Dispute resolution procedure

[edit] Introduction

In construction as in many other fields, disputes will arise during the course of a project. This is understandable given the usually long duration of construction projects, the complexity, uncertainty and the many parties involved, whether contractors, sub-contractors, suppliers, consultants or clients.

The way these disputes are handled and resolved is critical if minimal adverse impact in terms of cost, delay and disruption is to be inflicted on the project. That is why having effective dispute resolution procedures is an important way of minimising the impacts of disputes that cannot be resolved by discussion alone.

[edit] What can go wrong?

Construction contracts can generate a plethora of disputes but typically they can result from:

• The contractor claiming against the client due to a change to the scope of works previously agreed.
• The client claiming against the contractor for poor workmanship (defective works).
• Claims for non-payment of fees.
• Delays and cost overruns.
• Design deficiencies.

For more information see: Causes of disputes.

Circumstances such as those listed above might historically have been resolved in the courts. However, this can be a long, complex, adversarial, public and potentially costly process for all involved.

As a result, construction contracts usually include provisions for the resolution of disputes by agreed alternative dispute resolution (ADR) procedures typically involving mediation, adjudication and arbitration. These are generally less formal than court proceedings and should be faster, less expensive and less time consuming, allowing the parties to maintain a good relationship.

For more information see: Alternative dispute resolution.

Dispute resolution boards offer one procedure that can be used to resolve disputes.

[edit] Dispute resolution boards

Construction contracts may call for the setting up of a dispute resolution board (DRB) in the early stages of a project. The DRB typically comprises three members – two technical and one legal – and the aim is to ensure that it can fully understand any dispute without recourse to external advice. Essentially, the DRB can be likened to a project management tool that is used to ensure that the project remains on track, influencing the parties to the project to carry out their contractual obligations properly.

Once the members of the DRB have been appointed, the procedure should allow for regular visits to site, including time to deal with any differences that have arisen. This should also allow for less formal ‘opinions’ to be given by the DRB in respect of what could develop into potential disputes.

Where an opinion has been sought, the DRB may respond in writing (or orally if followed up in writing), and by that informal process the potential dispute may be avoided.

Embarking on the formal dispute procedure:

• If a potential dispute cannot be avoided by informal discussions, a formal dispute procedure will begin, requiring a written recommendation by the DRB.
• The formal procedure usually involves the dissatisfied party issuing a written notice containing details of the dispute to the other party and to the DRB. That notice may be dependent on timing should the contract so indicate. For example, FIDIC [1] only allows 28 days after the engineer’s decision in which to issue a notice.

Preparing claimant and defendant position statements:

• Having issued the notice, the claimant prepares a position statement in which they set out their legal and factual arguments, supported by evidence. On receipt, the defendant will prepare their position statement responding to the claimant’s narrative, setting out their arguments and the evidence relied upon.

Consideration of position statements:

• Having received the two position statements, the DRB will consider the matters raised. If necessary, the members of the DRB will meet before the hearing to discuss procedural or substantive matters.

Preparing for the hearing:

• The DRB will prepare a list of questions or further documents required so that the hearing will be able to deal fully with all matters arising. The hearing will normally be held within 30 days (15 days in the ICC rules) of the defence being served, usually at or near the project. The duration of the hearing depends on the complexity of the matters before the DRB, but it is very unlikely to exceed one week. In fact, most hearings do not exceed two or three days.

The hearing:

• The hearing follows the usual course: a submission by the claimant, a submission by way of reply from the defendant, with perhaps questions and points of clarification raised by the DRB.

After the hearing:

• After the hearing is brought to a close, the DRB will continue with its deliberations and a draft recommendation or adjudication decision will be prepared. This is necessary, as the three-person board will thereafter prepare their individual reports for later discussion and to finalise their recommendation or adjudication decision.
• Time is always critical in making a recommendation or decision, as the parties will be continuing with the works, and the decision needs to be known as soon as possible. In any event, the rules should place a time limit for the board to make its decision, subject to the claimant being able to grant the DRB a limited extension to that time if special circumstances arise which prevent a recommendation or decision being made in the prescribed time. The recommendation or decision will be produced by way of a written report.

The DRB’s decision:

• Where the board provides recommendations, these can be without sanction or a time limit. To provide certainty, a time limit can be prescribed for any written objection to be made by either party. If no objection is raised, then the recommendation can become binding on the parties. In any event, the recommendation or decision should be stated in the contract to be acted upon immediately it is published.

For more information see: Dispute resolution board.

[1] FIDIC: ‘Fédération Internationale des Ingénieurs-Conseils’ or ‘the International Federation of Consulting Engineers’) was founded in 1913. It is a membership organisation, with members comprising national associations of consulting engineers from 97 countries.

[edit] Related articles on Designing Buildings

• Adjudicators and bias.
• Alternative dispute resolution.
• Alternative Dispute Resolution legislation.
• Arbitration.
• Arbitration v Adjudication.
• Breach of contract.
• Causes of construction disputes.
• Compulsory Alternative Dispute Resolution.
• Conciliation
• Contract claims.
• Contract conditions.
• Dispute avoidance.
• Dispute resolution.
• Dispute resolution board.
• Expert determination.
• FIDIC
• How does arbitration work?
• Joinder.
• Pay now argue later.
• Pendulum arbitration.
• Mediation.
• PFIs and adjudication.
• The role of the mediator.
• The Scheme for Construction Contracts.