In July 2012, I attended LiMa Solutions’ Value-Engineered Alternative Dispute Resolution conference in beautiful Key West, FL. The goal of the conference: How to improve the construction defect dispute resolution process. Here is an overview of my observations at the conference. After the conference, I spent hours transcribing my notes into a spreadsheet, categorizing the notes based on who might benefit most from the information. The first article I wrote was directed at construction defect plaintiff attorneys. This article is directed towards the various consultants (like myself) and expert witnesses that are integral to construction defect claims. As before, this article reflects my observations only, and should not be construed as legal advice. This is for information purposes only.

In a construction defect dispute, experts play a crucial role. Due to the highly technical nature of these types of cases, it is essential that a person with sufficient knowledge, training and experience explain those technical issues. If a dispute proceeds to trial, parties will often designate an expert witness to provide testimony regarding their opinions of the facts in that case.

Without expert involvement, attorneys would not be able to provide their client with the best representation possible. Without expert testimony, judges and juries would not be able to make informed decisions.

While experts play a significant role in the outcome of construction defect disputes, the relationship between experts and other professionals in the industry can be highly contentious. Or as the saying goes, “Can’t live with them, can’t live without them.”

The construction defect industry is changing, and the volume of cases is expected to decline by 75% over the next five years. In this article, I will try to share some of the information from participants at VE-ADR 2012 relevant to expert consultants and expert witnesses to deliver more value to the clients they serve.

1. Your Fee Is A Big Part of the Problem

Or, it is time to stop partying like it’s 1999…

I remember the good old days. Destructive testing (DT) was really destructive! It wasn’t uncommon to cut hundreds of square feet of drywall, stucco and/or roofing at each unit during testing. I remember complete removal/replacement of entire bathrooms, windows, decks, showers. Back in the day, before mold was excluded in most insurance policies, I remember the thrill of full containment: Tyvek suits, full-face respirators, HEPA scrubbers, alcohol wipes for our cameras – like a scene out of E.T.! The lead expert firm for primary parties on large cases could easily generate billings of hundreds of thousands of dollars. Heck, I remember budgets for trial prep alone in the six-figures for cases involving less than 15 homes.

Those days are over.

And the people that are responsible for paying your bills and mine, are over it as well. Who are those people? For the most part, insurance pays the bulk of the cost associated with expert firms. (There are always exceptions, of course…) Insurance carriers have an obligation to their shareholders to limit their expenses, so a lot of scrutiny has been paid to expert fees over the years.

Here are some tactics that you might want to consider to make your fee more palatable:

The biggest reason I see expert firms losing market share is because they are perceived as expensive. If opposing counsel or the mediator thinks you are expensive, how does that benefit your client?

2. You Aren’t Supposed To Be An Advocate

Somehow, in American popular culture, everyone got it in their head that “the customer is always right.”

Wrong.

When you are a provider of professional services, you need to offer your services to the best of your ability, according to the standards of your industry. Even if your client (or the party you are representing) ask for something else.

It’s called integrity.

The attorney’s job is to be an advocate. As an expert witness, you are required to be impartial – your opinions are based on your experience, knowledge and training, and on the evidence gathered in the course of discovery. Will that lead to conflict? Sometimes. But if you are a professional, and the attorney you are working with is a professional, there should be some way to resolve that conflict.

During the panel discussions at VE-ADR 2012, the “expert as advocate” complaint came up over and over again. In fact, the term “whore” was used by more than one attorney/mediator in reference to expert advocacy.

The second biggest reason that I see expert firms losing market share is that they are perceived as advocates.

I’ll leave it to the lawyers and judges to explain the various laws and legal decisions that apply to experts.

Instead, since interpretation of industry standards is central to the role of an expert, I’d like to point out an applicable standard that few experts seem to be aware of. The document is known as the Recommended Practices for Design Professionals Engaged as Experts in the Resolution of Construction Industry Disputes and was originally published by the Association of Soil and Foundation Engineers (ASFE). This document has been embraced by the Interprofessional Council on Environmental Design (ICED) and has been adopted by 40 professional organizations including the AIA, ASCE, NSPE, ACEC, ASME, ASHRAE, SME, AAES, etc. Therefore, if you are a member of one of those organizations and regularly offer expert services, you would be well-served to review this document.

