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1. Impasse and AlternativeImpasse and Alternative
Dispute Resolution (ADR)Dispute Resolution (ADR)

2. Possible NegotiationPossible Negotiation
OutcomesOutcomes
 In general, negotiations will likely result in:In general, negotiations will likely result in:
 AgreementAgreement – both parties achieve gains– both parties achieve gains
 No AgreementNo Agreement – one party walks away– one party walks away
exercising its BATNAexercising its BATNA
 ImpasseImpasse – both parties continue to desire an– both parties continue to desire an
agreement but reach impasseagreement but reach impasse
 Alternative Dispute ResolutionAlternative Dispute Resolution – at impasse– at impasse
parties seek a third party to move discussionsparties seek a third party to move discussions
forwardforward
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3. Negotiation ProcessNegotiation Process
ContinuumContinuum
 Impasse should not be viewed as theImpasse should not be viewed as the
endpoint of discussion, but as a point thatendpoint of discussion, but as a point that
leads to a method of ADR, and thenleads to a method of ADR, and then
settlement:settlement:
Preparation Opening OfferPreparation Opening Offer
BargainingBargaining Impasse ADRImpasse ADR
SettlementSettlement
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4. Negotiation SkillsNegotiation Skills
 Skill 7.1: View anSkill 7.1: View an impasseimpasse as a temporaryas a temporary
situationsituation
 Skill 7.2: AnticipateSkill 7.2: Anticipate settlement pressuresettlement pressure, but, but
follow your BATNAfollow your BATNA
 Skill 7.3: If an impasse occurs, considerSkill 7.3: If an impasse occurs, consider
mediationmediation
 Skill 7.4: If negotiation and/or impasse fail,Skill 7.4: If negotiation and/or impasse fail,
considerconsider arbitrationarbitration
 Skill 7.5: If appropriate considerSkill 7.5: If appropriate consider hybrid forms ofhybrid forms of
ADRADR
7-4

5. Chapter Case: Hunt ManufacturingChapter Case: Hunt Manufacturing
CompanyCompany
 Douglas Hunt at age 70 decided to sell hisDouglas Hunt at age 70 decided to sell his
company, Hunt Mfg. Co.company, Hunt Mfg. Co.
 Rick Thomas, a Hunt board member sought toRick Thomas, a Hunt board member sought to
acquire HMC, but his “due diligence” processacquire HMC, but his “due diligence” process
uncovered a sexual harassment suituncovered a sexual harassment suit
 Lynn Stephen, former HMC sales director,Lynn Stephen, former HMC sales director,
claimed a “hostile work environment”claimed a “hostile work environment”
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6. Chapter Case: HuntChapter Case: Hunt
Manufacturing Company (cont.)Manufacturing Company (cont.)
 Investigation by HMC’s, HR director confirmedInvestigation by HMC’s, HR director confirmed
the incidentsthe incidents
 Insurance company agreed to pay a claim up toInsurance company agreed to pay a claim up to
$250,000 if Stephan and HMC agree to$250,000 if Stephan and HMC agree to
mediationmediation
 Douglas Hunt suffered a massive heart attackDouglas Hunt suffered a massive heart attack
and HMC board contacted Thomas – whoand HMC board contacted Thomas – who
agreed to an acquisition if the lawsuit wasagreed to an acquisition if the lawsuit was
settledsettled
7-6

7. ADR: OverviewADR: Overview
 Increasingly negotiators when at an impasse turn to aIncreasingly negotiators when at an impasse turn to a
third party (ADR)third party (ADR)
 ADR = anADR = an alternativealternative to litigation, in which a neutralto litigation, in which a neutral
third party utilizes mediation, arbitration, or a hybridthird party utilizes mediation, arbitration, or a hybrid
form of the twoform of the two
 ADR – now commonly used in a variety of fields:ADR – now commonly used in a variety of fields:
 Labor-managementLabor-management
 Commercial disputesCommercial disputes
 Landlord-tenantLandlord-tenant
 Small claimsSmall claims
 Employment issuesEmployment issues
 Family disputesFamily disputes
 Neighbor vs. neighborNeighbor vs. neighbor
 International businessInternational business
7-7

