The continued global rise of dispute boards
By Jeremy Glover, Partner, Fenwick Elliott
Back in 2017, the second edition of the FIDIC Rainbow Suite expanded the role of the dispute board, the new name, the Dispute Adjudication and Avoidance Board, a testament to the importance given by FIDIC to the dispute avoidance. Earlier that year, the NEC, when releasing NEC4, had introduced the option of dispute boards. The role of dispute boards has been reinforced by the series of agreements FIDIC has entered into with the multilateral development banks for the use of the FIDIC contract.
It is not just standard form contracts which are introducing dispute boards. In Brazil, legislation is moving through parliament, who regulates the use of Dispute Boards by the Public Administration. Whilst, in Chile, the first Pilot Program in Dispute Boards and Mediation in the Private Sector was launched in September of this year. If you are interested in learning more about the growth of dispute boards in South America, the DRBF is holding a Latin America Conference on 28 and 29 October 2021 (for full details, please click here).
In the UK, however, when the NEC introduced dispute boards, as the NEC made clear1, they were not compliant with, and not suitable for, use where the contract in question was subject to the Housing Grants legislation which provides for short-form 28-day adjudication. Whereas, in relation to the FIDIC Rainbow Suite, whether the DAB is standing (appointed at the outset of the project to follow its progress) or ad-hoc (appointed when the dispute arises), there are 84-days for the DAB to decide any dispute referred to it.
The other main difference is one of approach. Today, the idea behind DABs is that they follow the project and assist in avoiding and disputes; in the UK, an adjudicator is typically appointed once a dispute has arisen. The focus of FIDIC and the development banks is on the avoidance of disputes, and only make binding decisions where necessary.
In May of this year, the Joint Contracts Tribunal (“JCT”) (who worked together with the Chartered Institute of Arbitrators, (“CIArb”)) released the first Dispute Adjudication Board (“DAB”) Rules for use with the JCT Design & Build Contract and Major Project Construction Contract forms.
The JCT's aim is to:
"provide a framework for parties to identify and resolve potential disputes early on and to avoid costly litigation and damaging of project relationships".
Unlike with the NEC, the new DAB rules comply with the UK adjudication regime by providing for the DAB to take a proactive approach to dispute avoidance, whilst also enabling the DAB to conduct an adjudication, where necessary. As such, it is entirely in line with the movement along the road to dispute avoidance and facilitative contracting to achieve the completion of a project on time, avoiding (or, if necessary, resolving) differences as they arise and helping to ensure prompt payment and support for the needs of a supply chain.
Key features of the new DAB Rules
The aim of the new DAB Rules is to comply with the 28-day adjudication legislation but, at the same time, provide for the establishment of a DAB with the primary aim of dispute avoidance. The role of the new DAB is to assist the parties in the avoidance of dispute and also the timing and resolution of disputes.
As a starting point, the new DAB Rules are accompanied by a DAB tripartite agreement (TPA) which provides a means of contractually binding the contracting parties with the DAB member, or members, depending on the size of the DAB. Typically, DAB will comprise one or three members, although that is the choice of the parties. Those members must be able to comply with the impartiality and independence requirements of Article 5 of the new DAB Rules.
In many respects, the new DAB Rules are familiar to those who use the FIDIC or ICC options, as under the FIDIC Form, once the DAB is in place, it can only be terminated by the mutual agreement of both parties. The reason for this is to prevent a situation arising where one party becomes dissatisfied and unilaterally tries to bring the DAB to an end.
Again, as with FIDIC, the new DAB Rules provide a mechanism for default appointment and replacement of a particular member. Here, the CIArb, and not FIDIC, is the default appointing body. This is important to try and ensure that the DAB can run for the entire duration of the project in question.
In 20132, Mr Justice Akenhead said that:
“DRBs have become quite common on very substantial infrastructure type projects around the world, many of them involving hundreds of millions of dollars or more. They often comprise three members, one being chairman, who will keep a weather eye on the project as it goes along, with more or less regular meetings at the site. One of the main ideas of having DRBs is that they can look at disputes as they emerge and make recommendations to the parties with a view to ‘nipping in the bud’ such incipient disputes.”
