DAPs When Will Australia Jump On Board

DAPs: When will Australia jump on board?
Paula Gerber and Brennan Ong*

This article examines how dispute avoidance processes (DAPs) are being widely used around the world to prevent and/or manage construction disputes. Despite glowing reports, and the unprecedented success of DAPs at the international level, the process remains in its infancy in Australia. This article analyses the barriers that have prevented greater use of DAPs in Australia, and considers how these can be overcome.
INTRODUCTION
Since the curtain closed on the rst decade of the 21st century, we reect on a signicant movement that was, not that long ago, viewed as the most exciting development to hit the construction industry.1 At the start of the new millennium, it was predicted that dispute avoidance processes (DAPs) which include dispute review boards, dispute adjudication boards and dispute resolution advisors would soon become widespread throughout the construction world, and the days of acrimonious arbitration and litigation as the way of resolving construction disputes would be relegated to the history books.2 Although alternative/appropriate dispute resolution (ADR) is now popular, and alliancing is increasingly used on major projects, the Australian construction industry remains plagued by adversarial attitudes that create an us versus them environment, conducive to costly and drawn-out disputes.3 Although DAPs have a proven track record of using proactive and real-time techniques4 to prevent and manage conicts that arise during construction, they have not enjoyed the degree of support that one might expect from the Australian construction industry.5 The use of DAPs, in particular dispute boards (DBs), has seen exponential growth in the United States as well as the international arena.6 Since DAPs are a successful tool for keeping parties out of expensive and time consuming construction litigation and arbitration,7 it is timely to ask why the Australian construction industry has not embraced DAPs and if this will change anytime soon. This article seeks to answer these questions by exploring why the construction industry is prone to disputes and why it is notoriously litigious when it comes to resolving those disputes. This is followed by an analysis of the theoretical and practical aspects of DAPs, and the variety of models in use around the world. The authors then explore the barriers to the greater adoption of DAPs in Australia, and conclude with a discussion about what can be done to help Australia join the DAPs revolution.
NATURE
AND EXTENT OF CONSTRUCTION DISPUTES
Before one can begin to prevent and manage construction disputes, it is essential to have an understanding of the underlying causes of disputes. Therefore, the authors commence their analysis by seeking to expose the provenance of construction disputes.
*
Dr Paula Gerber: Senior Lecturer in construction law at Monash University Law School. Brennan Ong: Research Assistant at Monash University Law School. This article is based on a presentation by the authors to a workshop organised by the Dispute Resolution Board Australia (Sydney, 10 April 2010). Gerber P, Dispute Avoidance Procedures (DAPs) The Changing Face of Construction Dispute Management (Part 1) (2001) International Construction Law Review 122 at 129. Gerber, n 1 at 122. Jones D, Project Alliances: (Why) Do They Work?, Paper delivered at the International Bar Association Conference (Durban, 24 October 2002); Harmon KMJ, Construction Conicts and Dispute Review Boards: Attitudes and Opinions of Construction Industry Members (2004) 58 Dispute Resolution Journal 66 at 68. Duran JE and Yates JK, Dispute Review Boards One View (2000) 42 Cost Engineering 31.
2 3
4 5
Jones D, Construction Project Dispute Resolution: Options for Effective Dispute Avoidance and Management (2006) 132 Journal of Professional Issues in Engineering and Practice 225 at 266.
Gould N, Establishing Dispute Boards: Selecting, Nominating, and Appointing Dispute Board Members, Paper delivered at the Dispute Resolution Board Foundations 6th Annual International Conference (Budapest, 6-7 May 2006). Loots P and Charrett D, Practical Guide to Engineering and Construction Contracts (CCH, Sydney, 2009) p 312.
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Conicts and disputes

Figure 1 illustrates the traditional path of a construction conict from inception to nal resolution. Left unchecked, a conict during the course of construction can readily escalate into a contract dispute, and from there to arbitration or litigation. FIGURE 1 The Conict-Dispute-Litigation Continuum
Within the construction industry, the terms conict and dispute are often used interchangeably when in reality they have distinct meanings. Many denitions of conict exist,8 but because of the interpersonal relationships present on any construction project, the most appropriate denition is perhaps best expressed as a situation that arises when individuals are faced with competing goals or ideas.9 Given that many construction projects begin with the principal wanting the project completed for the lowest cost, and the contractor wanting to maximise its prot, it is apparent that potential for conict is present before ground is even broken. Add to that the multiplicity of people involved in a project, all of whom have differing responsibilities and priorities, and the risk of conict escalates exponentially.10 Conicts that remain unresolved are often formalised into claims, which has been dened as:
A Contractors submission of a formal request to the Engineer (or the Employer) under the provisions of the Contract or under the common law, for additional time or money arising out of circumstances or events concerning the execution of the Contract.11
If claims are not settled through amicable settlement procedures as outlined in the contract, they are readily transformed to disputes. Disputes therefore concern justiciable issues disagreements over the existence of rights or legal duties, and over the extent and kind of compensation that may be claimed by a party for an alleged breach.12 Thus, conicts can be said to fall within the discipline of psychology and involve peoples opinions, attitudes and understandings of a situation, whereas disputes fall within the discipline of law and involve the assertion of legal and/or contractual rights or entitlements.
Unfair risk allocation

Unresolved disputes often mature into formal legal processes, complete with disruptions and monetary losses that impact directly on the successful completion of a project. There is a large body of literature regarding the myriad of causes of construction conict, including attitudinal differences,13 embittered relationships,14 and, in Australia, even the industrys male-centric genderlect.15 Most agree that it is the operation of the construction contract that fosters high incidences of conict.16 One of the fundamental functions of a construction contract is to allocate risk. However, at the time the contract
8 9
See generally Dana D, Conict Resolution (McGraw-Hill, New York, 2000) pp 1-16. Dana, n 8, p 8; Wilmot WW and Hocker JL, Interpersonal Conict (5th ed, McGraw-Hill, Boston, 1998) p 1. Pickavance K, Delay and Disruption in Construction Contracts (2nd ed, LLP, London, 2000) p 27. Loots and Charrett, n 7, p 279. Martin R, Construction Industry Disputes: How Did We Get Where We Are? (1989) 5 BCL 89.
10 11 12 13
Awakul P and Ogunlana SO, The Effect of Attitudinal Differences on Interface Conicts in Large Scale Construction Projects: A Case Study (2002) 20 Construction Management and Economics 365; Gluklick E, Why Every Construction Project Needs a DRB (2002) 57 Dispute Resolution Journal 21. Yiu TW, Forces to Foster Co-operative Contracting in Construction Projects (2007) 18 ADRJ 112.
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is entered into, it is often difficult to accurately predict the risks that may be encountered on any given construction project.17 Although the Abrahamson Principle that a risk should be borne by the party that can best manage, minimise or transfer that risk18 has been around since the 1970s, it is still commonplace for risk allocation to be lopsided,19 which is likely to signicantly increase the risk of conict during the project. Standard form contracts have attempted to redress this imbalance, but they are often heavily amended,20 skewing the risk in favour of the party in the strongest bargaining position. Trust, which is essential for the successful completion of a project, is difficult to promote if at the outset the risk allocation is fundamentally awed, thereby positioning parties in a constant state of confrontation.21 Further, in the modern world of competitive tendering, the polarisation of goals between a contractor and principal is further misaligned, with contractors forced to tender with smaller margins, thereby encouraging them to resort to opportunistic practices22 in the hope of recouping their losses. Claims for contract price adjustments become common place,23 further straining the relations of all involved.
Perceived bias of the superintendent

