Transcript SuperConference Pre-Arbitration Disputes

th
6
INTERNATIONAL
CONFERENCE
6/7th May 2006
Budapest
Dispute Boards – A new force to
be reckoned with in international
construction. A brief overview
Peter Chapman
[email protected]
© PHJ Chapman 2006
Recognised methods of dispute
resolution in construction
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Party negotiation (with or w/o facilitation)
Mediation/Conciliation
Adjudication
Dispute Boards
(early and ‘real-time’ dispute
avoidance/resolution)
Arbitration
Litigation
© PHJ Chapman 2006
Dispute Boards – a new force
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Job site ‘adjudication plus’ process
Members independent and impartial
Appointed from the start
Part of the construction process
Not an ‘add-on’ or ex post facto device
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Real-time influence on the project
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© PHJ Chapman 2006
Dispute Boards – a new force
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Publishes decisions – coercive
Jurisdiction by contract and maybe under
statute
Construction industry but others also
Long shadow, omnipresence – influences
behaviour
Dispute AVOIDANCE
© PHJ Chapman 2006
Dispute Boards
International Adjudication
3 principal areas of activity: Contracts developed for International
Projects financed by World Bank (WB) or
other Multilateral Development Banks
 Contracts developed by the International
Federation of Consulting Engineers (FIDIC)
 International Chamber of Commerce (ICC)
© PHJ Chapman 2006
Some history of the DB process
WB promoted a Dispute Board on El Cajon
hydro project in Honduras in 1980
 DB resulted in successful settlement of
disputes – WB grew to favour this approach
 1995 – WB Standard Bidding Document
published that used modified FIDIC
conditions – deleted the usual provision of
the “Engineer” deciding disputes, giving this
task to a Dispute Review Board (DRB), similar
to those being used at the time in USA
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© PHJ Chapman 2006
History (cont’d)
Disputes (that could not be settled
by the parties themselves) to be
submitted to DRB for a written
“recommendation” which, if no
objections within 14 days, became
final and binding
 In case of objections, parties free to
negotiate or, ultimately, “appeal”
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© PHJ Chapman 2006
History (cont’d)
WB required all borrowers of >US$50m to
establish a three-man DRB by contract
 Borrowers of between US$10m - $50m could
use a one-man board or Dispute Review
Expert (DRE)
 Other development fund banks, followed this
example
 WB retained these provisions until 2000
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© PHJ Chapman 2006
FIDIC –International Federation of
Consulting Engineers
Known as publishers of model forms used
for construction internationally
 1995 – Design-Build Turnkey form
published with a Dispute Adjudication
Board (DAB) – (3 man or 1 man board)
empowered to decide disputes referred
by either party
 NB “Decisions” were made interim
binding i.e., coercive, not merely
persuasive
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© PHJ Chapman 2006
FIDIC (cont’d)
 1999 – Three major FIDIC model forms published,
all involving DABs/DREs:
– Red Book: Conditions for Construction –
standing DAB (3 man or 1 man)
– Yellow Book: Plant & Design Build – ad hoc
DAB
– Silver Book: Engineer Procure & Construct
(Turnkey) – ad hoc DAB
© PHJ Chapman 2006
FIDIC (cont’d)
Standing Dispute Boards, from the
outset, brings the benefit of dispute
avoidance by their routine operations
 Ad-hoc boards formed only when
disputes arise – (apparently) justified by
the “design & manufacture” element
not giving rise to so many disputes
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© PHJ Chapman 2006
World Bank makes changes
2000 – New edition of Procurement of Works
which makes the “recommendations” of the
DRB or DRE coercive unless modified by the
award of an arbitrator
 2005 – WB (on behalf of all development
banks) engaged FIDIC to draft and publish a
harmonised set of conditions for use in
connection with all projects funded by the
World Bank and other lending institutions.
Determinations by the DB are coercive.
