Dispute Board (DB)

A tested and successful process for Dispute

Avoidance and Dispute Resolution

Volker Jurowich

Dispute Board (DB)

Dispute Review Board (DRB)

Dispute Resolution Board (DRB)

Dispute Adjudication Board DAB) → FIDIC

Combined Dispute Board (CDB) → ICC

Ad hoc Dispute Board

Standing Dispute Board

Single Member Dispute Board

Multiple Members Dispute Board

Dispute Avoidance Panel

Dispute Settlement Panel

Dispute Adjudication Panel

Volker Jurowich

Dispute Board (DB)

What is a Dispute Board?

A panel, usually of three persons:

Impartial and independent of the Contract Parties

Experienced in the subject matter of the Contract

Appointed jointly by the Parties

Focus on Dispute Avoidance

Recommendations or decisions in case of formal dispute

DB cost shared equally by the Parties

Volker Jurowich

Dispute Board (DB)

Objectives:

1. Dispute Avoidance through early consultation with the

Parties in all matters with a dispute potential

2. Dispute Resolution through non-binding

recommendations to the Parties or binding decisions on a

referral

Volker Jurowich

Dispute Board (DB)

History and development

1960 Boundary Dam, Washington

1975 Eisenhower Tunnel, Colorado

1980 El Cajon Dam, Honduras

1995 The World Bank makes the DRB process a mandatory feature in

all projects financed by it ≥ US$ 50 Mio

1995 FIDIC, the International Federation of Consulting Engineers,

introduces the DAB process into one of its Standard Forms of

Contract

Volker Jurowich

Dispute Board (DB)

1996 In the UK Statutory Adjudication is introduced. Other nations

follow, like New Zealand and Singapore.

1997 More Multilateral Development Banks follow World Bank

1999 FIDIC introduces the DAB process into its Standard Forms

of Contract (Rainbow Edition)

2000 The World Bank and other MDBs make the DAB process

mandatory.

Volker Jurowich

Dispute Board (DB)

Statistics (DRBF survey 2010)

Total Contracts approx. 2200

Total Contracts value US$ 155 Billion

Average no. of Disputes 1,3

60% of all Contracts were without formal Dispute

More than 95% of all Contracts did not require further procedures

like arbitration or litigation

Volker Jurowich

Dispute Board (DB)

Basis for Jurisdiction:

The basis for a DB process is a contractual agreement between

the Parties to a Contract.

Normally there is no legislative basis, as for Arbitration.

(Statutory Adjudication is not subject of this presentation)

Volker Jurowich

Dispute Board (DB)

The Parties to a Contract empower the Dispute Board to assist in Dispute

Avoidance and, in case of formal disputes, to render recommendations

or decisions on the dispute.

To that effect they conclude, besides the Contract in which they

agree on this process, separate agreements with the DB Members.

They usually also agree on some procedural rules, which are

binding upon the DB.

Volker Jurowich

Dispute Board (DB)

Normally, the DB process is the first tier of a two-tier dispute

resolution process.

The second tier on international construction contracts is

usually international arbitration. But it can also be

litigation.

Volker Jurowich

Dispute Board (DB)

DB Procedure:

Ad hoc Dispute Board

Standing Dispute Board

Volker Jurowich

Dispute Board (DB)

Ad hoc Dispute Board

While the agreement to refer disputes first to a Dispute Board is already

included the Contract, the ad hoc DB is only established in case of a

formal dispute. This should be done within a specified period (FIDIC

28 days) after one Party has notified its intention to evoke the

procedure.

The DB must then, within the period stipulated in the Contract (FIDIC 84

days), give a recommendation or a decision.

(No Dispute Avoidance function)

Volker Jurowich

Dispute Board (DB)

Ad hoc Dispute Board

FIDIC has introduced the ad hoc Dispute Board in

the Yellow Book, Standard Form for Plant and Design-

Build,

the Silver Book, Standard Form for EPC/Turnkey

Projects,

Volker Jurowich

Dispute Board (DB)

Standing Dispute Board

The Standing Dispute Board (Permanent DB) is best established before

construction starts. The Contract must set that out clearly.

