July 19, 2019

By: Neal J. Sweeney, Esq., Jones Walker LLP

The use of dispute tribunals generally referred to as Dispute Review Boards or DRBs on major projects has matured. Use of a DRB cannot guarantee elimination of post-project litigation, but when used properly, a DRB can be an enormously effective tool to avoid and resolve disputes rapidly and during construction.

The modest out-of-pocket costs of a DRB can pay big dividends. DRBs offer the opportunity to shorten the life cycle of a dispute by requiring the principals to confront and address the merits of their dispute, rather than simply hunkering down and focusing on posturing and preparing for arbitration or litigation. Even when a DRB cannot immediately resolve a dispute, the process can still facilitate subsequent settlement and cost-effectively prepare both parties for formal adjudication. DRBs can also enhance communications and help the parties avoid and resolve problems before they spiral into disputes.

DRBs were first and are most widely used on big civil and infrastructure projects, but the benefits of a DRB extend equally to major building projects, particularly hospitals, and industrial projects and should be used in those sectors.

Key Details – The DRB Specifications
DRBs are a creature of contract; the scope and authority of the DRB as well as DRB procedures are established in the construction contract, generally incorporated through the specifications and other attachments (“DRB specifications”). It is important to review the DRB specifications on each project before submitting a bid or proposal. Although there is a fair amount of standardization, details may be customized, and those details can have considerable practical, legal and risk implications. Examples of standard DRB specifications are provided by the DRB Foundation and ConsensusDocs . Some of the key details are the DRB member selection process, the scope of the DRBs authority, who can directly participate in the DRB process, and the impact of a DRB decision.

Regular DRB Participation on the Project to Avoid Disputes
Although focus is often placed on DRBs rendering formal decisions on disputes, the role of a DRB can and should be broader. The DRB should be part of the communication structure of the project, with regular project visits and meetings so the DRB members are generally aware of the nature and progress of the work and become familiar with the principals for the parties.

The DRB members are most often experienced industry professionals or construction attorneys. DRBs are most effective when the DRB members know the project and the people on a retail level. The DRB should not be trotted out only when a problem has degenerated into a polarizing dispute that the DRB is asked to decide.

These regular site visits and meetings provide an informal and non-adversarial forum in which the principals are called on to identify and discuss potential problems before they become disputes. These group interactions with the DRB help enhance communication and preserve relationships between the parties as they address issues in a non-contentious setting. In this way, problems are more likely to be addressed and disputes avoided or at least mitigated before moving down the trail to a formal disposition with a DRB hearing and decision.

Formal DRB Hearings and Recommendations
When the DRB is asked to formally resolve a dispute by rendering a formal decision the principals have less control than they do in bilateral negotiations. With the DRB, the dispute will be “judged” and a decision will be rendered. Although that DRB decision is generally nonbinding, the DRB decision and the process required to get to a decision can be tremendously valuable to both parties. Far more often than not the DRB recommendation leads directly or indirectly to the resolution of the dispute and avoidance of litigation or arbitration. The written submissions and hearings that are part of the process for the DRB to decide a dispute are more formal than the regular site visits and meetings, but far more informal than a court or arbitration proceeding.

Attorney participation in DRB hearings is a recurring issue, and should be addressed in the DRB specifications. Based on extensive experience with DRB hearings, this author believes DRBs are most effective with minimal to no direct attorney participation in presentations. Even in DRB hearings in which the parties make detailed and extensive presentations, it appears to be more effective to limit the presenters to project personnel, even if attorneys are permitted to attend the hearing and assist in the preparation for the hearings and of written submissions to the DRB. Limiting attorney participation does appear to lower adversarial tensions, reduce formality and allows the DRB and both parties to hear directly from first hand participants.

There is no need to restrict a formal DRB hearing to multi-million dollar claims. On the contrary, when there is a dispute on a recurring issue that can be presented before the costs mount, it may be possible to have the DRB decide entitlement quickly on a single occurrence that provides guidance to the parties about how the DRB will view all the other similar occurrences. The parties may still disagree over the issue and the DRB recommendation, but with that guidance, the parties have the opportunity to react and adjust during construction rather than waiting until all the costs are incurred.

Impact of the DRB Recommendation
A DRB decision is generally called a recommendation, and it is just that — a recommendation. It is not binding on either party unless both parties accept the recommendation. It is not like an arbitration award that either party can unilaterally enforce.

An important consideration is whether the recommendation is admissible in a subsequent litigation or arbitration if the parties do not settle. The issue of the admissibility of the DRB recommendation must be addressed in the DRB specification, such as the ConsensusDocs 200.4. Even if the DRB recommendation is not binding, a judge, jury or arbitrator will likely give a lot of weight to a detailed recommendation by three industry professionals who were selected by the parties and were familiar with the project. Those in favor of the admissibility of DRB recommendations seem to recognize the heavy weight the recommendation will carry if admissible, but believe that by knowing that weight, the parties will be more likely to fully invest in and make the most of the DRB process.

In some international standard forms contracts, such as the FIDIC documents, the decision of the tribunal, called a dispute adjudication board, is binding on an interim basis. The decision can immediately provide financial or schedule release to the prevailing party, but the distinction is still subject to general challenge in any subsequent court or arbitration proceeding.

Activate the DRB at the Beginning of the Project
If your contract calls for a DRB, do not wait for a dispute before you activate the DRB. The DRB should be set up immediately. The ConsensusDocs 200 Standard Agreement Between Owner and Constructor requires, at section 12.3.1, that if a DRB is selected that the parties select a DRB “as soon as practicable after the execution of this Agreement Once there is a serious dispute, it is tough to agree on anything, including setting up a DRB. In addition, by waiting, you lose the potential benefit of the DRB as a dispute avoidance tool.

Do not wait to use the DRB process to air out potential problems that may become disputes. That does not mean dump every problem on the DRB to solve. On the contrary, use the regular DRB site visits and meetings to enhance communication with the other side to help limit lack of communication, misunderstanding, or a party sticking its head in the sand. More open communications help the parties address problems and mitigate disputes.

When a formal DRB hearing and decision is sought, do not wait and see for the outcome before digging into the issue and investing serious effort into evaluating and supporting your position. At that point it will be too late. If you get an adverse DRB recommendation, the DRB is unlikely to give you a “do-over”, especially if the problem was lack of preparation. The consequences of not properly preparing for a DRB hearing are compounded when the adverse DRB recommendation is admissible in court or arbitration.

DRBs when properly understood and employed are a tremendous benefit and value on any major project to help avoid, mitigate and resolve disputes in an expeditious and cost effective manner.

The views expressed in this article are not necessarily those of ConsensusDocs. Readers should not take or refrain from taking any action based on any information without first seeking legal advice.