A podcast from JAMS featuring neutrals Barbara A. Reeves, Esq., CEDS, and Katherine Hope Gurun, Esq., on the top challenges businesses are facing as a result of supply chain disruption and how ADR techniques can help.
In this podcast, JAMS neutrals Barbara A. Reeves, Esq., CEDS, and Katherine Hope Gurun, Esq., provide insight on the top considerations for companies impacted by constant supply chain disruption. Barbara and Katherine specifically draw on their years of experience working at JAMS and other organizations to provide helpful tips for businesses that are navigating disruptions brought on by the pandemic, climate change, the war in Ukraine and other crises, outlining how mediation and arbitration can provide a template to help resolve related disputes.
JAMS – Transcript – Supply Chains
[00:00:00] Moderator: Welcome to this podcast from JAMS. Right now, we’ll be speaking about among the challenges many companies are going through with provide chains and the best way to put together for potential disputes. Two years of shutdowns from the pandemic wreaked havoc on how items are assembled and delivered around the globe, and now the struggle in Ukraine and sanctions in opposition to Russia are creating new challenges.
On this episode, we’re joined by two JAMS neutrals with years of expertise coping with provide chain administration points at main companies and now as mediators and arbitrators: Barbara Reeves, previously affiliate common counsel and vp for Southern California Edison and Edison Worldwide, and Katherine Hope Gurun, previously senior vp and common counsel at Bechtel Company.
Thanks each for becoming a member of us. Katherine, I will begin with you first. You might have numerous expertise in threat administration. What has stood out to you when it comes to the challenges corporations have confronted because the onset of the pandemic?
[00:00:58] Katherine Hope Gurun: I feel initially throughout COVID, corporations and industries have been searching for brief, stopgap options, ready for issues to return to regular. I feel, in reality, we now know that standard could by no means be so regular once more. Many corporations, nevertheless, have already got begun to investigate and overhaul their provide matrix to make it extra sustainable. Keep in mind, for years we labored on a just-in-time stock foundation. We labored to chop out the intermediary in all places we may.
Now, sadly, we want to have a bigger pool to cope with and to search for methods through which we will enhance the availability chain and likewise construct in redundancy. I feel the problem for all industries will not be solely the best way to get via this disaster, however the best way to be higher ready for the long run. I can promise you that there are numerous first-rate corporations who didn’t have a full understanding of their threat and safety underneath contracts or every other authorized agreements within the occasion of a world pandemic, and definitely not within the occasion of a sizzling struggle. Everybody has been targeted on maintaining the enterprise shifting.
I do not suppose that many individuals have considered what is going to occur over time. How will we resolve these disputes? I feel we all know now that in these very tough occasions, industries will profit from utilizing ADR mechanisms, notably mediation.
[00:02:16] Moderator: What are the advantages of utilizing mediation to resolve a few of these disputes?
[00:02:20] Katherine Hope Gurun: Mediation may be very cost-effective. It places enterprise leaders within the driver’s seat with the supportive authorized counsel and an skilled mediator. Mediation also can convey a number of events to the desk for a greater consequence.
[00:02:33] Moderator: Barbara, are you able to inform us how a few of these provide chain points have performed out in actual mediations?
[00:02:38] Barbara Reeves: Sure. Two years in the past, when circumstances first began coming in that have been, I assumed, the standard complicated industrial contract forms of circumstances that I mediate, I did not suppose something particular was taking place. Progressively, I spotted we have been all the time speaking about an issue, a breach of contract as a result of someone was briefly provide of one thing, all the things from laptop chips to prescription drugs to athletic footwear.
As I checked out these, I spotted that we had a provide chain or provide matrix disruption with frequent causes, and I began structuring a course of for mediating these circumstances, enterprise interruption circumstances. There are 4 factors that I would wish to make about that. First, these circumstances have a number of events. You might have a purchaser, a provider, that provider’s provider and different potential suppliers available in the market who could have an curiosity. You might have a lender who has made a mortgage to someone on this chain of provide who’s now worrying about its mortgage and traders who’re worrying about their fairness in no matter firm it’s, or agency that’s discovering itself unable to carry out as earlier than.
So, the primary level is you’ve gotten a number of events. Are you able to get all of them into one room? The second level is that they’re often in a number of jurisdictions, which might be worldwide—often is worldwide—actually may be in a number of states, whether or not it is round Europe, whether or not it is round the USA or in Asia.
