The Dispute Resolution Board Foundation International Conference held in Sydney last Friday was the first international meeting of its kind to be held in Australia and signals the emergence of Dispute Resolution Boards (DRBs) as a mainstream and effective resolution mechanism for major projects in this country.
Of particular importance in large scale projects involving industry and government, Australian Government agencies should consider adopting DRBs in major project contracts as a means of addressing issues over the life of a project.
What are DRBs?
Also known as Dispute Review Boards or simply Dispute Boards, DRBs first rose to prominence in the early 1990s, though they were first deployed in the 1970s on major construction projects in the United States. DRBs are an entirely contractual mechanism, with the project contract setting out how the DRB is formed and how it is to operate.
DRBs can take any form agreed to by the parties; however the common model for a two party contract is for the DRB to be comprised of a panel of three members. Subject to an objection by another party, each party nominates an independent person experienced in the work to be undertaken on the project and those nominees in turn appoint a third person to be chair of the panel. Despite being nominated by a particular party or fellow panel members, each panel member operates independently and is not required or expected to take a particular position. The functions of a DRB can include identifying areas for potential disputes, suggesting methods of resolving disputes, providing non-binding opinions and formally ruling on disputes. For formal rulings of a DRB it is common for there to be an avenue of appeal to binding arbitration.
Benefits of DRBs
Despite the name suggesting that DRBs only come to the fore when a dispute arises, a key element of the DRB structure is that the panel members are actively involved in the project from an early stage. This commonly involves periodic meetings and/or inspections of how the project is tracking and who the relevant decision makers are. The benefit of this approach is that in contrast to other resolution methods which are only invoked when a dispute crystallises, the ongoing role and visibility of a DRB can lead to disputes being identified and nipped in the bud at a much earlier stage. Among other things, it is this ability to identify and address disputes at such a preliminary stage which has led to over 95 per cent of projects for which a DRB has been used resulting in no litigation or arbitration.
Another key advantage of DRBs is that the parties are the masters of the design and operation of the process. By negotiating the terms of a mechanism by which disputes can be avoided and resolved before the project even starts, the parties have prior notice of how the system will work. Further, having previously agreed to the panel members and the process, parties are far more likely to heed the advice and accept the decisions of a DRB as opposed to a third party.
A natural consequence of the benefits discussed above is a considerable reduction in costs. These savings flow from both avoiding the cost of lengthy litigation and also reducing the costs that stem from delays and other interruptions to the project itself. Experience to date has shown that for projects greater than US$50 million of two years in length and with the DRB meeting four times per year, the costs associated with DRBs are less than 0.5 per cent of the contract value. When the proven success of DRBs in preventing disputes from escalating is taken into account, such expenses represent good value for money.
Current and potential applications of DRBs
Traditionally DRBs have been implemented in large public construction projects such as the third runway at Sydney Airport, the Dandelup Dam in Western Australia and the desalination plants in Sydney and Adelaide. During the DRB conference last week, Nick Greiner, the former NSW premier and current chairman of Infrastructure NSW indicated that DRBs are also to be used on the North-West Rail Link project and the Wynyard Walkway which forms part of the Barangaroo development in Sydney.
Arguably, the scope of contracts for which DRBs can be utilised by Australian Government agencies is not limited to merely construction projects. For example, large Information and Communication Technology (ICT) projects also span considerable periods of time and require constant monitoring by qualified professionals to avoid disputes. With some amendments to the DRB structure, it is possible that such contracts may also generate similar benefits to those experienced in the projects above. For Australian Government agencies looking to reduce the incidence and cost of disputes in future major projects, the DRB model should be considered as a potential solution.