Most Australian standard form contracts are administered by a superintendent, who is also often the project architect or engineer.24 As conicts arise on a project, and ensuing claims are made, the resulting decisions of the superintendent are binding, unless overturned in a subsequent arbitral process.25 This process of the superintendent, who is paid by the principal, imposing binding decisions on the parties, has been criticised because of the difficulty of rendering impartial decisions.26 Most standard form contracts contain a provision which stipulates that the superintendent act reasonably and in good faith.27 Even in the absence of such express words, it has been held that there is an implied term in construction contracts that the superintendent will act fairly and justly and with skill
15
A recent study concluded that there is a high incidence of conict in the Australian construction industry because it is very male dominated. It is argued that conict can be reduced by increasing female participation and feminising communicative and behavioural responses to conict. See Loosemore M and Galea N, Genderlect and Conict in the Australian Construction Industry (2008) 26 Construction Management and Economics 125. Fenn P, Lowe D and Speck C, Conict and Dispute in Construction (1997) 15 Construction Management and Economics 513. Dorter J, Representations, Risk and Site Conditions (2004) 20 BCL 7.
16
17 18
Wassenaer A, In Search of the Holy Grail; Taking the Abrahamson Principles Further (2006) 1(4) Construction Law International 11. Gluklick, n 13 at 21. Bell M, Standard Form Construction Contracts in Australia: Are Our Reinvented Wheels Carrying Us Forward? (2009) 25 BCL 79 at 80. Groton JP, Alternative Dispute Resolution in the Construction Industry (1997) 52(3) Dispute Resolution Journal 48.
19 20
21 22
Love PED et al, A Systematic View of Dispute Causation, Paper submitted to Building Research and Information for the Cooperative Research Centres Guide to Leading Practice for Dispute Avoidance and Resolution (2008), http:// www.construction-innovation.info/index.php?id=1086 viewed 10 December 2009.
23
Thompson RM, Voster MC and Groton JP, Innovations to Manage Disputes: DRB and NEC (2000) 16(5) Journal of Management in Engineering 51; Capper P (edited by Uff J and Odams M), Overview of Risk in Construction in Risk Management and Procurement in Construction (Centre of Construction Law and Management, Kings College, London, 1995) pp 11-80. Dorter, n 17 at 7.
24 25
For example, see AS 4000, cl 47.2. This refers to the requirement that in the event of a dispute, the superintendent can give a written decision on the dispute, together with its reasons. If either party is dissatised with the superintendents decision, the dispute is referred to arbitration or litigation. See Aibinu AA, Ofori G and Ling FYY, Explaining Cooperative Behavior in Building and Civil Engineering Projects Claims Process: Interactive Effects of Outcome Favorability and Procedural Fairness (2008) 134 Journal of Construction Engineering and Management 681. For example, see AS 4000, cl 1 and Annexure Part A. This refers to the requirement that the superintendent is the person appointed by the principal as named in Annexure Part A. For example, see AS 4000, cl 20. This refers to the requirement that the principal is bound to ensure that the superintendent acts reasonably and in good faith.
26
27
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to both parties to the contract. Regardless of whether the contract contains an express or implied provision regarding a duty to act impartially as between the parties, there remains a common perception amongst contractors that the superintendent consciously or subconsciously prioritises the rights and interests of the person who pays its fees that is, the principal.29 Evidently, this perceived lack of procedural fairness in the administration of construction contracts has been a signicant drawback to the resolution of conict. It contributes to the adversarial environment that compels construction project participants to adopt animus attitudes that impact negatively on the successful completion of a project. A 2008 empirical study examining the effects of perceived procedural fairness (or lack thereof) in the determination of construction claims found:
There was lower intensity of conict and lower potential to dispute against unfavourable outcomes when the procedure for administering claims was perceived to be fair than when the procedure was perceived to be unfair. Regardless of outcome received, contractors cooperative behaviour could be enhanced by administering the contract in fair ways.30
28
Although various factors31 have been identied as contributing to adversarial relationships between parties to a construction project, it is the absence of a perceived impartial bona de on-site dispute avoidance/resolution mechanism that is embraced by all participants, that most polarises the parties and facilitates the festering of conict and disputes.
WHY
PREVENTION IS BETTER THAN CURE
Several decades ago, a growing body of global research began preaching the merits of preventative medicine. For example, an American Surgeon Generals report noted an emerging consensus among scientists and the health community that the Nations health strategy must be dramatically recast to emphasize the prevention of disease.32 At the same time, Europeans were urged to quit smoking, start exercising and adopt healthier practices.33 The medical profession has recognised that it is cheaper and easier to help people quit smoking than to treat lung cancer. Applying this philosophy to construction, the authors argue that it is time for the Australian construction industry and construction lawyers to change their focus from treating the cancer that construction disputes represent, to actively promoting preventative measures. As former United States Chief Justice Warren Burger eloquently stated:
The entire legal profession lawyers, judges, law teachers has become so mesmerized with the stimulation of courtroom contest that we tend to forget that we ought to be healers of conict.34
Construction lawyers can play a key role in healing conicts by recommending DAPs to their clients, and including appropriate clauses in construction contracts. As Figure 2 demonstrates, DAPs are designed to operate as a circuit breaker, preventing the escalation of conicts into disputes, whereas ADR generally operates as a circuit breaker only after a dispute has matured and is well on the path to litigation or arbitration. DAPs are the legal equivalent of preventative medicine, and are based on the idea that, although conict may be inevitable, disputes and their protracted resolution are not.
28 29 30 31 32
Perini Corp v Commonwealth of Australia [1969] 2 NSWR 530 at 536. Jones, n 3, pp 225-235. Aibinu et al, n 25 at 690. Awakul and Ogunlana, n 13 at 365-377; Loosemore and Galea, n 15 at 125-135; Fenn et al, n 16 at 513-518.
Department of Health, Education, and Welfare, Healthy People: The Surgeon Generals Report on Health Promotion and Disease Prevention (1979) p 7.
33
See Abel-Smith B and Maynard A, The Organization, Financing and Cost of Health Care in the European Community, Commission of the European Communities, Social Policy Series No 36 (Brussels, 1979). Burger W, The State of Justice (1984) 70 American Bar Association Journal 62 at 66.
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FIGURE 2
Interrupting the Conict-Dispute-Litigation Continuum
DAPs models
Just as ADR is the umbrella term that encompasses different forms of dispute resolution beyond arbitration and litigation, DAPs is the umbrella term used to describe a myriad of dispute prevention mechanisms that are being used on large-scale construction projects around the world. Each DAP model shares similar features of being established at the commencement of a project for the purpose of preventing and managing disputes during the course of construction. However, the mechanisms used to achieve this goal vary with each model. It is important to note that DAPs are not a substitute for the superintendent, who still has the responsibility for carrying out the traditional duties of independent certication, including assessing progress claims, extensions of time and variations. Rather, DAPs are designed as a readily accessible resource that the parties can access during the course of the project to minimise or resolve conicts, and prevent their escalation into disputes. The DAP models that have gained traction around the world and are analysed in this article are: (1) dispute review boards (DRBs); (2) dispute adjudication boards (DABs); (3) combined dispute boards (CDBs); and (4) dispute resolution advisors (DRA). Models (1) to (3) are collectively known as DBs. The dispute board or DB35 is the most prominent DAPs model, and is promoted in various different forms depending on the organisation advocating its use. Other models have also gained traction in different parts of the world which share many of the DBs characteristics and procedures when it comes to dispute avoidance. Each DAP model shares virtually identical procedures and theoretical underpinnings regarding dispute avoidance; where they differ is the way they deal with dispute resolution when the parties have been unable to avoid a dispute. The following section explores the dispute preventative rationales and workings of DBs before delving into the nuances and differences of each model.
Dispute boards
The primary purpose and benet of any DB is its ability to avoid disputes and their associated ramications by addressing the problems frequently encountered on construction projects. A DB is generally described as:
[A p]anel of one or three suitably qualied and experienced independent persons appointed under the Contract. Its function is to become and remain familiar with the project at all stages, and to be available at regular intervals to confer with the parties to assist in the avoidance of disputes, or if necessary to provide a determination on a dispute referred to it.36
As shown in Figure 3, whether a DB is successful in avoiding disputes is dependent on ve interrelated factors, each of which is explored below.
35 36
The DRB is generally accepted as the original DB model, on which all later models are based. Loots and Charrett, n 7, p 286.
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FIGURE 3
The Essential Elements of Dispute Avoidance
Procedural fairness The superintendents dual responsibilities in acting as an agent for the principal and independent certier is inherently problematic, and contributes to the adversarial personas adopted by the contracting parties. In addressing this perceived bias, all DB models empower both the principal and contractor to collectively appoint the DB members. The three most commonly used methods for member selection of a three-person board are: Joint selection: The parties meet and discuss potential DB members and jointly agree on the composition of the three-member DB. The parties or the members themselves may decide who will be chair. Nomination by each party: Each party nominates one DB member, subject to the other partys approval. The two selected members then nominate a third member, subject to the approval of both parties, who typically serves as Chair. Slate of candidates: Each party proposes a list of three to ve potential DB members. Each party then select one candidate from the others list. A new list is submitted if either party rejects an entire list. The two selected DB members select a third person from the original list, subject to approval by both parties, to be Chair of the DB.37 These methods are in stark contrast with the process of appointing a superintendent, which is controlled exclusively by the principal. Further, the manner in which the board members are remunerated also addresses the concerns of bias, as member fees are typically shared between the principal and contractor.38 It is for this reason that DBs are perceived as being neutral and independent, while a superintendent is perceived as representing the interests of the principal. The composition of the DB is also an important consideration in dispute avoidance and alleviating any perception of bias. Parties are implored to select DB members based on their experience and technical competence in the type of construction being performed.39 This places the DB in a greater
37
The DRBF publishes a Practices and Procedures Manual that contains a comprehensive description of the DB concept and a user guide detailing the recommended DB procedures and a member guide detailing best practice guidelines for the use of DB members: DRBF, Practices and Procedures (2007), http://www.drb.org/manual.htm viewed 31 July 2010 (DRBF Manual).
38
The DRB, as advocated by the DRBF and ICC, recommends that the contractor and principal split costs 50/50. Under FIDIC, the fees are paid by the contractor who can in turn claim 50% back from the principal. Duran and Yates, n 4 at 31.
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position to understand the potential complexities of the project, and how to prevent such problems from occurring. Parties dissatised with a superintendents determination are able to refer the dispute to the DB, with the knowledge that the DBs determination is not only based on the members own technical competencies, but shall be based solely on the provisions of the contract documents and the facts of the dispute.40 Working knowledge of project issues Litigation, arbitration, and mediation have become time intensive and costly endeavours, owing largely to extensive fact nding and attempts to understand events that most likely occurred many years ago. DBs, however, are implemented at the commencement of the project,41 and the DB conducts site visits and meets regularly with the contracting parties and in caucus as a panel, so as to become highly conversant with the project.42 It has been noted that:
It is not prudent to rely on photographic and video evidence [for resolving disputes] since they have an editorial point of view and can be altered [there] is difficulty in knowing if a photograph or video represents the rule or the exception.43
DBs, by witnessing the technical and physical conditions prevailing at the time of the dispute, are able to overcome the difficulties of ex post facto determinations and avoid the expensive task of reconstructing historical events.44 Regular site visits and meetings also encourage frank and open discussions about contentious issues by the parties with the DB members.45 This, coupled with the DBs familiarity with the project, means the DB members are well positioned to understand the projects unique characteristics, which strengthens the DBs ability to identify potential conicts early, and help the parties avoid disputes. On this note, the DB can, with the agreement of the parties, be asked to give an advisory decision46 to assist the parties on an issue, such as the correct contractual interpretation, which may be preventing the settlement of a dispute. Such a course of action may mean that formal hearings regarding this issue will be unnecessary.47 This is just one example of how DBs can work proactively to assist the parties to manage and resolve conict. Fostering positive relationships A successful construction project requires an amicable working relationship between the contracting parties. However, parties often adopt adversarial attitudes that ow from poor communication, distrust, misunderstandings, misinterpretation of contracts, and an us versus them posture based on an imbalance in risk allocations. A study that analysed 24 construction disputes in the United States48 found that parties, when faced with a problem, choose either to compete or co-operate. Which path they take is determined by their working relationship and perceptions of each other. Competition occurs when either party acts on the belief that mutual gains are not possible or will not be shared
40 41
DRBF Manual, n 37 at [2.10.5].
These are known as standing or full-term DBs. FIDIC also provides the option of ad-hoc DBs which is when a DAB is formed only after a dispute arises. This has been subject to much criticism as the DB philosophy is highly dependent on the early establishment of a DB. Ad-hoc DBs therefore pose many problems: First, it is difficult for parties already in a dispute to agree on amendments to the contract. Secondly, it is also difficult for the appointed DB panel to catch up on what happened in the previous years; to deal with the old, usually complex disputes and at the same time with potential disputes. Its function as a dispute avoidance procedure will be signicantly compromised. See Genton PM, The Role of the DRB in Long Term Contracts (2002) 18(1) Construction Law Journal 8. Jones, n 3, pp 225-235. Altschuler MJ, Seeing is Believing: The Importance of Site Visits in Arbitrating Construction Disputes (2003) Dispute Resolution Journal 36 at 42.
42 43
44
Chapman P, Dispute Boards for Major Infrastructure Projects, Paper presented at a seminar on the use of Dispute Boards (Queensland, 30 November 2006). Altschuler, n 43 at 36. DRBF Manual, n 37 at [2.10.5]. Chapman, n 44.
45 46 47 48
Mitropoulos P and Howell G, Model for Understanding, Preventing, and Resolving Project Disputes (2001) 127(3) Journal of Construction Engineering and Management 223.
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equally, whilst co-operation involves parties seeking to make the overall project function more effectively, and are willing to compromise for the projects success.49 Thus, an initiative such as a DB, which promotes a positive working relationship between parties, will increase the likelihood that when a problem arises, the parties will co-operate rather than compete, thereby furthering the projects goals.50 Although contractual provisions alone cannot maintain good relationships between parties on a construction project, there is evidence that the presence of a DB fosters positive relationships because it signals to all parties that potential problems and disputes will be addressed in a fair manner.51 Thus DBs proactively promote an atmosphere of trust that is necessary for successful communication among project personnel.52 Reduction in claims In the modern world of competitive tendering, there is potential for contractors to plague the project with frivolous issues and non-meritorious claims that waste everyones time. Another benet of DBs is that their mere presence motivates the parties to resolve issues in an efficient and timely manner in order to avoid having to bring the dispute before the DB.53 The relationship between the parties and the DB:
makes it harder for people to bring claims, and particularly frivolous [ones] that they dont truly believe in, to the panel usually the claims that end up coming to the DRB are only those about which there are legitimate, difficult disputes that the parties cant legitimately resolve amongst themselves.54
This change in the parties behaviour appears to stem from a desire to maintain their credibility in front of the DB. Efficient dispute resolution While the primary function of a DB is to avoid disputes, it also functions as a real-time dispute resolution system in the event that a dispute cannot be avoided. The longer parties are enmeshed in a dispute, the harder it becomes to reach a compromise because disputants become entrenched in their positions, and are wary of losing face despite the resultant negative effect on working relationships and the drain on nancial resources.55 DBs make it possible for the owner and contractor to agree to disagree, knowing their claims will be resolved by the board. This allows both parties to continue with the project without the adverse relationship that often arises.56 In other words, the parties can concentrate on the project condent that the dispute will be resolved in a fair and timely manner by the DB. The ability to call upon the assistance of a DB to resolve disputes contemporaneously helps preserve the relations between the contracting parties which may assist them to avoid future disputes. Disputants are encouraged to approach the DB when either party recognises that a conict is escalating, thereby allowing the DB to resolve the matter before either partys position becomes hardened.57 Although there are procedural differences in the way disputes are addressed by each DB model (discussed below), they all have in common the aim of resolving disputes while the project is still underway, rather than after completion. The proximity of the hearing to the dispute allows greater
49 50 51 52 53 54
Mitropoulos and Howell, n 48 at 223. Mitropoulos and Howell, n 48 at 224. Duran and Yates, n 4 at 31. Jones, n 3, pp 225-235. Harmon, n 3 at 73.
As quoted from a survey respondent (whose background was in construction litigation) in a study that examined the attitudes and opinions of construction industry members towards the DRB. See Harmon, n 3 at 73.
55 Brown BR, The Effects of Need to Maintain Face on Interpersonal Bargaining (1968) 4 Journal of Experimental Social Psychology 107. 56 57
Coffee JD, Dispute Review Boards in Washington State (1988) 43 Arbitration Journal 58. DRBF Manual, n 37 at [6].
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certainty to prevail, and parties are usually satised that all information germane to the issue has been revealed.58 It is the parties satisfaction and support in the DB process that aids in the prevention of further disputes.59
Dispute review board

