. >> And I would simply like to note that this is only a record of claim, cost and has no bearing on my client's liability. >> Well I appreciate that, I'm sure we all do, and of course you can cross examine to the extent you want with respect to the costs. Now Mr. Madison do you have any more questions? >> I have no more questions of this witness. >> Fine, Mr. Hogan, please proceed with cross examination. Mr London, after you had begun work on this project, you were aware, were you not, that structural redesign was being considered by the owner? >> Well I seem to recall hearing something like that, but never anything from Mr Baker. Well, regardless of the source of these rumors, you were aware that redesign was being considered, correct? >> Well, as I said, I heard rumors. But it was a long time after I first heard them that Mr. Baker said anything to me. In fact, I'm sure it was not Mr. Baker who first told me about the structural redesign. Wouldn't it have been easy for you sir to call Mr. Baker and find out whether or not the rumors were true? >> I suppose so. >> Don't you think that you as a prudent general contractor had a responsibility to call the owner and find out whether redesign was being considered? Well, I am a prudent general contractor but I'm not an architect or an engineer. I simply build the project according to the plans and the specifications that the owner gives us. And it's up to him to make any changes that he wants to. >> The work schedule that you have in front of you, sir. That is the one that you prepared and submitted to the owner in connection with this project, correct? Yes it is. >> And this is the schedule that was submitted pursuant to the agreement between you and the owner for the construction of this office building, correct? >> Well that's what you say, but as far as I am concerned, we are ahead of schedule. >> You knew did you not sir, that the owner was concerned about he schedule and the time when the project would be completed. >> Well I knew that he wanted the building completed on time so he could start leasing the space and turning a profit. Is it a truth, sir, that if this schedule had been followed, none of the work done by Meade Mechanical would have had to be re-done? >> Yes. >> Thank you sir, I have nothing further. >> Mr Madison, do you have any further witnesses to put on for the contractor? No [INAUDIBLE], that's all we have at this time. >> Thank you and Mr. Hogan, are you ready to proceed? >> Yes. >> Then please put on your first witness and put on the owner's case. >> Mr. Baker, please tell us about the reasons for the structural redesign work. >> Well, the construction had barely gotten underway. I had a conversation with my architect who suggested some changes to the front entrance to the building which would have involved relocation of the public lounge areas. I like the idea, it would have improved the attractiveness of the building, so I told him to work up a design. When he did, I liked it and I decided to proceed. I immediately called the contractor to let him know what was in the works. Hello Mike. This is Bill Baker calling. We've decided that we're going to change the front entrance to our building. Which may require moving the public lounge areas. Looks like you'll have to hold up any further work till we decide exactly what we're going to do. >Well Bill, when we were at the job last Friday, you saw that we had the foundations and some of the mechanical in place. I think that's ahead of my schedule that I gave to you. You're going to start moving things around at this point. You know there's going to be some extra cost and I'll have to submit them to you. >> Well, I can see what you're saying but as I read the work schedule which of course you submitted. The work that you completed so far in accordance with the schedule shouldn't have to be changed and there really shouldn't be any extras. Well Bill I have to take a look at it and I'll let you know as soon as I can. >> Well okay Mike you check it and if you think there're going to be any extras you let me know right away because it may change the way I go on this. >> Well I'll take a look at it Bill. All right. Did you ever authorize any extra work? >> Absolutely not. I have nothing further Mr.Hubrum. >> Thank you Mr. Hogan. Mr. Madison, would you like to cross exam? >> Yes, thank you Mr. Hubrum. Mr. Baker, you understood, in connection with this contact, that you had the responsibility to notify the contractor if you were going to make any changes in the work or stop the work, isn't that correct? >> Yes, I understood that. And you understood, did you not, that the contractor had the responsibility for coordinating work on the project? >> Well I knew he was in charge of the construction. >> You expected the contractor, did you not, to organize the work to finish the job as quickly as possible? >> Well I don't know that. All I know is that I have approved the schedule which he submitted. Wasn't it important to you to have the work done on time? >> Yes. >> Indeed wouldn't you have benefited if this building had been finished ahead of time? >> Well, certainly not the way it turned out. >> There was nothing in the contract to preclude the contractor from finishing ahead of time, was there? >> No, not that I know of. >> That's all that I have. Thank you, Mr. Madison. >> And this witness concludes the testimony on behalf of the owner. >> Thank you, Mr. Hogan. I understand that each of you have now put in all of the evidence, orally and in writing, that you want to put in. And each of you rests. And, accordingly, we will take a break for a few minutes and after the break you can all come back. And each of you can do opposing arguments. Thank you. Mr. Harbin, we believe the evidence in these proceedings demonstrates the following. At the early stages of this construction project the owner began to consider structural redesign, indeed this was while foundation work was just beginning. This fact was known to the general contractor. Pursuant to the agreement between the owner and the general contractor a construction schedule was prepared by the contractor and approved by the owner. Had this schedule been followed the structural redesign would have had no impact whatsoever on this project. That is, none of Mean Mechanical's work would have had to be redone. During the discussion between the owner and the general contractor concerning the job shutdown while this redesign work was finalized. The owner requested the general contractor to advise if any extra costs would be incurred. The general contractor never advised the owner of any extra costs, and indeed none were ever authorized. Since the contractor did not advise of any extra cost. Any extra work done by Mead Mechanical or the general contractor should be for the general contractor's account. The owner should not be liable for any extra work done by either Mead Mechanical or the general contractor. Thank you, sir. Mr. Hardwin, you've heard Mike London testify that he and the mechanical subcontractor had started work and were proceeding in accordance with the contract documents when Mr. Baker stopped the project. Unfortunately, the stop work order came so late that it impacted work already in place, and was impossible to avoid extra costs. Yes, the contractor was ahead of schedule. But time was of the essence. And it's a central feature of a lump-sum contract, but the contractor have the freedom to reorganize the work as necessary in order to achieve maximum cost savings. This is what gives the contractor the incentive to give the owner the lowest possible bid in the first place. Mr. Baker's position is totally without merit. He clear oral instructions to stop the work. He expected those instructions to be complied with. On previous occasions, when he had made oral changes, those were paid for. He had an obligation to notify the contractor of changes in the work in a timely fashion. He was at the job on a regular basis and could see the progress of the work, and Mr. London told him that extra costs would be involved in the changes in the work and the delays. Mr. London has correctly interpreted his obligations under the contract. And both he and the mechanical contractor should be paid for the extra costs incurred. >> Okay, you've made your positions very clear, all of you and I'm very grateful for that. I think I have them well in mind. I've taken a lot of notes here, as you've all seen. I'd like the chance to review them and of course I want to think about it. But as to the time of the award, the AAA rules do require that an award be issued within 30 days and it will be. And I'll try hard to do it before that. So the hearing is now closed and thank you all very much. So that concludes our look at an arbitration and in the next segment we are going to explore the questions I raised earlier along with some additional questions.
