Disputes are inevitable in the construction context where numerous professionals are engaged in the development of highly complex building projects, often over several years, with many of these sophisticated parties represented by attorneys from the get-go. The stakes are high in this setting with increased pressure to cut costs at every step, including the dispute resolution process. In seeking to avoid the cost and entanglement of litigation through the congested court system, arbitration is often perceived as the default for alternative dispute resolution.[1] Consequently, arbitration provisions are commonly incorporated into construction contracts as the norm.
“[A]rbitration has the potential to achieve quicker and less expensive binding results than court-based legal systems. But recently arbitration has acceded to the desire of litigators for expensive adversarial discovery and motion practice, including e-discovery issues. Because of this expense, standard one-size-fits-all arbitration, based on well-known rules of procedure, has started to fall out of favor with respected critics in the United States[.]”[2] The practical reality is that in multi-party construction litigation, it is not necessarily less expensive or more efficient to utilize arbitration as a means of dispute resolution over litigation through the court system. This has given rise to “. . . the contractual designation by the parties of Dispute Resolution Boards (DRBs) particularly for projects of significant size, complexity, cost and duration[.]”[3]
DRBs, as contractual creations, are highly customizable by the parties to meet the particularized needs of individual construction projects and its organizational structure. “[T]he emphasis in the DRB process is placed on resolving the dispute at the earliest time, and at the lowest level of organizational interaction, before oppositional attitudes have had a chance to develop and harden.”[4] Thus, DRB procedures may be implemented at the earliest stages of conflict, by way of example, in cases of conflicting opinions between professionals on discrete building or design issues. Resolving these common discrepancies early via third neutral parties often avoids minor conflicts spiraling into full-blown litigation over time. A DRB typically consists of a panel – usually three – neutral third party construction industry experts selected by the parties. Depending on their contractual mandates, DRB decisions may be nonbinding in nature or final and binding – commonly considered admissible evidence as conclusive precursory third party findings and recommendations in any subsequent litigation.[5] The contract may specify the manner in which disputes are submitted to the DRB, in addition to the time and manner in which the DRB renders its decision and recommendations. There may also be provisions for judicial intervention and review in the event an aggrieved party disagrees with the DRB’s ruling. However, Court’s will generally uphold a DRB process that emphasizes fast, efficient and neutral resolution when the contractual language clearly mandates it.[6]
Parties must consider implementing DRBs at the inception of projects when agreements are drafted. The practical benefits of implementing DRBs in construction contracts provides an early and cost-effective means of resolving disputes before resorting to litigation. DRBs allow parties the flexibility to control the DRB process, which is highly customizable to the type of project and its organizational structure. The ability to control the binding nature of DRB decisions and admissibility of DRB findings, conclusions and recommendations in subsequent litigation may further prove to be cost-effective in reducing litigation costs should the dispute rise to that level.
[1] In the past three fiscal years, the Los Angeles County Superior Court absorbed a recurring budget shortfall of $187 million. As of March 2014, 25% of courthouse staff has been cut since 2008. (http://www.courthousenews.com/2014/03/19/66280.htm, September 15, 2014)
[2] Paul M. Lurie, Using the Guided Choice Process to Reduce the Cost of Resolving Disputes, September 2014, NL 1
[3] Thomas S. Marcey, Enforcing ADR—The Experience With Contractually-Mandated Dispute Resolution Boards, Construction Briefings, September 2014, NL 1
[4] Id.
[5] Los Angeles Cnty. Metro. Transp. Auth. v. Shea-Kiewit-Kenny, (1997) 59 Cal. App. 4th 676, 686, as modified (Dec. 9, 1997)
[6] Id.; Sehulster Tunnels/Pre-Con v. Traylor Bros./Obayashi Corp., 111 Cal. App. 4th 1328, 1342 (2003)
