Dispute Review Boards to the Rescue

Vol. 15 No. 4

By

(*See "About the Author" below)

What does your client want from its construction projects? If your clients are like my former clients, which were large local governments building massive infrastructure projects, your clients want their projects to be completed within budget, on time, without aggravation, and without lingering claims and disputes. And, if you are like me, you hope that your advice to your client adds value to its projects, allowing your client to build smarter and more efficiently at less cost.

But unexpected “stuff” happens on construction projects. Over the last several decades, owners, designers and contractors have experimented with a variety of project delivery methods in an effort to reduce the claims and the adverse impacts arising from unplanned or unexpected events that occur during the progress of the work.  Design-build, construction manager at risk, construction manager not at risk, co-location (“The Big Room”), and integrated project delivery systems are some of the more common variations that have been implemented in the continuing search for the smoothly-running project.

In my experience, well-implemented dispute review boards (a/k/a Dispute Resolution Boards, Dispute Boards, Dispute Avoidance Boards, or DRBs) offer the best opportunity to minimize disputes and mitigate adverse impacts to projects.

How Do Dispute Review Boards Work?

At first blush, a Dispute Review Board looks like an arbitration panel - three industry professionals selected by the parties (typically the owner and the contractor) for their experience, their independence, their commitment to the project (not to any party to the contract), and their training as mediators, arbitrators and as well as Dispute Board members, who have disclosed their prior relationships to both parties, constitute the Dispute Board.  But first impressions can be deceiving; although a Dispute Review Board can convert to an (typically non-binding) arbitration panel if the problems encountered on the project prove to be intractable, a well-run Dispute Review Board operates in real time to:

  • motivate the parties
  • to collaborate
  • to mitigate the adverse impacts of unplanned events that occur during the progress of the project
  • before the unplanned event occurs, and
  • before the parties react to the unplanned event without coordinating their efforts.

The best use of a Dispute Review Board is as an enhancement and support to your project management team; it facilitates communications among the owner, designer and contractor which allow them to address unplanned events before someone makes an expensive move.  In fact, there is a growing trend in Australia, New Zealand and the USA to call Dispute Review Boards “Dispute Avoidance Boards” or “Dispute Avoidance Panels.”  Dispute Board input is best introduced before a dispute arises, before any money has been spent to address unplanned events; otherwise, it’s just an expedited arbitration process.

Why Do Owners Use Dispute Review Boards?

Owners implement Dispute Review Boards (i) to avoid claims, particularly massive claims at the end of jobs asserting difficulties from the early project stages, (ii) to minimize impacts on the project schedule due to unforeseen conditions or unanticipated late changes in the scope of the work, and (iii) to maintain predictability over the use of available funds. Including a DRB in the contract also helps to attract and increase competition. Some of the internationally owned, large infrastructure contractors are hesitant to bid on a project that doesn’t have a Dispute Review Board.  

Often, when a staff member of an Owner directly has experienced litigation on a prior construction project, that staff person will encourage the Owner to include a Dispute Review Board in subsequent projects.  Whether the Owner won or lost the prior litigation is immaterial; the staff is eager to avoid further litigation.  In order to advocate for the inclusion of a Dispute Review Board in the contract terms and conditions, a public Owner’s staff person must be comfortable that the Dispute Review Board is within the boundaries of best construction practices and that it would be a prudent expenditure of public dollars. 

There are a number of qualities that Dispute Review Boards offer that are attractive to Owners:

  • Effect Future Behavior: Unlike mediation, arbitration, conciliation, litigation, standing neutral, and early case evaluation services, Dispute Review Boards offer the opportunity to impact future behavior on a project.  Neither mediation nor arbitration offers the parties this benefit, because these processes evaluate past behavior; in contrast, Dispute Review Boards offer options for future action. 
  • Elicit Cooperation: Unlike traditional “partnering” arrangements, Dispute Review Boards can convert into arbitration panels, either binding or non-binding, and so, are more effective than traditional partnering programs in eliciting cooperation among the parties and resolving the disputes.
  • All Stakeholders Can Participate: Stakeholders who are not direct parties to the construction contract can participate in Dispute Review Board meetings.  These participants can include subcontractors, tenants and lenders.  Participation by these stakeholders in the Dispute Review Board process enables consensus to be reached with all interested parties in a single forum to benefit the project.  Particularly, in renovation projects, affected parties, besides the Owner and Contractor appreciate the opportunities to hear and to be heard before decisions are reached that affect their business operations. (For example, will the recovery schedule involve night work, or closing a section of the building for a limited time?)
  • Validation of Owners’ Decision: In the context of a hierarchical bureaucracy (which can impose oversight by elected officials, administrative supervisors, auditors, outside funding agencies and Boards) a Dispute Review Board offers independent, neutral and competent validation of decisions by the Owner’s staff to pay for extra work during the progress of the project.  An owner’s representative that has considered the input of a Dispute Review Board is less likely to be accused of unnecessarily folding to a contractor’s demands.
  • Projects are More Collegial: Projects with Dispute Review Boards have a jobsite ambiance that is more collegial and less adversarial than traditional projects.  No Owner wants to have the job that the contractor hates to work on. 
  • No Surprise Claims: Surprise claims are almost eliminated.  Job conditions are discussed regularly, and a Contractor’s failure to raise a significant job condition at Dispute Review Board meetings can lead to a waiver or abandonment of claims arising from prior impacts it failed to disclose to the Owner. 

