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Peter Chapman - Dispute Boards Tuesday 12 June 2007 Peter Chapman needs little introduction being a founder member of the Adjudication Society, head of the FIDIC Assessment Panel, a Past President of the Dispute resolution Board Foundation and an active DRB member with an involvement in the 2012 Olympics. Peter began by saying that whilst many of those in the audience were used to acting as arbitrators or adjudicators, in other words resolvers of disputes, if steps were taken at the right time then disputes could be avoided. Whereas the party representatives in arbitration or adjudication tend to have a narrow view, dispute boards have the ability to prevent issues and possible problems being ignored and dismissed with the aim of preventing the disruption to the project which is inevitable when efforts are directed towards disputes. When problems do occur there are various methods that can be used to address them ranging from negotiation (the cheapest) through mediation/conciliation, adjudication (including expert determination), by a dispute board or arbitration or litigation, the last two being the most costly and time consuming. Dispute Boards are part of the job site process. The members are appointed at the outset and are regularly updated on progress in a way that ensures they are at the "sharp end" of the project and very much part of the construction process giving them the opportunity to have a "real time" effect on the construction process. This all helps to maintain communications between the parties and DB members at a site level. This is done by providing a high level forum at which matters of concern can regularly be discussed. The DB can suggest ways whereby the parties and their advisors can work towards consensual and early resolution of contractual matters, initially by providing joint reports and at meetings with the DB. In turn the DB is able to monitor the parties' activities in respect of dispute avoidance. Ultimately the DB is able to publish coercive decisions on matters referred to it. In reality many disputes are sorted out between the parties before the impending arrival of the DB on site. This process encourages the parties to resolve their own disputes, with a form of adjudication available as a last resort. Dispute Boards have their origins in projects for the World Bank, in contracts published by FIDIC and the more recent rules published by the ICC. The World Bank started using DBs in 1980 and found them to be a successful way of settling disputes, so in 1995 the WB Standard Bidding Document was used to modify the FIDIC Conditions so that the engineer was no longer the decider of disputes, which were referred instead, to a US-style DB which provided a written recommendation which became final and binding after fourteen days. Arbitration remained the ultimate forum for dispute resolution if dissatisfaction with the DB recommendation was made within fourteen days. The recommendations were persuasive rather than binding and this caused some problems in jurisdictions where such decisions could not be enforced. Other banks followed the WB's lead and they retained this method until 2000. The FIDIC Contracts provide for a one or three man DB. The Red Book provides for a standing DB to be convened a the outset of the project, whereas the Yellow and Silver Books make provision for an ad hoc DB to be convened as and when a dispute arises. The DB decisions are binding in the interim, pending arbitration, so they are coercive and not merely persuasive. In 2000 the World Bank followed FIDIC's lead and changed the DBs decisions to coercive. Also in 2000 the FIDIC MDB (Multilateral Development Banks) harmonised contract was published, in which the DBs decision was also stated to be coercive. In 2002 a task force prepared the Draft ICC DB Rules in which three types of board were envisaged. The Dispute Review Board (DRB) was to provide recommendations, the Dispute Adjudication Board (DAB) to provide binding decisions and the Combined Dispute Board (CDB) to normally provide recommendations but also binding decisions at the request of both parties. Peter was not sure just how much the CDB is being used in practice. The significance of the ICC Rules is that they can be used in a wider range of industries, not just construction. In the 1999 version of the FIDIC Red Book, Clause 20 sets out the requirements for a DB. Peter reviewed the whole of Clause 20 in detail, but I will leave the reader to do that for themselves. In the General Conditions of this contract form the DB member must be able to understand the language the contract is written in and in which the proceedings will be conducted. None of the board members must be part of either party's organisation, something that can prove to be conceptually difficult in some countries. The DB members must not be arbitrators in future proceedings and neither should they appear in those proceedings for either party. DB members can be expected to be paid about €3000 per day (this is the WB guidance) plus a retainer amounting to two days per month (ICSID guidance). I will leave the interested reader to look for themselves at the other conditions affecting DB members in the FIDIC contract and also the FIDIC procedural Rules and Tri-Partite agreement, but needless to say Peter went through all these in great detail. The construction industry represents 10% of the GDP of the UK. On average about 50% of the legal costs associated with construction are concerned with disputes. 10% of projects have legal costs of 10% associated with disputes. In addition, projects which are delivered late or over budget have financial implications. All of these costs could otherwise be put back into construction. Peter explained how DBs could go a long way towards addressing this problem. They do so by making reality prevail, reducing duels of egos and reducing spurious claims. Monitoring by the DB tends to mean less acrimonious correspondence (each party wanting to be seen to be the "good guys"), attitudes remain more positive and behaviour is controlled. DBs tend to prevent a blame culture from developing and provide a face saving method of resolving disputes which do arise. With all that going for them why should there be any scepticism about Dispute Boards? Some employers in particular are sceptical because they see it as paying for something that may not be needed. Peter thought it should be looked at like an insurance policy, costing up to about 0.2% of the contract. Even though an employer might argue that they will not pay a retainer, this is likely to be much cheaper than arbitration or litigation. It may be thought that the process encourages claims, but in practice this has not been found to be the case, an example being the DLR where there were no formal disputes during the four year duration of the contract. Although the process is not necessarily final and binding, just like adjudication in the UK, it usually is. The DRBF has collected evidence that DBs do work and this shows that where a DB is in place 98% of disputes end with the board, of the remaining 2% half of the DB decisions are appealed. Although DBs are an American invention, they are used extensively in Europe, especially in Eastern Europe which is benefiting from a lot of EU funding. There are 50 roads schemes alone taking place in Romania and the minister responsible says that even where the ministry is losing most of the disputes, they can see the clear benefits of having them dealt with by a DB. A lively question and answer session ensued, one questioner wanting to know where the money came from where the contractor won the dispute and whether this was just a way for a contractor to get access to more public money. Peter explained that in certain jurisdictions the employer needed the DB report in order to implement the decision (in India for example), especially in countries where officials may be reluctant to take decisions for themselves lest they get blamed. Peter explained that for example in Romania, the EU procurement Regulations make no provision for claims, so if the government loses it cannot simply get the money from the EU which is why historically clams have simply been denied. In this case the DB can persuade a funding authority to increase loans or grants, but if this is not possible the government cannot simply ignore the decision for want of money. Another audience member wanted to know what the scope of the regular DB reports was. The parties are expected to provide a joint report which becomes the agenda for the meeting with the DB. The DB report records the different issues discussed and this can then be used at the next meeting to track the progress of the issues. For members who might want more information about Dispute Boards, or membership of the Dispute Resolution Board Foundation, please visit: www.drb.org. The website contains a wealth of information about DBs and visitors can download part of the DRBF Manual, the whole document being available to members. Report by Murray Armes |
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