The DRB was the rst of the DB models. It originated in the United States when the Army Corps of Engineers introduced it to overcome frequent conicts on tunnelling and dam projects, where the potential for unforeseen ground conditions led to a high incidence of disputes.60 The rst accepted use of a DRB was in 1975, on the second phase of the Eisenhower Tunnel in Colorado.61 The three major disputes that arose during the project were each resolved by the DRB prior to practical completion. It is therefore not surprising that in the following decade, DRBs were employed on four more projects, worth over US$66 million.62 The DRB concept was further developed and promoted by the American Society of Civil Engineers (ASCE), which in 1989 published a comprehensive Three-Party Agreement and DRB specications (the 1989 ASCE Guide). This Guide was updated in 1991, and again in 1996. Many of the people involved with the publication of these guides were also responsible for the publication of the subsequent Construction Dispute Review Board Manual, a book which explains the benets, points out the pitfalls, describes the procedures, and provides guides and specications necessary to implement the DRB process.63 In 1996, because of the profound success of the DRB concept, the Dispute Resolution Board Foundation (DRBF)64 was formed to promote use of the [DRB] process, and serve as a technical clearinghouse for owners, contractors, and board members in order to improve the dispute resolution process.65 Although the DRBF is headquartered in Seattle, Washington, it now operates globally such is the vast worldwide acceptance of DBs. In 2004, the DRBF published a Practices and Procedures Manual (PPM) which provides specications for DRB members and assists users in effectively employing the process. The PPM serves as a revision to the 1996 DRB Manual, and constitutes the fourth generation of documents that trace their lineage to the 1989 ASCE Guide. The PPM is designed to be an authoritative and up-to-date explanation of the dispute board process66 and is frequently updated in recognition of the continual evolvement of the DRB concept.
58 59
Gerber, n 1 at 126.
The parties satisfaction and support in the process is critical in the prevention of further disputes as, unlike an arbitrator or judge who walks away from the reference after the award or judgment, the members of a DB remain with the project until completion. Impartiality and objectivity are vital qualities and should not be compromised or appear to be compromised for the DB to continue to work. See Chapman, n 44. Duran and Yates, n 4 at 31.
60 61
Although the earliest reported use of a form of DRB (then called a Joint Consulting Board) was on the Boundary Dam Hydroelectric Project in northeastern Washington in the 1960s, the genesis of the more common use of DRBs occurred on the second phase of the Eisenhower Tunnel in Colorado. See Shadbolt RA, Resolution of Construction Disputes by Disputes Review Boards (1999) 16(1) International Construction Law Review 101 at 104; Bramble BB and Cipollini MD, Resolution of Disputes to Avoid Construction Claims A Synthesis of Highway Practice (National Academy Press, Washington DC, 1995) p 20.
62
The DRBF provides statistics for both DRBs and DABs. See DRBF, Database, http://www.drb.org/manual/Database_ 2005.xls, viewed 10 December 2010 (DRBF Database).
63
American Society of Civil Engineers, Avoiding and Resolving Disputes in Underground Construction (Technical Committee on Contracting Practices of the Underground Technology Research Council, 1991) pp 45-60; Matyas RM, Mathews AA, Smith RJ and Sperry PE, Construction Dispute Review Board Manual (McGraw-Hill Construction Series, New York, 1996); Gerber P, Book Review Construction Dispute Review Board Manual (1998) 60 Australian Construction Law Newsletter 34. The DRBF originally stood for Dispute Review Board Foundation and initially sought to promote the DRB concept only. However, considering that DRBs were being used outside the United States, DRBF voted unanimously to pursue a name change to the Dispute Resolution Board Foundation and promote all forms of DBs. See The Dispute Resolution Board Foundation, Changing Our Name to Dispute Resolution Board Foundation (2002) 6(1) Dispute Resolution Board Foundation Forum 1. Coffee, n 56. DRBF Database, n 62.
64
65 66
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If parties are unable to avoid a dispute, they can refer it to the DRB for a formal hearing. The DRB hearing is more like a site-meeting than a trial, and does not generally involve lawyers or expert witnesses, because the DRB members have been selected for their expertise in the type of project being undertaken.67 Both parties are afforded an opportunity to explain their position regarding contentious matters in dispute and allowed to forward correspondence and other materials that may help the DRB to reach a conclusion.68 The end product of the DRB hearing is a non-binding recommendation that is issued within a typically short time frame as set out in the contract specications, or as determined by the DRB.69 For example, Florida Department of Transportations standard DRB operating procedure provides that the DRB is to issue a recommendation within 15 working days of the hearing.70 The DRBs recommendation outlines how the issue should be settled and is written so as to convince both parties to accept the merit recommendations, and to facilitate a negotiated quantum settlement when needed.71 The recommendation therefore supports, rather than supplants, negotiations between the parties. Even if a DRB recommendation is not followed, parties are better positioned to achieve settlement since they are able to use the DRBs report to further negotiations.72 Proponents of the DRB approach actually contend that the recommendation is often accepted by both parties because they are aware that the recommendation is highly informed, from experts in the eld, and made in light of the DRBs extensive experience on the project.73 The DRBs commitment to a non-binding recommendation makes it the most daring of all DB models in transforming the adversarial culture that has historically plagued construction projects. It represents a paradigm shift away from the traditional focus of binding dispute resolution, in favour of dispute avoidance and management, which encourages issues to be resolved at project level without traditional adversarial attitudes. The DRB represents the high watermark of the DB method, and embodies the ultimate commitment to collaborative and co-operative working relationships. The most convincing argument for the use of DRBs is the fact that they work. From 1975 to 2007, 1,373 United States construction projects were recorded as having used a DRB, with 810 of these projects complete as at 30 December 2007.74 Of these: 51% had all disputes resolved at site level without requiring any DRB hearing; 49% required a DRB hearing; and 97% were settled without the parties having to resort to any formal resolution.75 These ndings demonstrate that DRBs are not only an efficient and successful mechanism for avoiding disputes, but also an effective system of dispute resolution in the event that a dispute cannot been avoided.
67 68 69 70
Gerber, n 1 at 126. DRBF Manual, n 37 at [2.6]. DRBF Manual, n 37 at [2.7].
Florida Department of Transportation, DRB Operating Procedures, http://www.dot.state..us/construction/CONSTADM/drb/ OperatingProcedure.shtm viewed 31 July 2010.
71 72
DRBF Manual, n 37 at [2.8].
McKillop A, Dispute Review Boards Help Settle Disputes During Construction (2003) AACE International Transactions 1 at 4.
73
Jones D, Construction Project Dispute Resolution: Options for Effective Dispute Avoidance and Management (2006) 132 Journal of Professional Issues in Engineering Education and Practice 225; Gould, n 7.
74
As complete and reliable data for projects undertaken post 2001 are not available due to a lack of reporting, only projects with a construction start date on or prior to 2001 have been included. See Menassa C and Mora FP, Analysis of Dispute Review Boards Application in US Construction Projects from 1975 to 2007 (2010) 26(2) Journal of Management in Engineering 65; DRBF Database, n 62. The DRBFs database was dissected and analysed with the results presented in Menassa and Mora, n 74 at 65-77.
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Dispute adjudication board

