While dispute resolution, or litigation as we used to call it, is always the last resort, there are times when Parties are unable to agree at all. In such cases, a third-party neutral evaluation of a claim would assist in resolving the construction dispute. Depending on where you are in the world today, we have construction adjudication and Dispute Boards. It is hard to believe that they have been with us for such a short time.
Thus, in this Blog Post, firstly, the author shall explore the historical evolution of Dispute Boards and construction adjudication as a form of interim dispute resolution mechanism. Secondly, the author shall scrutinise how they have developed in practice in several jurisdictions by conducting a pros and cons analysis of the same. Thirdly and lastly, the author shall discuss and analyse issues with Dispute Boards from an Indian perspective.
1. Introduction: Historical Evolution of Dispute Boards and Construction Adjudication
According to Dispute Resolution Board Foundation (DRBF), the leading body for Dispute Boards (DBs) globally, the first reference to DBs was in 1974. In 1972, the US National Committee on Tunnelling Technology sponsored a study on contracting practices worldwide to develop recommendations for improving contracting methods in the US. The reference is in the1974 report from a study called “Better Contracting for Underground Construction,” which states that this is the genesis of the DB concept.
The first DB processwas used on the second bore of the Eisenhower Tunnel for Interstate 70 in Colorado. Over the next few years, it seems to have stayed as a system linked to civil engineering in the USA. It was only in the late 1980s-early 1990s that DBs began to gain a genuine interest around the world outside of tunnelling. The forerunner of construction adjudication in the UKwas first used on a tunnelling project — the Channel Tunnel Rail Link Project, connecting between the UK and France.
The next step forward in the history of DBs was in 1989 when the American Society of Civil Engineerspromoted the concept of DBs in its first edition manual “Avoiding and Resolving Disputes During Construction.” This publicationwas updated in 1991 by the Technical Committee on Contracting Practices of the Underground Technology Research Council. The most notable thing is that up to this point, contracts using DBs mainly were dealing with civil engineering and, in particular, tunnelling, which was all about to change.
In 1993, the first New Engineering Contract (NEC) form of contract was published in the UK. Two years later, in 1995, the Second Editionwas published and included construction “adjudication,” a similar form of dispute resolution.
At the same time, the British government and the construction industry agreed to review the industry in the UK. The first report was published in December 1993 and was called “Trust and Money.” The second report, officially known as “Constructing the Team” (which would later be known as the Latham Report),was published in 1994, and with it, a fundamental change was introduced in the UK construction sector.
In 1995, the World Bank published a new edition of its standard bidding document, titled “Procurement of Works,” which provided three different forms of dispute resolution and included a 3-person DB. Further, DBs became mandatory for all disputes at over $50 million.
Almost in tandem with this, the UK government was in the process of revamping its contractual dispute resolution mechanisms and was bringing the UK in line with theUNCITRAL Rules for Arbitration with itsArbitration Act, 1996. At the same time, the UK government was also introducing a new piece of legislation under the title of the “Housing Grants, Construction, and Regeneration Act, 1996,” bringing construction adjudication to the UK. Moreover, in 1996, the DRBF was also established as a non-profit organisation for construction dispute resolution. The goal of the DRBF was to promote the use of the DB process and serve as an educational resource and information exchange for members. Thus, 1996 was a quintessential year in the UK.
So, by the end of the 1990s, the UK had DBs being used internationally, and construction adjudication started becoming the law. The construction adjudication processbecame the law in the UK for all contracts entered after 1 May 1998, and it became an increasingly popular form of dispute resolution worldwide and competed with DBs. Statutory construction adjudication was introduced across Hong Kong, Australia, New Zealand, Ireland, some parts of Canada and Singapore. In other parts of the world, since the 1990s, DBs have gone from strength to strength, being used worldwide, including the Middle East, Eastern Europe, and South America. They are also in use in India, which shall be scrutinised later in this Blog Post. Thus, this shows that DBs have become the main form of interim dispute resolution for construction disputes across various parts of the world, including the UK.