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© PHJ Chapman 2006
ICC –
International Chamber of
Commerce
 2002 – Task Force prepared draft rules for
Dispute Boards.
 Choice of 3 types available for users of ICC
documents:– World Bank “old” style DRB –
recommendations being persuasive only
– FIDIC / WB “new” style DAB – decisions
interim binding
© PHJ Chapman 2006
ICC (cont’d)
 Combined Dispute Board (CDB)– issues
recommendations (persuasive, not
immediately binding) BUT if requested by
either party or if the CDB itself believes
that a coercive decision is essential for
the good performance of the project the
CDB can issue a decision that is
immediately binding.
© PHJ Chapman 2006
Europe
Significant procurement of EU/ EIB /
EBRD / WB funded works utilising the
1999 FIDIC forms of contract and thus
requiring the establishment of DABs
 Traditional procurement
 Build and Construct
 Concession Contracts
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© PHJ Chapman 2006
Dispute Boards – a new force
Average 50% of all legal costs in construction
industry are dispute related
 In 10% projects 10% of total project costs
was legal cost.
 Plus hidden costs such as commercial
injuries, reputation, executive time and lost
opportunities. A better way for the future?
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© PHJ Chapman 2006
Dispute Boards – a new force
Early resolution makes good sense for all
parties as it creates CERTAINTY
 Dispute board unique in providing a forum
for regular, real-time, senior-level
discussions of matters of concern to parties
or supervisors leading to the avoidance of
disputes.
 Development of trust and confidence in the
members of the dispute board vital to
success.
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© PHJ Chapman 2006
Dispute Boards – a new force
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One, three or more members
All members acceptable to both parties
Default mechanisms – FIDIC, ICE lists
Balanced board, technical/legal
Multi-contract boards, wider panels,
specialist boards, standing ‘industry’ boards.
© PHJ Chapman 2006
Dispute Boards – a new force
Routine visits ensure a forum for discussion,
ensures board is conversant with the project
and can thereby act with alacrity,
confidence and full background knowledge
 No need to recreate historical events – the
DB has ‘looked down the hole’ and has the
contemporaneous information it needs
 The magic of the dispute board comes from
its early involvement and by its stimulation
of project communication
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© PHJ Chapman 2006
Dispute Boards – a new force
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Do they work?
98% of referred disputes end with the DB
Of the 2% remaining, half of the ‘appeals’
uphold the DB decision.
Of the 1% upset by the arbitrator/courts,
almost always due to procedural irregularity,
not on the substance of the decision
PLUS dispute avoidance value
© PHJ Chapman 2006
Dispute Boards – a new force
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Reality prevails – self imposed reality checks
by parties
‘Duals of Egos’ reduced
Fewer spurious claims advanced
Less acrimonious correspondence exchanged
Attitudes remain more positive
Behaviour controlled
© PHJ Chapman 2006
Dispute Boards – a new force
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Swings and roundabouts pragmatism
Fantasies do not turn into expectations
Cash-flow benefits and final cost certainty.
Programmes can be adjusted and agreed
Face saving dispute settlement that has spinoff value throughout contract/project
Prevents a blame culture developing
© PHJ Chapman 2006
Dispute Boards – a new force
Misconceptions:
 Why pay? – may not be needed. Insurance
policy, dispute avoidance, less than 0.2% of
project cost on a medium size contract.
 Why encourage claims – quite the reverse.
Issues settled, many DB contracts with no
formal disputes referred
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© PHJ Chapman 2006
Dispute Boards – a new force
But it is not final – no, but usually it is.
 Don’t pay retainers – just compare the costs
of bringing an arbitral tribunal up to speed
and that of retaining a dispute Board
 Many owners after reluctantly using a DB on
a major project will thereafter encourage
future use (Boston Central Artery, Ertan
HEPP)
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© PHJ Chapman 2006
Dispute Boards – a new force
You
know it makes sense!
© PHJ Chapman 2006