Consideration of these factors can convince an Owner who has no experience with Dispute Review Boards to try a “pilot” project.

The Mechanics

A Dispute Review Board is formed by contract.  The Dispute Review Board Foundation has sample forms on line (www.drb.org), and ConsensusDocs recently issued a DRB Addendum, which was crafted with the assistance of several Forum members. 

Typically, a Dispute Review Board panel consists of three members, although smaller projects (costing less than $10 million) may have a single panelist.  Ideally, Dispute Review Boards panelists are all jointly selected by the owner and the contractor, but when necessary, each party can select a single panelist, who then immediately becomes neutral, and those two party-selected panelists can select the third panel member.

Each panelist is individually engaged by contract at an hourly or daily rate.  Sometimes the cost of regular meetings is shared between the owner and contractor, but often the owner pays all costs of regular meetings, and splits only the costs of dispute hearings, should any be needed.  Another option is to include an allowance in the contract for the DRB costs. The engagement should provide that panelists may not be called to testify in any subsequent arbitration or litigation proceeding. 

Effective Dispute Review Boards meet monthly as a supplement to the regular project executive meetings; it is not necessary that a separate meeting be scheduled for regular Dispute Review Board meetings (as distinguished from formal dispute hearings). Half-day meetings can be sufficient, especially for smaller projects. Depending upon the project duration and the amount of activity going on, Dispute Review Boards may meet quarterly but they shouldn’t meet less often than that. Conversations that take place during these monthly meetings are often deemed confidential settlement negotiations to encourage an open exchange of information and ideas from all participants, so that an optimal plan forward can be agreed upon. At its regular periodic meetings, a Dispute Review Board may be requested to offer informal oral “advisory” opinions.  All affected stakeholders should be invited to attend these monthly meetings, including major subcontractors and tenants. 

Postponing or cancelling regular Dispute Review Board meetings until a “dispute” arises is counterproductive and squanders the opportunity for the Board to facilitate avoidance or mitigation of adverse impacts to the project.  You know what they say about spilled milk….

The initial meeting should convene before construction commences and should include a joint training session for all affected project team members—the owner’s staff, the designer’s project group, the construction manager’s team, the general contractor’s project administrators, and representatives of major subcontractors, should all be in attendance. The training can be conducted by the Dispute Review Board members or by an outside trainer who is familiar with best practices of Dispute Review Board operations. 

Most projects with Dispute Review Boards never need to hold a formal hearing.  The written recommendation of the Dispute Review Board may be binding or non-binding.  The trend in the USA is for written recommendations of the Dispute Review Board to be non-binding. The contract may provide that written Dispute Review Board recommendations are admissible as reports of jointly selected experts, or that the recommendations are inadmissible in subsequent arbitration or litigation proceedings.  My preference is for non-binding, admissible recommendations.

Panel Selection

Panelists are selected for their personal and professional qualities. They must be sufficiently experienced in the type of work required by the contract so that they bring value to the table as trusted mentors and technical resources for the project team (usually engineers, and sometimes construction lawyers). Additionally, they should possess the interest, training and temperament to facilitate a project with humor and calm professionalism. Prospective panelists should commit to be available to convene on the schedule that the project demands, and should not be so busy that meetings are delayed or postponed to accommodate panelists’ schedules. I prefer prospective Dispute Review Board panel members who are trained mediators and arbitrators, as well as trained and experienced Dispute Review Board members. Facilitative skills are valuable for the regular meetings, and in the event that a formal hearing is needed, administrative management skills will be crucial for Dispute Review Board members.

The Dispute Review Board works well only when the parties trust the panel.  It is critical that panelists maintain actual and the appearance of impartiality and neutrality.  Ex parte communications are strictly prohibited, including written, electronic and verbal communications.  Similarly, and as distinguished from a mediation process, private caucuses with a single party are also prohibited.