The International Federation of Consulting Engineers (FIDIC), a prolic publisher of standard form contracts for large international projects, introduced the DAB in response to the condemnation of the dual role being performed by the engineer as both the employers agent and independent certier/decision-maker.76 In 1999, FIDIC published three major sets of Conditions of Contract (the Red, Yellow and Silver Books), all of which contained DAB provisions.77 The DAB is, in effect, the European cousin of the DRB, and mirrors its aims, objectives78 and procedural practices in avoiding disputes. The predominant difference between the two concepts is that if a dispute is referred to a DAB, it makes a binding decision (unless and until it is overturned by arbitration),79 rather than a non-binding recommendation as is the case with the DRB. The parties thus empower the DAB to make decisions with which they will comply. Consequently, the DAB procedure involves a more formal approach than that which is utilised by DRBs. When seeking the assistance of the DAB: a formal notice of dispute must be issued to the DAB by either party; the DAB has 84 days to make its investigations, conduct a hearing (if required) and provide a reasoned decision; if either party is dissatised with the decision, it may give notice of dissatisfaction within 28 days; if no notice is served, the DABs decision becomes nal and binding; and where a notice is served, parties are required to attempt to settle the dispute amicably, before the commencement of arbitration not earlier than 56 days after the notice of dissatisfaction.80 These strict protocols can delay the involvement and/or decision of the DAB to the detriment of the project. Because of the binding nature of the DABs determination, FIDIC has chosen to regulate the operation of DABs in considerable detail. As a result, the informality and speed that is so crucial and advantageous to DRBs has been forsaken in favour of a more thorough and rigid procedure. This increased formality has the potential to increase the hostility between the parties because they may become more entrenched in their positions.81 This perhaps explains why many FIDIC users are deleting the DB provisions or, if obliged by funding institutions to retain the DB clause, ignoring it once the contract is signed and fail[ing] to appoint the DB.82
76
The DAB rst appeared in FIDICs 1995 Orange Book (Conditions of Contract for Design-Build and Turnkey). Subsequently, test DAB provisions were added by Supplements, to the Red Book (Conditions of Contract for Works of Civil Engineering Construction) and the Yellow Book (Conditions of Contract for Electrical and Mechanical Works) before being formally released in FIDICs 1999 Conditions of Contract (Rainbow suite of contracts). See Jaynes GL, FIDICs 1999 Editions of Contract for Plant and Design-Build and EPC Turnkey Contract: Is the DAB Still a Star? (2000) 17 International Construction Law Review 42 at 45; Ndekugri I, Smith N and Hughes W, The Engineer Under FIDICs Conditions of Contract for Construction (2007) 25 Construction Management and Economics 791.
77
Although the DAB was a mandatory provision in the 1998 Test Editions of the contracts, the 1999 official release provided for optional ad-hoc DABs in the Yellow and Silver Books, designed to be established only after a dispute has arisen and typically only exists until it issues a decision on that particular issue, while only the Red Book provided for a mandatory standing DAB, established at contract commencement and is at play even before a dispute arises. See Jaynes, n 76 at 42. Similar to a DRB, the Red Book incorporates a full-term DAB, comprised of one to three members, appointed at the start of the project. The DAB approach stems from FIDICs traditional view that a binding determination is needed to progress the construction. See Jaynes GL, The Role of the DAB, Paper delivered at the Institution of Engineers of Irelands training and assessment course on Dispute Adjudication Boards (Dublin, 19-22 January 2004). FIDIC, Conditions of Contract for Construction 1999, cl 20.4. Boucly J-F, The Different Types of Dispute Boards, Paper delivered at the Dispute Resolution Board Foundations 8th International Conference (Cape Town, 2-4 May 2008).
78
79
80 81
82
FIDIC has established an Update Task Group charged with reviewing the three main FIDIC contracts (Red, Yellow and Silver Book) with a view of addressing the problems identied by many FIDIC users with a view to issuing a new edition in 2010 or 2011. See Corbett E, Moment of Decision? The Future of Dispute Boards Under the FIDIC Forms and Beyond (2009) 4 Construction Law International 20.
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As identied earlier, the non-binding nature of DRB recommendation plays an important role in the continuation of negotiation between parties, thereby preserving a consensual and less adversarial spirit. The DAB runs the risk of being perceived as more of an adjudicatory procedure than a dispute management system.83 Notwithstanding these shortfalls, the DAB approach is experiencing great success globally, and it remains a useful on-site tool for avoiding disputes, and resolving those that cannot be avoided. A recent study conducted by the Dispute Board Federation found that for every 100 DAB projects, 90% of issues are resolved at project level without a formal hearing, and of the 10% disputes referred to the DAB, only 1% of DAB decisions have ever been referred for further arbitral determination.84 Despite the substantial differences in approaches, the successes experienced by the DAB and the DRB are comparable, and may suggest that the benets derived from dispute avoidance procedures have a positive bearing on the dispute resolution process.
Combined dispute board

In 2004, the International Chamber of Commerce (ICC)85 published its dispute board rules in an effort to recognise a change in the demand for dispute processes from the business community.86 Those responsible for devising the rules were persons with experience serving as members of both DRBs and DABs.87 As a result, the ICC rules are similar to the FIDIC procedure88 except that they give the parties the option of choosing one of three DAPs, namely: a DRB; a DAB; or a hybrid concept known as a combined dispute board (CDB).89 The CDB is unique in that for any given dispute, the CDB shall issue a Recommendation unless the Parties agree that it shall render a Decision or it decides to do so upon the request of a Party and in accordance with the Rules.90 The CDB recognises the possibility that a party may require a binding decision that can be instantaneously implemented, notwithstanding the ability ultimately to challenge it in arbitration.91 If a party requests a binding decision from the CDB, then the decision will be binding on the Parties upon its receipt.92 The issuance of a decision rather than a recommendation is an exception rather than the norm, and is only to be used where the circumstances warrant such an exception.93 Where controversy exists about whether the CDB should issue a recommendation or decision, the Rules provide that the choice ultimately rests with the CDB. Guidelines are provided to assist the CDB in determining whether it should render a binding decision, including whether: due to the urgency of the situation, a decision would facilitate the performance of the contract or prevent substantial loss or harm to any party;
83
Griffiths D, Do DRBs Trump DABs in Creating More Successful Construction Projects? (2010) 14 Dispute Resolution Board Foundation Forum 1. Results are based on a study of 500 global DAB projects conducted by the DBF. Wilson H, President of the Dispute Board Federation, email to the authors (13 April 2010). The ICC seeks to provide international business with the most efficient tools for resolving any type of commercial dispute.
84
85 86
Although DBs are essentially found in the construction and engineering eld, the ICC rules have been conceived to be used in all contractual disputes arising in the course of mid- or long-term contracts and applied not only on engineering contracts, but also in other elds of business transactions. See Arrocha K, The ICC Dispute Board Rules, Presentation notes prepared for the DRBF 6th Annual International Conference (Budapest, 6-7 May 2006).
87
Koch C, Dispute Boards Under the FIDIC Contracts and the ICC Rules, Paper delivered at the International Chamber of Commerce and FIDICs International Construction Contracts and Dispute Resolution Conference (Paris, 17-18 October 2005). Koch, n 87.
88 89
ICC, Dispute Board Rules (2004), Arts 4 and 5, http://www.iccwbo.org/court/dispute_boards/id4352/index.html viewed 31 July 2010.
90 91
ICC, n 89, Art 6; Koch, n 87.
For example, a party may require an immediate decision if it is at risk of bankruptcy if it does not receive the claimed payment immediately. The parties shall comply with the decision without delay, notwithstanding any expression of dissatisfaction. See ICC, n 89, Art 5. Dorgan CS, The ICCs New Dispute Board Rules (2005) 22 International Construction Law Review 142.
92
93
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a decision would prevent disruption of the contract; and a decision is necessary to preserve evidence.94
Although CDBs have been described as a true innovation in the landscape of Dispute Boards, they have also been referred to as nothing more than an awkward, rather than a useful, compromise.95 There is certainly the potential for a CDB to increase tensions between the contracting parties through the process of deciding whether to issue a recommendation or decision.96 However, the utility of the CDB is difficult to objectively evaluate, as there is little empirical data available about their usage and effectiveness.
Dispute resolution adviser

