A podcast from JAMS that includes neutrals Barbara A. Reeves, Esq., CEDS, and Katherine Hope Gurun, Esq., on the highest challenges companies are dealing with on account of provide chain disruption and the way ADR methods will help.
On this podcast, JAMS neutrals Barbara A. Reeves, Esq., CEDS, and Katherine Hope Gurun, Esq., present perception on the highest concerns for corporations impacted by fixed provide chain disruption. Barbara and Katherine particularly draw on their years of expertise working at JAMS and different organizations to offer useful ideas for companies which can be navigating disruptions introduced on by the pandemic, local weather change, the battle in Ukraine and different crises, outlining how mediation and arbitration can present a template to assist resolve associated disputes.
JAMS – Transcript – Provide Chains
[00:00:00] Moderator: Welcome to this podcast from JAMS. In the present day, we’ll be speaking about among the challenges many companies are dealing with with provide chains and find out how to put together for potential disputes. Two years of shutdowns from the pandemic wreaked havoc on how items are assembled and delivered all over the world, and now the battle 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 firms and now as mediators and arbitrators: Barbara Reeves, previously affiliate basic counsel and vp for Southern California Edison and Edison Worldwide, and Katherine Hope Gurun, previously senior vp and basic counsel at Bechtel Company.
Thanks each for becoming a member of us. Katherine, I am going to begin with you first. You will have a whole lot of expertise in threat administration. What has stood out to you when it comes to the challenges corporations have confronted for the reason that onset of the pandemic?
[00:00:58] Katherine Hope Gurun: I believe initially throughout COVID, corporations and industries had been searching for brief, stopgap options, ready for issues to return to regular. I believe, in truth, we now know that standard could by no means be so regular once more. Many corporations, nonetheless, have already got begun to research and overhaul their provide matrix to make it extra sustainable. Bear in mind, for years we labored on a just-in-time stock foundation. We labored to chop out the intermediary in every single place we may.
Now, sadly, we need to have a bigger pool to cope with and to search for methods by which we are able to enhance the availability chain and likewise construct in redundancy. I believe the problem for all industries isn’t solely find out how to get by this disaster, however find out how to be higher ready for the longer term. I can promise you that there are a lot of 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 battle. Everybody has been targeted on holding the enterprise transferring.
I do not assume that many individuals have considered what is going to occur over time. How will we resolve these disputes? I believe we all know now that in these very troublesome instances, 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 will be very cost-effective. It places enterprise leaders within the driver’s seat with the supportive authorized counsel and an skilled mediator. Mediation may deliver 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 had been, I assumed, the standard complicated industrial contract forms of circumstances that I mediate, I did not assume something particular was occurring. Steadily, I noticed we had been all the time speaking about an issue, a breach of contract as a result of anyone was briefly provide of one thing, all the pieces from laptop chips to prescribed drugs to athletic sneakers.
As I checked out these, I noticed that we had a provide chain or provide matrix disruption with widespread causes, and I began structuring a course of for mediating these circumstances, enterprise interruption circumstances. There are 4 factors that I would prefer to make about that. First, these circumstances have a number of events. You will have a purchaser, a provider, that provider’s provider and different potential suppliers out there who could have an curiosity. You could have a lender who has made a mortgage to anyone 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 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—definitely will be in a number of states, whether or not it is round Europe, whether or not it is round america or in Asia.
So, you want a solution to attempt to get individuals collectively. That does not work in courtroom. It would 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 significant 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 after the other. This went on for a yr. We weren’t as refined then—this was again within the yr 2000—as we’re as we speak about mediation and the way we are able to use it. One of many events would not cooperate, and it was very troublesome to cooperate. And naturally, should you’ve ever tried to get a governmental entity to cooperate, you realize that may be troublesome.
So on level three, the cooperation of events is necessary. A mediator is an effective middleman, anyone who can deliver the events collectively by explaining. You could have a bonus within the brief time period by enjoying hardball, however step again and assume, 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 inclined to contain corporations and governmental organizations which have ongoing relationships. So, whereas within the brief time period it is useful, one get together could view it as to its benefit to play hardball: Provide is brief; let’s increase 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 effective 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 shoppers who had been being corporations who had been consuming it, who had been being adversely impacted.
