The Evolution of Dispute Boards
The global construction industry contributes almost 10% of the world’s GDP. The Australian industry alone attracts an annual turnover of $100 billion and employs about 1,000,000 people from a wide spread of private and public companies, government departments and agencies.
Efficiency of the construction industry is fundamental to the development of economic resources of all developed and developing countries.
Due to the complex nature of major construction projects and the inherent uncertainty associated therewith, the industry is prone to disputes. The DRB concept was first tried in the United States in the late 1970s as a means of reducing the high level of litigation in the underground sector of the construction industry at that time. It has progressively developed since then and as the concept has expanded internationally, the focus on dispute avoidance usage has increased and the generalised term ‘Dispute Boards’ (DBs) has come into common usage.
In the last two decades the concepts have emerged as a highly effective means of avoiding disputes on large infrastructure projects. If avoidance of disputes proves impractical, the DB process provides a quick and relatively inexpensive method of resolving them.
The DB concept has been embraced internationally by government agencies, private owners, major contractors and the multi-lateral development banks. Both FIDIC and the ICC now publish model DB clauses and rules for use in international construction projects. The Chartered Institute of Arbitrators has also recently developed its own DB rules and procedures.
What is a Dispute Board?
A Dispute Board is established as part of the contract provisions agreed to between the parties, and operates under those agreed provisions. It comprises a job-site process for dispute avoidance or prompt resolution of disputes where avoidance is not achieved. The DB comprises one or three (depending on project size) independent experts selected and agreed to by the contracting parties. Appointed at the commencement of a project, the DB is provided with regular update reports on progress and undertakes regular visits to the site and joint party meetings. The DB’s firsthand project knowledge allows it to assist the parties to address and resolve issues as they emerge.
DBs enable a pro-active “dispute-avoidance” approach to be implemented in the management of many projects. DBs encourage a “best-for-project” relationship between the contracting parties. The modern focus is avoidance of disputes, but the system provides for the efficient resolution of disputes where avoidance proves impractical.
The vast majority of projects with DBs have managed to avoid the impact of highly disruptive and expensive contractual disputes and been completed without resort to litigation or arbitration. Perhaps more importantly, DB projects have achieved significantly better outcomes in terms of delivery time and out-turn cost than projects relying on the traditional ‘reactive’ dispute mechanisms for resolution of differences.
What are the advantages?
The DB concept has shown outstanding success since its first regular usage in major construction projects in the late 1980s. The available recorded and anecdotal evidence indicates that 98% of projects utilising DBs (now numbering well over 2700 internationally) have been completed without reference beyond the DB.
The value of Australian and New Zealand projects utilising Dispute Boards is now approaching $18 billion, most of that having occurred since the formation of the DRBA in mid-2003. The Australasian projects which have adopted the DB process have all involved complex technical work conducted under extreme risk allocation arrangements with tight completion targets and substantial liquidated damages for late completion. Notwithstanding the demanding contract conditions, the Australian industry statistics to date (as at July 2014) are impressive and reflect the recorded experience of a variety of international legal and cultural systems:
- More than 80% of DB projects have finished on or ahead of time compared to the industry norm of well under 60% for similar value projects without DBs. The majority of DB projects have also been completed within the Owner’s budget.
- Less than 5% of DB projects have been more than 3 months late, compared to the industry norm of more than 25% for similar value projects without DBs.
- Just under 80% have been completed without a single referral to the DB, compared with an industry norm for projects without DBs of less than half that percentage completed without off-site dispute resolution processes being invoked.
There is a growing awareness that the unique advantages of the DB process are not limited to construction projects and have wide application in any commercial contract with elements of uncertainty and/or where the contract work is to be conducted over a considerable period of time.System.String