Prior to selection, prospective panelists disclose past and current relationships that could give rise to a perceived conflict of interests, or that could indicate a lack of neutrality with regards to members of the project team. These disclosures are similar to those made by prospective mediators or arbitrators.

Training and experience in Dispute Review Board proceedings is helpful, for the project team members as well as for the Dispute Review Board panelists. Often at the first meeting of the Dispute Review Board the panel will conduct a training session with all members of the construction team (owner, designer and contractor representatives together) so that all parties and panelists share a common understanding of the role of the Dispute Review Board. Alternatively, an owner may engage a consultant to train the construction team about the nature and operations of Dispute Review Boards. 

What Does a Dispute Review Board Cost?

The cost of the Dispute Review Board is fixed, and depends on the frequency of the meetings and the length of the project. While the compensation of a Dispute Review Board varies from project to project, fees in the neighborhood of $2,000 per day per member are not uncommon. Other costs are insignificant; project records are provided to panel members electronically. A Dispute Review Board holding no formal hearings might cost approximately $75,000 per year.  On smaller projects, half-day meetings may be sufficient, at a lower cost.

While it is common for the costs to be shared equally between the parties, but some owners prefer to pay the entire cost of regular Dispute Review Board meetings, and only dispute hearing costs are shared by the contractor. The cost of a formal hearing approximates the cost of an arbitration proceeding, but without discovery.

Florida Department of Transportation calculates that it spends less that 0.1% of a project cost on its Dispute Review Board, but avoids spending millions of dollars in attorneys fees, consultant fees, and lost staff productivity by using Dispute Review Boards.

Why Do I Like Dispute Review Boards?

As an Assistant County Attorney for Miami-Dade County, I wrote my first Dispute Review Board contract provisions about 10 years ago in connection with a new performing arts center project costing roughly $450 million.  The County staff was generally familiar with the concept of Dispute Review Boards, but no one within the County, including me, had any actual direct experience with dispute boards.  I found some model dispute board contract provisions online, and modified them, and I made some poor choices in drafting the contract.  As a result, the staffs of the owner, designer and contractor and their lawyers (including me) found themselves in monthly arbitration proceedings.  These arbitrations addressed stale disputes, and diverted attention of the project team from the current issues on the project.  The process was so painful that the parties later agreed to delete the Dispute Review Board. After that experience, I began to educate myself about best practices in the operation of dispute boards. 

My second project using a Dispute Review Board was a completion project for an international terminal expansion at Miami International Airport North Terminal, which had a construction value of just under $2 billion. Initially the project had been developed by a tenant airline, but the project stalled.  The County took over the completion of the project, and procured a new construction manager to complete the project while the Terminal remained open and fully operational.  Numerous unknown existing conditions lurked both above and below ground. Yet, the North Terminal project finished with no claims, no mediations, no arbitrations, and no litigation.  In 2011, the project won the Gold award from the Construction Owners Association of America for exemplary contract administration.  Coincidentally, at the same time, the County was building a new South Terminal with the same construction manager.  Although it was a smaller terminal (under $1B) and a Greenfield project, the South Terminal experienced massive claims with ensuing litigation.

Lessons I Learned: My First Dispute Review Boards

In drafting the Dispute Review Board specification and operating procedures for the Performing Arts Center, I made a number of structural mistakes.  The impact of those errors was compounded by the flawed implementation of the Board process.

First Project: Flawed Structure Poorly Implemented

The performing arts center Dispute Review Board process was structured in a way that reflected mistaken underlying assumptions. I had assumed that a “stepped” process, similar to the standard partnering protocol, would be helpful.  So, I wrote into the contract a process that required a demand for compensation or performance to be formally presented to the other party and rejected before an issue could be discussed with the Board.  Then, the issue had to be addressed by the project executives, and mediated, before it could be considered by the Dispute Review Board. Only then could the Board address the dispute for the first time. 

I couldn’t have been more wrong. The stepped structure turned out to be burdensome and ineffective.  By the time mediation commenced on an asserted claim, the parties had already assumed entrenched adversarial positions. Each and every mediation ended in an impasse. The dispute presented to the Dispute Review Board was always stale and festering, having been a source of irritation to both parties for months before the Dispute Review Board first heard about it.  No “real-time” intervention by the Dispute Review Board was possible under my Dispute Review Board specification because the process design prevented it.

The one element of Dispute Review Board activity that we did properly was to select Board members who were trained, experienced and had the appropriate demeanor and technical skills to evaluate project situations. But, it took us so long to agree to agree on the panel members that they were not empanelled until months after the contract was awarded. By that time, the entire pre-construction phase had passed, the underground structures were in place, and the building was above the first story before the Dispute Review Board met for its initial introduction to the project. Any opportunity to get ahead of issues with the Dispute Review Board’s assistance was squandered.

