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Can Adjudication assist Abu Dhabi in achieving its Sustainability (Estidama)

goals for the construction industry?Presentation by:

Paul Straker FCInstCES, FRICS, FICE, MCIArb

October 2012

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Credit to Others – Citations(?)

Kindly note that throughout thispresentation; I cite other eminentprofessionals, by cross reference to abibliography at the end of thepresentation notes(?).

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(1)

Adjudication!

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(2)

Estidama!

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(3)The ICES survey 2012

on Dispute Resolution!

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How do these 3 relate?

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My Hypothesis!

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“I assert that Adjudication can significantly assist Abu Dhabi in

achieving its Estidama(sustainability) goals for the

construction industry”

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The results of the ICES disputeresolution survey for Abu Dhabi2012, support my assertion!

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HOW?

First some background information.

An Overview of Adjudication,Estidama & key findings from thedispute resolution survey.

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What is Adjudication?

• “A process whereby the [neutral third party]

adjudicator who may not be a lawyer has to

reach a decision on matters referred to him

[by] the complaining party”. (1.1)

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Who is the Adjudicator?

• Either a single suitably qualified andexperienced person / adjudicator.

• Or a dispute adjudication board (DAB),comprising of 3 suitably qualified adjudicators.

• Appointed as a standing adjudicator/DAB atcommencement of the project; or on an ad-hoc basis; by the parties to the contract.

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What is an Adjudicator’s Decision?

• After a dispute (rejection of a clearly definedclaim) has been referred to the adjudicator for hisdecision thereon.

• The adjudicator, acting fairly and impartially, shalladopt suitable procedures, to make his reasoneddecision within a limited time (usually 3 months).

• The adjudicator’s decision will be contractuallybinding; unless and until revised in an amicablesettlement or an arbitral award.

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What are the alternatives?• In Abu Dhabi Arbitration is the preferred

method of dispute resolution!

• However, the Abu Dhabi Commercial,Conciliation and Arbitration Center (ADCCAC)also offer Conciliation prior to Arbitration.(3.0)

• Other potential options: Negotiation;Mediation; Early Neutral Evaluation; ExpertDetermination; Litigation.

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Dispute Resolution Options• The following are the more commonly used

Alternative Dispute Resolution (ADR)methods.

• Discussed in order, from simple inexpensivemethods, to the more complex, legalistic andincreasingly expensive methods.

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Negotiation ADR Litigation

Negotiation• Theoretically gives the parties most control

over the dispute resolution process.

• Without the intervention of a third party: “…typically consists of a sequence of proposals …and counter proposals … that continue untilagreement is reached or negotiations breakdown …”. (1.2)

• Negotiations often break down!

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WHY?

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Negotiation cont’d• Here’s just one of many reasons; the human

ego and lack of negotiating skills:– “There will be many times that others would

gladly change their minds and agree with youexcept for one thing: …

– … they have already made a definitecommitment, … and cannot change position ingood grace …

– … Skillful persuaders know how to leave the dooropen so that others can escape from theirprevious position without losing face .…”. (5.0)

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Mediation• The least adversarial dispute resolution

method; utilizing skilled persuaders!

• “… the facilitation, by a third party, of anegotiated agreement … in which themediator does not decide the dispute, butfacilitates communication and problem-solving by the parties”.(1.3)

• The optimum solution?

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BUT WOULD IT WORK?

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Conciliation• Utilizes similar techniques to Mediation, except:

• Its more formalized; no meetings without bothparties present.

• Results in a settlement proposal, made by theconciliator.

• Its a means of amicable settlement.

• Non-binding on the parties; therefore open tofurther dispute!

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Early Neutral Evaluation• Provided by an independent third party: “… an

early, frank and thoughtful evaluation of therelative positions of the parties …”;(1.4)

• “… to enhance the prospects of a successfulnegotiation …”;(1.4)

• “… by offering a realistic view of what mighttranspire if a case is fully prepared and tried”.(1.4)

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Expert Determination• Used where the parties have appointed a third

party expert and: “… submit an issue for thedetermination of a third party …”.(1.5)

• Its “used primarily in disputes of a technicalnature which require … an opinion on aspecific issue or issues”.(1.6)

• The parties may agree in advance, to becontractually bound by the determination.

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Adjudication• Discussed earlier: internationally proven;

used by the Multilateral Development Banks(incl. the World Bank); on projects worldwide.– FIDIC MDB Harmonised Construction Contract 2010; and

throughout the FIDIC suite of contracts.

