Is dispute avoidance realistic?

Gerard P. Monaghan C. Arb FCIArb explores why dispute avoidance for construction contracts is in vogue.

Construction disputes can be costly, time consuming, bad for relationships – and are rarely a positive development for projects. Instead, resources should be focused on project deliverables and milestones. Thus, a model whereby disputes that typically arise on construction projects (whether typical or of a more bespoke nature) can be taken out of the equation and dealt with offline or in some other non-adjudicative forum is ideal.

The most common vehicle for delivery of dispute avoidance is through the involvement of a Dispute Board (DB) which is appointed at the start of the project – i.e. a Standing Dispute Board. The International Federation of Consulting Engineers (FIDIC) contract forms have pioneered the way over the last 10 to15 years in terms of dispute avoidance. Indeed, the most recent versions to their FIDIC Red, Yellow, and Silver books (2017 with a 2022 reprint) have even seen the terminology evolve from the 1999 version of a Dispute Adjudication Board (DAB) to a Dispute Avoidance and Adjudication Board (DAAB) (See Clause 21.3 FIDIC Yellow/RED/Silver 2017/2022). The General Conditions of Dispute Avoidance/Adjudication Agreement at Appendix 1 and the DAAB Procedural Rules at Annex 1 to the Contract govern the arrangement and the powers of the DAAB.

The most common approach towards dispute avoidance is through the provision of informal assistance by the DB upon the request of both parties. Clause 21.3 FIDIC 2017/2022 indicates that “Such informal assistance may take place during any meeting, Site Visit or otherwise”. However, “the parties are not bound to act on any advice given during such informal meetings, and the DAAB shall not be bound in any future Dispute resolution process or decision by any views or advice given during the informal assistance process”.

In December 2023, the FIDIC Dispute Avoidance and Adjudication Forum published Practice Note 1 Dispute Avoidance which provides valuable guidance as to how a dispute board should address the matter of dispute avoidance.

Key Ingredients for Success

As a member of the Engineers Ireland Conciliation Panel and the FIDIC Presidents List of Adjudicators, I have considerable practical experience of Standing Conciliation under the Public Works Contracts in Ireland and the DAB/DAAB arrangements under FIDIC. Here are some general observations as to what I consider the key ingredients for success:

  • The DB must be appointed from the start of the project to properly understand the project issues and personnel dynamics, i.e. a Standing DAAB or Standing Conciliator.
  • The parties must have trust in the DAAB /Standing Conciliator. Integrity and impartiality is a given, but real trust comes with interaction over a period of time – you need to know that your Standing Conciliator is a safe pair of hands that can be relied upon.
  • The parties must have confidence in the DAAB /Standing Conciliator’s expertise – technical, legal, or financial.
  • The DAAB/Standing Conciliator must be a good listener.
  • The most important element of all is to ask the right question at the right time and in the right tone. Done properly it can be remarkably successful in fostering discussions and moving things along, but done poorly then it could be disastrous, and all the rapport and confidence built up with the parties could evaporate.

The Dispute Resolution Board Foundation (DRBF) provides assistance with the worldwide application of DB practices, provides training for DB practitioners and maintains a large database of publications, articles, and webinars on the topic. In particular, the DRBF maintains statistics based on returns from both DB members and contractor/employer representative bodies around the world relating to the use of and success of DB generally. It is clear that the use of DB worldwide is increasing and for good reason. The DRBF points to data from 2018 that indicates that where a DB was in situ and issued a decision, only 6% of said decisions were rejected and subsequently referred to arbitration for final resolution. Of the 6% referred to arbitration, only in 22% of the cases was a different decision reached. Therefore, the DB process works and hence – the increasing popularity.

Specifically in relation to dispute avoidance a detailed survey and analysis was carried out by the DRBF in 2018.  The results are summarised as follows:

The main takeaways from this survey are as follows:

  • A Standing DB is considerably more effective generally than an Ad-Hoc Board which is only established once a dispute has arisen and is referred. Of the total number of issues that came before an Ad-Hoc Board as shown, over 14% were subsequently referred to arbitration against an average figure for a Standing DB of 1.75%.
  • Where a Standing DB engages proactively in dispute avoidance the outcome indicates that a significant number of disputes that may arise can be avoided from engagement around the issues. Where a decision is ultimately required from the Standing DB, the subsequent referral to arbitration metrics are at approximately 0.5%, presumably on the basis that many of the issues have been flushed out at the dispute avoidance phase, and the decisions do not generally come as a surprise and are therefore broadly accepted.

The key takeaway is that dispute avoidance can only (and by definition) be achieved where a DAAB is appointed at project commencement (i.e. a Standing DAAB or Standing Conciliator in the Irish Public Works Context) and, further, where the DAAB or Standing Conciliator proactively engages with the parties on the matters and issues before they crystallise into disputes.

This article was given as a talk at the Ciarb Ireland Branch’s Annual Conference ‘Dispute avoidance and management in construction’ on 1 March 2024.

Gerard P. Monaghan C.Arb FCIArb is a Chartered Engineer with 30 years of experience in the delivery of major construction projects in Ireland and internationally with a particular focus on energy and renewables. He is a Chartered Arbitrator and a CEDR accredited mediator, and a member of the Engineers Ireland Arbitration, Conciliation and Adjudication panels. He is an experienced alternative dispute resolution professional and is appointed regularly as arbitrator, adjudicator, mediator/conciliator, and Dispute Board member.

Gerard is a FIDIC Certified Adjudicator and member of the FIDIC President's List of approved Dispute Adjudicators. He is also a member of the Minister’s Panel of Adjudicators established in accordance with the provisions of the Irish Construction Contracts Act 2013. Gerard is the current Chair of the Engineers Ireland Disputes Resolution Board, a former Chair of the Chartered Institute of Arbitrators Ireland Branch and is the Ireland country representative of the Dispute Resolution Board Foundation.