© phj chapman 2006 dispute resolution board foundation 6 th international conference 6/7 th may...
TRANSCRIPT
© PHJ Chapman 2006
DISPUTE RESOLUTION DISPUTE RESOLUTION BOARD FOUNDATIONBOARD FOUNDATION
66thth INTERNATIONAL INTERNATIONAL CONFERENCECONFERENCE
6/7th May 2006 Budapest
Dispute Boards – A new force to be reckoned with in
international construction. A brief overview
Peter [email protected]
© PHJ Chapman 2006
Recognised methods of methods of dispute resolution in dispute resolution in
constructionconstruction 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 forceDispute Boards – a new force
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 Real-time influence on the project
© PHJ Chapman 2006
Dispute Boards – a new forceDispute Boards – a new force
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 Dispute Boards International AdjudicationInternational 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 Some history of the DB processprocess
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
© PHJ Chapman 2006
History (cont’d)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”
© PHJ Chapman 2006
History (cont’d)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
© PHJ Chapman 2006
FIDIC –International FIDIC –International Federation of Consulting Federation of Consulting
EngineersEngineers
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
© PHJ Chapman 2006
FIDIC (cont’d)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)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
© PHJ Chapman 2006
World Bank makes changesWorld 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.
© PHJ Chapman 2006
ICC –ICC –International Chamber of International Chamber of
CommerceCommerce 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)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
EuropeEurope
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
© PHJ Chapman 2006
Dispute Boards – a new forceDispute 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?
© PHJ Chapman 2006
Dispute Boards – a new forceDispute 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.
© PHJ Chapman 2006
Dispute Boards – a new forceDispute Boards – a new force
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 forceDispute 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
© PHJ Chapman 2006
Dispute Boards – a new forceDispute Boards – a new force
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 forceDispute Boards – a new force
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 forceDispute Boards – a new force
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
spin-off value throughout contract/project Prevents a blame culture developing
© PHJ Chapman 2006
Dispute Boards – a new forceDispute 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
© PHJ Chapman 2006
Dispute Boards – a new forceDispute 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)
© PHJ Chapman 2006
Dispute Boards – a new Dispute Boards – a new forceforce
You know it makes sense!