• Limited cost, similar to conciliation (typicallybetween 0.2% - 0.5% of construction costs).

• Reaches an impartial and contractuallybinding decision; usually within 3 months.

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Adjudication cont’d• “The DB procedure amounts to serial adjudication

… over 90% of disputes referred to a DB will notgo beyond that procedure into arbitration orlitigation …”.(Dr. Robert Gaitskell QC CEng).(4.0)

• Speedy resolution; thereby facilitating the works,enhancing cash-flow and project delivery.

• Disposes of the argument, before tensions build;thereby preserving business relationships.

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Arbitration• An independent, impartial and finally binding,

private dispute resolution process; provenworldwide.

• Typically the default method, after the client’sown dispute procedure in the UAE; and thefinal method under FIDIC contracts.

• Award is enforceable in many countries(pursuant to the New York Convention); thereforemay be attractive to foreign parties.

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Arbitration cont’d• Takes many months or 1 – 2 years to reach a

resolution.

• Formal, adversarial, typically with only oneArbitrator in UAE.

• Heard in private; but may still damagebusiness relationships.

• Similar cost to litigation; and substantiallymore than any of the foregoing methods.

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Litigation• Not a form of ADR, but mentioned here to put

ADR in context.• Settlement of the dispute through the courts.• A judicial process that is finally binding;

subject to appeal.• May not be enforceable outside the UAE

jurisdiction; therefore may not be attractive toforeign parties.

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Litigation cont’d

• May take many months or years conclude.

• Costs similar to Arbitration.

• Public hearing that may damage reputations.

• Can result in a breakdown of businessrelationships.

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Estidama!

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What is Estidama?• Estidama is Arabic for Sustainability!

• But with a difference.

• It is comprised of 4 fundamental pillars:

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Environment Economic

Cultural Social

Integration at its core!

• Estidama integrates the 4 pillars.

• What are its expectations of the constructionindustry?

• “To achieve significant environmental, social,economic and cultural benefits, while ensuringthat the costs of the development areminimized.”(2.1)

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Pearl Rating System for Estidama

• A green building rating system.

• Launched by ABU Dhabi UPC in 2010.

• Mandatory for all construction projects.

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Comprises

• Mandatory and optional sustainability requirements, to achieve:

– Minimum One Pearl Rating for all developments.

– Minimum Two Pearl Rating for government developments.

– The maximum is Five Pearls.

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How?

• “An essential part of the strategy for achievingEstidama is to fundamentally change the waywe approach design, construction and realestate development”.(2.2)

• To achieve Pearl Credit Points, under the PearlRating Categories.

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Pearl Rating Categories(2.4)

• Integrated Development Process

• Natural Systems

• Livable Buildings

• Precious Water

• Resourceful Energy

• Stewarding Materials

• Innovating Practice.

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Integration

• Has the potential to benefit fromAdjudication.

• Integrated Development Process:

• “Encouraging cross-disciplinary teamwork todeliver environmental and qualitymanagement throughout the life of theproject”.(2.5)

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Innovation

• Has the further potential to benefit fromAdjudication.

• Innovating Practice:

• “encouraging innovation in building designand construction to facilitate market andindustry transformation”.(2.6)

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Estidama• I propose to you; that Adjudication would be

the most effective dispute resolutionprocedure; for Abu Dhabi, as it:– Integrates the team– Results in a contractually binding decision– Gives a quick solution at moderate cost.

• Adjudication achieves Integration and wouldbe regarded as Innovative at present times.

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Implementation• Currently the focus of the Pearl rating system

appears to be on design and construction.

• The benefits of adopting the most efficientdispute resolution process are not usuallyconsidered.

• The UPC could help to facilitate the adoptionof adjudication; by awarding significant creditpoints for its demonstrable and beneficial use.

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How?

• “An essential part of the strategy for achievingEstidama is to …

• fundamentally change• …the way we approach design, construction

and real estate development”.(2.7)

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Comfort Break

• Help yourself to the refreshments.

Please wait until the end of thepresentation before completing thequestionnaire in your folder.

• We will continue in 10 minutes!

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Dispute Resolution Survey 2012

• Carried out between 14th June 2012 and 14th

July 2012.

• Issued by the ICES, RICS and associatedinstitutions in the UAE.

• Specific to the dispute resolution culture inAbu Dhabi.

