Dispute review boards – the future of dispute resolution?

Mar 27 2008 By The Journal

Rachel Garnon DISPUTE Review Boards (“DRBs”) have been used as a method of dispute resolution in the construction industry in the USA since the 1970s.

Over the decades that followed, large international organisations such as the World Bank have insisted that DRBs are used on their projects, serving to increase their popularity. At the start of 2006 over 1,500 projects, worth in the region of £60billion, were under construction or had been completed using DRBs.

Research conducted by the Dispute Resolution Board Foundation suggests that not only are DRBs becoming increasingly popular, but that they also have an impressive track record, with 98% of disputes referred to DRBs being resolved by the DRB.

However, not all DRBs work in the same way, coming into existence when parties to a contract establish and empower it with jurisdiction to hear and advise on the resolution of disputes. As the DRB is entirely a creature of contract, its constitution and powers depend on the contract terms.

In larger contracts, a DRB will usually consist of a three man tribunal of individuals with expertise appropriate to the project in question. Each contracting party will appoint one member and those two members will select the chairman of the DRB. In smaller contracts, a one man DRB is sometimes used in order to minimise costs.

What distinguishes DRBs from other methods of dispute resolution is the fact that the DRB is involved in and familiar with the project from the outset and throughout the project’s progress. When any difference of opinion arises between the parties to the contract, it is brought to the board’s attention. The DRB then uses its expertise and background knowledge to attempt to resolve the difference between the parties before it crystallises into a dispute.

If this is not possible, then the parties will formally refer the dispute to the DRB and they will make a decision. The contract under which the DRB is appointed may specify that the board’s decision is to be either a non-binding recommendation or interim binding (similar to an adjudicator’s decision). There are advantages and disadvantages to whichever status is decided upon. For example, non-binding recommendations can seem less threatening to the parties and can result in lower costs in relation to the DRB hearing, while interim binding decisions can provide greater certainty for both parties and induce early settlement.

DRBs are certainly not cheap and they do involve cost to both parties from the beginning of the project onwards. For smaller projects, where costs are tight, parties will understandably be reluctant to fund one. Nevertheless, a DRB is far less expensive than ending up in litigation or arbitration and, in some areas of the construction industry, the cost of a DRB is perceived as quasi-insurance against litigation costs later in the project.

The Olympic Delivery Authority requires the use of a bespoke DRB in the contracts for the 2012 Games and, if the use of this is successful in that context, the construction industry in the UK can expect to see them becoming an increasingly common part of construction projects. Members of the industry should therefore start giving careful consideration to the pros and cons of utilising DRBs in future projects.

Rachel Garnon is a solicitor in the construction and engineering group at Dickinson Dees LLP.