Those words hold true today. Once appointed, the DAB and parties should hold regular meetings and site visits. Article 7 says every two months; on the FIDIC form, the suggestion is between 70 and 140 days. Communication is fundamental to the role of the DAB on any project. This enables everyone to get to know each other and build relationships. It also enables the DAB to gain an understanding of how the project was supposed to be going and what current progress actually is.
Article 9 of the new DAB Rules provides that the parties can request an informal advisory opinion at any time. Again, this concept can be found in the FIDIC form. Alternatively, the DAB may, on its own initiative, raise an issue with the parties, perhaps to try and encourage discussion of (or nip in the bud) an issue the DAB is concerned could become a dispute. This could be done during a site visit or in a written note to the parties. The idea behind the informal opinion is that it is just that: informal. No one is bound by it. It is not the same as mediation, and both parties should be involved in any discussion. The JCT and CIArb have given careful thought to the potential problems encountered in Glencot Development and Design Co. Ltd v Ben Barrett & Son (Contractors) Limited  EWHC (TCC) 15 where an adjudicator attempted to resolve an ongoing adjudication dispute through a mediation process and where HHJ Lloyd QC commented that:
“There are clearly risks to all when an adjudicator steps down from that role and enters a different arena and is to perform a different function. If a binding settlement of the whole or part of the dispute results, then the risk will prove to be worth taking.”
The key to avoiding these problems is transparency, and making sure that are no separate causes. Both parties should be involved in any discussions.
If a dispute arises, then either party may give notice of its intention to refer the dispute. This is similar to the FIDIC approach. However, where the new DAB Rules part company with FIDIC is in timing. In order to comply with the UK adjudication legislation, the referral is then served on the other party and the DAB within 7 days, and a decision is to be issued within 28 days3. This may represent a major challenge for some DAB members, who will need to be act with speed and flexibility to reach a decision in one not three months. Something to think about when selecting the right people to form the DAB.
The powers of the DAB comply and mirror the requirements of the UK Scheme for Construction Contracts, part of the adjudication legislation. Article 13 provides the DAB with the power to establish a procedure in relation to the making of a decision, to decide its own jurisdiction and call for a site visit or hearing. The DAB can take the initiative in ascertaining the facts and the law and may open up and review certificates, as well as make use of its own specialist knowledge and order the payment of money or other redress. Decisions are binding on the parties until the dispute is finally determined in the manner of UK statutory adjudication and the FIDIC DAB process.
The new DAB Rules are part of a global trend towards the adoption of a more collaborative approach to dispute avoidance. In the UK, the government, through the Construction Playbook4, endorsed the Conflict Avoidance Pledge5. That pledge includes the following:
“We recognise the importance of embedding conflict avoidance mechanisms into projects with the aim of identifying, controlling and managing potential conflict, whilst preventing the need for formal, adversarial dispute resolution procedures. We commit our resources to embedding these into our projects.
We commit to working proactively to avoid conflict and to facilitate early resolution of potential disputes.”
These are all features of disputes boards so it will be interesting to see whether parties agree to incorporate the new DAB Rules into their contracts. It may depend on the size, duration and complexity of the individual projects. For small, short projects, parties are likely to stick with the familiar adjudication-only approach, although the potential merits of being able to access real-time dispute avoidance advice should not be underestimated. However, it is clearly a positive step for parties to be able to consider adopting a dispute avoidance alternative to simply relying upon statutory adjudication.
- 1. NEC Practice Note 5 introduced in 2019 provided a Z clause for the use of a DAB which would comply with the UK adjudication legislation. However this DAB can only provide recommendations. Adjudications must be dealt with separately.
- 2. Mi-Space (UK) Ltd v Lend Lease Construction (EMEA) Ltd  EWHC 2001 (TCC)
- 3. This can be extended by agreement.
- 4. The Construction Playbook https://www.gov.uk/government/publications/the-construction-playbook
- 5. Conflict Avoidance Pledge https://www.rics.org/uk/products/dispute-resolution-service/conflict-avo...