Improving your project success rate by using a Dispute Avoidance Board
Project owners want successful projects - on time, within budget, and delivering expected benefits. The Australian approach to Dispute Avoidance Boards (DABs) has proven its ability to significantly improve the prospects of a project being successful. This article, which is based on a recent presentation to a Vietnam Society of Construction Law conference, explains why this is so.
It does so by:
briefly explaining how Dispute Avoidance Boards operate in Australia;
providing some statistics on the success rate of Australian DABs;
attributing the high success rate to how Australian DABs exercise their dispute avoidance function, and explaining the dispute avoidance techniques commonly deployed;
explaining the different options available in relation to the decision-making function of DABs, and the approach generally adopted in Australia; and
finally, considering the cost of Australian DABs, and how the cost can be minimised.
How Dispute Avoidance Boards operate in Australia
Unlike Vietnam, Australia is not a big user of FIDIC contracts. Most major construction projects in Australia are contracted under bespoke forms of contract. So most Australian DABs arise out of these bespoke contracts.
Australian DABs are standing boards, rather than ad hoc boards. They are established at the commencement of the project when the construction contract is signed, and the first DAB meeting occurs within a month or two thereafter.
Usually, Australian DABs comprise three members who bring a mix of skills to the task. Generally, at least one of the DAB members will be a lawyer. The other DAB members are often engineers or ex-project managers, with significant experience on projects similar to the project being undertaken.
Australian DABs have two functions:
Firstly, they have a dispute avoidance function, which involves regular meetings between the Board and senior on-site and off-site representatives of the contracting parties, to assist the contracting parties to identify and amicably resolve issues as and when they arise. I like to think of this dispute avoidance function as being akin to pro-active mediation – pro-active because it occurs before issues turn into a full-blown dispute, and like mediation because all resolutions require the agreement of the parties.
The second function is the decision-making function. If the contracting parties are unable to resolve an issue by agreement, either party may refer the dispute to the DAB for a formal decision.
I expand on these two functions below.
The emphasis in Australia is very much on the dispute avoidance function. It is this pro-active, real-time function of DABs that differentiates DABs from most other forms of dispute resolution. And it is this pro-active dispute avoidance role that explains why their use significantly improves the prospects of a successful project.
In fact, in Australia, we generally call them “Dispute Avoidance Boards”, to emphasise the focus on dispute avoidance. Other terms used to describe the concept include Dispute Resolution Boards, Dispute Adjudication Boards, Dispute Avoidance and Adjudication Boards or simply Dispute Boards.
Success rate: 100%
The first recorded use of a DAB in Australia was on a set of ocean outfall tunnels for sewerage constructed between 1987 and 1991.
Though the success of this project should have indicated the utility of DABs, there were relatively few employed until a resurgence, led by local committed individuals, beginning in 2003 with the formation of the Australian and New Zealand chapter of the Dispute Resolution Board Foundation, known as DRBF Region 3.
DRBF Region 3 has kept good records on the use of DABs in Australia and New Zealand. According to these records, DABs have now been used on over 100 projects in Australia, with a combined value exceeding A$60 billion.
Not one of these 100 projects have had a dispute that has gone to a final court or arbitral decision.
Overwhelmingly, most of these projects have been able to resolve all issues amicably, without the need to refer any disputes to the DAB for a formal decision. In other words, the DAB has been able to assist the parties to avoid formal disputes on the vast majority of the projects through the exercise of its dispute avoidance function.
Some projects have referred disputes to the DAB for a decision, which has then been accepted by both parties, or formed the basis of a subsequent settlement. On one or two occasions, litigation or arbitration proceedings have been commenced following a DAB decision, but on all such occasions the dispute has been settled before the court or arbitral tribunal has been required to make a final decision.
That’s an extraordinary success rate. Think about the billions of dollars of dispute-related costs that have been avoided.
And by resolving most issues amicably as and when they arise, Australian DABs have been able to significantly improve the time and cost outcomes these projects would have otherwise achieved.
Dispute avoidance
As mentioned, it is the pro-active dispute avoidance function of Australian DABs that sets them apart from other dispute resolution methods and is the secret of their success. Let me explain in more detail how this works.