So, you want a solution to attempt to get individuals collectively. That does not work in court docket. It does not work in arbitration. So, we have been turning to mediation as a result of the third level is you want the cooperation of the events. Once I was in-house, we had a serious provide disruption, and we tried to deal with that by negotiating with the totally different events, and that concerned suppliers. It concerned a federal authorities company. It concerned a state authorities company. And we continued to barter one by one. This went on for a yr. We weren’t as refined then—this was again within the yr 2000—as we’re at this time about mediation and the way we will use it. One of many events would not cooperate, and it was very tough to cooperate. And naturally, if you happen to’ve ever tried to get a governmental entity to cooperate, you already know that may be tough.
So on level three, the cooperation of events is essential. A mediator is an efficient middleman, someone who can convey the events collectively by explaining. You might have a bonus within the brief time period by enjoying hardball, however step again and suppose, the place do you wish to be a yr from now? When this disruption is over, the events [will] in all probability wish to be again doing enterprise collectively once more.
That goes on to level quantity 4, which is these disputes are likely to contain corporations and governmental organizations which have ongoing relationships. So, whereas within the brief time period it is useful, one celebration could view it as to its benefit to play hardball: Provide is brief; let’s elevate the costs. If it winds up placing individuals out of enterprise and firms out of enterprise, inflicting workers to lose jobs and disrupting enterprise relationships, when all of that is over, individuals are going to remorse [it]. So, a mediator is an efficient one who can pull all of them collectively. In a case I had final week, we had 5 events, together with not solely the contracting events, however an investor, a lender and a bunch of customers who have been being corporations who have been consuming it, who have been being adversely impacted.
We managed to place collectively not a closing deal, however a time period sheet that talked about how the events over the following 30 to 60 days have been going to proceed to barter to get this resolved. When individuals say, “Effectively, why mediation?” It is as a result of, in my view, a mediator, while you get somebody who’s performed numerous these complicated industrial circumstances—I analogize it as a maze. For those who stroll right into a maze, you’ll be able to see straight forward a little bit approach. You possibly can see one opening to the left or the fitting, however you do not essentially know—you don’t have any concept which solution to go. A mediator who has performed dozens of those circumstances seems to be at them in the identical approach as if you happen to had an aerial view of the maze. For those who may go straight up above the maze and take an aerial shot of it, you’ll be able to see, “Oh, that is how this might work out.” A mediator who’s performed numerous these circumstances tends to see potential options and can also be fairly good at speaking to the events and telling after they’re bluffing and what their actual curiosity is.
[00:07:48] Moderator: Barbara, you talked about a provide chain matrix. Are you able to simply clarify what that’s?
[00:07:53] Barbara Reeves: You realize we use the phrase “provide chain,” however while you truly take a look at it, if you happen to have been to map out your provide chain, you’ll see that you simply purchase from—you, firm A, buys from a number of events.
You might have provides coming in left, proper, and back and front. Every of the businesses from whom you buy additionally has provides coming in left, proper, back and front, and all people has workers, lots of whom are unable to take part for some time due to geopolitical restrictions or COVID. So, if you happen to have been to attract an image of it, it could look extra like a matrix or a spider internet, not a straight chain.
That’s the secret, or the important thing, to making an attempt to resolve these. If I can not go straight forward with my conventional relationship, forwards and backwards, perhaps I can attain out sideways or diagonally to a different provider or—as within the case that I discussed earlier—to an investor who has a connection to a different provider or a lender who has an curiosity to find a solution to make this work.
For those who have been to attract an image of it, you notice you’ve gotten nodes which might be related by traces to many various different nodes. So, it seems to be like a matrix, not only a provide chain.
[00:09:15] Moderator: Katherine, what can corporations do now to organize for the following provide chain dispute?
[00:09:20] Katherine Hope Gurun: So, initially, corporations ought to all the time and constantly replace their threat administration insurance policies.
Dangers have to be assessed on an ongoing foundation—not solely allotted, however reallocated. For those who take a look at why corporations fail or why initiatives fail, you will usually discover that underlying assumptions have been inaccurate—maybe based mostly on outdated knowledge, maybe based mostly on outdated assumptions. Keep in mind additionally that the insurance coverage market is consistently altering and you should preserve addressed with these modifications. Dangers which could not be coated by insurance coverage 15 or 20 years in the past and even 5 years in the past can now be coated by insurance coverage.