Contact me if you’d like me to send you a copy via email.

3. Focus On The End Result: Resolution

Nobody says, “I want to be an expert witness when I grow up.”

To be an expert, you have to have expertise. Expertise comes from experience. Every so-called expert I know has years – often decades – of experience working in active design and/or construction.

Some came to construction defect litigation because of a chance opportunity. Others came to the business during a slump in the construction industry. Some came for the money.

Regardless, there is a certain optimism or idealism that I find among my colleagues and peers. A notion that we are somehow part of the solution to the ills in the construction industry.

If something is broke, let’s fix it! If it isn’t broke, quit wasting time and money arguing about it.

At the end of the day, the parties we represent and the clients who hire us are simply looking to move on.

There are always going to be cases where resolution may only come about through trial. The vast majority of cases should never go that far.

What are some of the obstacles to resolution that directly involve experts?

  • The Great Divide – The classic scenario where plaintiff experts call for complete destruction and reconstruction, but the defense experts recommend offering little more than pocket change.
  • Excessive Costs – When expert fees are more than the cost of making repairs, something is clearly amiss.
  • Copy Pasta – When every defect list and every report reads exactly like the one in the previous project, it is understandable that suspicions might be raised.
  • Lack of Evidence – In the age of digital photography, the cost of taking additional pictures is negligible. Also, extrapolations should be statistically valid – you’re an expert, not a pet psychic…

4. Communicate Early and Communicate Often

Without a doubt, everyone attending the VE-ADR 2012 conference agreed that communication with experts is of utmost importance.

Plaintiff counsel, developer counsel, subcontractor counsel, mediators, judges, and insurance claims adjusters all advocate early case evaluation is not just prudent, it is an ethical imperative.

When an expert is retained, the sooner they can offer feedback to counsel, the better. Here are some things to focus on:

  • What are the primary issues driving this case?
  • Who are the other players and how will that affect strategy?
  • Will more investigation (including DT) be helpful?
  • Would a meeting between experts representing opposing parties yield a much more expedient resolution?

Communication is a two-way street. If you don’t have the information you need as an expert, ask for it.

5. The Times They Are A-Changing

As mentioned earlier, according to economist Gary London, the volume of construction defect cases is expected to drop by 75% over the next five years. Less cases mean less work for experts. I have watched as a number of firms have downsized or even collapsed over the last several years, and I know many are on the brink.

What can expert firms do to survive, and perhaps even thrive in the coming years?

  • Consider strategic alliances and consolidating resources. This reduces the cost of investigation, and adds significant value for your clients.
  • Re-structure your fees. As I mentioned above, flat-fee or fixed-price service offerings for known and predictable scopes of work are worth considering. Firms that have adopted alternative fee arrangements are seeing massive increases in revenue.
  • The host of VE-ADR 2012 was Ed Martinet’s firm LiMa Solutions. They are taking the concept of neutral expert services to a new level. Could this model become a trend?
  • Ted Bumgardner, of Xpera, pointed out that there are two types of “experts” – those that are more technical, and those that present well. Not every case requires the full-time involvement of a testifying expert. In other words, make better use of more cost-effective technical staff.
  • Expand your service offerings by leveraging knowledge and expertise outside of litigation. (Here is a hint…)
  • Acquire new skills, knowledge and technology. They say you can’t teach an old dog new tricks – the next few years will provide an opportunity to test that theory out.

Conclusion

I have had a lot of fun, learned a whole lot, and met some really incredible people working for and with various experts in the construction defect litigation industry.

Sadly, just like in the rest of the construction industry, a lot of good people are leaving. So much knowledge and expertise will undoubtedly be lost, to the detriment of all.

Dave Stern, of West Coast Casualty Service, said something that really resonated with me:

This [the construction defect industry] is the biggest people business outside of retail.

I agree.

