By Antranik Chekemian
Carlos M. Hernandez, recently retired Chief Executive Officer of Fluor, opened the second day of the CPR 2021 Annual Meeting to an online audience of about 180 conflict resolution professionals focusing on dispute prevention techniques.
Hernandez, a former CPR chairman and a current board member, reflected on how his perspective on dispute resolution has evolved throughout his professional career. He said, “As I matured as a lawyer, especially after going in-house, I began to understand that disputes often had implications well beyond, and more material, than the immediate conflict.”
Coming out of law school, said Hernandez, “my career goal was to get the opportunity to try to win cases. I wanted to deliver favorable outcomes and of course I wasn’t too concerned about the business relationship between my client and their adversaries. . . . If I delivered a win, regardless of how I got there, within ethical bounds of course, the post-dispute relationship was not my concern.”
He said his experiences as a lawyer and then as CEO have led him to think of litigation as a last resort, ADR as a better alternative, and conflict prevention as best practice.
He reflected on the decade in the construction industry and how the industry players suffered staggering financial losses with bankruptcies and lost projects. This upheaval, said Hernandez, involved tremendous amounts of litigation, much of which might have been prevented. “And the cost and destruction of litigation itself has contributed to the demise of contractors and projects, and of course, the careers of many good people,” he said.
Hernandez outlined principles he found helpful in conflict prevention, noting that these principles are still frequently disregarded.
He first emphasized that “contracts need to be fair and capable of being executed by both parties. The ‘I win, you lose’ approach often results in both parties losing.” Hernandez noted, “Entering into a bad deal with the expectation that one will work things out, or solve disputes through negotiations, frequently results in solving the dispute through costly formal proceedings.” He also acknowledged the significant imbalance in market power, often resulting in bad contracts.
Second, Hernandez mentioned the importance of entering into contractual relationships with parties that will live by the terms of the contract–meaning that parties should not take contract terms as mere suggestions. “Have some degree of trust in the counterparty and respect the bargain. Seek partnership rather than an adversarial relationship with your counterparty in the performance of the contract,” said Hernandez.
Reflecting on the keynote address of Dana Bash, CNN’s chief political correspondent (see CPR Speaks post yesterday here), about the lack of personal relationships among Beltway politicians, and the resulting lack of conflict resolution in the federal legislature, he pointed out that this theme transcends institutional boundaries.
He recommended alignment sessions at the inception stage of business ventures as ways to discuss potential uncertainties. For example, one can establish communication channels even beyond the terms of the contract. These sessions, by building working relationships, have led to greater trust, better communications, and fewer disputes, said Hernandez.
Third, Hernandez encouraged lawyers to plan for good-faith disagreements and to negotiate contracts that contemplate that disagreements will arise, and that have prescribed means of addressing them in a prompt and business-like manner.
Conflict prevention provisions, he said, should be as standard in contracts as conflict resolution provisions. This may include having a third party providing nonbinding opinions such as a standing project neutral who has an ongoing relationship with the parties and knowledge about the project during its lifetime.
His fourth principle was about confronting potential disputes early. There is often a tendency to avoid addressing potential disputes early, he said , but typically, conflicts do not get better with time.
Arguments for resisting addressing an issue with a customer early on include that it would damage the relationship and that it would make continued execution of the contract more difficult, or that it would adversely affect the prospects for future contracts.
Hernandez, however, noted that one does not have to communicate in an adversarial or threatening way. “Disagree in a respectful way, don’t overstate your position, and leave the door open. . . . I see it as an approach with the best interests of the client in mind,” he emphasized.
His final principle was that it is seldom too early or too late to engage a neutral third party for assistance, when the contracting parties are at odds. Hernandez concluded: “If all methods of conflict prevention have been exhausted without success, then mediation is a way to engage and settle discussions with third party neutrals that is worthy of pursuing.”
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Carlos Hernandez is adapting and expanding his presentation for the March issue of Alternatives to the High Cost of Litigation, which will be available at the end of next month at www.altnewsletter.com. Follow CPR on Twitter @CPR_Institute and Alternatives @altnewsletter.
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The author, a second-year student at New York’s Benjamin N. Cardozo School of Law, is a CPR 2021 intern.