Shortly after the contract is signed, before any issues or disputes have arisen, the dispute board will have its first meeting with the contracting parties. These meetings are usually held at the construction site and follow a site-tour during which the contractor and the project owner will explain what’s happening on site, its plans, and the challenges it is experiencing or it sees ahead.
At the first meeting, the chair of the DAB will discuss with the parties how the DAB proposes to operate, including:
that all communications between the DAB and a party will occur in the presence of both contracting parties, and
that all communications will be on a ‘without prejudice’ basis, meaning they cannot be later used by a party against the other in any court or arbitral proceedings.
The frequency and protocols for future meetings will also be agreed, including who should attend the meetings. The attendees will usually include the most senior on-site project manager from each contracting party, and their respective off-site boss. It is important that the attendees have authority to discuss, agree and settle issues, in real time.
It is common for meetings to commence with a joint presentation by the contracting parties to the DAB on how the project is progressing, and the status of any issues that have been identified at previous meetings.
The DAB meetings also provide opportunities for the DAB to ask questions, designed to flush out issues, and to make suggestions as to how the parties might seek to progress and resolve issues that have arisen, and prepare themselves for what’s coming.
For particularly complex or urgent issues that can’t be resolved at a meeting, the DAB might suggest facilitated workshops, to help the contracting parties break the issues down and find solutions.
Sometimes the DAB might suggest, or the parties may request, that the DAB provides the parties with a non-binding advisory opinion on the parties’ rights and obligations under the contract in respect of an issue. These advisory opinions can then provide a basis on which the parties can seek to amicably resolve or settle their issues.
After each meeting, minutes are prepared by the DAB and distributed to the parties. These minutes can then be used to track progress on issues at the next meeting.
That should give you a sense of the dispute avoidance techniques that Australian DAB typically deploy.
It is the real time, pro-active approach that DABs bring to emerging issues that enables problems that would otherwise result in delays, cost overruns and lost benefits to be identified and solved in a timely manner.
Decision making
If the parties are unable to reach agreement on how to resolve an issue, either party may refer for issue to the DAB for a formal decision.
The decision-making process usually involves each party making a written submission to the DAB on the issue. The DAB may then decide to hold a hearing, to give each party an opportunity to present its respective position and for the DAB to ask questions. Each party will generally be assisted by its lawyers through this process.
The DAB would then deliberate in private and seek to reach a consensus written decision with reasons on the issue which would then be provided to the parties.
In Australia, these formal decisions are generally treated by the contracting parties as interim binding, that is binding on the parties unless one party challenges the decision within a specified timeframe, in which event the dispute is referred to the courts or arbitration for a final and binding decision.
Alternatively, the contracting parties can agree that DAB decisions will be non-binding, or that they will be final and binding.
In Asia and the United States of America, it is more common for the DAB’s decision to be non-binding and for the parties to use the decision as a basis for settling the dispute by agreement.
Cost
I’ll conclude this article with some observations on cost.
Regular DAB meetings involving senior experienced dispute board members are not free.
In Australia, the parties usually agree to pay a monthly retainer to each dispute board member, and a higher amount for the months in which DAB meetings occur. The monthly retainer covers travel time, the cost of reading the contracts, progress reports and remaining familiar with the project.
It also buys the exclusivity of the DAB members to the DAB role on the project. The DB members cannot accept other roles that would give rise to real or perceived conflicts of interest.
Travel costs are usually reimbursed. These can be reduced via the use of video-conference facilities for some or all DAB meetings, which became common during the COVID lockdowns in Australia.
The cost of formal decisions is usually paid for on an hourly rate basis.
The annual cost for a 3-person DAB in Australia is generally somewhere between A$150,000 and $A250,000, depending on the seniority of the DAB members. For a A$100 million project, this annual cost equates to between 0.15% to 0.25% of the project cost. The percentage decreases as the project cost goes up.
When you consider the cost of briefing lawyers and barristers on a construction dispute that goes to court or arbitration, and the success rate that Australian DABs have enjoyed, the annual cost is cheap insurance against costly disputes.
Think of the cost as a small investment in a governance arrangement that will significantly improve the project’s chances of success - on time, within budget, and with expected benefits delivered.
Owen Hayford is a member of the Dispute Resolution Board Foundation, and accepts engagements as a DAB member.