About the picture: This was taken as the sun was setting on the last day of the conference in Key West. The LiMa Solutions staff threw a private party on the terrace of a restaurant overlooking the harbor. I wish I was still there…

Download a PDF of this article:

Due to interest, I made a nicely formatted PDF of this article for you to download, share and print, if so desired:

VE-ADR 2012: Emerging Strategies for Successful Construction Defect Expert Witnesses and Consultants (PDF)

Last week, I posted an article entitled VE-ADR 2012: Where are we going with Construction Defect Litigation, summarizing some of my initial thoughts after attending LiMa Solutions’ seminar in Key West. This article is the first in a series discussing some of the key take-aways from the event for stakeholders. Since there wouldn’t be construction defect litigation without plaintiff attorneys filing suit, I figured I would start there. Please note that the opinions and observations here are mine alone, unless otherwise noted, and those of others may not accurately reflect those of their employers, etc., etc. – consider yourself fully disclaimed.

About the picture: This photo shows some resultant damage at wood trim on the exterior of the Westin Hotel, where the seminar was held – somehow fitting and yet also ironic.

On July 26th and 27th, 2012, LiMa Solutions invited about 50 or so of the top professionals in the construction defect litigation industry to Key West. Over the course of those two days in a series of six panels, we discussed some of the emerging trends for effectively resolving construction defect claims.

I took about 25 pages of notes and then sorted some of the various observations into categories. While there were a wide variety of opinions expressed, some clear trends emerged, with some strong consensus by both plaintiff and defense representatives. Below are six key take-aways for successful construction defect plaintiff attorneys to consider.

1. Have an Open Mind

Are your cases resolving as quickly as you and/or your clients would like them to? Of course not. Which means that if you, like most of your colleagues have contingency fee agreements, it also means you aren’t getting paid as quickly as you might like either.

They say that insanity is doing the same thing over and over, expecting different results. In other words, you’d be crazy not to try something different. I’m not advocating that you completely re-vamp everything you are doing. Instead, I recommend approaching change scientifically. That means conducting little experiments where you can isolate one specific variable. For example, maybe you suspect that your notice of claim might have more impact if you deposit representative photos from your expert’s investigation. The next time you have two cases ready to file that are somewhat similar, include the photos with one of them. Carefully observe and document what the response is from defense on both cases. Track the progress of both cases and see if there are any differences in the outcome.

When experiments prove successful, you can then integrate the new strategy into your work moving forward, with confidence.

Another important aspect of having an open mind has to do with how you approach each case. Ed Martinet likes to refer to the parties in a construction dispute as stakeholders instead of litigants. This is what Larry Kent (a successful and highly regarded plaintiff attorney himself) said during his opening address to seminar attendees:

Let’s set aside the inherent conflict. Everyone makes a lot of money unless you’re the one paying for it. We owe it to our clients to resolve cases as quickly as possible. We can do a better, faster and cheaper job. It will make your life better and better for the client.

2. Your Client Matters

One theme that was consistent across many of the panel discussions in Key West was the “human” factor in construction defect litigation. As Dave Stern (West Coast Casualty) said, “this is the largest ‘people business’ outside of retail.” I know that sometimes it probably feels like the defense attorneys and insurance adjusters have no regard whatsoever for your clients. But at the end of the day, we are all human and deep down, we can all empathize with what it must be like to purchase a new home, only to discover that it was not built to the required standards. The fact that a house is often a person’s most significant investment is not lost on those who are responsible for defending the claims that you are advancing. (A lot of your adversaries are also homeowners, some of whom may have even experienced defective construction in their own homes.)

One of the major complaints that participants in VE-ADR 2012 had of plaintiff counsel is the faceless nature of many construction defect claims. Signing up homeowners en masse may be more cost effective, and may have merit, but it takes the focus away from the individual. Nobody wants to be an “et al.” Representatives from the insurance carriers, and defense counsel alike repeatedly emphasized that having the opportunity to work one-on-one with an individual homeowner yields to more effective resolution of construction defect claims.

Typical plaintiffs in residential construction defect claims were categorized as follows:

  • Individual homeowner of a single family home (typically more involved and more aware of specific issues at their residence)
  • Multiple single-family homeowners (often unaware of specific issues, sometimes not even aware of their involvement, usually viewed as “opportunistic” by defense)
  • Homeowner association (HOA board members have certain obligations and as a result, typically have different motivations than individual owners)
  • High-profile, high net-worth owners (may be represented by personal counsel without significant CD experience)

Defense representatives all agreed that early evaluation of the case is the most important factor for successful and expedient resolution of construction defect claims. The first thing that they recommend evaluating: Who is the plaintiff? Many times when responding to claims, the defect list is identical from one case to the next – only the homeowner names have changed.

