EVALUATION
PROCESS

Corps staff were pleased with the process. They felt that it, and Piazza in particular,
had been fair, professional, and effective. Cameron noted that ADR, unlike an imposed
ruling, helped people to understand the justification for the settlement. Col. LeCuyer also
pointed out that the ultimate success of the process depended on establishing a feeling of
ownership in the agreement on the part of all. Worstell, who had been reluctant to use ADR
at the beginning, observed that the process helped to clear the air between the parties,
greatly increasing the potential for future work together.

Brutoco was also pleased with the process. They were able to reach a reasonable
agreement expeditiously and move on to other matters. Salata suggested that a fact-finding
panel, charged to uncover the "truth," might have been preferable to a mediator. In his
view, a mediator's goal is to reach settlement, and to move each side toward a compromise
position. Since Salata felt that Brutoco deserved more than it finally accepted, he believed
that a three-member fact-finding panel might serve justice more effectively than a mediator.
Such a panel could also meet on-site regularly and resolve disputes before they escalated.

Several participants emphasized the importance of having the ultimate decision-
makers at the presentations and negotiations. Several also noted that it was particularly
effective to keep the parties separate during the process. Col. LeCuyer pointed out that
when someone negotiates face-to-face, he or she has to deal with two audiences: the other
side and his or her own team. Pressure from one's own team can make it difficult to listen
to and accept the other side's arguments, for fear of losing face. By removing the other
side, however, Piazza made it possible for each team to accept (albeit grudgingly) the merit
of the other side's arguments.

Piazza noted that the Corps believed that longer presentations would have been
helpful. His experience indicated, however, that one-hour presentations are sufficient and
allow participants to make the best use of their time.

QUANTUM

The Corps was extremely satisfied with the settlement. Worstell felt that it was fair,
reasonable, and extremely quick. Although they went in expecting to pay half to three-
quarters of a million dollars, they acknowledged that the extra amount paid was due to

interest, administrative costs, and the avoidance of a trial.§ Aside from the risk of losing at
the Engineering Board of Contract Appeals, however, the Corps was pleased at how much
the process saved in terms of time and litigation expenses as well as administrative time and
related costs. Indeed, Worstell estimated that it would have cost approximately $50,000 to

litigate the case fully. Finally, by achieving a global settlement, the parties were able to
avoid contract closing hassles.

Brutoco was also satisfied with the settlement. Dann felt that although they might
have gotten less than they would have in court, they got cash immediately instead of
waiting through a two-year trial. The negotiated settlement therefore gave Brutoco cash up-

6In addition, because of the Equal Access to Justice Act, the Corps might have been liable for Brutoco's
legal fees.

lle


INTRODUCTION

This case study is one segment in the second phase of a project, initiated by the
U.S. Army Corps of Engineers in 1986, to document how Alternative Dispute Resolution
(ADR) can be used by Corps District offices to minimize the enormous costs associated
with disputes that arise between Corps District offices and private corporations. By
publishing and distributing pamphlets about different types of ADR processes as well as
about past cases in which ADR has been used successfully, the Corps’ Office of Chief
Counsel has been encouraging its use since 1984.

The first set of case studies examined five different cases: Tenn Tom Constructors,
Granite Construction, Olson Mechanical and Heavy Rigging, Bechtel National, and
Goodyear Tire and Rubber. Key findings in those cases were that: 1) ADR was used when
the anticipated cost of litigation was high; 2) mini-trials were preferred over non-binding
arbitration when Corps managers wanted direct involvement in settlement negotiations; 3)
ADR techniques could be useful at different stages of a dispute's evolution; 4) it was
helpful for neutrals to have substantive expertise in the area of the dispute; 5) strong
support for ADR from the Chief Counsel contributed to its increased use throughout the
Corps; 6) Corps attorneys played key roles in the ADR processes; and 7) Corps managers
were satisfied with the results and would use ADR techniques again.