The DRA, as developed by Colin Wall in Hong Kong in late 1990, is a hybrid system that is said to combine the best aspects of other DAP models, as well as ADR.97 The DRA evolved from models considered for use in the United Kingdom, among which included the Independent Intervenor,98 which employs an impartial mediator or conciliator at the commencement of the project who can be called upon by the parties if a dispute arises, and issue a prompt binding decision,99 and the Dispute Advisor100 which modies the independent intervenor approach, so that the independent third party can only advise on the means of settling disputes [and] in some circumstances, assist in their resolution but it is anticipated that his primary duty as an adviser will not undermine the authority of the Engineer under the contract.101 Although the DRA was based around these British models, the nal product sought to provide greater exibility by combining the dispute prevention attributes of a DRB with partnering102 techniques to re-orient the parties thinking and encourage negotiation through the use of a multi-tiered dispute resolution process.103 Like the DBs, the DRA is jointly chosen and appointed by the contracting parties at contract commencement, and is encouraged to monitor progress through site visits, conferring with the project participants at regular intervals and providing informal advice for the resolution of potential problems before they mature into disputes.104 The DRA thus shares virtually identical procedures and theoretical underpinnings of the DBs when it comes to dispute avoidance, but differs markedly in its dispute resolution approach.
94 95 96 97 98
ICC, n 89, Art 6.3. Dorgan, n 93 at 142-150. Boucly, n 81. Wall CJ, The Dispute Resolution Adviser in the Construction Industry (1993) 21 Building Research & Information 122.
Clifford Evans spoke about this concept in 1986 in an address to the Wales Branch of the Chartered Institute of Arbitrators and the South Wales Association of the Institute of Civil Engineers. The concept has since been adopted as contractual adjudication. See Wall CJ, The Genesis, Development and Future use of the Dispute Resolution Adviser System, Paper delivered for the Society of Construction Law Hong Kong (Hong Kong, 17 November 2004) pp 1-25. Fenn P and Gameson R, Construction: Conict: Management and Resolution (Chapman and Hall, London 1992) pp 328-329.
99
The concept was introduced in a paper presented by Kenneth Severn in 1989 entitled New Concepts in the Resolution of Disputes in International Construction Contracts, which was the product of ideas from a working party of the Chartered Institute of Arbitrators, including Clifford Evans. See Wall, n 98, p 5.
101 102
100
Fenn and Gameson, n 99, pp 328-329.
Partnering is a form of relationship contracting formed by way of a partnership charter which is superimposed on a contractual agreement that theoretically binds the parties to act in the best interests of the project. In essence, the charter represents a mission statement for the life of the project and a written commitment to excellence. For example, the goals and objectives that would probably be identied include the avoidance of disputes and litigation, ensuring no project cost overruns and that the project will be completed within the contract sum and enhancing mutual trust between the contracting parties. See, generally, Eilenberg IM, Dispute Resolution in Construction Management (UNSW Press, Sydney, 2003) pp 142-156; Jones, n 5 at 266.
103 104
Fenn and Gameson, n 99, pp 328-329.
Cheung S and Suen H, A Multi-attribute Utility Model for Dispute Resolution Strategy Selection (2002) 20 Construction Management and Economics 557; Wall, n 98, pp 13-15.
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If initial negotiations fail to resolve a conict at the job level, then the guidelines for formal dispute resolution include: the DRA recommends what he/she considers to be the most appropriate form of ADR technique, be that mediation, mini-trial or expert determination;105 if the conict remains unresolved, the DRA prepares a report summarising, in a neutral manner, each partys viewpoint and his/her recommendations. The report is designed to assist senior project personnel decide on how best to resolve the dispute; and if disputants are unable to negotiate and reach a settlement, the dispute is referred to short-form arbitration,106 where the DRA helps the parties to choose a technical arbitrator suitable for the particular dispute.107 Thus, the DRA is a system starting with maximum party control and then introducing a series of steps with each one becoming more interventionist and as a last resort, nal resolution by way of short-form arbitration.108 The DRA was rst used by the Hong Kong governments Architectural Services Department on the 1991 Queen Mary Hospital refurbishment project,109 and its success in avoiding disputes on that project prompted the department to develop a policy of using a DRA on all its projects where the cost was over HK$200 million, and if it is a complex project, then the contract value need only be over HK$100 million.110 Like DBs, the DRA has experienced outstanding results. Since its inception in 1991 to the end of 2004, 53 projects have used a DRA, and only one project experienced a dispute that progressed as far as requiring short-form arbitration.111 This is compelling evidence that projects that utilise a DRA are more likely to be completed with few disputes. The Hong Kong government recently committed to the wider adoption of DRAs on public works projects. Ms Carrie Lam, Hong Kongs Secretary of Development, noted in a 2009 address to the ADR forum:
the construction sector must move with the times, or better still, ahead of the trend. Government encourages a wider use of the partnering approach and DRA system in public works contracts, with an aim to encourage the resolution of all differences in opinion before formal disputes arise.112
The success of the DRA system has prompted the inclusion of a DRA on 15 recent contracts (equivalent to 50% of all upcoming major contracts in Hong Kong). Although the DRA has enjoyed great success in Hong Kong, it has really not been embraced elsewhere. Colin Wall, founder of the DRA concept, believes there is no reason why it cannot be used on construction jobs outside of Hong Kong. Indeed, the DRA system was actively promoted for use in construction preceding the 2000
105
Mini-trials are classied as an ADR procedure which resembles a mediation hearing and is explained as a settlement process in which the parties present highly summarised versions of their cases (in a private forum) to a panel of senior executives of both parties who are often assisted by a neutral chairman. It seeks to convert a legal dispute back into a business problem and aims to bring the businessmen on each side of the fence directly into the resolution process in the hope that compromises can be reached. Expert determination is based upon the decision of an independent third party. The parties agree to be bound by the decisions of an independent expert. See, National Alternative Dispute Resolution Advisory Council, ADR Terminology: A Discussion Paper, http:// www.nadrac.gov.au/www/nadrac/nadrac.nsf/Page/Publications_PublicationsbyDate_ NationalADRTerminologyADiscussionPaper viewed 31 July 2010.
106 107 108 109
For a discussion of the key characteristics of short form arbitration, see Wall, n 98, p 17. Wall, n 98, p 6. Gerber, n 1 at 123.
Contract required the refurbishment of a then 56-year old general hospital. The added complexities of the contract, which included a requirement to keep the ward hospitals, hospital kitchens, radiology department and operating theatres operational during refurbishment, meant that unless an innovative approach to the management and resolution of construction conict was adopted, the contract would be beset by disputes: Wall, n 98, p 17.
110 111
Wall, n 98, p 19.
Wall C, Do Pre-arbitral Procedures Work, Are They Necessary or Are They Simply Killing Construction Arbitration as We Used to Know It?, Paper presented to the Society of Construction Arbitrators Annual Conference (Lisbon, 4-7 May 2007).
112
Lam C, Speech delivered at the Alternative Dispute Resolution Forum (Hong Kong, October 12 October 2009), http://www.info.gov.hk/gia/general/200910/12/P200910120167.htm viewed 31 July 2010.
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Sydney Olympics, but was ultimately not adopted.113 Perhaps it is the lack of a dedicated industry body devoted to promoting the use of the DRA (like the DRBF for DRBs and FIDIC for DABs) that has stied the more widespread adoption of this DAP model.
Global impact
DAPs have featured in a variety of projects in the international arena, and are fast becoming a requisite system for both dispute avoidance and resolution. Through to the end of 2006, it is estimated that DBs had been planned, or used, in over 2,000 global projects, with a combined construction value of over US$100 billion.114 New models,115 based on the DB concept, continue to evolve, with the dominant purpose of dispute avoidance rst, and dispute resolution only if avoidance is not possible. With this in mind, the balance of this article focuses on Australias limited experiences with DAPs, the reasons behind this slow uptake, and what can be done to change this.
IN AUSTRALIA: A DISAPPOINTING HISTORY It appears that the DRB is the only DAP model to have been used in Australia, with the rst recorded use of being in 1987. This was a result of an American contractor, Hatch & Jacobs, promoting it to Sydney Metropolitan Water Sewerage and Drainage Board (MWSDB) for use on the Sydney ocean outfall tunnels and ocean risers project.116 There were no unresolved issues on any of the contracts at completion, but it is not known if there were any formal DRB referrals. However, MWSDB was obviously impressed with the DRB, and arranged for it to be used on the Warragamba Dam project in 1988, which also had no disputes outstanding at completion. Unfortunately, in the 23 years since DRBs were introduced into Australia, only 21 projects have used a DRB. The 21 projects that have used a DRB have achieved the following outcomes:117 100% success in achieving contract close out by, or very soon after, the date for practical completion; most projects were completed close to, or ahead of, time and very close to the original contract sum; and only three disputes were referred to a DRB for a formal hearing and the recommendations from those hearings were all accepted by the parties. These outstanding results reect the global experience, and thus it is difficult to understand why there has not been a greater uptake of the concept in Australia. Although there is some evidence of an upward trend in the use of DRBs in Australia,118 one cannot say that DAPs have been embraced by the Australian construction industry. The following discussion highlights the authors preliminary ndings regarding the barriers to more widespread use of DAPs in Australia.
DAPS
Barriers to usage
There are four principle barriers to the use of DAPs in Australia, as illustrated in the diagram below.
113 114 115
Wall, n 98, p 23. DRBF Manual, n 37 at [1.3].
The most recent variant is the Independent Dispute Avoidance Panel (IDAP) which was established in 2008 to help the Olympic Delivery Authority avoid contractual disputes during the work to deliver the venues and infrastructure for the London 2012 Olympic and Paralympic Games. The IDAP has been charged with the responsibility of nding pragmatic solutions to problems which may arise before they become disputes that could require lengthy resolution. Given the scale and complexity of this project, the IDAP is made up of 10 construction professionals. More interestingly, a dedicated dispute adjudication panel has also been established, which is made up of a further 10 members experienced adjudicators and different from the members of the IDAP. At the present time, condentiality agreements restrict further information being provided on the process. See London Olympics, http://www.london2012.com/press/media-releases/2008/04/independent-panel-set-up-to-smooth-london2012-construction.php viewed 31 July 2010.
116
Peck GM, Dispute Resolution Takes Hold in Australia and New Zealand (2006) 10 Dispute Resolution Board Foundation Forum 1 at 18. Statistics presented by Peck GM at the Dispute Boards: Lessons Learned Seminar (Sydney, 10 April 2010).
117 118
See The Dispute Resolution Board Australasia (DRBA), List of Australian & New Zealand DRBs, http://www.drba.com.au/ images/australiasian%20drbs%2023%2006%2010.pdf viewed 31 July 2010.
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FIGURE 4
Factors impeding the uptake of DAPs in Australia
Lack of familiarity In a 1998 survey of dispute resolution practitioners in the Australian construction industry, only 28% of those surveyed responded that they had any familiarity with DRBs, while only 8% had any direct experience with the concept.119 At the time of the survey, the DRBF had recorded over 400 international DB projects, but only four of these were in Australia, which may explain this lack of familiarity with the concept. This result can be contrasted with the 80%-90% of respondents who were familiar with ADR models such as mediation and expert determination. A lack of familiarity with DRBs leads to parties sticking with the mechanisms that they know and understand, and which are already being used by the market. Since the 1998 survey, 17 DRB projects have been used in Australia, and with the establishment in 2003 of the Dispute Resolution Board Australasia (DRBA), an industry body dedicated to promoting the use of DBs in Australia, one might expect to now see higher levels of familiarity with DRBs, and DAPs more generally, among the Australian construction industry. However, the process is undoubtedly still in its infancy in this country, with only 21 projects having so far used a DRB. Thus, levels of familiarity and understanding of DAPs remain limited. Absence of clauses relating to DAPs in Australian standard form contracts Although standard form contracts continue to be heavily amended,120 they invariably form the base document for most contracts used in Australian construction projects. Having DAPs provisions in standard form contracts would result in an increase in familiarity with the concept, and potentially also an increase in their use. When standard form contracts started to include ADR clauses, the Australian construction industrys familiarity with, and understanding of, concepts such as mediation and expert determination increased signicantly.121 Similarly the inclusion of clauses relating to DABs in FIDIC in 1995 saw a consequential increase in the understanding and prole of DAPs globally. There is no need for Australia to re-invent the wheel when it comes to contract clauses relating to DAPs, since numerous models are available from other jurisdictions. The authors analyse the experience of three organisations, from different jurisdictions, which have successfully embedded DAPs clauses into their standard form contracts.
119 120 121
Trainer P, Dispute Avoidance and Resolution in the Australian Construction Industry Part 1 (1998) 17(1) Arbitrator 39. Bell, n 20 at 80. Altobelli T, Mediation in the 90s: The Promise of the Past (2000) 3(1) ADR Bulletin 8.
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State Highway Department standard form contracts (California and Florida) The California Department of Transport (Caltrans) played a critical role in the DRB movement when it began a trial of DRBs in 1994, offering them on all projects valued at US$2.5 million and over.122 An extensive process evaluation aimed at assessing their effectiveness was conducted on behalf of Caltrans in 1996, which revealed many recommendations that were subsequently implemented by Caltrans, and continue to be considered best practice within the industry. In 1998, following the success of the trial of DRBs on its projects, Caltrans mandated that DRBs be used on all contracts which had an engineers estimate greater than US$10 million, and calculated to have a duration of at least 200 working days.123 Between the introduction of the DRB process on Caltrans projects in 1994 and 2002, 282 disputes were heard by a DRB. Parties accepted 60% of the recommendations issued by the DRB, and most of the remainder were either settled by negotiation, or not pursued further. Testament to the success of the process is that only four of the 282 disputes (1.4%) remained unresolved post-completion and were submitted to arbitration.124 In 2002, motivated by these successful outcomes, Caltrans seized the opportunity to make DRBs available on a greater number of projects, and in addition to mandatory DRBs on projects over US$10 million, it introduced optional DRBs in contracts with an engineers estimate greater than US$5 million and at least 150 working days duration.125 In 2007, Caltrans began mandating the use of a one-person DRB, called a disputes review advisor, on all projects greater than US$3 million and less than US$10 million and longer than 100 days duration.126 Like Caltrans, the Florida Department of Transport (FDOT) successfully trialled the use of DRBs in 1994, and now mandate that all contracts valued over US$15 million must use project specic DRBs. Today, having experienced profound success with the concept, FDOT makes DRBs available on all its projects.127 Between 1994 and 2006, FDOT used DRBs on more than 600 projects valued at over US$10 billion; from these, 220 disputes were referred to a DRB for a formal hearing. All but ve (97.7%) were resolved without requiring arbitration or litigation. With such unprecedented success, other notable state highway departments,128 including the Washington Department of Transport and the Boston Department of Transport, followed suit and embedded DRB provisions in their standard form contracts. It appears that the widespread adoption of the DRB concept by these state highway departments has contributed to the extensive use of DRBs in the United States. Such is the strong inuence of these state highway departments that of the 810 construction projects that used a DRB in the United States, and were completed by 30 December 2007, 77% came from these four jurisdictions, that is, California, Florida, Washington and Boston.129 Interestingly, it is a road authority that is at the forefront of DRB usage in Australia. Queensland Main Roads (QMR) has taken note of the successful use of DRBs by its American counterparts, and
122 123
The Barrington Consulting Group, Inc, Dispute Review Board Process Evaluation (submitted to Caltrans, 1997) pp 1-89.
State of California Department of Transportation, Construction Program Bulletin (2002), http://www.dot.ca.gov/hq/construc/ cpb/cpb02-3.pdf viewed 3 February 2010.
124 125
Nichols JW, DRBs Overtake Arbitration in California (2003) 7 Dispute Resolution Board Foundation Forum 1.
California Department of Transportation, Construction Manual (2009) Ch 5, http://www.dot.ca.gov/hq/construc/manual2001 viewed 31 July 2010.
126 127
DRBF Manual, n 37 at [1.3].
Ellis R, Disputes Review Board & Project Disputes, Presentation notes for FICE/FDOT Design Conference (Orlando, 30 July 2006); see also Sadler D, FDOT Use of Disputes Review Boards, http://www.construction.transportation.org/Documents/ Sadler,FDOTDisputesReviewBoards.pdf viewed 31 July 2010; Florida Department of Transportation, Guideline for Operation of a Regional Dispute Review Board, http://www.dot.state..us/construction/CONSTADM/DRB/Guideline.shtm viewed 31 July 2010; DRBF Manual, n 37 at [2.11].
128
California, Florida, Massachusetts and Washington are the largest users. The highway departments of Idaho, Minnesota, Mississippi, Ohio, Oregon, South Carolina, Utah, Virginia and Wisconsin also have active DRBs: see DRBF Manual, n 37 at [1.3].
129
Thirty-ve per cent of the projects were in California, 21% in Florida, 15% in Washington, and 6% in Boston. See DRBF Database, n 62; Menassa and Mora, n 74 at 65-77.
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since 2006, its design and construct contracts have included a standard option for DRBs. This may trigger a signicant increase in the use of DRBs by the QMR, and in Australia generally.130 It is crucial that QMR, perhaps in collaboration with the DRBA, undertakes extensive evaluation, similar to that conducted by Caltrans, in order to appreciate and understand the myriad of outcomes that ow from having a DRB on a project. Such results should be widely publicised, so as to increase awareness of, and familiarity with, the concept in this country. ConsensusDOCs (United States) ConsensusDOCS is a relatively new suite of American standard form contracts released in 2007. It provides the contracting parties with the option of electing to refer disputes to a project neutral/DRB if bona de negotiations fail to resolve a dispute.131 ConsensusDOCS differs from other American standard form contracts in that it is endorsed by a diverse coalition of 29 leading construction industry associations with members from all stakeholders in the design and the construction industry.132 Given this expansive involvement of construction industry associations, it has been described as an unprecedented effort the most signicant industry development in the last 20 years. The diverse buy in amongst all parties will literally transform the industry.133 By endeavouring to represent the best interests of the project, rather than a single party, ConsensusDOCS seeks to directly address the perception of bias that has plagued standard form contracts, based on which organisation is responsible for drafting the contract. The ConsesusDOCS lump sum contract provides that:
The Project Neutral/Dispute Review Board shall be available to either Party, upon request, throughout the course of the Project, and shall make regular visits to the Project so as to maintain an up-to-date understanding of the Project progress and issues and to enable to Project Neutral/Dispute Review Board to address matters in dispute between the Parties promptly and knowledgeably. The Project Neutral/Dispute Review Board shall issue nonbinding ndings within ve (5) business Days of referral of the matter to the Project Neutral, unless good cause is shown.134
ConsensusDOCS continues to gain favour in the commercial and industrial markets, with the result that several owner and contractor organisations, such as the Construction Owners Association of America and the Associated General Contractors of America, have ceased development of their own standard form contracts in favour of promoting the ConsensusDOCS suite of contracts.135 It is anticipated that ConsesusDOCS market penetration will see an even greater use of DRBs in America. FIDIC (Europe) FIDIC contracts are one of the most heavily used standard forms for international projects. Given FIDICs standing in the international community, the Multilateral Development Banks (MDBs), which includes the World Bank,136 require their borrowers and aid recipients to use a modied version of FIDICs Red Book on any projects they fund.137 The Dispute Board Federation138 has reported that the widespread inuence of these funding bodies139 has resulted in almost 94% of all DBs in use around the world being in the form of a DAB pursuant to a FIDIC contract.140 In fact, the success of the DAB in MDB funded projects in China, for example, has prompted the Chinese government to
130 131 132 133
Queensland Main Roads currently have DRBs on three projects valued at AU$540 million. The term project neutral is not dened in ConsensusDocs but appears to be in effect a one-person DRB. ConsensusDOCS, Why ConsensusDOCS, http://www.consensusdocs.com viewed 9 December 2010.
Perlberg B, Consensusdocs Built by Consensus for the Projects Best Interest, Paper delivered at the Construction Superconference (San Fransisco, December 2007).
