STUART JORDAN* discusses the role of dispute boards and how they can help in solving construction conflicts in the region.
WHY are dispute boards not more widely used in the Middle East, a region which should benefit more than most from them?
The scope for high-cost disputes is greatest in international projects where the parties arrive with different commercial and cultural backgrounds and different approaches to the construction process. By this measure, there is nowhere more international than the Middle East. This reluctance is even more puzzling because of the widespread use of Fidic (International Federation of Consulting Engineers) forms, which include dispute boards of various types.
The cost of resolving construction disputes is high: not just because of lawyers’ fees, the need for experts, etc, but also in management resources, the diversion in attention from completing the project and the damage to relationships. Hence, there is a constant search for dispute resolution that is relatively quick, cheap and less damaging to relationships but which produces outcomes of high quality (with a good chance of being accepted by the parties) and of practical use, that is they are enforceable. Dispute boards have been used more often globally over the past 10 years or so and they are said to provide exactly this solution. It is worth examining these claims.
Dispute boards are of two main kinds:
• Dispute Adjudication Board (DAB): This is a panel nominated by the parties. At the request of either party, it examines any dispute and gives a “decision” which is binding on the parties and enforceable as such but is not usually final, that is, the same dispute can be referred for final dispute resolution by a court or arbitrator; and
• Dispute Review Board (DRB): This is constituted in the same way but its views are expressed only as non-binding recommendations.
The original idea is that the parties agree at the outset of the project on a panel of experts with expertise in the areas where disputes might arise. This might involve evaluating performance, defects, work or delay and disruption, so the parties would want engineering, cost consultancy, scheduling and legal experts on the panel. The panel members check the contract documents, make regular site visits and receive regular reports. When they consider a dispute, they should be able to give good and quick decisions or recommendations. The dispute board becomes familiar with the approach of each party and how problems arise, which in turn discourages the parties from pursuing spurious claims or refusing good ones. Disputes thus avoided are at least as beneficial as disputes being efficiently dealt with.
The story of the first (by most accounts) dispute board is perfect for its supporters. The project was a twin-bore road tunnel in the US. The first bore was so beset by disputes and went so far over cost that the parties decided to appoint a panel to give non-binding recommendations on the second bore. This had startling success in reducing the number of disputes referred to the DRB and those that were referred being resolved early, with a consequent benefit in both the programme and the final account.
There is an obvious conclusion to be drawn from the different outcomes in the two halves of this project since everything was essentially the same: the work, the location; the parties and the same contract terms.
There are, however, some other points we should note.
Firstly, the invention of this DRB itself showed that the parties were determined not to repeat their experience from the first half of the project. This determination will itself have moderated their behaviour. Goodwill is more important than contracts, although I hate to admit it.
Secondly, we have to acknowledge that it isn’t really new; almost all of the features of a dispute board are also present in other modern disputes processes including:
• Resolution of disputes by construction specialists, and not just judges or lawyer-arbitrators. Lists of arbitrators from construction professional bodies include engineers, cost consultants, etc.
• Adjudication is now widespread. This is a process leading to an “interim binding” decision in the same way as a DAB decision. These decisions are enforceable summarily pending on any final disputes resolution process. Many countries have mandatory statutory adjudication for construction contracts. The UK system has been successful in producing reasonably good and very quick decisions. As a result, international construction contracts more often contain similar provisions.
• Contract administrators make decisions every day on entitlement or liability under construction contracts. In some contracts, the role of the contract administrator (engineer) is enhanced to include initial decisions on matters of dispute. In this enhanced role, an engineer is acting very like a DAB. In the same way, the engineer will have become familiar with the project and the parties. The contract might also state (although rarely) that a decision of the engineer will be enforceable summarily pending final determination. Contractor claims for time and money are matters of contract administration and not disputes resolution, although one can lead to the other. The distinction between administration and the disputes process is not black and white.
So, it isn’t clear that dispute boards are a novel solution. Contract administrators already make day-to-day decisions on entitlement and liability. Adjudication already fills the gap between the initial decisions of contract administrators and the final decisions of judges or arbitrators.
Current use of dispute boards
The most widespread use of dispute boards is through Fidic. All of the main Fidic contracts have some sort of dispute board, however, there is also uncertainty about enforceability of Fidic DAB decisions following a recent case in which the Singapore High Court declined to enforce a decision summarily against the employer where the latter had served a “notice of dissatisfaction”. There are other particular reasons for that judgement but it has helped to create a perception that such decisions under the Fidic Red Book are not enforceable if the “losing party” gives a notice of dissatisfaction.
The newer Fidic Gold Book (Design Build Operate) partly addresses this problem with express provisions in terms that the DAB decision is enforceable on a summary basis and that the winning party can also require any sum awarded to be included in the next valuation.
Finally, the disputes timetable under Fidic contracts is very long: contractor claims require an initial notice followed by full particulars and response from the employer (employer’s representative) before even the first reference to the DAB. This pre-DAB part alone can stretch across months – and then the DAB has a further 84 days to come up with a decision. This is in huge contrast with, for instance, UK statutory adjudication which outlaws any contractual limit or delay on a right to refer a dispute and requires a decision within 28 days of referral.
There are obvious benefits in obtaining high quality opinions from a dispute board that has a deep understanding of the project. The experience of DRBs suggests that success lies in the quality of the panel and the quality of their non-binding recommendations, which encourage the parties to respect them rather than escalate them into formal dispute resolution.
There are several possible reasons why the Middle East market remains more resistant and I think they largely centre around Fidic’s approach to dispute boards, including:
• The laborious and lengthy disputes process in order to get a DAB decision. Parties will judge the advantages of getting a decision against the cost and delay of this process. Simple adjudication provisions can achieve more or less the same result much more cheaply and quickly;
• The current doubt about enforceability of a Fidic DAB decision adds to the perceived difficulties on enforcement generally in the Middle East, in the absence of statutory recognition of adjudication. Parties might understandably decide that it is simply not worth the effort to go through all this unless it is to get a final and binding award;
• Fidic forms also do not all include the DRB model: a permanent panel closely involved in the project and able to give non-binding recommendations – even though this is the model which is being found to bring better results in modifying the parties’ behaviour. The Yellow and Silver Books are very widely used and they include only for a DAB to be appointed if a dispute arises. Interestingly, it has been suggested that decision-making processes in the Middle East are not suited to working with recommendations, and that the parties simply want a binding decision. I don’t think I agree with that view.
There is a place in the region for quick and cheap recommendations or interim-binding decisions. There is doubt that the current Fidic contracts meet that need unless more streamlined and suitable provisions are drafted in. Without that, the Middle Eastern reluctance on dispute boards looks pretty rational.
* Stuart Jordan is partner and co-head construction for the international law firm King & Wood Mallesons SJ Berwin (KWM SJB). Based largely in Dubai, UAE, he specialises in engineering and construction matters, cross border, both front end and disputes.