The three cases in this second set of studies -- Bassett Creek, General Roofing, and
Brutoco Engineering and Construction-- provide an up-to-date view of the growing use of
ADR in the Corps of Engineers. They reflect a growing sophistication about the design and
implementation of ADR processes. Several general lessons, of potential use to other Corps
Districts contemplating using ADR, might be noted:

Bassett Creek. The St. Paul District Corps of Engineers used non-binding
arbitration to resolve a real estate appraisal dispute with the Bassett Creek Water
Management Commission. The Corps and the Commission were collaborating on a flood
control project, and they disagreed over how much credit should be granted by the Corps to
the Commission for land parcels contributed to the project. The case study highlights:
1) the pros and cons of conducting negotiations without counsel present; 2) the importance
of having an expert in the substantive area of the dispute serve as the neutral; and 3) the
value of having an ADR clause written into initial agreements.

. The Louisville District Corps of Engineers used a tailored mini-
trial to resolve three construction contract claims with General Roofing of Pittsburgh, PA.
After hiring General Roofing to put a new roof on an Army Tank Command building,
several claims arose over responsibility for delays and cost overruns. The case study
highlights: 1) the advantages of "package" settlements that tie several issues together as
compared to "piecemeal" settlements that deal with each issue separately; 2) the value of
having a skeleton ADR agreement drawn up prior to the ADR process, with appropriate
areas left blank; 3) the benefit of conducting lower-level negotiations on sub-issues while
the principals are negotiating larger claims; and 4) the usefulness of tailoring an ADR
procedure to best meet the special needs of the parties.

-2-


DECISION TO DR

RAISING THE OPTION OF ADR

The Corps first suggested ADR at the end of 1989, when it became apparent that a
long and arduous trial lay ahead. After the claim audit, the Corps’ presentation of its
evaluation, and Brutoco's response, the Corps proposed ADR to Dann.

PROS AND CONS OF ADR: THE CORPS

The Corps saw in ADR the potential to resolve a nettlesome claim quickly and
inexpensively. Although none of the Corps staff members had prior experience with ADR,
they had picked up some negative assessments in response to the Tenn Tom ADR process
in the Nashville District.3 In addition, people in the Corps were afraid that a non-binding

process would be a waste of time, since either party could simply refuse to accept the final
 Tecommendation.

Corps staff members felt under some command pressure to attempt ADR. They
agreed to give it a try in order to "get their ticket punched." Therefore, despite some

negative preconceptions within the Corps, they decided to go ahead nonetheless.4

Col. LeCuyer's own experience reinforced the importance of finding an alternative
to litigation. He had been involved in a highly complex set of claim cases as manager of a
dam project 20 years previously, and was loathe to plunge into drawn-out litigation yet
again.

PROS AND CONS OF ADR: THE CONTRACTOR

Dann had been involved in mediation before, so he knew and conveyed to his client
the benefits of mediation: a fair, non-binding process, a mutually acceptable result, the
possibility of a settkement and payment long before it would be obtainable through
litigation. Although Brutoco had lost a great deal of trust in the Corps, economic issues
overpowered their mistrust and brought the company to the negotiating table.

SELECTION OF THE MEDIATOR

Dann had used Piazza's mediation firm before, and he had been pleased with
Piazza's work.5 When the Corps suggested ADR to Brutoco, Dann mentioned Piazza's

3For a full write-up of the Tenn Tom ADR process, see Case Study #1 ("Tenn Tom Constructors, Inc."),
Alternative Dispute Resolution Series. U.S. Army Corps of Engineers, August, 1989.

4Many people within the Sacramento District Corps believed mistakenly that the only legitimate type of
ADR was a mini-trial. Therefore, they believed that what they were doing—mediation—was not actually
ADR, but that they were calling it ADR so that they could say they had tried it.

5The firm of Gregorio, Haldeman, and Piazza mediates all kinds of civil disputes, except domestic disputes.
About 40% of these are construction-related, Piazza has personally mediated over 1,400 cases.

-7-


CASE STUDY #3
BRUTOCO ENGINEERING AND CONSTRUCTION, INC.

THE PROJECT AND CLAIM

SUMMARY

Mediation was used to resolve a disputed construction claim between the
Sacramento District Corps and Brutoco Engineering and Construction, Inc. of Fontana,
California. Brutoco was contracted to conduct the second phase of the construction of a
bypass channel for a flood control project. After claiming delays due to differing site
Rane and changes required by government inspectors, Brutoco filed a claim for

086,038.

Anthony Piazza served as the mediator, and Colonel Jack LeCuyer, Sacramento
District Engineer, and Leonard Brutoco, president of Brutoco, served as the chief decision-
makers for the Corps and Brutoco.