See ConsensusDOCS, 200 Standard Agreement (LS) [lump sum], cl 12.3. Also available is ConsensusDOCS, 300 Tri-Party Agreement for collaborative project delivery; ConsensusDOCS, 410 Design-Build Agreement (GMP) [guaranteed maximum price].
135 136
134
Loots and Charrett, n 7, p 39.
Other banks include the African Development Bank, the Asian Development Bank, European Bank for Reconstruction and Development, and the Inter-American Development Bank Group.
137
For example, in 2004, the MDBs, in collaboration with FIDIC, published the Master Bidding Documents for Procurement of Works and Uses Guide (known as the Harmonised Conditions of Contract) a modied version of the new Red Book, which simplies the use of the FIDIC contract for the MDBs, their borrowers and others involved with project procurement. See
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recommend the use of DABs to parties entering into construction contracts in its standard documents on construction bidding. Although the procedure is not mandatory, it is strongly endorsed by the Chinese government.141 The penetration of FIDIC into other international markets will undoubtedly further promote the DAB concept as a reputable system for dispute avoidance and dispute resolution, and given FIDICs stature in the international arena, the DAB looks likely to play a prominent role in exposing the world to DAPs. The Dispute Board Federation has therefore stated that the best way to market the use of DBs outside America is to promote the use of the FIDIC Red Book.142 Australia, however, stands apart from the rest of the world in not embracing FIDIC as a standard form contract for major infrastructure projects. The explanation for this is not entirely clear, but may be due to the plethora of Australian standard form contracts with which the construction industry is familiar and comfortable.143 Commitment to relationship contracting The third possible explanation for the limited uptake of DAPs in Australia might be the countrys focus on a different system of managing conicts and disputes, namely relationship contracting. Australias love affair with partnering and alliancing may have diverted attention away from DAPs.144 In stark contrast to the 21 projects that have used a DRB in Australia, there have been over 340 projects that have used some form of relationship contracting.145 Relationship contracting has been dened as:
a process to establish and manage the relationships between the parties that aims to: remove barriers; encourage maximum contribution; and allow all parties to achieve success [It] requires the parties to become result focused and willing to challenge conventional standards. The focus is on a cooperative endeavour to improve project outcomes rather than establishing a legal regime to penalise non-conformance.146
Unlike DAPs, relationship contracting diverts the attention away from conicts and disputes, and instead focuses on fostering collaborative working relationships with the inferred belief that this will lead to successful project outcomes. The two approaches are markedly different in that DAPs involve third parties (DB members) to assist with the avoidance and resolution of disputes, whereas relationship contracting endeavours to internalise all issues, and requires the contracting parties to
Glover J, Hughes S and Thomas C, Understanding the New FIDIC Red Book: A Clause-by-clause Commentary (Sweet & Maxwell, London, 2006) p 24; Jaynes GL, Dispute Boards Good News and Bad News: The 2005 Harmonised Conditions of Contract Prepared by Multilateral Development Banks and FIDIC (2006) 23(1) International Construction Law Review 102.
138
The DBF was founded in America to provide advice and assistance in the use of the concept as a means of dispute avoidance on large infrastructure projects in developing countries, particularly in Eastern European countries, but has since expanded its role to cover Europe, Asia, South America and Africa, and now provides assistance in over 23 countries worldwide.
139
Other institutions that have endorsed and embedded the DAB concept in their standard documents or provided standard rules include the DBF, American Arbitration Association, the Institution of Civil Engineers, and the ICC.
140 141 142 143
Wilson, n 84. See Beijing Arbitration Commission, http://www.bjac.org.cn/en/db/index.html viewed 9 December 2010. Wilson, n 84.
See generally Shnookal T, Standard Form Contracting; The Role for FIDIC Contracts Domestically and Internationally, Paper delivered at the Society of Construction Law Australias 2010 National Conference (Perth, 18-19 June 2010); Hoyle J, The Rainbow Down Under: Part I (2001) 18 International Construction Law Review 5; Hoyle J, The Rainbow Down Under: Part II (2002) 19 International Construction Law Review 4;
144
See Department of Treasury and Finance Victoria, In Pursuit of Additional Value, A Benchmarking Study into Alliancing in the Australian Public Sector (2009), http://www.dtf.vic.gov.au/project-alliancing viewed 31 July 2010, pp 7-8.
145
See Peck GM and McLennan A, Experiences with DRBs in Relationship Contracts in Australia, Paper delivered at the Dispute Resolution Board Foundations 10th Annual International Conference (Istanbul, 14-16 May 2010); Alliancing Association of Australasia Ltd, http://www.alliancingassociation.org viewed 31 July 2010.
146
Australian Constructors Association, Relationship Contracting Optimising Project Outcomes (1999), http:// www.constructors.com.au/publications/rc_general/Relationship%20Contracting%20Optimising%20Project%20Outcomes.pdf viewed 31 July 2010.
22
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develop solutions on their own. In the case of alliancing, for example, the contracting parties have collective ownership of all project risks, and have no recourse to litigation, arbitration or other remedies.147 Thus, DAPs and relationship contracting are in many ways incompatible, and as shown in Figure 5,148 Australias commitment to alliancing, may have come at the expense of DAPs. In the last 12 years, AU$65 billion of alliance projects were delivered in Australia, and it appears that the alliance delivery method has been embraced and the jurisdictional appetite for this delivery method has increased markedly since its inception.149 This can be contrasted with the limited uptake of alliancing in the United States, where the concept is virtually unknown,150 due in part to the DRB movement. FIGURE 5 Growth of DRBs vs Growth in alliancing
In 2006, the then Victorian Treasurer, John Brumby, publicly declared that the Victorian governments future infrastructure investment will feature alliancing as the preferred procurement method.151 Later that year, the Department of Treasury and Finance released the Project Alliance Practitioners Guide,152 described at the time as a ground breaking publication providing basic overview of project alliancing, and set out a framework for selecting and establishing project alliances.153 Considering the absence of any role for DBs in a pure alliance contract, the focus on alliancing (particularly in Victoria) may explain why there have been no Victorian projects that have used a DB. However, the use of alliancing may be about to decline with a recent ve-year study of 14 Australian alliancing projects nding that that the actual outturn cost of alliancing projects exceeded the business case cost estimate by an average of 50%. This can be contrasted with traditional delivery
147 148
Except in the case of fraud or willful default.
The DRB chart is based on data collected by the DRBF through to 2001. The DRBF estimates that worldwide use of DRBs is growing in excess of 15% a year and through the end of 2006, it is estimated that over 2,000 projects worth over USD100 billion have had DRBs or DBs: see DRBF Manual, n 37 at [1.3]. The alliancing chart is based on data presented in the Department of Treasury and Finance Victorias report, n 144, p 7.
149 150 151
Department of Treasury and Finance, n 144, p 7. Noble C, Can Project Alliancing Agreements Change the Way We Build? (2007) (July) Architectural Record 1 at 1-2.
Greenham P, Building Can Be a Happy Alliance, The Age (11 September 2006), http://www.theage.com.au/news/business/ building-can-be-a-happy-alliance/2006/09/10/1157826813647.html viewed 31 July 2010.
152
In October 2010, this was superseded by the 167-page Practitioners Guide to Alliance Contracting published by the Victorian Department of Treasury and Finance in co-operation with the New South Wales Treasury, Queensland Treasury and the Department of Treasury and Finance, Western Australia.
153
Department of Treasury and Finance Victoria, Project Alliancing, http://www.dtf.vic.gov.au/CA25713E0002EF43/pages/ project-alliancing viewed 31 July 2010.
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methods which historically exceed the estimate by only 20%.154 As a result of these ndings, justifying the use of an alliance delivery model will now be a lot harder.155 This may open the door for greater use of DAPs in Australia. Perception of high cost The nal barrier to the greater uptake of DAPs in Australia appears to be a perception that it is a very expensive process, only suitable for projects in excess of AU$50 million.156 The establishment of a three-person board, and the requirement that it regularly engage in site visits and maintain a working understanding of the project does involve signicant expense. It has therefore been opined that cost is a major deterrent to the greater uptake of DBs in Australia.157 Although there is an absence of empirical data supporting this assertion, a survey recently conducted in the United States conrms that many in the industry continue to nd it difficult to justify the costs of a DB.158 But how much does the process really cost, and do DBs represent good value for money? The following discussion attempts to expose the actual costs of a DB, and identify potential cost savings. Direct and indirect costs There are both direct and indirect costs associated with implementing a DB. The direct costs include: the legal costs of setting up a DB, such as drafting contract provisions (which could be minimal if DAPs became a feature of Australian standard form contracts); a retainer for each member of the DB, typically two to three times his/her daily fee, which secures the availability of each board member. The retainer is also intended to cover office overheads and secretarial costs; a daily fee for each member for each site visit which also applies to internal DB meetings, co-ordination, organisation, preparation, hearings, and reviewing contract documents and correspondence between parties; travel time; and other expenses incurred by the board.159 Indirect costs cover matters such as employees of both parties preparing for, and participating in, DB meetings, and keeping the DB members informed of developments between site visits. Total costs vary for each project, depending on the extent of the DBs involvement,160 but direct costs typically average 0.15%, and no more than 0.26%, of the total project costs.161 When this is compared to the costs of arbitration or litigation, which represents between 8% to 10% of total project cost,162 DBs represent good value for money insurance. The fact that Australian DBs have achieved a 100% success rate in preventing disputes from reaching arbitration/litigation adds weight to this argument.
154
Although it has been reported that an alliance can aid in the avoidance of disputes, it was found that the cost of alliance projects, when compared to traditional methods of delivery, well exceeded the cost overruns experienced on the projects adopting other delivery methods: Department of Treasury and Finance, n 144; Hayford O and Metledge R, Is Public Sector Alliancing Dead? (2010), http://www.claytonutz.com/publications/newsletters/projects_insights/20100316/is_public_sector_ alliancing_dead.page viewed 31 July 2010.
155 156
Hayford and Metledge, n 154.
Charrett D, Dispute Boards and Construction Contracts, Paper delivered at the Society of Construction Law as part of the Victorian Bar Continuing Professional Development Program (Melbourne, 20 October 2009) p 14.
157
McDougall M, Dispute Review Boards A Better Way to Go?, Paper delivered at the 10th Australian Tunnelling Conference (Melbourne, 21-24 March 1999). Harmon KMJ, Dispute Review Boards Effects on Bid Prices (2004) 46 Cost Engineering 30.
158 159
Gould N, Dispute Boards from a Practical Perspective Dispute Board Costs (2008), http://www.drb.org/downloads/ GouldDBfromPracPersp.pdf viewed 31 July 2010; Charrett, n 156, p 16.
160 161 162
Statistics taken from Peck, n 117. DRBF Manual, n 37 at [1.3]. Chapman, n 44.
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Potential cost savings The cost savings, whether directly or indirectly attributable to a DB, should also be explored in assessing how expensive the process is. The true value offered by a DB lies in the cost savings that are realised throughout the course of the project. However, the quantication of these cost savings is difficult. A 1994 survey on the use of ADR in the construction industry noted that a major barrier to the adoption of new-age innovations is a lack of empirical data examining the relative costs of pursuing alternatives.163 Unfortunately, over a decade later, and despite some attempts, the availability of such data about ADR remains limited. One notable piece of research conducted in the United States, although based on only a relatively small data sample, offers some insight into the transactional costs expended in resolving a dispute.164 Transactional costs were dened as the costs that are incurred because of the presence of a dispute including direct costs, indirect costs and hidden costs.165 Figure 6166 illustrates the transactional costs expended in a variety of different dispute resolution processes, in three different areas, namely, (1) management and staff costs; (2) outside counsel fees; and (3) other costs. This study found that the further a dispute moves away from the control of the parties, and progresses up the hostility hierarchy, the more outside counsel fees outweigh all other costs associated with the resolution of the dispute. When resolving a dispute through arbitration, for example, 75% of costs are expended on external lawyers fees, whereas in mediation and negotiation only 58% and 40% respectively are spent on this category.167 FIGURE 6 Costs of Resolving Disputes
On the other hand, while management and staff costs account for 41% of total costs when negotiating the resolution of a dispute, only 19% and 8% were spent on management and staff costs when resolving a dispute using mediation and arbitration respectively. The magnitude of the impact associated with the rising need for outside lawyers is evidenced in Table 1168 below. It is clear that there is a large differential (2,600%) between the mean costs expended by a DRB, and the mean costs associated with mediation and arbitration! These gures overwhelmingly support the use of DAPs as a tool to avoid the extreme legal costs associated with arbitration, litigation and even ADR.169
163
Stipanowich TJ, Dispute Avoidance and Resolution: The Construction Industry as the Cutting Edge of Evolution (1995) 15(4) Construction Lawyer 3 at 3-4.
164
The study collected data from 61 projects from 56 organisations through electronically mailed surveys, personal interviews, and web-based questionnaires. Gebken RJ, Quantication of Transactional Dispute Resolution Costs for the US Construction Industry (2006), Presented to the Graduate School of The University of Texas at Austin, http://www.repositories.lib.utexas.edu/ bitstream/handle/2152/2484/gebkenr19272.pdf?sequence=2 viewed 31 July 2010.
165
These costs include direct costs (such as fees and expenses paid to lawyers, paralegals, accountants, claims consultants, and other experts), indirect costs (such as salaries and associated overhead of in-house lawyers, company managers, and other employees who have to assemble the facts, serve as witnesses and otherwise process the dispute), and (to the extent they can be measured) hidden costs (such as inefficiencies, delays, loss of quality that disputes cause to construction process itself, and the costs of strained business relations between the contracting parties): see Gebken, n 164, pp 57-58.
166 167
Only one DRB project was included in the study (adapted from the results presented in Gebken, n 164, pp 75-127. Gebken, n 164, p 127.
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TABLE 1 Mean Transactional Costs Comparison Groups Arbitration Mediation Other ADR Methods Negotiation DRB No of Projects 11 15 11 18 1 Mean Transactional Costs (US$) 1,167,183 1,212,433 1,193,288 330,199 45,000 Compared to DRB 2,594% 2,694% 2,652% 734%
In the one DRB project included in the study, staff management costs comprised over 50% of total transactional costs while external lawyers fees accounted for only 11% (the lowest of the four dispute resolution categories). This indicates that projects which implement a DRB involve greater staff and management time. This means there is a greater opportunity for conicts to be managed, and for disputes to be avoided or resolved by the parties themselves. Another signicant cost to be factored into calculations is the difference in time (and therefore cost) between preparing a dispute for a DRB hearing and assembling the voluminous trial documentation to be put before an arbitrator or judge costs that are never recovered in full, even by the winning party.170 Overall, the costs of a DB are minimal when compared to the costs that can accrue once parties step foot on the litigation treadmill. Lower tenders It has been asserted that letting tenderers know that there will be a DB on a project results in lower tenders.171 This is because contractors see a DB as reducing the risk of a project ending up in litigation or arbitration. A survey in the United States found that 96% [of respondents] felt that having a DRB provision in the contract indicates openness of the owner to resolving disputes without resorting to arbitration/litigation.172 Although there is limited empirical data proving a direct link between lower tenders and the provision of a DB, a 2004 study found that while few contractors consciously reduced a tender because of the presence of a DB on a project,173 they did note that conicts will be reduced and settled at an earlier date, which will allow contractors to bid lower on future projects based upon their experience.174 These survey results look promising, but it is clear that further research is needed. Overall, the evidence suggests that the perception that the cost of DBs is prohibitively high is not justied. Research to date actually indicates that DBs may be one of the most efficient and least antagonistic dispute avoidance and resolution processes available.175 The problem may be that, like insurance, the costs of a DB add to already high upfront costs of a project, and when budgets are tight, such an expense is seen as dispensable. Increased awareness of DAPs and the potential savings to the
168
Adapted from the results presented in Gebken, n 164, p 115. The author asserts that the mean transactional costs of arbitration and mediation are almost identical because many of the disputes were settled in mediation. Some were part of court-ordered mediation while others had gone through a prolonged document discovery and deposition phase before resolving their dispute in mediation.
169 170 171 172 173
Gebken, n 164, p 111. Chapman, n 44. Harmon, n 158 at 30-34. Harmon, n 158 at 33.
See also Edgerton W, Insight into the Users Perspective of the DRB Process (2003) 7(2) Dispute Resolution Board Foundation Forum 1. Harmon, n 158 at 33. Gebken, n 164, p 141.
174 175
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parties is needed in order to change the industrys culture and attitude to conict and disputes, which all too often are seen as an inevitable part of any construction project.
THE
WAY FORWARD
If it is accepted that DAPs offer signicant benets to the construction industry and the overseas experience suggests this is the case then we need to explore how Australia can overcome the barriers that have prevented greater use of DAPs in this country. The positive reception of relationship contracting and its widespread usage in Australia suggests a nation that is receptive to ideas about how to combat the culture of conict and disputes that plague the construction industry. Given the cloud that now hangs over alliancing,176 the time may be ripe for the Australian construction industry to consider DAPs as a proven means of avoiding conicts and managing disputes. There are a number of steps that can, and should, be taken in order to increase the chances of DAPs taking off in Australia.
Education
The lack of familiarity with DAPs in this country indicates that widespread education about this concept is a priority. What is needed is a strategic education campaign that targets specic audiences, not a scatter-gun approach that tries to generally raise awareness and understanding of DAPs. Education about DAPs should be directed at those in a position to bring about change, including: The legal profession: Construction lawyers are uniquely placed to promote the use of DAPs in Australia. As respected professionals, their advice is often sought regarding appropriate project delivery methods. The legal profession is therefore well positioned to inuence the use of DAPs through the advice and recommendations they give their clients; Principals: As stated earlier, the DAB is the most utilised model of DAP outside the United States because it is the model included in FIDIC standard form contracts, which are popular with principals and their lenders. Likewise, the widespread use of DRBs by state highway departments was the catalyst for the growth in DRB usage in the United States. In Australia, we must make an effort to ensure that government departments responsible for procuring infrastructure, and organisations responsible for producing standard form contracts, such as Standards Australia, Property Council of Australia and the Department of Defence, are made aware of the merits and practicalities of DAPs, so that they can incorporate them into their standard forms, and thereby promote their use. Students: DAPs are unlikely to become commonplace until the industry becomes comfortable with the concept. Educating the next generation of construction professionals about DAPs is one way to achieve this. If future engineers, contractors, architects, project managers and construction lawyers learn about DAPs as part of their university training, they will not perceive the concept as a foreign phenomenon, but rather as a normal and natural part of a construction project. We have seen how the ADR movement (imported into Australia from the United States) challenged arbitration and litigation through the establishment of organisations which pioneered the use of ADR.177 Organisations, such as the Institute of Arbitrators & Mediators Australia (IAMA), were established to promote and inform of the practice of settlement of disputes by other forms of non-curial dispute resolution, with the result that ADR has become commonplace and accepted as a reputable system for dispute resolution. Likewise, for DAPs to become acknowledged and embraced by the Australian construction industry, it is critical that Australian industry organisations show leadership, and emphasise the importance of dispute prevention when it comes to construction projects.
176 177
Hayford and Metledge, n 154.
Condliffe P, Mediation: Past and Promise the 5th National Mediation Conference 2000 (2000) 3(1) ADR Bulletin 1 at 1-2.
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The role of the Dispute Resolution Board Australasia

