We're now ready to begin unit four on Contract Performance and Evaluation. This is basically the end game of the contracting process. And we're going to be dealing, quite a bit, with the way you resolve disputes in completing performance of the contract. If you don't have disputes, then there really are no great issues to discuss. And that's the case with many contracts. You negotiate, you sign a contract, you perform, and that's the end of it. So nothing to discuss there. But if you go on the alternative path, where there are problems with payment, with delivery, with quality etc, then you need some clear processes for dispute resolution. And we introduced dispute resolution earlier with what we called ADR, Alternative Dispute Resolution. And ADR is especially important for non-lawyers for a number of reasons. With almost every business contract today you're going to be negotiating ADR contract clauses. And it's amazing how many business people will negotiate a mediation clause, or an arbitration clause, without really understanding what they're agreeing to. So as a result of our discussion during this unit, I want you to walk away from this unit with a clear understanding of what you're negotiating, whether you should be negotiating it at all. Second, ADRs important because you're going to be a participant in ADR processes if you become involved in a business dispute. If there is a performance problem, you'll be involved in a ADR process of one sort or another. Therefore, it's important to understand what these processes are. And finally, it's important to understand ADR because often, you will be the third party in resolving a dispute. You will be the arbitrator. You will be the mediator in resolving every day disputes. Whether there are family disputes between your children for example, or whether you're working as a manager in a business and you're solving disputes between people working in the business. So this coverage is especially important for a variety of reasons. And yet another reason is that often attorneys are not all that enthusiastic about ADR. Here's a very, almost shocking statistic that one third of lawyers surveyed in some recent research never advised their clients to try mediation or arbitration. So often, the burden will be on you to suggest this. I'm not exactly sure why more attorneys don't advise ADR, but part of it might be economics. Here's a clip from an article in the Wall Street Journal about a law firm who is having revenue problems. And it mentions that they had a big problem with revenue because Three other cases settled and as a result they lost $35 million in revenue. So I'm not saying they were against the settlement but yet the economic motivation of lawyers might lean more toward continuing litigation, as opposed to settling. So in discussing the end game, we're going to start by looking at dispute prevention which actually peels the onion back a little bit further than ADR, saying that before you even get to a dispute are there ways that you can use to prevent the dispute from arising at all. And then we'll look at ADR concepts very generally. I then want to give you some management tools, very practical tools, that you can use for resolving disputes. And then we're going to look at the two cornerstones of ADR in a little more detail. We're going to look at arbitration and mediation, and finally I have some suggestions for what you should do after you finish performing a contract, in terms of reviewing it, reviewing what happened, and evaluating. So let's move to dispute prevention. And dispute prevention, or preventive law, is something that's been kicked around for years, but only within the last few years has a clear definition been developed. And basically it means that it's more important to predict what people will do than to predict what a court will do. Winning a lawsuit can be ruinous. In the past, the emphasis was on well, if they sue us, will we win or lose in court? That was the traditional question. The preventive law question is not will we win in court but what is driving people to court. And this preventive law philosophy was well captured by the philosopher Voltaire. I was ruined twice in my life, once when I lost a lawsuit, and once when I won one. In other words, even winning a lawsuit can have disastrous consequences, not only in terms of the legal cost of the proceedings, not only in terms of any damages you have to pay, but also in terms of destroying business relationships. So let me give you an example, a personal example, of a company that I think does a great job with preventive law. And that's Marriott Corporation. Marriott Corporation has been written up in books like In Search of Excellence, about how responsive they are to customers. And I had a personal experience a number of years ago. I was invited by a corporation in Texas to give a one day legal briefing. So I flew to Dallas and checked into my hotel. And I called the front desk and asked for an early morning wake up call. Well, the call never came, now being a very risk averse person, I had set two back up alarms so I woke up at 6 AM as scheduled, and got to my briefing on time, no problems. But when I checked out, I though we'd test the Marriott dispute prevention system. I filled out one of the little cards that they leave in your hotel room asking how was your stay. And basically, I said I had a great stay, enjoyed the stay. The problem is I never received my wake up call. Well, after returning home, two weeks later I received this letter from the president of the Marriott corporation, J Willard Marriott. Let me read what he said. He says in this letter, Dear Mr. Seidel, now he misspelled my name but that's not a big deal. Everybody does. It was truly disappointing to learn about the problem you had with our wake-up service. Please accept my sincere apologies. I have forwarded your comments to our Dallas/Ft/ Worth Airport Marriott and I have asked our general manger to give prompt attention to the matter. Thank you for taking the time