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    December 06, 2023

    The New AAA-ICDR Dispute Avoidance And Resolution Board Rules

    Adrian L. Bastianelli, III

    Dispute Resolution Boards (DRB) have been around since the 1980s under many different names, including Dispute Review Boards, Dispute Boards, and Dispute Adjudication Boards.  DRBs are a real-time process that is unique to the construction industry.  They avoid many of the trappings of litigation by eliminating discovery, cross examination, rules of evidence, direct participation by lawyers, and decisions by non-experts.  They have both a dispute resolution and dispute avoidance function.

    The Dispute Review Board Foundation (DRBF) is the premier body for education, procedures, and critical thought relating to DRBs.  However, the DRBF does not administer DRBs.  Typically, DRBs are administered by the owner.  That may work when all runs well but may not when the parties are at odds. 

    The American Arbitration Association and the International Centre for Dispute Resolution (AAA-ICDR) have developed new rules and procedures for the administration of DRBs.  In doing so, AAA-ICDR focused on the dispute avoidance aspects of the process, thus, the name Dispute Avoidance and Resolution Boards (DARB). 

    AAA-ICDR Function

    AAA-ICDR’s function in the DARB process is very similar to what it does in arbitrations.  It establishes and enforces the DARB rules, provides a roster of neutrals, assists in the selection of Board members, makes decisions regarding disqualification or replacement of Board members, implements the schedule, handles billing and commercial issues, and performs other administrative functions.  For this it charges $75 per hour of time billed by the Board Chair. 

    Selection of DARB Members

    One of the most important attributes of a DRB/DARB is the composition of the Board. For the Board to be effective, Board members must be neutral experts in construction who both parties trust and respect.  To achieve this objective, the starting point for selection of Board members under the AAA-ICDR Rules is a mutual effort to agree on all three Board members using the AAA-ICDR roster.  Since selection occurs at the start of the construction project, when the parties are in the honeymoon stage, the parties typically can agree on the Board members.  If the parties can’t agree, the rules require that the Board be composed of one member nominated by the owner and approved by the contractor, one member nominated by the contractor and approved by the owner, and a third member nominated by the first two members and approved by both the owner and the contractor.  The key is that both parties must approve all DARB members.  Finally, if the parties reach a stalemate in the selection process, the AAA-ICDR selects the members without the submission of additional lists.

    Challenges to a Board member’s continued service is determined by the AAA-ICDR.  In addition, when vacancies arise due to disqualification, resignation, inability to continue, or other reason, the AAA-ICDR may declare the office vacant.  The Board member will be replaced using the same procedures as specified for the original member selection.  The replacement process is important because Board members are appointed for the life of the project, not just individual disputes. 

    Periodic Site Visits

    The primary characteristic that distinguishes DRBs/DARBs from other forms of construction ADR is that, regardless of whether there are any disputes, the Board meets with the parties at the jobsite periodically, typically four times a year, to discuss the status of the work, schedule, payment and other commercial issues, and potential disputes.  The Board and parties then visit the worksite to observe the status of construction and potential areas of dispute.

    These periodic site visits have a major dispute avoidance function.  The regular, informal, and calm discussion of potential disputes, normally will spur the parties to work on resolving their disputes before the next meeting.  Seldom do the parties want to show up at the next meeting with the Board without having made progress on resolution of the disputes.  In addition, the opportunity to build a relationship with the jobsite personnel and observe the work on the periodic site visits puts the Board in a much better position to decide disputes if any are presented to them. 

    Formal Process

    Section 3 of the DARB contains the hearing rules and procedures for the formal hearing process.  Either party may refer a dispute to the Board for a formal hearing.  The hearings typically occur during the project’s construction and, therefore, quantum often is not heard.  The parties have no right to discovery, although Section 3.7 gives the Board the right to require a party to produce documents.  Typically, such a production will be very limited and specific.  Section 3.8 requires the parties to submit a statement of position that addresses entitlement, damages, delay, and relevant contract provisions, contains exhibits, and identifies testimony that will be offered at the hearings.