We managed to place collectively not a remaining deal, however a time period sheet that talked about how the events over the subsequent 30 to 60 days had been going to proceed to barter to get this resolved. When individuals say, “Nicely, why mediation?” It is as a result of, in my view, a mediator, once you get somebody who’s performed a whole lot of these complicated industrial circumstances—I analogize it as taking a look at a maze. Should you stroll right into a maze, you possibly can see straight forward somewhat method. You possibly can see one opening to the left or the best, however you do not essentially know—you haven’t any thought which solution to go. A mediator who has performed dozens of those circumstances appears at them in the identical method as should you had an aerial view of the maze. Should you may go straight up above the maze and take an aerial shot of it, you possibly can see, “Oh, that is how this might work out.” A mediator who’s performed a whole lot of these circumstances tends to see doable options and can also be fairly good at speaking to the events and telling once 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 once you really have a look at it, should you had 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 will 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, should you had been to attract an image of it, it might 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.
Should you had been to attract an image of it, you notice you’ve nodes which can be linked by traces to many alternative different nodes. So, it appears like a matrix, not only a provide chain.
[00:09:15] Moderator: Katherine, what can corporations do now to arrange for the subsequent 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. Should you have a look at why corporations fail or why initiatives fail, you may usually discover that underlying assumptions had been inaccurate—maybe based mostly on outdated information, maybe based mostly on outdated assumptions. Bear in mind additionally that the insurance coverage market is continually altering and you should hold addressed with these modifications. Dangers which could not be lined by insurance coverage 15 or 20 years in the past and even 5 years in the past can now be lined by insurance coverage.
Secondly, it is actually necessary for corporations to ascertain a threat register database for all of their contractual and authorized agreements in order that exposures will 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 believe that everybody needs to be—and I am certain they’re now—specializing in updating their procurement practices and documentation. Lastly, corporations shouldn’t wait till they’ve a dispute to determine what their dispute decision coverage or observe goes to be.
As Barbara has made clear, many of those disputes can be worldwide, so governing legislation 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 discuss somewhat 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 would take an hour.
The factors to notice proper now are most corporations have industrial basic legal responsibility—CGL—insurance policies, that are being interpreted by the courts lately to find out whether or not there are exclusions or whether or not they apply to all the pieces from COVID to geopolitical issues to wars. So, should you look, the query is, do you’ve different specialty insurance coverage, and might you get it?
All people is taking a look at 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 obtainable. Contingent enterprise interruption, or CBI, [insurance] gives protection in opposition to losses attributable to disruptions on the areas of your suppliers and clients.
So, the query once more is, what sort of issues, disruptions are lined? Are they solely bodily coverages, bodily disruptions, or wouldn’t it additionally embody disruptions attributable to 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 might cowl losses attributable to, for instance, pure disasters, labor points, political upheaval, battle, 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, nevertheless it’s simply one thing to recollect to verify, as Katherine stated, once you’re taking a look at your threat prevention.
[00:12:38] Moderator: All proper. Nicely, undoubtedly one other matter to pursue on one other episode, however Katherine, in your a few years of expertise with worldwide building at Bechtel, are you able to recall cases the place a provide chain strategy diminished the variety of precise disputes or the place ADR methods had been simpler 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 had been about three inches thick, somewhat, small stack for joint-venture preparations, and the remainder of all Chinese language legal guidelines had been confidential. So, the very first thing we did is to take Bechtel’s regular strategy to contracting and take it aside 100% and give you a set of phrases and circumstances and necessary legal responsibility and threat allocation points that might be lined in a short contract, as a result of in each case, we had been each studying. We had been studying from the Chinese language. They had been studying from us. Having this pre-work earlier than we ever went to China, I believe, served us extraordinarily effectively.