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Survey Results Generally

• Unless stated otherwise; the results in thispresentation, are expressed in terms ofpercentages of the combined results of allrespondents.

• Fractions of percentages and the “It Depends”category are not shown, for clarity. Therefore,the sum of the following percentages, doesnot add up to 100% .

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(1) Survey Results

• 31 survey returns were made by the closing date;comprising:

• The detailed results can be viewed now on theICES UAE web site; http://www.cices.org

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.

Clients - 21%

Contractors - 31%

Consultants - 48%

(2) Project Cost

• The majority of our projects cost in excess ofUS$ 100 million (AED 360 million).

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.Agree 61%

Disagree 6%

Sometimes 13%

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(3) Base Contract• A substantial proportion of projects use:

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0% 50% 100%

FIDIC 4th 1987

FIDIC 1999 R&Y

NEC3

Bespoke

68%

52%

3%

39%Agree

Disagree

Sometimes

(4) Dispute Resolution Procedures

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45%

3%

32%

68%

23%

29%

DAB or adjudicatoris appointed on anad-hoc basis.

DAB or adjudicatoris appointed atcommencement.

Agree

Disagree

Sometimes

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(4) Dispute Resolution Procedures cont’d

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74%

39%

16%

6%

39%

19%

13%

16%

48%

Employer's ownprocedures are used.

Mediation /counselling is used.

An independentexpert is appointed. Agree

Disagree

Sometimes

(5) Settlement of Disputes

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39%

35%

32%

29%

42%

26%

29%

23%

39%

The Engineer / CA actsfairly.

The Engineer / CA actsimpartially.

An amicable settlementis reached. Agree

Disagree

Sometimes

84% of Contractors disagree

64% of Contractors disagree

Majority 42% of Contractors disagree

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(5) Settlement of Disputes cont’d

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65%

0%

48%

3%

61%

26%

26%

32%

19%

Disputes are usuallysettled beforereaching arbitration.

Litigation is thepreferred method.

Arbitration is thepreferred method.

Agree

Disagree

Sometimes

But see later statistics!

(6) Disputes Relate to:

Contract74%

Specs68%

Variations74%

EOT97%

Design48%

Const29%

0%

20%

40%

60%

80%

100%

120%

Type of Dispute

Contract

Specs

Variations

EOT

Design

Const

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(7) Impact of Disputes

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48%

32%

58%

19%

16%

13%

13%

32%

19%

Increased costs morethan 10%.

Increased costs morethan 5%.

More than 3 monthsdelay.

Agree

Disagree

Sometimes

74% Contractors Agree

85% of Clients Agree

(8) Quicker Settlement of Disputes Would

Reduce Delay74%

Reduce Cost84%

Improve Design

32%

Improve Const32%

0%

20%

40%

60%

80%

100%

Agreed Impact

Reduce Delay

Reduce Cost

Improve Design

Improve Const

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Cognizance of previous questions

and answers!

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(9) Effective Methods of Dispute Resolution

Arbitration 16%

Mediation 61%

Adjudication 68%

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Litigation 0%

(B)DISPUTES

(C)COST

(A)TRUST

Summing up the Statistics

In my opinion, the key statistics fall under the following heads:

which I suggest are correlated with the dispute resolution procedure in the contract.

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Trust

• FIDIC contract is used, without the use of theadjudication provisions.

• Client’s own dispute procedure is mainly used.

• Engineer / CA; does not usually act impartially;and sometimes acts unfairly.

• The lack of impartiality by the dispute resolver;leads to mistrust; a priceable Risk!

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Disputes

• Disputes mainly relate to:– Extension of time.– Interpretation of contract.– Valuation of variations.– Interpretation of drawings & specifications.

• Which are all interrelated; resulting in risks totime, cost and quality.

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Cost to the Parties

• Projects typically cost more than U.S. $100million.

• With delays of more than 3 months; due todisputes.

• and increased costs of 5% - 10%; due to disputes.

• That’s a Substantial Loss!

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Cost to the Environment

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One of the many costs: With an estimated annual construction

expenditure for Abu Dhabi in 2011, of U.S. $100+ billion; funded

substantially from oil revenue, at $80 per barrel; based on the dispute

statistics, this equates to around 100+ million barrels of oil, consumed due

to disputes, in just one year!

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Dispute Resolution

• Arbitration is not the preferred method.

• A quicker settlement of disputes would reducedelays and cost; as well as improving the qualityof design and construction.