8. What Are Common Causes ofWhat Are Common Causes of
Negotiation Impasse?Negotiation Impasse?
1.1. No real ZOPANo real ZOPA – thus no possible settlement– thus no possible settlement
pointpoint
2.2. EntrenchmentEntrenchment – by one or both parties in their– by one or both parties in their
position(s) (“heat of the battle”)position(s) (“heat of the battle”)
3.3. Unskilled negotiatorsUnskilled negotiators – fail to discover a– fail to discover a
proposal with mutual gainsproposal with mutual gains
4.4. One or more parties hadOne or more parties had no real intentionno real intention toto
settlesettle
5.5. Settlement pressureSettlement pressure – as a negotiation– as a negotiation
approaches a party’s resistance point andapproaches a party’s resistance point and
possible deal they feel pressure and walk awaypossible deal they feel pressure and walk away
7-8

9. Why Has ADR Increased in Use?Why Has ADR Increased in Use?
 To achieve a settlement, compared toTo achieve a settlement, compared to
litigation, ADR:litigation, ADR:
 CostCost: often less than litigation: often less than litigation
 Complexity of issuesComplexity of issues: parties can choose a: parties can choose a
knowledgeable third partyknowledgeable third party
 TimeTime: often is faster: often is faster
 ConfidentialityConfidentiality: mediation, in particular, is a: mediation, in particular, is a
private process (courts are public)private process (courts are public)
 Avoid disastrous decisionAvoid disastrous decision: mediation, in: mediation, in
particular, can keep a party from “losing” aparticular, can keep a party from “losing” a
decision because the parties develop the finaldecision because the parties develop the final
decisiondecision
7-9

10. Contract Clause Specifying the Use of Mediation and
Arbitration to Settle International Disputes
Any dispute, controversy, or claim arising out of or in
connection with this contract, or the breach, termination, or
invalidity thereof, shall first be referred to mediation in accordance
with the Rules of the Mediation Institute of the Stockholm
Chamber of Commerce, unless one of the parties objects. If one
of the parties objects to mediation, or if the mediation is
terminated, the dispute shall be finally resolved by arbitration in
accordance with the Rules for Expedited Arbitration of the
Arbitration Institute of the Stockholm Chamber of Commerce. The
place of arbitration will be Indianapolis, Indiana, the language to
be used in the arbitral proceedings shall be English, and the
arbitral tribunal shall be composed of a single arbitrator.
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11. MediationMediation
 Evolved over the past 30 years as the preferredEvolved over the past 30 years as the preferred
method of conflict resolutionmethod of conflict resolution
 Alternative Dispute Resolution Act of 1998Alternative Dispute Resolution Act of 1998
requires local rulesrequires local rules
 Defined: Mediation includes three elements:Defined: Mediation includes three elements:
 1. A private, confidential process1. A private, confidential process
 2. Third party (neutral)2. Third party (neutral)
 3. Facilitation of a mutually acceptable resolution3. Facilitation of a mutually acceptable resolution
 Mediator does not usually offer proposals orMediator does not usually offer proposals or
have any authority to force agreementhave any authority to force agreement
7-11