The main points illustrated by this case are: 1) the value of mediation in resolving
difficult disputes quickly and inexpensively; 2) the benefits of keeping the negotiating
teams separate during an ADR process; and 3) the value of developing a "global" settlement
package that addresses all outstanding matters in dispute.

BACKGROUND

The San Ramos Bypass Channel is a five-mile long channel running through the
city of Walnut Creek. In Phase I of the contract, the Corps had hired a contractor with
whom several claims arose, and with whom it was unable to negotiate any settlements.
After this tumultuous contract, the Corps engaged Brutoco in 1986 to handle Phase II. The
total cost of the contract was estimated at $12.6m.

During the summer of 1987, Brutoco excavated a portion of the channel in the
Walnut Creek neighborhood. Materials were stockpiled nearby for use in the filling in parts
of the excavated channel later. The Corps believed, however, that the walls of the nearby
channel had been cut at a steeper grade than they should have been, and that Brutoco had
put more material in the stockpile than was prudent. The soil in the area was unstable and
close to the edge of the channel. In addition, the stockpile was located above a high-
pressure petroleum pipeline. As winter approached, the Corps became concerned that the
area might collapse, rupturing the pipeline. The Corps therefore issued an emergency
directive to Brutoco on September 16, 1987, for the construction of an earthen buttress to
stabilize the area around the stockpile. Brutoco complied with the directive. The Corps
wrote a modification order to cover the cost of the change, estimated at $100,000, but
Brutoco felt that the quantum was far off the mark. According to Tom Salata, Executive
Vice President of Brutoco, the Corps did not recognize that its directive had a "ripple
effect" on the rest of the project.


Brutoco. The Sacramento District Corps of Engineers used mediation to resolve a
disputed construction claim with Brutoco Engineering and Construction of Fontana, CA.
While working on the construction of a bypass channel for a flood control project, Brutoco
claimed delays due to differing site conditions. The claim was resolved in a one-day
mediation for 37% of its initial value. The case study highlights: 1) the value of mediation
in resolving difficult disputes quickly and inexpensively; 2) the benefits, under certain
circumstances, of keeping the negotiating teams separate during an ADR process; and 3)
the  walue of developing a "global" settlement package that addresses all outstanding matters
in dispute.

In general, these cases highlighted several key points. First, there are clear benefits
to developing "global" or "package" settlements that address multiple issues together.
Second, negotiations can sometimes be conducted more fruitfully in the absence of
counsel. Third, it is very useful to have preexisting ADR clauses in agreements, and to
come to ADR proceedings with a "skeleton" agreement prepared. Fourth, there are a variety
of ADR processes available to the Corps, each suitable for different situations. Fifth, it is
very helpful to use a neutral who has experience in the substantive area in dispute. Finally,
it may sometimes be useful to keep parties separate during an ADR proceeding.

Although the above points emerged specifically from these new cases, the cases
also confirm past lessons about ADR: it saves time and money, reduces risk, increases
control, and preserves relationships. The Corps has clearly benefitted immensely--and
stands to benefit further--from its emphasis on ADR.


issue a Contracting Officer's Decision (COD) denying the claim. Even after the parties
agreed to submit the claim to mediation, however, negotiations continued. Shy and Don
Dennis, Chief of Construction, Operations Branch negotiated with Salata and Leonard
Brutoco up until three days prior to the mediation.

While the cost proposals and claim were pending, the relationship between the
Corps and Brutoco deteriorated steadily. Brutoco was cited for 67 safety violations. 65 of
these claimed that Salata had forgotten to to don his hard hat while visiting the site. The
Corps threatened to require Brutoco to hire a full-time safety officer and to give Brutoco a
highly detrimental contractor rating of "unsatisfactory."

MAJOR ISSUES IN DISPUTE

The most important issue in dispute was the assignment of responsibility for the
costs and delays resulting from the Corps' request that Brutoco build the buttress. The
Corps believed that Brutoco was responsible for’ maintaining safety on the job. Therefore,
its decision to place extra material in an unstable area, after excavating the channel too
steeply in the first place, put the full responsibility on Brutoco. Brutoco, on the other
hand, charged that the Corps had authorized it to use that site for backfill, and that if it were
unsafe, the flaw lay in the Corps’ design. Brutoco believed, therefore, that the Corps was
entirely responsible for the delay and costs incurred by Brutoco in response to the Corps’
extracontractual directive.