Secondly, it is actually essential for corporations to determine a threat register database for all of their contractual and authorized agreements in order that exposures may be mitigated maybe upfront or shortly resolved as a disaster looms. When the primary Gulf Battle occurred, the primary query was, what’s our publicity? What does this contract say?
To have individuals reassessing these on a real-time foundation actually slows and delays the method, and typically dangerously. Thirdly, I feel that everybody must be—and I am certain they’re now—specializing in updating their procurement practices and documentation. Lastly, corporations mustn’t wait till they’ve a dispute to determine what their dispute decision coverage or follow goes to be.
As Barbara has made clear, many of those disputes shall be worldwide, so governing regulation and the discussion board for the disputes are going to be actually key to profitable settlement of them.
[00:10:49] Moderator: Barbara, Katherine talked about insurance coverage. Are you able to speak a little bit bit about what function insurance coverage performs in these provide disputes?
[00:10:57] Barbara Reeves: Sure. Insurance coverage clearly is the topic of one other program that might take an hour.
The factors to notice proper now are most corporations have industrial common legal responsibility—CGL—insurance policies, that are being interpreted by the courts today to find out whether or not there are exclusions or whether or not they apply to all the things from COVID to geopolitical issues to wars. So, if you happen to look, the query is, do you’ve gotten different specialty insurance coverage, and may you get it?
All people is that now. There are specialty insurance coverage insurance policies, together with contingent enterprise interruption—known as CBI—insurance policies and provide chain insurance coverage that is out there. Contingent enterprise interruption, or CBI, [insurance] supplies protection in opposition to losses brought on by disruptions on the places of your suppliers and prospects.
So, the query once more is, what sort of issues, disruptions are coated? Are they solely bodily coverages, bodily disruptions, or wouldn’t it additionally embody disruptions brought on by issues that governments have performed, shutdowns or borders being closed? Provide chain insurance coverage, as I’ve stated, is now coming into vogue, and it may possibly cowl losses brought on by, for instance, pure disasters, labor points, political upheaval, struggle, public well being emergency and regulatory motion.
I’ve seen a number of of those insurance policies. I hear they could be costly. So, you should look into these, but it surely’s simply one thing to recollect to test, as Katherine stated, while you’re your threat prevention.
[00:12:38] Moderator: All proper. Effectively, undoubtedly one other matter to pursue on one other episode, however Katherine, in your a few years of expertise with worldwide development at Bechtel, are you able to recall situations the place a provide chain method decreased the variety of precise disputes or the place ADR methods have been more practical in resolving a few of these disputes?
[00:12:58] Katherine Hope Gurun: Sure. I wish to offer you simply three fast examples. The primary is when Bechtel first went to China. It was [during the] very early days. The revealed legal guidelines of China have been about three inches thick, a little bit, small stack for joint-venture preparations, and the remainder of all Chinese language legal guidelines have been confidential. So, the very first thing we did is to take Bechtel’s regular method to contracting and take it aside 100% and provide you with a set of phrases and situations and essential legal responsibility and threat allocation points that might be coated in a quick contract, as a result of in each case, we have been each studying. We have been studying from the Chinese language. They have been studying from us. Having this pre-work earlier than we ever went to China, I feel, served us extraordinarily effectively.
In all of my time being in China and managing China, we solely had two issues which truly went to formal dispute decision. Simplify it if you happen to can. Secondly, after the primary Gulf Battle, Bechtel was very concerned within the restoration of the Kuwait oil fields. On this case, we needed to procure over $2 billion value of anticipated materials to be required for the restoration.
We did not know when or if we’d be allowed to return to Kuwait. We did not understand how tough the job can be. So, to start with, once more, pre-work. We had a while, [so] we took aside our procurement and logistics practices utterly. We stripped them again to the naked bones with an especially small staff with entry to all senior administration, and we rewrote and revised your entire provide and procurement follow for that job, which later went on to grow to be a mannequin for a lot of future jobs.
We established strategic hubs everywhere in the world and had a novel on-site procurement staff and labored with the shopper, once more, to determine a really distinctive insurance coverage program that allowed us to do that restoration work in primarily a struggle setting. On account of this pre-work, seven years of estimated time to place out the fires at $120 million a day was decreased to 6 months.