In all of my time being in China and managing China, we solely had two issues which really went to formal dispute decision. Simplify it should you 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 might be allowed to return to Kuwait. We did not understand how troublesome the job could be. So, to start with, once more, pre-work. We had a while, [so] we took aside our procurement and logistics practices fully. We stripped them again to the naked bones with a particularly small group with entry to all senior administration, and we rewrote and revised your entire provide and procurement observe for that job, which later went on to turn out 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 group and labored with the consumer, once more, to ascertain a really distinctive insurance coverage program that allowed us to do that restoration work in primarily a battle setting. Because of this pre-work, seven years of estimated time to place out the fires at $120 million a day was diminished to 6 months.
So, that was extraordinarily necessary. I ought to add additionally that we diversified firefighting expertise and seemed for expertise everywhere in the world. Lastly, within the case of the Channel Tunnel Rail Hyperlink in the UK, a brand new observe was launched in English legislation which allowed the events to settle disputes because the challenge was ongoing, and this observe allowed them to craft a short lived resolution.
Not all the pieces might be identified on the time. The objective was to permit for the events to maintain the challenge transferring and, if needed, to return again and revisit the challenge later. This challenge is known as adjudication. And in reality on that challenge, it was extraordinarily profitable. Within the case of Bechtel, I can recall just one or two vital adjudications which weren’t revisited, however the challenge moved alongside and got here in underneath price range and on time. So once more, an excellent strategy. You do not have to know all the pieces to settle a dispute, and that is all the time exhausting for each attorneys and businesspeople to just accept, however it’s the reality.
[00:15:57] Barbara Reeves: I would prefer to make one level. And that’s, there are these of us who observe what is commonly known as mixed-mode dispute decision.
As a method of transferring ahead, resolve that the mediator will flip into an arbitrator for one explicit problem. There could also be a contract time period that must be interpreted. There could also be a legislation that must be utilized. After which the mediator mediates, then holds a short listening to or has paperwork submitted, makes a ruling on one problem after which returns to mediation.
Alternatively, a matter that begins in arbitration may change into mediation. Sooner or later, after the events have offered their positions, they could flip to the arbitrator and say, “We want to mediate this problem.” It could be your entire case. It could be one declare. But when they will 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 problem, they’ll then negotiate between themselves and settle it.
So it is known as blended mode. Should you do it, you must watch out. It’s important to signal the suitable paperwork that verify that the arbitrator could act as a mediator or the mediator could act as an arbitrator, and be clear about what consequence you need.
Should you get a settlement, it could be a settlement that then will get diminished to a consent award as an arbitral award, and also you wish to ensure that it is going to 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 subsequent six months to a yr, Barbara?
[00:17:37] Barbara Reeves: Sure. I believe the one certainty is uncertainty. We thought when this began that we might be coping with COVID for a yr. Now it is occurring longer, and who is aware of when the subsequent 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 international locations in Europe—Finland and Sweden—making use of to hitch NATO. We’re seeing a variety 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 may’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 find out how to have versatile dispute decision with anyone who’s a 3rd get together, an middleman, a impartial who has expertise and might information the events by to a long-term, profitable decision, however the present uncertainty that we’re all dealing with, 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 pieces Barbara stated, however I’d simply say this. I believe that we are able to now see that the ripple impact is prone to have been drastically underestimated. The consequences of the invasion by Russia of Ukraine and the Russian sanctions are going to succeed in each nook of the world. Meals provide, already drastically impacted by local weather modifications, is definitely 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 assume that the necessity for real-time flexibility and each technical experience when it comes to working round a significant transportation [block] and different blocks are going to be vital.
I believe there’s an enormous function to play for real-time decision of those initiatives.
[00:19:47] Moderator: Nicely, I do know we have solely scratched the floor on this very complicated matter, however you have given us quite a bit to chew on, Katherine and Barbara. Thanks a lot. You have been listening to a podcast from JAMS, the world’s largest non-public various dispute decision supplier.
Our friends have been Barbara Reeves and Katherine Hope Gurun. For extra details about JAMS, please go to www.jamsadr.com. Thanks for listening to this podcast from JAMS.