Brutoco also claimed that some initial delay had been caused by Southern Pacific
Pipeline Company (SPPL) in late 1986. This delay resulted from the portion of the contract
concerning the placement and relocation of some SPPL pipeline. The Corps, on the other
hand, believed that Brutoco had planned the project poorly, developed an unworkable
schedule after several months had already elapsed, and did not have adequate project
management.

POSITIONS OF EACH SIDE PRIOR TO ADR

By the time the ADR process began, the Corps felt that its vulnerability was not
very high, and that the case had little merit. The Corps did acknowledge, however, that
there were some weaknesses in its case, since it had directed Brutoco to build the buttress.

Thus, the parties disagreed primarily over quantum. The Corps entered the ADR
process expecting its liability to be approximately half a million dollars. Brutoco entered the
process believing it was entitled to the full $3.1m for which it had submitted a claim.




ADR PROCEDURE
PARTICIPANTS

Col. LeCuyer, Sacramento District Engineer, and Leonard Brutoco, president of
Brutoco, served as the chief decision-makers for the Corps and Brutoco. Anthony Piazza
served as the mediator. Geoffrey Worstell, Assistant District Counsel for the Corps,
presented the Corps' case. Wade Dann, counsel for Brutoco, presented Brutoco's case.
Additional Corps personnel were Don Dennis, Chief of Construction, Operations Branch;
Ralph Cameron, resident engineer, Randall Yee. auditor, George Perry, project engineer;
and Steve Rowe and Al Larson, claims analysts. Additional Brutoco personnel were Tom
Salata, Executive Vice President; Mike King, Chief Executive Officer, David Hattery, Co-
counsel; and Robert Sutor, accountant.

SCHEDULE

The mediation was scheduled for one day, February 27, 1990. Each party was to
give a one-hour presentation, after which the mediated negotiations would commence.
When the parties first arrived, they signed the mediation agreement. Dann then gave a two-
hour presentation for Brutoco, after which Piazza requested that the Corps shorten its
presentation: "I'm a quick study, and I don't need a lot of background." Worstell was able
to cut his presentation down to a half hour. Piazza then separated the teams and shuttled
between them for the rest of the day. When agreement was reached at about 8:00 p.m., the
parties reconvened to draft and sign the settlement agreement.

DESCRIPTION AND SETTLEMENT NEGOTIATIONS

Brutoco brought an impressive scale model of the channel and used it in its
presentation. Both Brutoco and the Corps structured their presentations by outlining their
main arguments and then explaining which witnesses they would call up (in a trial) to
support which points. At the close of the Corps presentation, Piazza summarized the salient
points in each side's presentation, recalling specific points with a precision that amazed
many participants. The thoroughness with which Piazza recapitulated their arguments
erased any concern on the part of the Corps that he might have gotten a "stilted view" after
hearing presentations of such different lengths.

After the presentations were over, the parties were split into separate rooms. Piazza
separated the parties for two reasons. First, he felt that each party would be more amenable
to discussing litigation risk analysis without the presence of the other party. Second, he felt
that each side would be more willing to discuss possible settlement packages, and more
willing to disclose its bottom line, if people from the other side were not in the room.

Piazza met with the Brutoco team first, He explained to them where he thought the
strengths and weaknesses in their case lay. He also worked to get participants to see the
issues more objectively, by appealing to their common sense. For example, Piazza pointed
out that the claim was still forward-priced (reflecting costs that would rise), but that the
work had already been done; therefore, it would be logical not to forward-price the claim.

Piazza then did the same with the Corps team. He helped them to understand that

since they had directed Brutoco to do the work, there was some merit to Brutoco's claim
regardless of who was responsible for safety. Piazza also stated that if it got to be 3:00 and

-9-


name. Since the Corps had no objection to using Piazza, he was subsequently contacted
and selected.

Piazza suggested that the parties send him a 10-page position paper or brief in
advance of the mediation. The Corps did send a brief, outlining the basis of its objections
to the claim. In contrast, Brutoco did not submit a brief. Dann felt that the purpose of a
brief was to educate the other side, and since the Corps already had all of the information
supporting Brutoco's claim, he felt that a brief was unnecessary. Therefore, no exchange
of documents occurred.