So, that was extraordinarily essential. I ought to add additionally that we diversified firefighting know-how and appeared for know-how everywhere in the world. Lastly, within the case of the Channel Tunnel Rail Hyperlink in the UK, a brand new follow was launched in English regulation which allowed the events to settle disputes because the undertaking was ongoing, and this follow allowed them to craft a short lived resolution.
Not all the things might be identified on the time. The aim was to permit for the events to maintain the undertaking shifting and, if mandatory, to come back again and revisit the undertaking later. This undertaking is named adjudication. And in reality on that undertaking, it was extraordinarily profitable. Within the case of Bechtel, I can recall just one or two vital adjudications which weren’t revisited, however the undertaking moved alongside and got here in underneath finances and on time. So once more, an excellent method. You do not have to know all the things to settle a dispute, and that is all the time arduous for each attorneys and businesspeople to just accept, however it’s the fact.
[00:15:57] Barbara Reeves: I would wish to make one level. And that’s, there are these of us who follow what is commonly known as mixed-mode dispute decision.
As a approach of shifting ahead, determine that the mediator will flip into an arbitrator for one explicit difficulty. There could also be a contract time period that must be interpreted. There could also be a regulation that must be utilized. After which the mediator mediates, then holds a quick listening to or has paperwork submitted, makes a ruling on one difficulty after which returns to mediation.
Alternatively, a matter that begins in arbitration may change into mediation. In some unspecified time in the future, after the events have introduced their positions, they could flip to the arbitrator and say, “We want to mediate this difficulty.” It could be your entire case. It could be one declare. But when they’ll mediate it after which agree that in the event that they resolve it, they will return to arbitration, or in the event that they resolve that difficulty, they may then negotiate between themselves and settle it.
So it is known as combined mode. For those who do it, you must watch out. You must signal the suitable paperwork that affirm that the arbitrator could act as a mediator or the mediator could act as an arbitrator, and be clear about what consequence you need.
For those who get a settlement, it could be a settlement that then will get decreased to a consent award as an arbitral award, and also you wish to make it possible for it will likely be enforceable.
[00:17:29] Moderator: Let’s wrap it up with a forward-looking thought. How do you envision this enjoying out over the following six months to a yr, Barbara?
[00:17:37] Barbara Reeves: Sure. I feel the one certainty is uncertainty. We thought when this began that we’d be coping with COVID for a yr. Now it is happening longer, and who is aware of when the following outbreak goes to happen? In the meantime, COVID has been barely edged down the entrance web page from the very high by the battle within the Ukraine.
On the similar time, we’re seeing different nations in Europe—Finland and Sweden—making use of to hitch NATO. We’re seeing plenty of modifications, and we do not know what is going on to occur on the geopolitical entrance subsequent. The purpose that I’ve made repeatedly is when you do not know what is going on to occur, be versatile. If you cannot go left and you’ll’t go proper, go straight forward. If you cannot go straight forward, be able to go left, proper or sideways, and to try this, you want flexibility.
Mediation is a solution, in my view, to the best way to have versatile dispute decision with someone who’s a 3rd celebration, an middleman, a impartial who has expertise and may information the events via to a long-term, profitable decision, however the present uncertainty that we’re all going through, and that we’ll proceed to face, I consider, within the subsequent six months to a yr.
[00:18:53] Moderator: Okay. Being versatile is vital. Katherine, what about you?
[00:18:57] Katherine Hope Gurun: I’d agree with all the things Barbara stated, however I’d simply say this. I feel that we will now see that the ripple impact is prone to have been enormously underestimated. The consequences of the invasion by Russia of Ukraine and the Russian sanctions are going to achieve each nook of the world. Meals provide, already drastically impacted by local weather modifications, is actually going to be much more devastating with the invasion of Ukraine and each Russia and Ukraine are main producers of wheat and different agricultural merchandise. So, I do suppose that the necessity for real-time flexibility and each technical experience when it comes to working round a serious transportation [block] and different blocks are going to be vital.
I feel there’s an enormous function to play for real-time decision of those initiatives.
[00:19:47] Moderator: Effectively, I do know we have solely scratched the floor on this very complicated matter, however you have given us lots to chew on, Katherine and Barbara. Thanks a lot. You’ve got been listening to a podcast from JAMS, the world’s largest personal various dispute decision supplier.