Barrister Dr Cyril Chern discusses the role of Dispute Boards on construction projects and provides evidence of their successful engagement during the execution of the works.

Since Dispute Boards started 20 years ago their use has been increasing on a worldwide basis. In the last 5 years alone the statistics show that if there is an operational Dispute Board in existence on a project close to 99% of all disputes referred to it will be successfully resolved within less than 90 days and at a cost of about .02% of the amount of the dispute. When one reviews this statistic to the results obtained through litigation or arbitration there is no comparison e.g. the costs of filing at the ICC or similar arbitration group can be as high as 12% of the amount of the claim and the time to resolution of the claim can take several years. One of the main reasons Dispute Boards can almost guarantee such results is the fact that a Dispute Board is different than any otherform of dispute avoidance mechanism such as litigation, arbitration or mediation. The major difference is that a Dispute Board is appointed from the start of the contract so the members of the  Dispute Board know both the project and the parties very well and have regular contact (about every 3 months) via a site visit and the constant review of documentation from the parties – the Employer and the Contractor. Compare this to litigation or arbitration where the first time the judge or arbitrator learns anything of the case is when it is filed with either the court or the arbitration association – this is usually many months or even years after the dispute first arose thus the judge or arbitrator gets ‘cold’ facts and evidence from memory —  memory which sometimes can fade due to passing time. It is this intimate involvement with a project that allows for the great success of the Dispute Board process.

Another benefit of a Dispute Board is that the Dispute Board members are all generally very experienced in both construction engineering and the law (compare this to some courts where the only experience a judge may have had with a construction claim will be from some refurbishment project of their own that went bad). These experienced Dispute Board members see the parties on a regular basis and allow themselves to be available to the parties, if jointly agreed, to just give an informal opinion about some matter that by prompt intervention can prevent a claim from later arising. Needless to say, if the average Dispute Board member has, on average, about 40 years of construction/engineering experience their opinions will hold sway and whilst they are not required to decide the same way as the opinion they give, most Employers and Contractors will take their opinions on potential dispute matters very seriously – thus obviating the need for a formal claim and the costs attendant thereto.

Dispute Boards are usually made up of 3 experienced engineers and/or construction lawyers who have specialised training in how to administer a Dispute Board. There are three types of Dispute Boards:

Dispute Review Boards, Dispute Adjudication Boards, and Combined Dispute Boards. These boards are very different from arbitration or litigation as the Dispute Board members act as adjudicators and are free to search out, in an inquisitorial manner, their own evidence or facts to determine what has taken place and what the claims are comprised of– thus in many Dispute Board settings only claims representatives appear and the need for lawyers is diminished. Whilst this may be bad news for lawyers it is extremely good news for the Employer and Contractor as the costs attendant to a Dispute Board Hearing are miniscule as compared to those of litigation or arbitration.

Indeed, the only time arbitration (or court) comes into play is when one party or the other does not accept a Decision of a Dispute Adjudication Board. When this occurs, the unhappy party can file a Notice of Dissatisfaction, which results in the Decision having to go to Arbitration
– though the Decision unless changed by any subsequent award is binding on the parties until that event occurs – which generally means payment is due and payable and enforceable as such till then.

Statistics again show that in the past 20 years the number of Decisions overturned in arbitration amount to less than a handful mostly because the Dispute Adjudication Board Decision, having been made by experienced and extremely knowledge construction experts can and is used in any subsequent proceedings as evidence of what happened and functions as an ‘expert’s report’ on the issues presented. This is yet another reason why Dispute Board Recommendations and/or Decisions are so valuable. Indeed, as just mentioned, once a Dispute Adjudication Board Decision is given it is immediately to be given effect, thus if payment is due from the Employer payment must be made and that is the case even if the Employer contests the Decision or takes it to arbitration or court to have it overturned.