FORMAL AGREEMENT TO USE AN ADR PROCEDURE

The ADR agreement between the parties was provided by Piazza, in a standard
format. It specified the date and location of the mediation (February 27, 1990, in a
conference room across the street from the Corps' Sacramento office). It outlined the
timing of the presentations and negotiations, while leaving the structure of the presentations
up to the parties, and stated that each party would be allowed to bring as many witnesses as
it wished. It also established that the parties would split the cost of the mediator. The
agreement was sent out to the parties a few days in advance of the mediation. Since neither
side had any objections to the proposed agreement, it was not signed by Col. LeCuyer,
Brutoco, and Piazza until they arrived at the conference room.


CHRONOLOGY OF THE CLAIM

When the Corps issued its directive, it also instructed Brutoco to submit an
explanation, or cost proposal, breaking down its buttress-related expenses. Brutoco
submitted a proposal for $1.8m on February 16, 1988. On February 26, Brutoco
representatives met with the Corps to discuss the proposal. The purpose of this meeting
was construed differently by the two sides, however. The Corps viewed the meeting as an
exploratory attempt to determine the scope of the impact of the modification order on
Brutoco, since the claim would have to go through a Corps audit before a final amount was
approved. Brutoco, in contrast, saw the meeting as the first step in the negotiation over the
actual amount of additional compensation to which it was entitled. The parties worked
through the elements of the cost proposal, and agreed on a figure of $1.3m. In a
subsequent letter, the Corps referred to the meeting as one in which the parties had
discussed the "scope" of the damages rather than the actual quantum. Brutoco was
frustrated by and resentful of this apparent tactic, which undermined its trust in the Corps.

Over the next several months, negotiations took place between the parties over the
amount of the claim. Brutoco, feeling that it had been deceived, retracted its $1.3m
agreement in principle and resubmitted its $1.8m claim. It also stopped work on part of the
contract for several days until the Corps agreed to pay some of its expended costs. When
these negotiations reached impasse, Brutoco amended its proposal twice during the month
of May, bringing the total cost first to $2m and then to $2.8m. At this point, the Corps
submitted the revised cost proposal for audit. The audit was completed in December, 1988,
and no negotiations occurred while the audit was being performed.

In October, 1988, during the course of the audit, Col. LeCuyer arrived in the
Sacramento District and took over the role of Contracting Officer. At that time, he was
apprised of the history of the dispute and the status of negotiations to date. Soon after his
arrival, he met with Salata. Although they did not discuss the substance of the dispute, they
worked to establish a framework for subsequent negotiations. According to Salata, Col.
LeCuyer promised that Brutoco would be treated "fairly," but the promised negotiations
never materialized.

During the first several months of 1989, the Corps attempted to use the audit results
as a means of lowering Brutoco’s requested reimbursement. In April, 1989, Wade Dann,
Brutoco's counsel, notified the Corps of its intent to make a "complete contract close-out"

presentation.’ Brutoco presented this package along with a formal, certified, “total-cost"
claim on August 10, 1989 for approximately $3.1m.2

Since the components of the claim had been changed, the Corps was obliged to
submit it for a second audit. The audit was completed at the end of 1989 and identified only
$2.1m in actual costs. Subsequent meetings were held, and each side presented its
arguments concerning the merit of the claim. The Corps made a final offer which was
rejected, in part because of the time that had passed and the interest that had continued to
accrue.

When it became apparent that the negotiations were unproductive, the possibility of
ADR arose. Col. LeCuyer approved the idea as a last resort. If that failed, he planned to

‘Correspondence, Dann to John Corrigan (Corps Chief of Construction), 4/21/89.

2In other words, the $3.1m figure represented the difference between total contract income and total costs,
overhead, and profit.

-5-




front, which was important. Salata felt that under the circumstances, they did the best they
could. He believed that the Corps would not have settled without the intervention of the
mediator. The outcome was especially satisfactory in light of the mid-contract change in
contracting officers, the misunderstanding over the purpose of the February, 1988 meeting,
and the time that had elapsed once the dispute arose.