The attorneys choreographed all presentations to the Dispute Review Board, and filtered information furnished to the Dispute Review Board members.  Massive submissions to the Board, filling several binders, were offered before each monthly meeting. Paid consultants, who had no direct contact with the project, but who had formed conclusions from the project records, made elaborate presentations, rather than the actual field personnel with personal knowledge.  Each monthly Dispute Review Board meeting contained a formal hearing and became, in effect, a monthly arbitration for work activities completed long ago. The Dispute Review Board found itself looking backwards at the job, and had little time or opportunity to impact future events. 

Second Project: Addressed Today’s News, Not Yesterday’s History

The project team, including the owner, designer and contractor, established the agenda for the Dispute Review Board meetings, which mirrored the current weekly project meeting agenda.  Eventually, the project executives arranged to meet in advance of a scheduled Dispute Review Board meeting, and worked out their issues, so they could advise the Dispute Review Board that there were no pending disputes and the project was progressing satisfactorily.  Dispute Review Board members acted as a sounding board for proposed solutions to accommodate or work around unexpected difficulties encountered on site.

The Dispute Review Board was maintained as a project management tool, not reserved as a weapon of mass destruction. The Airport specification provided that attorneys were not anticipated to attend Dispute Review Board meetings. From the start through completion, no attorney representing either the owner or the construction manager ever attended a Dispute Review Board meeting.  No formal dispute hearings were ever requested or held.

Growth of Dispute Review Boards

It is commonly understood that Dispute Review Boards were first used in the USA in the early 1970s. Initially a dispute board was implemented in the second bore of the Eisenhower Tunnel on an interstate highway project in Colorado.  That Dispute Review Board acted as a standby and expedited arbitration panel, and was so successful that the use of dispute boards spread throughout the tunneling sector of the public construction industry.  From there, the uses of dispute boards became common practice in highway construction across the nation, and eventually came into use in “vertical”, or architectural, construction projects as well.  Since 1975, several thousand projects have used Dispute Review Boards in the United States.

While these projects initially included reactive adjudicative boards, whose primary objective was to provide rough justice on an expedited and inexpensive basis, the growing trend and better practice in the United States is toward proactive Dispute Review Boards whose primary purpose is to mitigate and to avoid disputes altogether. 

The University of Washington, an early adopter of Dispute Review Boards in vertical construction projects, reports that during the past twenty years, it has completed approximately 60 projects having an aggregate dollar value of $6 billion US that utilized Dispute Review Boards. During that time, it experienced only two formal dispute hearings, and four informal dispute hearings, no arbitration and no litigation in its capital development program.  Such anecdotal evidence from satisfied owners is a strong motivator to other owners to use Dispute Review Boards on their planned projects.

Parting Thoughts

Effective use of Dispute Review Boards has dramatically reduced the process costs of claims management efforts in thousands of projects over the past 30 years across the United States, and internationally. Dispute Review Board proceedings should be conducted to allow the Dispute Review Board to look forward to coordinate modifications needed due to unplanned project events, rather than merely using a Dispute Review Board to resolve disputes after they have already arisen.  Effectively implementing a Dispute Review Board maximizes the value for your clients. Dispute Boards can facilitate claims mitigation and allow your clients to avoid disputes on projects at a minimum cost.


*About the Author

Deborah Bovarnick Mastin is a construction attorney, arbitrator and mediator.  For more than 35 years she was Assistant County Attorney for Miami-Dade County and for Broward County, Florida where she represented public owners in connection with infrastructure projects, including County Hall, courthouses, museums, performing arts centers, transit facilities, power plants, and multi-billion dollar renovations and expansions at Miami International Airport and at Ft. Lauderdale-Hollywood International Airport. Deborah is a Fellow of the American College of Construction Lawyers and a member of the ABA Forum on the Construction Industry Governing Committee.  She is the Immediate Past President of the Dispute Resolution Board Foundation, Region 1 (USA and Canada), and was vice-chair of the ConsensusDocs DRB Addendum working committee. Deborah is an arbitrator and mediator on the construction panel of the International Institute of Conflict Prevention and Resolution, the American Arbitration Association and the International Centre for Dispute Resolution, and has facilitated various AAA mediation and arbitration training courses. She is a Florida Bar Board Certified Construction lawyer.  Her publications include: “ADR from the Owner’s Perspective”, Construction ADR deskbook,  to be published by the ABA;  “Managing the Risk of Building Defects,” Construction Defects deskbook, published by the ABA; and “Damages in Construction Litigation, ”Florida Civil Practice Damages", published by the Florida Bar.  She received her J.D. from Northeastern University School of Law and her Bachelors of Science from the MIT School of Architecture and Planning.


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