to write, I hope you will allow us another opportunity to serve you soon, so that we may regain your complete confidence. Sincerely, signed Bill Marriott. Now, this may have been Bill's computer speaking, I'm not sure. It may have been an automated response, but it gave me a good feeling about my stay at the hotel. Now compare this dispute prevention approach with another situation involving another hotel. We have a prominent entertainer by the name of Connie Francis. Back in the 1960s, she was an international star, she had many hit recordings. Had a very tragic situation in the 1970s, she was staying at a Howard Johnson hotel and somebody broke into her room and raped her. And this was her response to what happened. I never received so much as a note from Howard Johnson's saying. We're sorry it happened. After being shocked, I was very angry. Now let's try to guess what happened in this situation. And my guess is, after she was raped of course the news would reach Howard Johnson's headquarters, and so the company leaders probably the board of directors, probably met with their attorney's, and they said, what should we do here? Should we apologize to Connie Francis? And my guess is probably the lawyers would follow the traditional approach. They would say, well, number one, if she goes to court, she's probably not going to win. This was not a result of our actions, this was a result of an independent third party or criminal and therefore, we should not be liable. Now there is probably, they took a traditional approach, what happens if somebody goes to court? And then they probably also said what ever you do, don't communicate with her, don't do anything that might indicate that we are reliable such as an apology. Well, what happens? They don't apologize for what happened, Connie Francis is shocked, she's angry, she then goes to a lawyer. The lawyer sues Howard Johnson's. There are years of very negative publicity as this case works through the court system. And at the end of the day, Howard Johnson has to write a check to Connie Francis for $2.5 million, and perhaps all of this could have been avoided with a dispute prevention philosophy. Now I did read about another hotel recently, actually somebody told me the story, they tried a dispute prevention philosophy, but failed. Apparently, a large company scheduled a corporate retreat at the hotel. And they had major problems with cockroaches in the hotel. So the person who organized the retreat sent a very nasty letter to the hotel manager complaining about the cockroaches. And almost immediately, he received a detailed, four-page letter apologizing and going into great detail about what the hotel was going to do to eliminate the cockroaches. And this corporate manager was very impressed, until he got to the last page of the letter. And a little yellow post-it note floated out from the last page. He picked it up and it said Sarah, send this son of a bitch the bug letter. So sometimes companies have trouble implementing a dispute prevention philosophy. Let me give you some data and another example of dispute prevention. This happens to be a local example involving the University of Michigan health system. The traditional approach when doctors were sued was you don't apologize. You don't talk about what happened. Much as in the Connie Francis case, doctors were advised don't apologize to patients, don't talk to them because we don't want to do anything. That would create liability. Well, the Michigan hospital system decided to take the opposite approach. They adopted what they called the Michigan Claims Management Model, and it's based on disclosure, we're going to disclose what happened to our patients, we're going to apologize if we've done something wrong and we're going to offer a settlement. And the three principles underlying this model is we want to compensate patients, quickly and fairly, if there's been unreasonable care. If the care was reasonable then we want to support our hospital staff, and we want to learn from patients experiences. You want to improve our processes which often didn't happen under the traditional model where hospitals refused to acknowledge that something was wrong. So what's the result? The lawsuit rate at the Michigan Hospital System dropped from 2.13 per 100,000 patients to .75. The median resolution time dropped from 1.36 years to less than a year. And they accomplished the real goal, which is to improve patient safety and to do what is right. Social media provides a lot of opportunity to engage in dispute prevention, and here's one of the pioneering social media efforts. We've got a person who's called Comcast Twitter Man, when Twitter first started to become popular. Way back in 2008, one of their customer service managers, Frank Eliason, realized how powerful this could be. So, beginning in early 2008, he began searching Twitter for the word "Comcast", he also searched for "Comcrap", to discover what people were saying about the company. By the end of the year, he had handled 22,000 tweets, and he was able to respond to the customer concerns. So for example, we've got this person, Technophile, who posts this Tweet. We have the Comcast service guy out, and he tries to charge us for new cable. Then he leaves, and not only is our cable out, but also the Internet. So Frank looks into the situation, contacts the guy, gets details, and discovers the problem is probably the exterior of the building. Sends a technician, and now the customer is friendly. So through social media he has used a dispute prevention philosophy. But even with social media a problems might arise, here's a recent situation, somebody posted in Facebook. Domino's Pizza customer, hey this is the best pizza ever, keep up the good work guys. Domino's response, so sorry about that, please share additional information with us, please reference these numbers so we can have it addressed. So you have to be careful about sending standardized responses to social media comments. So that concludes our look at dispute prevention.