That may not lead to the response that you are hoping for.

3. Use the Right Expert

How much work does your expert do on behalf of defense? None? It is kind of hard to view that expert as anything other than an “advocate.” That’s your job – to be an advocate on behalf of your client. Your expert needs to be impartial and base their opinion on their experience and the evidence available.

Perception is everything in this world. So no matter how accurate the opinions of your expert may be, how they are perceived by opposing counsel and the carrier’s representatives (not to mention the mediator, judge, and/or jury) will ultimately impact the outcome of the case.

Make sure that your expert is mindful of the importance of demonstrating resultant damage. Perhaps you have legal standing for making claims related to all sorts of technical violations. But you know that without resultant damage, it will be hard for the insurance coverage to kick in.

Make sure that there is sufficient communication between you and your expert. Ask for early evaluation of the case by your expert. Make sure your expert isn’t artificially inflating costs because they think it will help you achieve a better settlement. And since communication is two-way, make sure you are listening to your expert. If there isn’t a whole lot wrong with a house (or tract), and a lower settlement is likely, the more work you put into that case, the less money you make – if you have a contingency fee agreement.

Your expert needs to understand that the bigger the number, the more evidence is required to convince others. As the Honorable Susan Johnson of Nevada stated, “Whenever the plaintiff has a large number compared to the defense offer, I need people to explain the numbers, whether big or small.” Or as Florida mediator, Rodney Romano put it, “Large numbers and tiny offers have never bothered me. To me, it is a window to the soul for the person speaking… Sometimes [they] have to put on a show for the client.” Put another way, it is going to be very hard for the defense to take your demand seriously when your expert calls for complete removal and replacement of the roof, stucco, windows and plumbing fixtures, yet only has a few pictures of slipped roof tiles and hairline stucco cracks. Especially when there hasn’t been any destructive testing.

Actively encourage and facilitate meetings between your expert and those of the defense. Playing “hide the ball” with information and evidence might make for good TV drama, but it won’t help you resolve the case any faster. The sooner that the opposing experts understand the technical aspects of what your expert has uncovered, the sooner they can help their client make an informed decision about resolution. Just make sure that the expert you hire is open to such exchanges and doesn’t make it harder for you to do your job.

4. Consider a Neutral Approach

At the conference in Key West, the central concept was finding better ways of resolving construction defect claims. A big part of this, especially in light of the economy, is controlling costs.

One of the biggest costs in construction defect litigation is related to discovery – and ultimately that means the cost of experts. Just as I previously mentioned that your choice in expert should include those that work on behalf of plaintiff and defense, you might want to consider the neutral option.

Many of the Right To Repair laws in various states (SB800, Chapter 40, for example) create a “pre-litigation” process. If during this pre-litigation process, you were to share the investigative cost with defense by utilizing neutral experts, you could expedite resolution and dramatically reduce the cost for all stakeholders. The neutral expert’s opinion would (and should) be protected under mediation rules, but if in the event the case moves into litigation, the evidence collected could be used by all parties.

Ed Martinet and Bob Freedman presented a special panel on the neutral approach. It should be noted, that a neutral evaluation is generally accepted and promoted by the courts, but it hasn’t been applied much in construction defect litigation due to the inherent complexity. The key to this approach is to gain early buy-in and engagement by stakeholders (plaintiff and defense parties). Once everyone is entrenched in their perspectives (plaintiffs calling for complete reconstruction, defense offering the spare change in their pockets), it is more difficult to get to resolution and narrow the gap.

If the plaintiff and defense are reasonable and rational, such a process could easily reduce settlement costs by 40% across the board, and reduce the cost of going to trial by 300%, according to Martinet.

For a neutral evaluation process to be successful, it has to be customized for the specific case. Martinet and Freedman also emphasized that use of neutral experts doesn’t preclude involvement by counsel’s own experts. In fact, outside experts can “shadow” the findings by the neutral team and therefore provide valuable insight to counsel.