• Adjudication would be the preferred method forsettling disputes.

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Adjudication

• Settles disputes impartially and quickly, whichbuilds trust; resulting in time and cost savings,as well as improved quality.

• Is contractually binding, giving certainty.

• Achieves Estidama’s tenets of Integration andInnovation, at reduced cost; as well as beingthe preferable method of dispute resolution.

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Reflection

“We need not all agree, but if wedisagree, let us not be disagreeable inour disagreements” (Martin R.DeHaan).(6.0)

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Closing Thought

• “An essential part of the strategy forachieving Estidama is tofundamentally change …” (UPC).(2.2)

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Conclusion• Does my Hypothesis stand?

• Based on my research and the findings of thedispute resolution survey; I maintain myassertion that:

• “Adjudication can significantly assist AbuDhabi in achieving its Estidama goals!”

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End of Presentation

Please return the questionnaire with your opinions; before you leave.

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Questions

IntegrationLearning

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Afterward

• Your response will form part of an article onthe survey and following CPD presentation; tobe published in the ICES Civil EngineeringSurveyor magazine. This article will also beused as part of my dissertation for a MastersDegree in Construction Law and Arbitration.

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Bibliography• Kindly note the following that have been cited

throughout this presentation:– (1.0) Crook JA & Betancourt JC, What is Alternative

Dispute Resolution (ADR)? (CIArb, London WC1A 2LP,2010).• (1.1) Ibid. @ p. 5; citing, Reynolds, Michael et al.

Construction Litigation Practice, (Welwyn Garden City, 2000,p.57.

• (1.2) Ibid. @ p. 19; citing, Forgas Joseph ‘On Feeling Goodand Getting Your Way: Mood Effects on NegotiatorCognition and Bargaining Strategies’, (1998) 74 Journal ofPersonality and Social Psychology, p. 565.

• (1.3) Ibid. @ p. 15; citing, Menkel-Meadow, Carrie, ‘LawyerNegotiations: Theories and Realities-What we Learn fromMediation’, (1993) 56 Modern Law Review, p. 372.

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Bibliography cont’d– (1.0) Crook JA & Betancourt JC, What is

Alternative Dispute Resolution (ADR)? ; cont’d• (1.4) Ibid. @ p. 5; citing, Levine, David, ‘Early Neutral

Evaluation: A Follow-Up Report’, (1986) 70 Judicature,p. 237.• (1.5) Ibid. @ p. 9; citing, Jones, Doug, ‘Expert

Determination in Commercial Contracts’ in Cato, Mark,The Expert in Litigation and Arbitration (London, 1999),p. 789.• (1.6) Ibid. @ p. 9; citing, Wright, Ian, et al. ‘Alternative

Dispute Resolution’ in Ramsey, Vivian et al.,Construction Law Handbook (London, 2009), p. 905.

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Bibliography cont’d– (2.0) Abu Dhabi Urban Planning Council (UPC),

The Pearl Rating System for Estidama, Version 1.0(UPC, Emirate of Abu Dhabi, April 2010).• (2.1) Ibid. @ p. 14.• (2.2) Ibid. (emphasis added).• (2.3) Ibid.• (2.4) Ibid. @ p. 1.• (2.5) Ibid.• (2.6) Ibid.• (2.7) Ibid. @ p. 14. (emphasis added).• (2.8) Ibid.

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Bibliography cont’d

– (3.0) Abu Dhabi Commercial Conciliation andArbitration Center (ADCCAC), ProceduralRegulations 2005.

– (4.0) Gaitskell R QC, Trends – dispute resolution inthe credit crunch (Construction Law InternationalJournal, Vol. 6, issue 3, October 2011) @ p. 6-12.

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Bibliography cont’d

– (5.0) Giblin L, The Art of Dealing With People(Embassy Books, Mumbai 400 023, 2001); at p. 48.

– (6.0) Taddeo D, Notable Quotables “3,000Quotations from A to Z” (Creation House Press,Florida 32746); at p. 39.

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DisclaimerThis survey and/or presentation material may not beused for any commercial purposes whatsoever. Theopinions expressed in this survey and/orpresentation, do not necessarily reflect the views ofthe Chartered Institution of Civil EngineeringSurveyors (ICES), its Council of Management orother committees or members, or those involved inconducting the survey. No material may bereproduced in whole or in part without the writtenpermission of the ICES.

END.

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