2. Adjudication and Dispute Boards: A Comprehensive Scrutiny
When discussing construction adjudication, it is almost always referred to as a form of statutory dispute resolution. It first started in the UK; however, it is now widely used in the English speaking common law world. Indeed, the USA is the last major English speaking jurisdiction not to have statutory construction adjudication but is the home to DBs.
Construction adjudication is probably the easier yet unpredictable form of dispute resolution because it is a statutory form of dispute resolution. Further, the process of construction adjudication has often been described as “quick and dirty” because – (i) the adjudicator appointed will know little to nothing about the project as they have never heard of the project until they are appointed; and (ii) they will only have a limited time period to consider the issues in dispute. The statutory scheme in the UK provides for the construction dispute to be resolved within 28 days, extended up to 42 days by consent of the referring Party. Otherwise, the adjudicator generally makes a quick decision based on limited information. The English Courts have taken the approach of enforcing adjudicators’ decisions and ignoring any alleged breaches of natural justice unless they are particularly severe. As the decisions are only interim binding, they can be overturned later by a Court or other Tribunal. When a balance of needs is considered, the need for cash flow in the construction industry was felt more important than having high-quality decisions. In most construction adjudications, limited time for a hearing or site visit or any other form of the meeting has become a generally accepted norm.
The English system is often considered flawed, and where construction adjudication rules have been introduced in other jurisdictions, the type of dispute referred to adjudication is often limited to financial issues only. Due to this, construction adjudication is often seen as a choice of last resort where the Parties cannot otherwise resolve their disputes.
On the other hand, DBs are different. DB process lends itself to more substantial projects where the issues between the Parties can be of far greater value and substantially more complex, and therefore, resolution of such issues is aided by the input from the DB members.
We shall now scrutinise what is referred to as standing DB as they have the advantage of seeing the project through from start to finish, notwithstanding the length of the project. The members of a standing DB are generally identified as part of the contract. They are primarily found in the FIDIC form of contracts. The standing DB members will be copied into correspondence throughout the contract and provided with a copy of the contract. Further, the members will: (i) attend the site regularly; (ii) meet with the key players of the contract, including subcontractors and designers; and (iii) will have an opportunity to understand the project holistically. However, the disadvantage of standing DBs is the cost and the time taken to transport the DB members —generally three members— to attend the site.
The frequency of site visits can be as often as: (i) once a month, (ii) every few months, or (iii) once every six months. Once a dispute has arisen between the Parties, it is a speedy process to refer the dispute to the DB for determination. A multitude of contracts provides that the Parties must go through the DB process before arbitration. The process is more flexible as it is a contractual process and, therefore, allows the Parties to ask for interim determinations or indications of the views of the DB. When a significant dispute arises, the DB can jump into action quickly and apply the relevant processes for dispute resolution; after which it can publish its decisions. Although there are generally three members, the time taken for a decision is longer than that of construction adjudication. However, the general view is that the decision of the DB is likely to be more balanced and thought through than an adjudicator’s decision.
Apart from regular site visits, DB members must be regularly informed about the construction progress, usually by sending copies of or extracts from routine progress reports. Thus, this means that it is vital that the DB members take the trouble to read and digest the contents of these reports so that they are familiar with on-site events. Additionally, DBs also tend to have hearings and meetings with the Parties to be better informed about the on-site events.
A. Comparison of Construction Adjudication and Dispute Boards: A Pros-and-Cons Analysis
In this section, we shall scrutinise the advantages and disadvantages of both construction adjudication and DBs. Construction adjudication has been massively successful in the UK and in other countries in which it has been implemented. One of the reasons for that success is that it is a statutory form of dispute resolution. However, it is far from perfect, and its process often attracts public criticism. The process has become overly legalistic, and in 2011, changes were introduced in the law in the UK to try and stop the number of challenges construction arbitration faces. In other jurisdictions, most notably Australia and Ireland, adjudication has been used purely as a cash flow instrument. If one thinks back to the original intention of the Latham report, it was to ensure cash flow in the industry and not to resolve other complex issues.