This DB accompanies the construction process through regular Site visits. It

will receive regular information, such as Monthly Reports, important

contractual correspondence and revised construction schedules. It

advises the Parties with the aim of Dispute Avoidance. In the event of

unavoidable disputes and a formal referral, it must act similar to an ad

hoc Board and deliver, within the contractual period, a

recommendation or a decision.

Volker Jurowich

Dispute Board (DB)

Standing Dispute Board

FIDIC has introduced the standing DB in

the Red Book, Standard Form for Construction (for

Works designed by the Employer)

the Gold Book, Standard Form for Design, Build and

Operate,

Volker Jurowich

Dispute Board (DB)

Ad hoc DB or Standing DB?

Pro Ad hoc DB: 1. Perceived less costly, as only established

in case of dispute

2. DB Member appointments will consider the

subject of the dispute

Pro Standing DB: 1. Dispute Avoidance

2. In case of disputes better knowledge of the

issue in dispute

Volker Jurowich

Dispute Board (DB)

Ad hoc DB or Standing DB?

The trend is now clearly for Standing DBs.

The alleged additional costs over the ad hoc DB due to

regular Site visits, will be more than balanced by the Dispute

Avoidance.

Volker Jurowich

Dispute Board (DB)

Other advantages:

The persons acting on the Site, the Employer, the Contractor and the DB get to know each other. Thus a basis of trust is established.

Procedural posturing is avoided.

Claims and the responses will be set up more realistic.

The correspondence between the Parties is more likely to consider the likely attitude of the DB. It is therefore less controversial.

The formation of stuck opinions and resulting entrenched positions tends to be avoided.

False expectations will less easily develop or can be corrected early.

Volker Jurowich

Dispute Board (DB)

Appointment (establishment) of a DB (By the Parties)

For a 3-person DB first each Party nominates a person for consent by the

other Party. Then the Parties consult with the two persons selected on the

designation of the third person, who will usually act as Chairman.

While with Standing DBs few problems are normally expected because

the appointment of the DB takes place in the honeymoon phase, the

appointment of an ad hoc DB has more problems, as this happens only

when there is already dispute:

- The person designated by the other Party is not accepted

- The Parties cannot agree on the third person

Volker Jurowich

Dispute Board (DB)

Appointment (Establishment) of a DB by an Authority

As a remedy against the above described impasse, it is absolutely

necessary that the Contract names an authority (Appointing Authority),

that appoints, in the event of default against deadlines set, on call of one

or both Parties, one, two or all DB members with final and binding

effect.

FIDIC President

Chairman, ICC International Court of Arbitration

Volker Jurowich

Dispute Board (DB)

Independence

Impartiality

Competence in the subject matter of the Contract

Competence in interpretation of Contracts

Fluency in the language of the Contract

Competence in communication

Availibility

Requirements upon DB Members

Volker Jurowich

Dispute Board (DB)

Disclosure, before appointment, of any relationship with any of the

Parties or their representatives or employees, which might be

regarded as not in line with the above requirements. The measure is

not one’s own good conscience, but the assessment of the Parties.

This requirement is to be strictly observed. A fact that is initially

judged with common sense, and does not lead to rejection, may

later, when there is dispute, be judged differently if not earlier

disclosed.

Confidentiality

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Dispute Board (DB)

Personal knowledge

Recommendation

Recommendation of an institution such as FIDIC, DRBF

Agreed list in the Contract

Interview

The selection should be tailored in each case to the Contract. While selection is usually done from professional engineers experienced in contracts, the engagement of an experienced construction lawyer is helpful to cover legal aspects and avoid procedural errors.

In international projects it is also recommended to pay attention to the nationality of the DB members. At least the Chairman of the DB should have a different nationality than that of the Parties.

