© PHJ Chapman 2006 DISPUTE RESOLUTION BOARD FOUNDATION 6 th INTERNATIONAL CONFERENCE 6/7 th May...

© PHJ Chapman 2006

DISPUTE RESOLUTION DISPUTE RESOLUTION BOARD FOUNDATIONBOARD FOUNDATION

66thth INTERNATIONAL INTERNATIONAL CONFERENCECONFERENCE

6/7th May 2006 Budapest

Dispute Boards – A new force to be reckoned with in

international construction. A brief overview

Peter [email protected]

© PHJ Chapman 2006

Recognised methods of methods of dispute resolution in dispute resolution in

constructionconstruction Party negotiation (with or w/o facilitation) Mediation/Conciliation Adjudication Dispute Boards

(early and ‘real-time’ dispute avoidance/resolution)

Arbitration Litigation

© PHJ Chapman 2006

Dispute Boards – a new forceDispute Boards – a new force

Job site ‘adjudication plus’ process Members independent and impartial Appointed from the start Part of the construction process Not an ‘add-on’ or ex post facto device Real-time influence on the project

© PHJ Chapman 2006


Publishes decisions – coercive Jurisdiction by contract and maybe

under statute Construction industry but others also Long shadow, omnipresence –

influences behaviour Dispute AVOIDANCE

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Dispute Boards Dispute Boards International AdjudicationInternational Adjudication

3 principal areas of activity:- Contracts developed for International

Projects financed by World Bank (WB) or other Multilateral Development Banks

Contracts developed by the International Federation of Consulting Engineers (FIDIC)

International Chamber of Commerce (ICC)

© PHJ Chapman 2006

Some history of the DB Some history of the DB processprocess

WB promoted a Dispute Board on El Cajon hydro project in Honduras in 1980

DB resulted in successful settlement of disputes – WB grew to favour this approach

1995 – WB Standard Bidding Document published that used modified FIDIC conditions – deleted the usual provision of the “Engineer” deciding disputes, giving this task to a Dispute Review Board (DRB), similar to those being used at the time in USA

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History (cont’d)History (cont’d)

Disputes (that could not be settled by the parties themselves) to be submitted to DRB for a written “recommendation” which, if no objections within 14 days, became final and binding

In case of objections, parties free to negotiate or, ultimately, “appeal”

© PHJ Chapman 2006

History (cont’d)History (cont’d)

WB required all borrowers of >US$50m to establish a three-man DRB by contract

Borrowers of between US$10m - $50m could use a one-man board or Dispute Review Expert (DRE)

Other development fund banks, followed this example

WB retained these provisions until 2000

© PHJ Chapman 2006

FIDIC –International FIDIC –International Federation of Consulting Federation of Consulting

EngineersEngineers

Known as publishers of model forms used for construction internationally

1995 – Design-Build Turnkey form published with a Dispute Adjudication Board (DAB) – (3 man or 1 man board) empowered to decide disputes referred by either party

NB “Decisions” were made interim binding i.e., coercive, not merely persuasive

© PHJ Chapman 2006

FIDIC (cont’d)FIDIC (cont’d)

1999 – Three major FIDIC model forms published, all involving DABs/DREs:

– Red Book: Conditions for Construction – standing DAB (3 man or 1 man)

– Yellow Book: Plant & Design Build – ad hoc DAB

– Silver Book: Engineer Procure & Construct (Turnkey) – ad hoc DAB

© PHJ Chapman 2006

FIDIC (cont’d)FIDIC (cont’d)

Standing Dispute Boards, from the outset, brings the benefit of dispute avoidance by their routine operations

Ad-hoc boards formed only when disputes arise – (apparently) justified by the “design & manufacture” element not giving rise to so many disputes

© PHJ Chapman 2006

World Bank makes changesWorld Bank makes changes

2000 – New edition of Procurement of Works which makes the “recommendations” of the DRB or DRE coercive unless modified by the award of an arbitrator

2005 – WB (on behalf of all development banks) engaged FIDIC to draft and publish a harmonised set of conditions for use in connection with all projects funded by the World Bank and other lending institutions. Determinations by the DB are coercive.

© PHJ Chapman 2006

ICC –ICC –International Chamber of International Chamber of

CommerceCommerce 2002 – Task Force prepared draft rules for

Dispute Boards. Choice of 3 types available for users of ICC

documents:-– World Bank “old” style DRB –

recommendations being persuasive only– FIDIC / WB “new” style DAB – decisions

interim binding

© PHJ Chapman 2006

ICC (cont’d)ICC (cont’d)

Combined Dispute Board (CDB)– issues recommendations (persuasive, not immediately binding) BUT if requested by either party or if the CDB itself believes that a coercive decision is essential for the good performance of the project the CDB can issue a decision that is immediately binding.

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EuropeEurope

Significant procurement of EU/ EIB / EBRD / WB funded works utilising the 1999 FIDIC forms of contract and thus requiring the establishment of DABs

Traditional procurement Build and Construct Concession Contracts

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Average 50% of all legal costs in construction industry are dispute related

In 10% projects 10% of total project costs was legal cost.

Plus hidden costs such as commercial injuries, reputation, executive time and lost opportunities. A better way for the future?

© PHJ Chapman 2006


Early resolution makes good sense for all parties as it creates CERTAINTY

Dispute board unique in providing a forum for regular, real-time, senior-level discussions of matters of concern to parties or supervisors leading to the avoidance of disputes.

Development of trust and confidence in the members of the dispute board vital to success.

© PHJ Chapman 2006


One, three or more members All members acceptable to both parties Default mechanisms – FIDIC, ICE lists Balanced board, technical/legal Multi-contract boards, wider panels,

specialist boards, standing ‘industry’ boards.

© PHJ Chapman 2006


Routine visits ensure a forum for discussion, ensures board is conversant with the project and can thereby act with alacrity, confidence and full background knowledge

No need to recreate historical events – the DB has ‘looked down the hole’ and has the contemporaneous information it needs

The magic of the dispute board comes from its early involvement and by its stimulation of project communication

© PHJ Chapman 2006


Do they work? 98% of referred disputes end with the DB Of the 2% remaining, half of the ‘appeals’

uphold the DB decision. Of the 1% upset by the arbitrator/courts,

almost always due to procedural irregularity, not on the substance of the decision

PLUS dispute avoidance value

© PHJ Chapman 2006


Reality prevails – self imposed reality checks by parties

‘Duals of Egos’ reduced Fewer spurious claims advanced Less acrimonious correspondence

exchanged Attitudes remain more positive Behaviour controlled

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Swings and roundabouts pragmatism Fantasies do not turn into expectations Cash-flow benefits and final cost certainty. Programmes can be adjusted and agreed Face saving dispute settlement that has

spin-off value throughout contract/project Prevents a blame culture developing

© PHJ Chapman 2006


Misconceptions: Why pay? – may not be needed.

Insurance policy, dispute avoidance, less than 0.2% of project cost on a medium size contract.

Why encourage claims – quite the reverse. Issues settled, many DB contracts with no formal disputes referred

© PHJ Chapman 2006


But it is not final – no, but usually it is. Don’t pay retainers – just compare the

costs of bringing an arbitral tribunal up to speed and that of retaining a dispute Board

Many owners after reluctantly using a DB on a major project will thereafter encourage future use (Boston Central Artery, Ertan HEPP)

© PHJ Chapman 2006 DISPUTE RESOLUTION BOARD FOUNDATION 6 th INTERNATIONAL CONFERENCE 6/7 th May...

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