DBs have been equally highly successful. However, a weakness is that when they involve government bodies or institutions in some jurisdictions, it becomes far more challenging to have their decisions enforced by local Courts. However, these issues seem to be few, and DBs have substantially helped companies from different backgrounds and countries with very different business practices resolve their differences and complete projects on time. DBs are particularly popular in large-scale projects where they are very successful, and most major infrastructure projects have DBs on them.
The author’s personal experience is that construction adjudications and DB are very successful when used in the right places. In the author’s view, construction adjudication is the one that is more likely to go wrong, and the decisions of an adjudicator can cause real problems for Parties during construction works; however, taking a balanced view, they are successful. Data from the UKsuggests that only a relatively small number of adjudicated disputes move to litigation or arbitration. Further,there are 2,000 adjudications each year in the UK, but only a few end up in courts for enforcement. Thus, this shows that the Parties generally accept adjudicators’ decisions.
3. Dispute Boards and the Indian experience
This section will scrutinise the types of disputes in India and whether DBs are being used effectively.
DBswere used in India post-liberalization, wherein DBswere made mandatory for all projects financed by the World Bank and whose value was $50 million or more. Further, DBs have recentlybecome the norm in most large-scale construction projects in India. Some of the recent examples are as follows:
- “Indian Railways’ project (to build a dedicated freight corridor in India).”
- “Metro Rail project of Chennai.”
Thus, it appears that DBs in India are similar to the standing DBs as previously described in other common law jurisdictions. The constitution of a Dispute Adjudication Board/Dispute Review Board (DAB/DRB) seems similar to the use of standing DBs wherein the DAB/DRB comprises of a panel of 1 or more neutral members appointed for the complete contract period or on an ad-hoc basis. The panel generally comprises experts in the construction sector who have the relevant skills to adjudicate complex construction disputes. Further, enforcement of decisions of DBs in India seems to be by way of referral to arbitration or the Courts.’’
Ina 2020 report, it was found that DBs are not being effectively implemented in India. The main points of criticism were — delays in the constitution of the DBs; lack of requisite qualifications, expertise, and awareness about the DB process; length of time taken in resolving disputes referred to the DB; the tendency of Parties to challenge the decision of DBs in arbitration; mindset of non-acceptance of the DB system; and a lack of honouring of the decisions given by DBs. Thus, one overriding point is that DBs in India are not using the more internationally accepted standard forms. The preference appears to be towards arbitration.
4. Conclusion: Success of Dispute Boards and Adoption of Construction Adjudication
The reality is that the international construction industry is moving increasingly towards an interim dispute resolution process. Large swathes of the English speaking world have already gone over to adjudication, and many countries in South America, Africa, the Middle East, Eastern Europe, and Asia are emerging successful in using DBs.
Increasingly, in this world where we rely on finance that is unwilling to wait for long periods before being repaid, forms of dispute resolution that bring an early resolution are being favoured. Adjudication in the UK, Hong Kong, and Australia has been significantly successful, and it has undoubtedly led to a reduction in the number of companies going into insolvency. It has also rebalanced the industry so that big contractors do not control it, which has undoubtedly led to the revolutionisation of the construction industry.
In finality, the author comments that individuals reading this Blog Post may not have experience regarding construction adjudication and DBs. In that regard, the author urges the readers to read more about these two concepts and familiarise themselves as these concepts are capable of having a revolutionary impact on the readers’ businesses and the construction industry.
The views and opinions expressed by the authors are personal.
About the Authors
Mr. Richard Bailey is a Partner at Druces LLP, London, a Specialist in Construction, Engineering and International Arbitration, and a Council Member of the European Society of Construction Law (ESCL).
He was assisted by Pushpit Singh, Associate Editor, IJPIEL, in research for the section “Dispute Boards and the Indian Experience.”
Managing Editor: Naman Anand
Editors-in-Chief: Jhalak Srivastav and Aakaansha Arya
Senior Editor: Hamna Viriyam
Associate Editor: Pushpit Singh
Junior Editor: CH Sriniwas
Preferred Method of Citation
Richard Bailey, “Construction Adjudication and Dispute Boards – How do They Compare: a Pros and Cons and Common Law Comparative Analysis” (IJPIEL, 23 February 2022)