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 probably never 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 every day 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 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 analysis 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 is 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, pleas 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 there 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 arbitration? And finally, is litigation procedure followed in arbitration? So please think of those questions as you watch this video. [MUSIC] >> Didn't you tell me that the arbitrary is a lawyer? >> Mm-hm. >> I'm concerned that he won't be able to understand what I'm trying to say and that. And that could jeopardize the whole arbitration. >> Yeah. If what I understand is, that you want me to make sure that we have an arbitrator who's knowledgeable about construction. >> Yeah. >> I agree. Mr. [INAUDIBLE] though, 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 Stever the American Arbitration Association's tribunal administrator on this case, it's nice to meet you all face-to-face after talking so many times on the telephone. You've all met David Highlbrand the arbitrator. So, at this point I'll turn it over to him. Mr. Houndbrad. >> 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 about. I also understand that the subcontractor has a contract with the 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 is just common sense. So, you should stick to the point and the facts that count so we get to meat of it all quickly and we move along, and I know you'll all do that. Now I understand last that each of you has an opening statement, that tells your view of the case and that will be very helpful. So, Miss Crittenden for the subcontractor, if you will start first to claim it, and then the contractor Mr. Madison, and finally the owner we're ready, please proceed. >> Thank you Mr. Halperin. As you know, I represent Lee Mechanical, the 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 the result of design changes purposed by the owner. At that point, we got our crews off the project, got them into other jobs, and waited for the design changes to be devel, delivered. Once we receive 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 totalled 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 have had to be 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 the work schedule, and in fact, had the right to be ahead of schedule, if that was necessary. And they 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 for 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 furnished us prior to bid. >> Did you begin the work? >> Well, yes. We were given the notice to proceed, and we started on the project right away with the foundations. Our subcontractor, Mead 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 into the sub-contracting submittal phase, and we were in good shape with 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 Bill Baker calling. I wanted to let you know that I've decided to make some structural changes on our building, and will need to stop work for a while, until we get it straightened out. >> Bill, you know that we've started on the foundations and the mechanical sub contractor's got some completed work out there as well. I think based on our job walk last week, Mead has about 35% of their rough end done. And we're forming and pouring the first half of the grade beams. Anyway, I know that if any of you change work affects the work already completed, it's going to mean some extra costs, and it's going to have to be for your account. >> Well, Mike, the changes really shouldn't affect the work in place if it's been done as the schedule shows. But in any event, if there's a problem, you let me know what the costs will be. >> Oh, I will. But I'm concerned that if the redesign takes any length of time at all, it's going to be 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 that we'll be held up too long, but [INAUDIBLE] 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, Mead 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 black outs, great 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 claim, we incurred extra cost in the area of sup, 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 have prepared a record of our labor and material costs. It itemizes and breaks down our extra costs in the area of extra supervision, remobilization and escalation, not including Mead Mechanical's claim. Our claim and extra costs amounts to $55,000. >> Mr. Halbren, as the contractors next exhibit, I'd like to submit this summary of the costs that were incurred in connection with the delay and 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 claimed costs, 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 at 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 structure and 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, 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. >> Would it have been easy for you Sir, to call up 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 between you and the owner for the construction of this office building, correct? >> Well, that's what you say, but as far as I'm concerned, we were ahead of schedule. >> You knew, did you not sir, that the owner was concerned about the 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. >> Isn't it true sir, that if this schedule had been followed, none of the work done by Mead Mechanical, would have had to be redone? >> Yes. >> Thank you Sir, I have nothing further. >> Mr. Madison, do you have any further witnesses to put on for the contractor? >> No Mr. Harbor 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 under way. 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 liked 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, until we decide exactly what we're going to do. >> Well, Bill, when we were at the job last Friday, you saw that we has the foundations and some of the mechanical in place. I think that's ahead of my schedule that I gave to you. Your going to start moving things around at this point, you know, there's going to be some extra costs, and I'll have to submit them to you. >> Well I can see what your saying but, as I read the work schedule, which of course, you submitted, the work that you've 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'll 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 are 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. Hogan. >> Thank you Mr. Hogan. Mr. Madison, would you like to cross-exam? >> Yes, thank you, Mr. Hogan. Mr. Baker, you understood in connection with this contract, 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 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 benefitted, if this building had been 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 has 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'll take a break for a few minutes, and then after the break, you can all come back, and each of you can give a closing argument. >> Thank you. >> [INAUDIBLE]. >> Mr. 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 Meade Mechanicals work, would have had to be redone. During the discussion between the owner and the general contractor, concerning the job shut down while this redesign work was finalized, the owner requested gen, the general contractor, to advise if any extra cost 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 costs, 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. Hogan, you've heard Mike London, testify that he, a mechanical subcontractor, had started work, and were proceeding in accordance with a contract documents, when Mr. Baker stopped the project. Unfortunately, the stop work order came so late, that it impacted work already in place, and it was impossible to avoid the 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 had 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 gave 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 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 lotta notes here, as you've all seen. I'd like a 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 then. So the hearing is now closed. And thank you all, very much. [NOISE]. >> So that includes our look at an arbitration. And in the next segment, we're going to explore the questions I raised earlier along with some additional questions.