Keith Mack
Dispute boards, also known as dispute resolution boards, are a means of resolving contractual disputes in the UK. They are typically used in the construction industry, but their use is becoming more common in other sectors such as financial services, maritime, and long-term concession projects. Dispute boards are established by contract, with the parties empowering the board to hear and advise on the resolution of disputes. Dispute boards provide a forum for the discussion of contentious matters and assist parties in resolving disputes quickly and avoiding them altogether. They are composed of respected and trusted professionals selected for their knowledge, experience, impartiality, and independence. Dispute boards can provide non-binding recommendations or binding decisions, depending on the type of board. The success rate of dispute boards in resolving disputes is high, with a significant reduction in the need for costly litigation or arbitration.
| Characteristics | Values |
|---|---|
| Number of members | Usually 1-3 members |
| Member selection | Respected and trusted professionals, selected for their knowledge, experience, impartiality and independence |
| Member appointment | Appointed at the commencement of a project, by both parties |
| Binding nature of decisions | Interim-binding force; final decisions are binding until determined by legal proceedings, arbitration or agreement |
| Industries used in | Construction, financial services, maritime, long-term concession projects, operational and maintenance contracts |
| Benefits | Assist in avoiding disputes altogether, resolving disputes quickly, preserving relationships, ensuring contracts are managed properly |
| Limitations | Not commonly used in the UK due to the availability of statutory adjudication, additional costs, shortage of available board members, lack of expertise |
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What You'll Learn
Dispute boards in the construction industry
Dispute boards, also known as dispute resolution boards, have been used in the construction industry for over 50 years. They are a forum for the discussion and resolution of disputes, providing a "pay first, argue later" mechanism to protect cash flow during construction. Dispute boards are established by contract, with the parties empowering the board with jurisdiction to hear and advise on dispute resolution. The International Chamber of Commerce recommends including a dispute review board clause in major contracts, providing rules for the board's operation and ensuring predictable dispute avoidance or resolution.
The construction industry is known for disputes and conflicts, with anecdotal evidence from Australia suggesting that 50% of all legal costs are connected to disputes. Dispute boards offer a highly effective means of resolving and avoiding disputes, with a reported 98% success rate in preventing further litigation or arbitration. This results in significant cost savings and protects reputations, commercial relationships, and opportunities.
Dispute Board members are respected and trusted professionals selected for their knowledge, experience, impartiality, and independence. They become part of the project team, assisting in dealing with issues that arise and providing valued advice. Their "hands-on" approach fosters trust, and their involvement from the project's inception helps maintain proactive communication and identify ways forward.
There are various types of dispute boards, including Dispute Review Boards (DRB), Dispute Adjudication Boards (DAB), and Combined Dispute Boards (CDB). While DRBs provide non-binding recommendations, DABs offer interim-binding decisions. CDBs, created by the International Chamber of Commerce, combine aspects of both DRBs and DABs. These boards facilitate early adjudication based on the contractual agreement between the parties.
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Dispute resolution vs. UK adjudication
Dispute boards, also known as Dispute Resolution Boards, Dispute Review Boards, and Dispute Adjudication Boards, are a device that originated in the USA. They are used to avoid, manage and resolve disputes in real-time by identifying and addressing issues early on. Dispute boards are mostly used in construction and infrastructure projects, but their ambit is far wider and they are now found in the financial services industry, the maritime industry, long-term concession projects, operational and maintenance contracts, and even in the commissioning and decommissioning of offshore platforms and wind farms.
A Dispute Review Board is established by contract; the parties establish and empower a board with jurisdiction to hear and advise on the resolution of disputes. The International Chamber of Commerce recommends the inclusion of a dispute review board clause in a major contract and provides a set of rules to ensure boards can operate in a predictable manner in avoiding or resolving disagreements.
Adjudication, on the other hand, is a form of dispute resolution where a third party reviews the case put forward by either side and makes an enforceable decision. Adjudication is often described as a "pay first, argue later" mechanism for resolving disputes in the construction industry, and is designed to protect cash flow during construction. Adjudication tends to be a more favourable approach in construction projects because of the relative speed and financial savings that can be made in comparison to other forms of resolution, and because adjudicators tend to be persons with direct experience in construction matters.
Adjudication is a cost-neutral form of dispute resolution, meaning each party must pay their own legal costs. Adjudication provides a certain and partially binding determination made by a third party and is most similar to arbitration and litigation. Adjudication is begun by either party issuing a Notice of Adjudication, which sets out the brief details of the dispute and the remedies requested. The referring party then must arrange for the appointment of an adjudicator, which can be named in the contract, chosen by agreement, or by independent nomination. The responding party will usually provide their response within 1-2 weeks of the referral, and there would generally then be further submissions in the form of a reply, rejoinder, and surrejoinder. Adjudication is designed to be a 28-day process from when the matter is referred to when a decision is made.