12. Mediator SourcesMediator Sources
 Federal Mediation and ConciliationFederal Mediation and Conciliation
Services (FMCS)Services (FMCS)
 American Arbitration Association (AAA)American Arbitration Association (AAA)
 Local governmentsLocal governments
 University-based centersUniversity-based centers
 Non-profit associationsNon-profit associations
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13. Steps in the MediationSteps in the Mediation
ProcessProcess
1.1. RequestRequest by the parties of mediator servicesby the parties of mediator services
2.2. Initial conferenceInitial conference to explain role of mediator,to explain role of mediator,
rights of partiesrights of parties
3.3. Schedule of session(s)Schedule of session(s) of private meeting(s)of private meeting(s)
4. Formal retainer is set by an4. Formal retainer is set by an Agreement toAgreement to
MediateMediate; fee shared, ground rules; fee shared, ground rules
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14. Steps in the MediationSteps in the Mediation
ProcessProcess
5.5. InformationInformation gathered by the partiesgathered by the parties
6.6. Facilitation by the mediatorFacilitation by the mediator; OSLO- orientation;; OSLO- orientation;
story telling by two parties; listing of issues;story telling by two parties; listing of issues;
outline resolutions of issuesoutline resolutions of issues
7.7. SettlementSettlement is reached, mutual agreementsis reached, mutual agreements
determined by the partiesdetermined by the parties
8.8. AgreementAgreement may/may not be signed by themay/may not be signed by the
parties and submitted to their attorneys, courtparties and submitted to their attorneys, court
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15. Approaches to MediationApproaches to Mediation
(in ascending order of intervention by the mediator)(in ascending order of intervention by the mediator)
 Collaborative mediationCollaborative mediation: Mediator in joint: Mediator in joint
sessions strives to get the parties tosessions strives to get the parties to
understand the other side’s issuesunderstand the other side’s issues
 Evaluative mediationEvaluative mediation: Mediator in separate: Mediator in separate
sessions outlines to each party thesessions outlines to each party the
strengths and weaknesses of theirstrengths and weaknesses of their
positionspositions
 Directive mediationDirective mediation: Mediator allows: Mediator allows
parties to only speak to him/her, feels theirparties to only speak to him/her, feels their
passion. Mediator may suggestpassion. Mediator may suggest
settlementsettlement
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16. Benefits of MediationBenefits of Mediation
1.1. PsychologicalPsychological – avoid stress, trauma of– avoid stress, trauma of
arbitration, court; a third party has provided aarbitration, court; a third party has provided a
hearinghearing
2.2. Savings in time and moneySavings in time and money – generally greater– generally greater
than arbitration, courtthan arbitration, court
3.3. Focus on issuesFocus on issues – parties reevaluate their own– parties reevaluate their own
and others needsand others needs
4.4. Mediation works!Mediation works!
5.5. ControlControl – of any settlement remains totally with– of any settlement remains totally with
the partiesthe parties
6.6. ConfidentialityConfidentiality – all discussions are private,– all discussions are private,
occur only between the parties and mediatoroccur only between the parties and mediator
7-16

17. Tactics for Success:Tactics for Success:
Rules for MediatorsRules for Mediators
1.1. Create a positive atmosphereCreate a positive atmosphere – sit parties– sit parties
together; caucus; identify mutual goals andtogether; caucus; identify mutual goals and
successessuccesses
2.2. Maintain neutralityMaintain neutrality – which is not always easy– which is not always easy
3.3. Absorb conflictAbsorb conflict – remain calm, expressionless;– remain calm, expressionless;
make reflective statementsmake reflective statements
4.4. Provide reality checksProvide reality checks – do not give advice or– do not give advice or
suggest solutions but ask if one is realisticsuggest solutions but ask if one is realistic
5.5. No conscienceNo conscience – don’t evaluate a solution as– don’t evaluate a solution as
“fair” or “good” or “best”; only job is to move“fair” or “good” or “best”; only job is to move
discussion forwarddiscussion forward
7-17

18. ArbitrationArbitration
 Distinctly different from mediationDistinctly different from mediation
 Defined: three critical elementsDefined: three critical elements
 The parties signed a contract requiringThe parties signed a contract requiring
arbitration to resolve conflictsarbitration to resolve conflicts
 A neutral third partyA neutral third party
 Decision is final and bindingDecision is final and binding
 Federal Arbitration Act (1925) “CongressFederal Arbitration Act (1925) “Congress
declared a national policy favoringdeclared a national policy favoring
arbitration over the…litigation process”arbitration over the…litigation process”
7-18

19. 7-19
Two-Party, Single-Issue Negotiation

20. Steps in ArbitrationSteps in Arbitration
1.1. Preliminary hearingPreliminary hearing
2.2. Opening statementsOpening statements
3.3. Rules of evidenceRules of evidence
4.4. WitnessesWitnesses
5.5. SummationSummation
6.6. Arbitrator’s awardArbitrator’s award
and opinionand opinion
7-20