The DRBA, which is the Australian and New Zealand chapter of the DRBF, was formally launched in 2003 with the aim of convincing local industry that the DRB concept was one of the most effective risk management tools for effective delivery of construction projects.178 The DRBAs objectives are to: 1. expand the understanding of the DRB concepts as an extremely cost effective and efficient process for dispute avoidance and for dispute resolution on construction projects; 2. promote the use of DRBs as the preferred dispute prevention and resolution model for major contracts; and 3. provide assistance to parties within the industry for the establishment and application of DRBs, including the provision of general advice and suggestions for tailoring to suit particular needs.179 Since its formation, the DRBA has forged close links with IAMA and Consult Australia,180 which allows the DRBA to access these organisations members for the purposes of conducting seminars to further the DRBAs objectives. It also provides for a range of scholarly papers and presentation notes relating to the DRB process.181 At 1 May 2010, the DRBA had 81 registered members. This is a relatively small number considering it included members from both Australia and New Zealand, and that the DRBA is now in its eighth year of operation. The DRBA has formed a solid foundation, but efforts must be increased if DBs are to really take off in this region. For ideas and inspiration, it need look no further than the work of its parent organisation in the United States. The DRBF has played a crucial role in the promotion of DBs in the United States and around the world.182 Its website hosts a wealth of knowledge relating to the implementation of DBs, including scholarly articles, newspaper features, presentation papers, and its Practices and Procedures Manual that reects current best practices. There are numerous case studies of the many projects that have adopted DBs, and a comprehensive database is available for download, which catalogues over 1,000 global DB projects. The database reveals enlightening information on every project, such as the number of disputes heard, the number of disputes referred for a formal DB hearing, and the number of disputes that proceeded to further binding dispute resolution procedures. In recognising that this database is a great marketing tool for the adoption of DBs on future construction projects, the DRBF, as part of its new marketing plan, is expected to release an update of this database sometime in 2011.183 Unfortunately, the DRBAs website has no equivalent information regarding the use of DBs on Australian projects. Concerns about condentiality are apparently inhibiting the DRBA from publicising this sort of information. However, this needs to be overcome, as nothing sells DBs as well as their proven track record of success. Anecdotal stories about the use of DAPs on Australian projects are no substitute for sound empirical data. Developing such a database should be a priority for the DRBA.
Standard form contracts