5. Understand Coverage

Insurance coverage issues aren’t necessarily your responsibility when you represent the claimant. But if you don’t accurately understand what coverage exists, what policies are still in play, SIRs and AIs, you are at a disadvantage.

Nevada plaintiff attorney Mark Bourassa takes it a step farther. He recommends that plaintiff counsel bring in attorneys with a background in insurance coverage. Their insight and understanding can provide exceptional clarity to your more challenging cases. This will allow you to negotiate from a stronger position.

Wendy Wilcox, an attorney specializing in the representation of subcontractors puts this into perspective: “You may want $100,000 from my guy, but if he doesn’t have it and the carrier doesn’t have coverage, $100,000 times 0 still equals $0.”

6. Be Creative With Your Presentation and Your Fees

How you present your case, and how you handle your fees have a significant impact on the final outcome. Let’s discuss presentation first.

Jim Kurkhill is a true renaissance man. He has worked as an engineer at Kodak, helped a defense contractor on some lasers, practiced construction law for nearly two decades, and now runs a consulting firm specializing in trial exhibit presentations. During a panel at VE-ADR, Kurkhill showed some tips for presenting better. The most important concept: Construction defect cases involve lots of complex data that needs be simplified in order for you to be more persuasive.

Here are some tips that I have for presenting better:

  • Ditch PowerPoint. Especially the built-in templates. Pictures and graphics that are relevant are much more compelling than a slide loaded with bullets and 12 pt text. (For more on this check out Garr Reynolds’ Presentation Zen)
  • Tell a good story, based on the facts. It is easy to get bogged down by details. Every case has a story that is compelling – let that be your guide.
  • Outsource! Hiring a good presentation designer/consultant will yield a measurable return on investment.

How you handle your fees is between you and your client. But you might want to consider some other alternatives. One of the difficulties with SB800, in particular, is that there are no provisions for plaintiff attorney fees. Therefore, if the builder elects to make repairs, in lieu of a cash settlement, a contingency fee agreement means no money for you. If your fee agreement were to include an alternate flat-fee or hourly fee option in the event of repairs, it means you and your client have additional flexibility.

Additionally, some plaintiff attorneys participating in the seminar in Key West mentioned that they have been successful in accelerating case resolution by offering to reduce their contingency fee percentage. For additional alternative fee arrangements worth considering, see the Association of Corporate Counsel’s Value Challenge.

Conclusion

These are just some of the trends that I picked up on during VE-ADR 2012 in Key West. Many of us that work in construction defect litigation, have been doing so for a long time. Some of you may have devoted the bulk of your career to CD work. As with any industry, things change. And construction defect litigation is an industry in flux.

How you adapt to the changing environment will determine not only your own success, but the successful outcome of the cases you handle.

Note: This is just an overview of some of the topics discussed on the first day of LiMa Solutions’ VE-ADR 2012 construction defect symposium in Key West. I’ll spend some time reviewing my notes over the next week or so and post some more in-depth articles as time permits. About the picture: This is one of Seward Johnson’s amazing sculptures outside the Westin.

The conference opened with Larry Kent and Gary Baumann offering passionate pleas to the partially hungover, yet not fully sunburnt crowd, to keep an open mind. Why? The theme of this seminar is about re-thinking the ways in which we handle construction defect claims.

Most importantly, we need to collectively respond to the new economic realities and learn how to resolve claims better, faster and cheaper.

It is broke, and it ain’t getting fixed.

As Ed Martinet noted during his welcome, once again quoting Bob Dylan, “the times they are a-changin’.” Over the last 20 – 30 years there have been incremental changes. For example, the case management order (CMO) process has enabled litigants to establish predictable schedules of key milestones in construction defect claims. But it isn’t (clearly) enough. Instead of one, two, or even three scheduled mediations, many cases are not being resolved until well after a ninth or tenth round of mediation.