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Dispute board members
Dispute boards, also known as dispute resolution boards, are a forum for dispute resolution, typically comprising three independent and impartial persons selected by the contracting parties. They are mostly used in construction and infrastructure projects and are gaining popularity. The contracting parties establish and empower a Dispute Review Board with jurisdiction to hear and advise on the resolution of disputes.
The members are usually selected at the commencement of a project before any disputes arise, and they actively involve themselves throughout the project and possibly any agreed period thereafter. They undertake regular visits to the site and can influence the performance of the contracting parties during the contract period.
In the case of a three-person board, each contracting party nominates one individual, and when agreed upon, they jointly appoint a chairperson. The party nominees are often engineers or other construction professionals with experience in construction projects, while the chairperson is often a lawyer. All members must agree on the identity of the chairperson and the other party nominees.
The dispute board only has the powers expressly given to it by agreement, and its powers are contained within either separate dispute board rules or the template agreement that each member must sign with the parties. This is the dispute board member's agreement, which each member enters into with the contracting parties.
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Dispute board costs
Dispute boards have been used in the construction industry for over 50 years, but their use has expanded to other industries such as financial services, maritime, long-term concession projects, and operational and maintenance contracts. Dispute boards provide a forum for dispute resolution, typically comprising three independent and impartial persons selected by the contracting parties.
The cost of a dispute board is generally considered to be a small fraction of the total amount of the construction contract, usually estimated at less than 1%. The costs of a dispute board can vary depending on several factors, including the number of members, their fees, the length of their service, and any applicable institutional administrative costs. The default rule is that the dispute board costs are shared equally between the parties involved in the dispute. However, if one party refuses to pay their share, the other party will typically cover the costs initially and then seek reimbursement from the non-paying party.
The International Chamber of Commerce (ICC) has emerged as a strong supporter of dispute boards, and they recommend the inclusion of a dispute review board clause in major contracts. The ICC provides a set of rules to ensure that dispute boards operate in a predictable and consistent manner when avoiding or resolving disagreements. The ICC also has an advance cost system, where a non-refundable advance payment of US$5,000 is made by the claimant to cover administrative expenses and ensure that arbitration can proceed promptly.
Compared to international arbitration costs, dispute board costs are generally considered to be more cost-effective. This is because the procedure is typically less complex and faster, allowing disputes to be resolved within a reasonable timeframe. Additionally, dispute boards established at the inception of a project can help avoid disputes altogether by fostering proactive communication and providing valuable opportunities for parties to seek advice and identify ways forward.
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Dispute board contractual terms
Dispute boards are a forum for dispute resolution, typically comprising three independent and impartial persons selected by the contracting parties. The contracting parties establish and empower a Dispute Review Board with jurisdiction to hear and advise on the resolution of disputes. The International Chamber of Commerce recommends including a dispute review board clause in a major contract and provides a set of rules to ensure boards can operate in a predictable manner in avoiding or resolving disagreements.
The terms "Dispute Board" and "Dispute Review Board" are generic terms and include the Dispute Review Board (DRB), the Dispute Adjudication Board (DAB), and the Combined Dispute Board (CDB). The DRB provides non-binding recommendations, while the DAB provides decisions with interim binding force. The CDB is a hybrid of the DRB and DAB, created by the International Chamber of Commerce in 2004.
When establishing a Dispute Board, the parties agree to the number of members and appoint them in the contract or according to the rules of the International Chamber of Commerce. All disputes arising from the contract are first submitted to the Dispute Board, which issues a recommendation or decision according to the rules. If a party fails to comply with a recommendation or decision, the other party may refer the matter to arbitration under the Rules of Arbitration of the International Chamber of Commerce.
The parties should choose the most appropriate type of Dispute Board given their contract and relationship. When drafting the clause, care must be taken to avoid ambiguity, as unclear wording can hinder or compromise the dispute resolution process. The parties should also verify the enforceability of the clause under applicable law.
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Frequently asked questions
Dispute boards are a generic term for a variety of dispute resolution devices, including the Dispute Review Board (DRB), Dispute Adjudication Board (DAB), and Combined Dispute Board (CDB). They are typically made up of respected and trusted professionals selected for their knowledge, experience, and impartiality.
Dispute Boards are used to assist parties in a project to resolve disputes and avoid them altogether. They provide a forum for regular and continuing discussions on difficult matters, helping to identify ways forward and create opportunities for proactive communication. Dispute Boards can be particularly effective in industries with a high incidence of disputes, such as construction.
When setting up a Dispute Board, it is crucial to carefully consider the contract and ensure all parties are aware of and agree to the process. The contract should be clear and concise about the desired dispute resolution procedure, including flexibility, submission lengths and timing, and whether legal representation is required. Dispute Boards can be established at the inception of a project or appointed as and when disputes arise.
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