Considering the number of organisations dedicated to promoting ADR and the support given to this movement by the legal profession,184 it is no surprise that ADR is now a feature in many Australian standard form contracts. The inclusion of mediation clauses was a huge catalyst for the construction industry embracing ADR. If Australian standard form contracts were to similarly extol the importance
178 179 180 181
Peck, n 116 at 1. Peck, n 116 at 17. Formerly known as the Association of Consulting Engineers Australia (ACEA).
See DRBA, DBRA Publications, http://www.drba.com.au//index.php?option=com_content&task=view&id=7&Itemid=27 viewed 31 July 2010.

182 183 184
The DRBF promotes and provides information/statistics for both DRBs and DABs. See DRBF Database, n 62. Allione R, Presidents Page (2010) 14(2) Dispute Resolution Board Foundation Forum 1 at 2. Condliffe, n 177 at 2.
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of dispute avoidance, by embedded DAPs provisions, we would undoubtedly see an upsurge in the use of DAPs in this country. Although the DRBA provides standard DRB specications on its website,185 the current lack of understanding and willingness to embrace DAPs in this country means these documents are not experiencing a high uptake. It would be preferable to follow the ADR experience and seek to have DAPs provisions embedded in standard form contracts.
CONCLUSION
DAPs are a creature of contract;186 they are the product of the parties commitment to avoiding disputes during the course of the project in an effort to ensure that the project is completed with no outstanding disputes. It is therefore timely to recall that:
The best contract in the world will not prevent a dispute arising from a clash of personalities, and the worst contract may not cause a problem if the parties in fact get on well and work together to achieve the contractual aim, no matter how poorly that aim is expressed in the contract.187
DAPs should not be seen as a panacea, as the success and benets that are derived from any DAP process depend on the attitude of the parties, and whether they are willing to move from an adversarial environment to one of mutual trust and condence. This requires a drastic cultural change, and as stated in a recent address by Justice David Byrne of the Victorian Supreme Court, when speaking of the chances of such cultural transformation, the required resuscitation measures might have to be heroic.188 Such is the dire state of the construction industry, that one can forgive this pessimism. However, global evidence clearly demonstrates that projects which have used a DAP have fostered co-operative, rather than adversarial working relationships, which has contributed to an overwhelming number of projects being completed with no outstanding disputes. It is time for Australia to follow suit, and embrace the successful worldwide phenomenon of DAPs.
185
See DRBA, Draft Contract Clause Final, draft%20contract%20clause%20nal.doc viewed 31 July 2010.
186
http://www.drba.com.au/images/DRBA_Precedents/
McMillan DD and Rubin RA, Dispute Review Boards: Key Issues, Recent Case Law, and Standard Agreements (2005) 25 Construction Lawyer 14.
187 188
Nosworthy ID, Improving Arbitration and Mediation: Creative approaches in the 21st Century (2005) 21 BCL 166. Byrne D, The Future of Litigation of Construction Law Disputes (2007) 23 BCL 398 at 408.
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DAPs When Will Australia Jump On Board

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DAPs When Will Australia Jump On Board

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DAPs: When will Australia jump on board?

Paula Gerber and Brennan Ong*

AND EXTENT OF CONSTRUCTION DISPUTES