As Keith Koeller noted, a typical construction defect matter might easily involve over 600 people. That’s not the number of people named in the case, but the number of people getting paid to work on those cases. Think about that for a moment, while you consider that few of those people are charging less than $100 per hour…

In other words, resolving construction defect claims is very costly, and usually greatly exceeds the actual amount paid to the property owner to supposedly repair defective construction. From another perspective, many of us (myself included) are employed almost exclusively in the construction defect litigation field. That is why so many people are resistant to changing how we do things – it means less revenue, and potentially, lost jobs.

As Baumann so eloquently put it, what we have to do is find ways of resolving these cases more thoughtfully. And as Kent said, it will make our lives better, and it will be better for the clients.

Trending towards success

Here are some of the factors that various panelists illustrated that are proving successful:

  • With regards to cases subject to Right To Repair laws, individual plaintiffs are better than multiple plaintiff parties. This includes not only individual homeowner plaintiff cases, but also cases where the plaintiff is a homeowner association or commercial property owner. As Dave Stern said, construction defect litigation is the biggest “people business” outside of retail, and working one on one with claimants is much more effective.
  • Making sure that plaintiff counsel is paid as part of settlement agreements. This is a biggie, as many plaintiff attorneys work on a contingency fee basis, so if repairs are made, but no cash award is made, the attorney will not receive compensation.
  • Using neutral experts to represent all parties. This eliminates the “expert as advocate” role that unfortunately so many experts assume. Even still, as long as experts representing a party maintain a roster of clients that is not exclusively plaintiff or defense, their opinions are much more reasonable and rational.
  • Most important: All sides must go into the process with a willingness to settle quickly. Mindset is everything, especially in litigation.

So that’s all I have for now. I need to head down to the docks for a wine tasting followed by a cigar rolling demonstration.

I have my priorities!

In the interest of full disclosure, LiMa Solutions invited me to attend the seminar at no charge. In addition, they treated myself and several others to dinner one evening, drinks, and paid for the rental of a bike during a tour of the island. However, I was responsible for all transportation, lodging, meals, and other incidentals.

I’m flying out to Key West Wednesday to attend LiMa Solutions’ construction defect symposium entitled, “Drawing a Line at the Bottom Line – Strategies for Reducing Construction Defect Litigation Costs.” I sincerely believe that this event will be the most important of its kind this year. Apparently, others agree:

“Due to unprecedented interest in this symposium, we are pleased to be able to share the sessions with a broader audience via the web,” says symposium creator Edward Martinet. “Participants who attend either in person or online will learn new construction defect litigation strategies that use a ‘value engineered’ approach to dispute resolution.”

Renowned panelists from across the country will share alternative dispute resolution strategies. The broad list of presenters and moderators includes insurance and construction professionals, construction defect experts, and legal and judicial leaders with extensive backgrounds in construction and insurance arbitration.

Via LiMa Solutions

Image courtesy roger4336

My friends at LiMa Solutions have created a new symposium for the construction defect industry. The event will take place on July 26 and 27, 2012 at the Westin Key West Resort and Marina in Key West, FL. The event is called, “Strategies for Reducing Litigation Costs for Carriers, Developers, General Contractors and Subcontractors.”

The Symposium will identify and address the common obstructions and hindrances that challenge efficient, equitable resolution in today’s litigation environment. Our renowned Panelists from across the country will focus on forward thinking, innovative concepts and solutions to confront these difficulties.

There will be 4 panel presentations during 2 half day sessions, 2 presentations each morning. CLE credits applied for.

Via limasolutions.com

The line-up for this event is impressive, to say the least. Check out the link above for the full schedule.

Ed Martinet, of LiMa Solutions, wrote an excellent article in the December issue of Construction Executive Magazine on his approach to resolving construction defect claims.

The amount of resources and capital spent on managing and mediating construction defect claims is staggering. In fact, the cost to litigate commonly exceeds the settlement value of today’s larger claims. The Building Industry Association estimates these costs may exceed indemnity costs by as much as five to one. Recent carrier interviews confirm payouts of four to seven times more for defense costs.

A typical construction defect claim takes two to three years on average to settle. As the fight over scarce resources (funding and personnel) continues to intensify, resolution of complex construction defect cases is more difficult to achieve than ever. Insurance coverage is becoming tougher to secure, litigation costs are soaring, significant self-insured retentions are common and many states have weakened indemnity statutes— creating a difficult environment for any party to settle or win.