Originally published in the summer issue of The Expert & Dispute Resolver
No one (except a lawyer) likes a dispute. Think of the time and money poured into apportioning blame and the resultant destruction of relationships, some of which have been built over many years. Unfortunately, as we all know, due to the nature of the construction industry and the inherent tensions that can build up due to the large numbers of parties, the huge amounts of money invested and the complicated processes involved - disputes do happen. Over time the construction industry has developed a multi-party approach to construction projects – this spreads the risk but can also increase the number of headaches. The evolution of construction projects into their present form means that any project can be seen as a body - the parties work together, the organs and limbs, each as vital to the smooth running of a project as the next, the whole tied together by a fragile web of communication nerves, given life by the blood of money pumped to the furthest extremities by the funder and employer at the heart of things. All bodies can break down if they are not kept in good health. If not checked upon regularly a slow, fatty build up of tensions can begin which can lead to a dispute, a heart attack that can leave a project gasping for air, with a blinding pain that strikes exactly where it hurts the most - the profit margin. This is where the concept of "Dispute Boards" may provide a way to slow the inevitable fatty build up and eventual heart attack by acting as a continual project health check.
Adjudication is currently the preferred method of dispute resolution in the UK. Referrals to adjudication follow the pattern established by the Housing Grants, Construction and Regeneration Act 1996 (HGCRA) and any decision given by an adjudicator is binding upon the parties until finally determined by litigation or arbitration. This process, with its statutory mandate, seeks to push any dispute arising from a construction contract to resolution within 28 days of referral. This quick turn around is one of the main selling points of the adjudication process with the hope being that money is not held up for months or even years as had been the case with arbitration and litigation. Another result of this quicker procedure is a reduction in expenditure in fighting an action. The main criticism of this method of dispute resolution is that time constraints and the necessity of relaxing the rules of natural justice can result in arbitrary decisions with no practical opportunity for appeal – the dispute has been settled and the parties have to like it or lump it, courts being willing to enforce even incorrect decisions!
This approach works well in over 90% of cases, and has resulted in massive change to the complexion of the construction industry in the UK. But such success has not stopped the search for improvement. The last decade has seen an increase in the use of Dispute Boards (DBs) – for example, the Olympic Delivery Authority has indicated that it is establishing a DB - but why? After all, surely DB's are just another form of adjudication, where is the added value?
The term dispute board covers three main categories. Firstly Dispute Review Boards (DRBs), which issue non-binding recommendations to parties in dispute. Secondly Dispute Adjudication Boards (DABs), which issue decisions to which parties are bound but may express dissatisfaction with. Thirdly Combined Dispute Boards (CDBs), which normally issue recommendations but may issue decisions. DABs have been introduced into standard form contracts, a typical example is to be found in the FIDIC Red Book:
- clauses 20.2 to 20.8 lay out the functions and constitution of the DAB;
- an appendix contains the General Conditions of Dispute Adjudication Agreement;
- Annex one contains the procedural rules; and
- there is a Dispute Resolution Agreement for a one or three person DAB.
Clause 20.2 states the procedure relating to the formation of the DAB, the board is to be constituted and named in the contract or to be identified by the parties by the date stated in the appendix to the contract. The board may consist of 1 or 3 members the choice to be stated in the appendix. If agreement cannot be reached then the default appointing authority is the President of FIDIC or their appointee. Usually once two parties are appointed, they choose the third member. In a board of three, one person becomes the Chairman. Board members have several overriding obligations. They must ensure that they are neutral, impartial, independent, available to the parties, experienced in the industry and that they will keep the process confidential. Payment of board members is by the employer and the contractor jointly and severally. Clause 20.4 allows for referral of any dispute arising from, or in connection with, the contract and both parties must supply any information the DAB requires to make its decision. As with adjudication, there is a set timetable (which should assist in minimising costs) and in this regard the DAB is to provide a written decision within 84 days of referral.
When a DB is set up at the start of a project it can operate throughout its lifetime, not only adjudicating on disputes but preventing them too. The DB will be jointly chosen by the parties at the start when they are still happy and healthy; this consensus can provide the DB with greater authority in their decisions.
It has been reported that 97% of disputes referred to a DB do not go to litigation or arbitration, which is an extremely high success rate. Reasons for this include;
- The members of the board are appointed at the beginning of a project and therefore know the site, the parties involved and how each project works which gives them a real knowledge of the rights and wrongs of any referral. There is no need to take time to work out what exactly is going on in a particular situation or put undue weight on irrelevancies. They will also not need to rely on the submissions of the parties, but can take an independent view on the matter themselves.
- As the DB is often on site they get to hear complaints at an early stage and so have the opportunity to solve a dispute before it escalates. The board can be seen as part of the project; there to promote good relationships. By being an available, impartial party it gives a forum for disgruntled parties to air grievances in an informal setting, stopping grumbles from festering and later erupting into a dispute requiring formal proceedings.
- DBs can act as "referee" and take a proactive role in problem solving. By doing so the DB creates a feeling of "them and us", exacerbated by the DB "invading" the site at regular intervals. This has the effect of encouraging parties to resolve problems themselves rather than have the DB involved. The parties may feel that they should co-operate with one another to avoid interference from the DB, otherwise they know they will be accountable to the DB.
- Most DB's are not entirely populated by lawyers, a mix of experts such as engineers and surveyors as well as the dreaded lawyers make the DB more attractive to the parties within the project. This technical expertise will assist greatly in solving disputes and making informed decisions.
An early start by the DB seems to be a key factor in successfully dealing with any disputes expeditiously and with minimal cost. The DB must remain up-to-date with the development of the project through regular informal site visits. On-site visits are integral to the success of the DB, as they allow access to information which will increase the DBs in-depth knowledge of the project. A combination of early starts and on-site visits place the DB in the best position to nip problems in the bud.
The construction industry has gone from litigation to arbitration to adjudication each time as an attempt to minimise the time money is trapped in the system. DBs can be seen as a preventative project 'health check' that can effectively ameliorate or even prevent a dispute 'heart attack'.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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