Dispute Resolution Boards: Understanding Their Form, Function and Benefits

There is a growing trend in Construction leaning towards “preventative law” in the shape of what is referred to as Dispute Resolution Boards (“DRB”), resulting in saving time, project costs, and legal fees both during and after construction. DRBs represent a ‘job-site’ dispute adjudication process, typically comprised of three independent and impartial persons selected in advance by the contracting parties. The purpose of the DRB is, when a dispute arises during the construction process that the owner, contractor or subcontractor cannot settle on their own, the DRB will take in all of the facts on each side of the dispute and produce a written recommendation for resolution. The concept was born in the late 1990’s out of the nonprofit Dispute Review Board Foundation, located in Seattle, and has reported great success across the country.

In a nutshell, the DRB and its procedures are organized before construction begins. The contractor selects one member and the owner selects another, with each left to approve the other’s choice. The third member is selected jointly. From the inception of the project, the DRB receives copies of the contract documents, makes a project inspection tour, meets periodically at the site, and is kept informed of project developments. The DRB, in essence, becomes part of the project administration and thereby can influence the performance of the contracting performance in a ‘real-time’ setting, allowing for the settlement of disputes contemporaneous with the project. This not only saves enormous amounts of money and time, but frees up resources and personnel that would otherwise be impacted to focus on a dispute. Additionally, because the DRB members are selected from the inception of the project, they become part of the project team and therefore viewed differently because of their “hands on” approach which gains the trust and respect of the disputing parties more readily and easily than would a third party or stranger to the project.

While the decision of the boards are non-binding, studies have shown excellent results in minimizing construction delays and disputes through use of DRBs. A growing number of state departments of transportation, including Florida, are using DRBs. One of the most notable successes of a DRB use happened in the last few weeks, and relates to the construction of the $1 billion PortMiami tunnel constructed to connect PortMiami to I-395. Through the DRB, a rapid $58.5 million settlement was reached by the panel regarding extra work. Specifically, as the company commenced the digging of the tunnel, changed conditions were revealed and required grouting of the limestone as the digging continued, and at a significant cost. Through the DRB’s recommendation, the company was able to negotiate the financial resolution directly with the Florida Department of Transportation while continuing to progress with the construction.

In North America, DRBs have been employed in over 1,200 projects, aggregating some $90 billion in construction cost. Roughly 1,500 DRB recommendations have been issued, and, of these, all but a handful have been adopted by the parties, thereby avoiding costly and time-consuming arbitration/litigation.

Because the concept is new, many initial concerns relate to the cost associated with adding a DRB to a construction contract. DRB costs range from 0.05% of final construction contract cost, for relatively dispute-free projects, to a maximum of 0.25% for difficult projects with disputes. Considering only projects that refer disputes to the DRB or that had difficult problems, the costs ranges from 0.04% to 0.26% with an average of 0.15% of final construction contract cost, including an average of four dispute recommendations. Thus, the cost is insignificant in light of the potential savings DRBs present. 

For more information about Dispute Resolution Boards or for questions related to Construction law, please contact Kimberly Gessner.

 

Topics:  Construction Contracts, Dispute Resolution Boards

Published In: Alternative Dispute Resolution (ADR) Updates, Construction Updates, Commercial Real Estate Updates, Residential Real Estate Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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