21. Advantages of Arbitration:Advantages of Arbitration:
1.1. Parties get a decision – the “over factor”Parties get a decision – the “over factor”
can be great (the conflict is over)can be great (the conflict is over)
2.2. Less costly in time/money than litigationLess costly in time/money than litigation
3.3. Neutral, third party decision makerNeutral, third party decision maker
4.4. Parties have input in selection of arbitratorParties have input in selection of arbitrator
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22. Potential Disadvantages ofPotential Disadvantages of
ArbitrationArbitration
 ““Playing God”:Playing God”: Arbitrators are generallyArbitrators are generally
fact-oriented, impersonal decision-makersfact-oriented, impersonal decision-makers
 TheThe “chilling effect”:“chilling effect”: Negotiators thatNegotiators that
expect arbitration may “cool” their effortsexpect arbitration may “cool” their efforts
 Surface bargainingSurface bargaining: Negotiators from the: Negotiators from the
start may not engage in serious bargainingstart may not engage in serious bargaining
and seek an impasse and arbitrationand seek an impasse and arbitration
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23. Potential Disadvantages ofPotential Disadvantages of
Arbitration (cont.)Arbitration (cont.)
 Final-Offer ArbitrationFinal-Offer Arbitration::
 Both sides submit their last offer and theBoth sides submit their last offer and the
arbitrator must choose one of the twoarbitrator must choose one of the two
 Can eliminate the “chilling effect”Can eliminate the “chilling effect”
 Combined Method (traditional and finalCombined Method (traditional and final
offer)offer)
 Arbitration may choose the settlement pointArbitration may choose the settlement point
they believe is the best OR a final offerthey believe is the best OR a final offer
7-23

24. Illustration of Three Arbitration Decision
Methods: Conventional, Final-Offer, and
Combined
Two parties are disputing the value of a half-acre housing lot in a new
subdivision. Other half-acre lots have sold in the past year in the range of
$45,000 to $65,000 depending on exact size, location, flatness, existing
mature trees, proximity to a proposed park or power lines, and other
factors which affect desirability. The lot in question has no decided
advantage or disadvantage in comparison to other lots. To achieve a
quick resolution, the parties submitted the issue to arbitration. The last
positions of the parties as revealed to the arbitrator were Party A:
$25,000, and Party B: $80,000. The arbitrator then suggested a final-offer
process, which the parties accepted, and their final offers were Party A:
$45,000 and Party B: $68,000. The arbitrator, still not satisfied that he
could render a fair decision, suggested the combined process, which the
parties accepted. The arbitrator then carefully reviewed the distinct
attributes of the other lots that had recently sold in comparison to the lot
in question, and decided that $55,000 was the fair value.

25. Illustration of Three Arbitration Decision
Methods: Conventional, Final-Offer, and
Combined (cont.)
If conventional arbitration had been utilized, the arbitrator would have had a
more difficult time deciding a fair value since the last positions, $25,000 and
$80,000, were so far apart. Even if the decision was the same, $55,000 would
have represented a $30,000 “loss” to party A, and a $25,000 “gain” to party B.
If final-offer had been utilized the arbitrator would have been required to choose
either $45,000 or $68,000 as the value—a substantial variation from what he
believed to be the fair value of $55,000. By utilizing the combined method, the
arbitrator is able to select a value that he, as an impartial third party, believes is
fair, and is within a reasonable range of the two final offers made by the parties.
A: Last A: Final Arbitrator’s B: Final B: Last
Position Offer Settlement Offer Position
__________________________X____________________________
$0 $25,000 $45,000 $55,000 $68,000 $80,000

26. Hybrid Forms of ADRHybrid Forms of ADR
 Mediation-Arbitration (Med-Arb)Mediation-Arbitration (Med-Arb)
 Best known hybridBest known hybrid
 Two steps:Two steps:
(1) mediation with deadline,(1) mediation with deadline,
(2) followed by arb if needed(2) followed by arb if needed
 Arbitration-Mediation (Arb-Med)Arbitration-Mediation (Arb-Med)
 Newer hybridNewer hybrid
 Two steps:Two steps:
(1) arbitrator makes a decision and keeps it in a sealed envelope(1) arbitrator makes a decision and keeps it in a sealed envelope
(2) uses mediation (use arb decision if fails)(2) uses mediation (use arb decision if fails)
 Both hybrids can offer the advantages ofBoth hybrids can offer the advantages of
both methodsboth methods
7-26