Incorporating a dispute board into a construction contract is not a new idea, but its use is becoming more commonplace.
A key distinction between dispute boards and all other forms of dispute resolution, including ADR, adjudication, arbitration and litigation, is that a dispute board is normally set up at the outset of a project with the intention that it operates actively throughout the whole period of the contract, not only to resolve disputes but also to prevent them from happening.
Other forms of dispute resolution plainly do not come into operation unless and until a dispute arises and one of the parties triggers the process.
In 1999 the standard FIDIC forms of contract were amended to incorporate dispute boards as a first step in the contractual framework for the resolution of disputes between the employer and the contractor.
In 2004 the International Chamber of Commerce published a set of rules for the operation of dispute boards, together with standard clauses that may be adopted for large infrastructure contracts. It has recently been indicated that the Olympic Delivery Authority responsible for delivering the facilities necessary for the London Olympics in 2012 will incorporate dispute boards within its construction contracts based upon the third edition of the New Engineering Contract. It seems certain that we are going to hear a lot more about dispute boards as their popularity grows in the coming years.
A dispute board will normally comprise one or more (often three) independent construction professionals who are experienced and knowledgeable in the commercial and technical aspects of the project.
The board will normally be appointed at the commencement of the project with the objective that its members become familiar with the technical and contractual characteristics of the project and continue to monitor its progress until completion.
The dispute board members are appointed by the parties as individuals whose views and decisions will be respected. This way, the dispute board is available to the parties at short notice to prevent disagreements from escalating into disputes and to give either recommendations or decisions, depending on the defined role of the board, should disputes arise.
The International Chamber of Commerce dispute board rules describe three types of dispute boards. Dispute Review Boards (DRB), Dispute Adjudication Boards (DAB) and Combined Dispute Boards (CDB). The fundamental difference between these three forms of dispute board is that when called upon to intervene in connection with a dispute, the DRB will give a recommendation which is not binding upon the parties, except to the extent that there is a consensus by the parties to apply the recommendation.
The DAB, on the other hand, represents a less consensual approach to dispute resolution. The DAB will give a final decision if called upon by the parties. Under the terms of the contract this decision will be binding upon the parties, unless and until it is overturned by arbitration or litigation.
The CDB operates as a dispute review board issuing recommendations if called upon to do so, but may issue an adjudication decision if the parties, on an ad-hoc basis, require the board to function in that way.
The FIDIC approach is to incorporate the second of these alternatives, a dispute adjudication board, into its contacts. This reflects FIDIC’s move to replace the engineer’s traditional role as a decision maker and to transfer those obligations to an independent and impartial third party. This recognises the increased criticism that the engineer is appointed by the employer and often unable to act fully independently and impartially. It is interesting to note that for this reason alone many clients in the UAE have been slow to make use of the new editions of the FIDIC form preferring to retain the traditional authority of their appointed engineer.
Nevertheless, whether the DRB or DAB approach is taken, it is clear that there are many advantages to be gained by the use of a dispute board, particularly on large and complex construction and engineering projects.
Dispute boards can bring objectivity and neutrality to a project by virtue of the board members being appointed by the agreement of both parties at the outset. The dispute board acquires direct knowledge of the project and its key participants by visiting the site on a regular basis and being given key documentation.
This permits earlier intervention by the dispute board where there are issues emerging which may give rise to a dispute.
More importantly, a dispute board may create an atmosphere in which the parties are obliged to be more realistic and factual in any representations that they make in the knowledge that sooner or later the board members may be asked to intervene.
Since the dispute board is engaged in any event to monitor the project and to be on hand to deal with any potential conflict, calling for a recommendation or a decision of the dispute board may often be seen to be cooperative rather than confrontational. The confidential and less formal procedure of dispute boards may itself help preserve good site relationships.
Even if it is unrealistic to expect the dispute board to provide a readily acceptable answer to every situation, on complex projects a dispute board will provide a filtering and refining role such that only the most intractable disputes, for which no consensual agreement can be obtained, will become the subject of arbitration or litigation.
“Dispute boards can bring objectivity and neutrality to a project by virtue of the board members being appointed by the agreement of both parties at the outset. The dispute board acquires direct knowledge of the project and its key participants by visiting the site on a regular basis and being given key documentation.”
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