POSTSCRIPT

Since the settlement resolved all outstanding matters related to the then-completed
contract, Brutoco performed no additional work on that project. For the most part, people
on both sides felt that they understood the merit of the other side's case. Some people on
the Brutoco side, however, felt that their trust in the Corps had been severely shaken, and
they stated that they would prefer to avoid Corps contracts in the future.

The Sacramento Corps is actively looking for other opportunities to use ADR. They
are currently in the process of designing an ADR proceeding to resolve a dispute with a
contractor in Utah. Ironically, litigation with the contractor who handled Phase I of the
flood control project is still pending.

-12-


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Brutoco Engineering and Construction, Inc.

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Endispute, Inc.
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Cambridge, MA 02318

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encourage its managers to develop and utilize new ways of r
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January 1992

Brutoco Engineering and Construction, Inc.

Alternative Dispute Resolution Series

Case Study #7

Lawrence E. Susskind
Principal Investigator

Eileen Babbitt
and
David Hoffer
Co-Investigators

Endispute, Inc.

955 Massachusetts Avenue
Cambridge, MA 02139

IWR Case Study 92-ADR-CS-7


The Corps Commitment to Alternative Dispute Resolution (ADR):

This case study is one in a series of case studies describing applications of Alternative
Dispute Resolution (ADR). The case study is part of a Corps program to encourage its
managers to develop and utilize new ways of resolving disputes. ADR techniques may be
used to prevent disputes, resolve them at earlier stages, or settle them prior to formal
litigation. ADR is a new field, and additional techniques are being developed all the time.
These case studies are a means of providing Corps managers with examples of how other
managers have employed ADR techniques. The information in this case study is designed to
stimulate innovation by Corps managers in the use of ADR techniques.

These case studies are produced under the proponency of the U.S. Army Corps of
Engineers, Office of Chief Counsel, Lester Edelman, Chief Counsel; and the guidance

of the U.S. Army Corps of Engineers Institute for Water Resources, Fort Belvoir, VA, Dr.
Jerome Delli Priscoli, Program Manager.

For further information on the ADR Program and case study contact Program
Manager:

Dr. Jerome Delli Priscoli
Institute for Water Resources
Casey Building

7701 Telegraph Road

Ft. Belvoir, VA 22060-5586
Telephone: (703) 355-2372
Fax: (703) 355-3171


no significant progress had been made, they would all go home. The Corps decided to
offer Brutoco half a million dollars as an opening proposal. At the end of his first meeting
with the Corps, Piazza took Col. LeCuyer outside the room and asked him for his
impression as to where the case would settle. LeCuyer estimated that they would settle at
about $1.1m. Piazza took the Corps' half million dollar offer back to Brutoco.

Col. LeCuyer found Piazza's technique very effective. By appealing to logic and
objective reason, he got both sides to "see the forest for the trees." By setting a quasi-
deadline, he motivated the teams to be reasonable and efficient.

Throughout the afternoon and into the evening, Piazza shuttled back and forth
between the two rooms. He carried offers and counteroffers from party to party, explaining
further as time wore on the strengths and weaknesses of each side's case, as described
above. He also helped the parties to understand the risks of litigation. Piazza believed that
the parties were well-prepared and well-briefed, which made the process quite efficient.

When 3:00 p.m. passed, the participants began to believe that the case might well
settle. This optimism helped them to "buy in" further and inspired them to work harder.
Late in the afternoon, the parties decided to address several smaller disputes that had arisen
in the previous two years, in addition to the larger claim. If all of the outstanding matters
could be settled, the entire contract could be closed and settled that same day. Although a
"global" settlement had not been originally intended, it developed naturally. The parties
knew that addressing additional issues would give them additional latitude—allowing each
side to get more on some and less on other issues.

Finally, in the evening, Piazza identified a figure ($1,155,700) that he thought
might be acceptable to both sides, and suggested it to each party. He reaffirmed that it was
non-binding, and asked them if they would accept it. By that time, both teams had become
very conscious of the weaknesses in their cases, and thought that the proposed number was
very attractive. After discussing it among themselves, both parties agreed to accept his
recommendation.

For the first time since the morning presentation, Piazza brought the two teams back
together and advised them to draft a settlement agreement. Dann did most of the actual
drafting, but input was solicited from all. The settlement agreement was signed by Col.
LeCuyer and Brutoco at about 8:00 p.m.

-10-