Recent developments at the ICC have shown that Decisions for the payment of moneys will be enforced immediately and even prior to the actual full arbitration thus allowing the Decision to be given immediate effect per the parties’ contractual agreements. Thus not only are Dispute Boards cheaper than arbitration they, through the help of arbitration if necessary, are much faster and guarantee prompt payment under any Decisions given by the Dispute Board.

Dispute Board Rule
There are 3 main International bodies providing Rules and Procedures for Dispute Boards.

These are FIDIC [Fédération Internationale des Ingénieurs–Conseils], DBF [The Dispute Board Federation], and the ICC [International Chamber of Commerce].

FIDIC
FIDIC Clause 20 (‘Claims, Disputes and Arbitration’) provides for a combination of a ‘Dispute Adjudication Board’ (20.4), amicable settlement (20.5), and ICC arbitration (20.6), in that order. In particular, this Clause 20 refers only to a Dispute Adjudication Board or ‘DAB’ and is now used by World Bank and all international development banks. Under FIDIC the DAB is composed of 1 or 3 members, usually engineers, independent of the parties, but all are accepted by the parties and/or appointed by FIDIC. Further under the FIDIC Red Book, the DAB is a permanent Dispute Board from the start of the project till completion.

The other FIDIC form of DAB is an Ad Hoc DAB and is set out in both the Silver and Yellow Books.

The purpose of a permanent DAB is that it maintains familiarity with the project, visits the site periodically, and decides disputes that arise by (provisional) binding Decisions. Ad Hoc DAB are constituted for and decide individual disputes by a (provisional) binding Decision. FIDIC’s experience to date shows that both these forms have been successfully used on all major projects internationally.

DBF
The DBF Dispute Board Documents, in force as from 1 January 2001,
consist of: Standard DBF Dispute Board Clauses, which the parties canin corporate into their contracts and which provide for two types of Dispute Boards: A Dispute Review Board (‘DRB’); and a Dispute Adjudication Board (‘DAB’). Further, there are the DBF Dispute Board Rules which govern the procedure before any Dispute Board (DRB, DAB); and the DBF Model Dispute Board Member Agreement, which can be used as the model for the agreements to be entered into between each of the Dispute Board members and the parties.

It is interesting to note that DBF Dispute Boards can be established for any type of contract and are not limited to construction contracts.

Further under these forms the DBF can select the Chair who then selects the other Board Members – this is known as ‘Top-Down’ selection as compared to ‘Bottom-Up’ selection where each party selects one Board Member and those two select the Chair.

DBF Rules also provide for automatically binding Decisions from DABs with and/or without appeal to arbitration and a Fast-Track DAB with Decisions within 30 days.

ICC
The ICC Dispute Board Documents, in force as from 1 September 2004, consist of Standard ICC Dispute Board Clauses, which the parties can incorporate into their contracts and which provide for three types of Dispute Boards: A Dispute Review Board (‘DRB’); a Dispute Adjudication Board (‘DAB’); and a Combined Dispute Board (‘CDB’); ICC also provides Dispute Board Rules, which govern the procedure before any Dispute Board (DRB, DAB or CDB) and they also provide their ICC Model Dispute Board Member Agreement. Further as with the DBF, ICC Dispute Boards can be established for any type of contract and are not limited to construction contracts.

CONCLUSION
The use of Dispute Boards allows for a fast and effective method for the resolution of disputes. What should also be realised is that this method not only is fast but very economical and more importantly allows the project or the contract to proceed without any interruption. All the other forms of dispute resolution generally involve a delay whilst the parties fight it out, be that in litigation or in arbitration, thus leading to delay and further expense to say nothing of damaged business relationships – something that a Dispute Board prevents thus with a Dispute Board the parties get all of the benefits of litigation and/or arbitration but with none of the burdens.

Dr Cyril Chern is a Barrister with Crown Office Chambers, London and Secretary of the Dispute Board Federation (Geneva and Singapore).
He can be contacted at chern@crownofficechambers.com