The Use of Dispute Boards in Construction

Andy Braine
Whilst there may be some issues about enforcement, there is no doubt that dispute boards are achieving remarkable success in major projects worldwide.

Essentially a dispute board is a contractual mechanism for avoiding and/or resolving disputes without employing the cost and time required for arbitration or litigation. The process falls into the collection of procedures generally described as 'ADR' – Alternative Dispute Resolution. Some dispute boards are like adjudication, whilst some bear more resemblance to conciliation. However, no dispute board process has the finality of arbitration or litigation.

Types of Dispute Boards

Dispute boards evolved in the US in the 1960s in response to the many legal cases in the construction industry. The idea started to spread internationally. In 1980, the Honduras Electricity Board embarked on the El Cajon Dam and Hydropower Project. The World Bank provided funds and successfully pressed for the appointment of a dispute board. Major disputes were avoided and the World Bank became enthusiastic. Its version of the standard The International Federation of Consulting Engineers (FIDIC) contracts, published in 1990, provided for a dispute board, and FIDIC itself followed suit in 1999.

As time has gone on a number of different types of dispute board have developed and they operate all over world. Closer to home they have appeared on the Dublin Port Tunnel, Docklands Light Railway, Channel Tunnel and Channel Tunnel Rail Link.

Some dispute boards are like adjudication, whilst some bear more resemblance to conciliation.

In 2011 it was reported that the value of projects using dispute boards was approximately US$140billion. Many disputes had been referred to them, and as a result very few had gone on to arbitration or the courts, saving vast amounts of money and time.

There are Several Different Models of Dispute Board:

Standing boards of three members - The contract may require a dispute board to be established at the very start of the project. This is known as a 'standing board'. Each party to the contract will appoint one member and the chairman will be appointed by the other two members or by the parties jointly. Each board member is appointed on the basis that they are to act impartially. Probably the best known example of contract provisions for a standing board can be found in the FIDIC 1999 Red Book. The board members receive regular progress updates and visit the site every few months. These visits enable the board to have a good understanding of the project, its progress and any difficulties in case a dispute arises.

Sole Member Boards - On smaller projects, particularly if they are not international, there may only be one board member. This has obvious advantages in terms of cost and is more manageable.

Multiple Member Boards – Very large projects may involve more than three members. For example, the Channel Tunnel Dispute Board had five members.

Ad-Hoc Boards - An alternative to the standing board is the ‘ad-hoc board’. This board is only appointed when a dispute arises. It may have three members or just one. The FIDIC Yellow Book includes provision for an ad-hoc board.

Standing Boards or Ad-hoc Boards?

Most proponents of dispute boards strongly argue that a standing board has substantial advantages over an ad-hoc board. This is mainly because of the greater depth of knowledge that the members acquire throughout the lifespan of the project and their ability to act swiftly. Parties can however be reluctant to incur the cost of retaining three professional people for possibly several years. If major arbitrations can be avoided however, such expense will be relatively modest compared to the legal costs saved.

Dispute Review Boards VS Dispute Adjudication Boards

These are both referred to as dispute boards, but they are quite different. The original US boards were dispute review boards, whose decisions were non-binding recommendations. The parties were able to ignore the recommendations if they wished.

Most proponents of dispute boards strongly argue that a standing board has substantial advantages over an ad-hoc board.

Those who favour dispute review boards say that they have many advantages over procedures that produce enforceable decisions. The process can be rather less formal with reduced cost and time for preparation. However, the adoption of the recommendation, which will have been obtained at some effort and expense, might never actually take place.

Dispute adjudication boards produce decisions that are binding on an interim basis, like UK adjudication. The FIDIC Red Book, for example, states that the parties shall promptly give effect to the board's decision unless and until it is revised in an amicable settlement or an arbitral award. Proponents of the dispute adjudication board model point to the advantages of an enforceable decision. The proceedings may be taken more seriously, leading to a more focussed approach which may in turn result in settlement. However, as with UK adjudication, the parties may feel that insufficient time is being devoted to the problem in order to produce a reliable result, and the costs can often be quite considerable.