Selection of DB Members:

Volker Jurowich

Dispute Board (DB)

DRB/DAB/CDB

The DRB (Dispute Review Board) is the usual procedure in North

America. In the event of a dispute, a Party can refer it formally to the

DRB, which then will issue a recommendation that is non-binding.

Some contracts require that a Party must declare dissatisfaction with the

recommendation within specified time in order that it will not become

binding.

The DAB (Dispute Adjudication Board) shall make a decision on the

dispute, which is immediately binding but not final. If contradicted by

the stipulated deadline, it remains binding until and unless revised in a

subsequent decision, arbitration or litigation. The decision must

therefore be implemented without delay.

Volker Jurowich

Dispute Board (DB)

DRB/DAB/CDB

The CDB (Combined Dispute Board) is a child of the ICC, Paris, and was

presented in its Dispute Board Rules of Sept. 2004. The CDB usually

makes recommendations, but may also make, upon joint request of the

Parties, a decision as the DAB does. Should the Parties fail to agree

whether the CDB is to make a recommendation or a decision, then the

CDB is authorised to decide itself whether to make a recommendation

or a decision.

Volker Jurowich

Dispute Board (DB)

DRB/DAB/CDB

The DRB process is surely the most consensual option. The

resolution of the dispute remains largely in the hands of the Parties.

The recommendation is a welcome aid or guide. In fact, the vast

majority of recommendations lead to a final settlement by direct

agreement of the Parties.

Experience shows that the DAB process is more controversial.

However, it is preferred by contractors due to its faster effect on cash-

flow.

Volker Jurowich

Dispute Board (DB)

This is similarly seen by the MDBs. Therefore, in the MDB Harmonized

Edition of the FIDIC Red Book the DAB process is mandatory.

This process is a result of FIDIC’s standpoint that in order to ensure

uninterrupted progress of Works, binding, albeit not final, decisions are

required.

It replaces the former Engineer’s Decision, which was also binding in

the interim.

Volker Jurowich

Dispute Board (DB)

Liability of DB Members

DB members should enjoy, in principle, a judge’s

privilege. Liability only in cases of gross

negligence or willful misconduct.

This needs to be included in the DB agreements

if not already included in the construction

contract.

Volker Jurowich

Dispute Board (DB)

Enforcement

Because the DB process is based only on a contractual agreement

between the Parties, there is no legal basis for direct

enforcement.

Non-compliance with a binding decision constitutes breach of

contract. This breach would then need to be subject of the next

instance, arbitration or litigation.

Volker Jurowich

Dispute Board (DB)

Construction projects are prototypes

The price is made for a structure yet to be constructed, often with

planning/design still incomplete

The construction time may extend over several years, often with

unforeseen/unforeseeable developments

Learning effect is limited due to changing personnel. Therefore,

there is often dispute over identical issues.

Even the best contracts can not exclude disputes. But there is room

for improvement

High legal costs, extremely long times until decision, uncertainty

about the outcome

Summary

Volker Jurowich

Dispute Board (DB)

Increased stress on management resources

Negative impacts (permanent) on business relations

Parties want a quick, cost effective and transparent process, capable of

maintaining good relations.

These expectations can best be met by the DB process.

DBs accompany the construction progress from the beginning.

Intensive personal knowledge of the persons involved, of the contract,

of the construction progress, of the problems and of the actual

conditions

There is no need to prepare after years on the basis of Party

submissions, the facts or the history

Volker Jurowich

Dispute Board (DB)

Dispute Avoidance

DB in making recommendations /decisions is bound by the

contract and the facts. It must not seek compromise, as

does mediation.

DB recommendations /decisions are normally admissible in

subsequent proceedings. This fact will be considered by the

Parties not satisfied with a recommendation /decision when

deciding on further action.

Volker Jurowich

Dispute Board (DB)

Thank you for your attention!

Questions?

Volker Jurowich