    The hearings are informal and non-adversarial, and the positions of the parties are often presented by the jobsite personnel.  Section 3.9 specifically provides that the “Board will not be bound by the any rules of evidence or burden of proof.”  The Board may permit the questioning of one party by another party, but only if it will facilitate the presentation or clarification of an issue in the dispute.  There is no right to cross-examination. 

    Pursuant to Section 3.12, a party may bring legal counsel or an independent expert to the hearing.  However, the lawyer’s role in the hearing is very limited.  Unless the Board determines otherwise, counsel may not directly examine or cross-examine witnesses, assert objections, make motions, or offer arguments. 

    Section 3.17 requires the Board to issue its recommendations within fourteen days after the hearings are closed unless otherwise agreed.  The parties can use the recommendations to settle the dispute, or even better, mitigate the damages.

    One controversial issue relating to DRB decisions in general is whether they should be binding or non-binding, and if binding, how binding.  If the decisions are subject to the same standard on appeal as an arbitration award, then parties will tend to treat the DRB proceeding as litigation/arbitration and want lawyers, discovery, cross-examination, and the other protections; just what DRBs are intended to avoid.  If the decisions are non-binding recommendations, there is less need for the trappings of litigation/arbitration.  But, if the decisions are non-binding, will the losing party accept the recommendations?  Experience has taught that persuasive recommendations from trusted experts selected by the parties who have seen the work and developed a relationship with the parties tend to carry considerable weight and help the parties resolve their disputes.  As a result, most DRB practitioners recommend non-binding recommendations. 

    AAA-ICDR has left this decision to the parties with certain restraints.  Section 3.17 gives the parties two options: “(a) non-binding or (b) binding on the Parties until overturned in a subsequent de novo dispute resolution proceeding.”  Which option applies is controlled by the parties’ contract or written agreement.  There is no fully binding option in the DARB rules. 

    If the recommendations are non-binding, there is still an issue of how they should be treated in a subsequent dispute resolution procedure.  If they are admissible, then the recommendations could have considerable impact particularly in a jury trial where the jury is likely to be persuaded by the recommendations of three independent experts selected by the parties.  Section 3.17 provides that the admissibility decision will similarly be controlled by the contract or written agreement.

    If the parties are silent as to these issues, the default is that the recommendations are non-binding and admissible in a later proceeding.

    Interim Advisory Process

    The formal process described above is a real-time, expedited procedure; however, it still may require extensive effort and presentations particularly on large, complex claims.  Therefore, AAA-ICDR has included an Interim Advisory Process in its rules to allow for an even faster and more informal hearing and recommendations. 

    DARB Section 1.5B establishes the rules for the Interim Advisory Process.  Unlike the formal hearing process where either party may submit a dispute to be heard, both parties must elect to participate in a hearing through the Interim Advisory Process.  Typically, the hearing occurs at a periodic site visit based on short written and oral presentations, and the recommendations are issued verbally after deliberations that occur at the conclusion of the presentations.  The recommendations may be appealed through a formal hearing if a party is dissatisfied, although a party is unlikely to receive different recommendations unless it has something new to present.  The process results in quick, inexpensive, down and dirty recommendations which the parties can use to negotiate a resolution of the dispute. 

    Conclusion

    DRBs/DARBs are an important and unique form of ADR in the construction industry with two functions: dispute avoidance and early dispute resolution.  The dispute avoidance comes primarily from the regular periodic site meetings, which foster positive relationships and early discussion of potential disputes in a non-adversarial atmosphere.  On the dispute resolution front, DRBs/DARBs provide real-time reasoned recommendations from trusted experts approved by both parties who have seen the work in dispute when performed and observed the witnesses during construction.  What more could the parties want?

    The AAA-ICDR has developed new procedures to administer DARBs and assist in making them function smoothly, thereby helping the parties avoid disputes and obtain early dispute resolution.

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      Adrian L. Bastianelli, III

      Peckar & Abramson, P.C. Washington, D.C. | Division 1 (Litigation and Dispute Resolution)