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FIDIC-NET WORKSHOP
Contents
1.0 INTRODUCTION .......................................................................................................................... 2
2.0 THE DRB/DAB CONCEPT .......................................................................................................... 4
3.0 UK STYLE ADJUDICATION .................................................................................................... 6
4.0 NATURAL JUSTICE .................................................................................................................... 7
5.0 SUMMARY OF DISCUSSIONS AT THE WORKSHOP ......................................................... 9
5.01 OPERATION OF CONTRACTUAL PROVISIONS ON CONSTITUTING THE BOARD ......................... 10
5.02 AMENDMENT OF DB PROVISIONS IN CONTRACTS ................................................................... 11
5.03 DEVELOPING APPOINTMENT PRACTICE ................................................................................... 11
5.04 NEGOTIATION AND EXECUTION OF THE TRI-PARTITE AGREEMENT ........................................ 12
5.05 REMUNERATION OF BOARD MEMBERS .................................................................................... 13
5.06 QUALITIES FOR BOARD MEMBERSHIP ...................................................................................... 15
5.07 QUALITY OF PRESENTATIONS TO BOARDS ............................................................................... 17
5.08 RELATIONSHIP BETWEEN A DAB MEMBER AND NOMINATOR ................................................ 17
5.09 APPROPRIATE TRAINING .......................................................................................................... 18
5.10 DECISIONS OR RECOMMENDATIONS ........................................................................................ 18
5.11 DECISION-MAKING BY THE BOARD ......................................................................................... 19
5.12 SCOPE OF DECISIONS ............................................................................................................... 19
5.13 RESPONSE TO DECISIONS .......................................................................................................... 20
5.14 ENFORCEABILITY OF DB DECISIONS ........................................................................................ 21
5.15 INFORMAL ADVICE OF THE BOARD ........................................................................................... 23
5.16 DAB EFFECT ON THE CONTRACT ADMINISTRATION ................................................................ 25
5.17 INFLUENCE FUNDING ORGANISATIONS ON THE DAB PROCESS............................................... 25
5.18 DISCOUNTS FOR DAB ............................................................................................................... 26
5.19 FEEDBACK ON DABS ................................................................................................................ 26
5.20 THE ENGINEER AND THE DISPUTE BOARD ............................................................................... 26
6.0 CONCLUSION ............................................................................................................................. 26
REFERENCES .................................................................................................................................... 29
APPENDIX: LIST OF WORKSHOP PARTICIPANTS ................................................................ 30
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1.0 INTRODUCTION
A particular feature of the use of international contracts is that information on disputes and
problems in general rarely gets into the public domain because of the private nature of the
Dispute Review Board/Dispute Adjudication Board (DRB/DAB) proceedings and arbitration,
the dispute resolution methods often used. The chances for users of the contracts to learn
from the experience of others have therefore been very limited. Although commercially
expedient and extremely useful, there is a disadvantage to this privacy in that knowledge can
be acquired only through direct experience or through attendance at expensive international
seminars.
The Engineering and Physical Sciences Research Council of the United Kingdom has funded
the creation of a network of experts (FIDIC-NET) on international construction contracts as a
vehicle for a study into the legal framework of international construction. The study is
concentrating on the four standard forms of contracts produced by FIDIC in 1999 and the
Multilateral Development Banks’ (MDB) Harmonised version of the Red Book. Knowledge
of the operation of these contracts and potential sources of disputes is important for reasons
of dispute prevention and efficiency. The aim of the study is to develop and disseminate such
knowledge. It entails running multi-disciplinary workshops, conferences and on-line
discussion in which specific issues are subjected to critical examination by members of the
network.
This is a report of an international workshop on DABs held on 8th
February 2008 at the
Institution of Civil Engineers in London. The aims of the workshop were: (i) to develop a
bird’s eye view of the operation of the DAB resolution method since its inception in the mid
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1990’s; (ii) to explore the problems/challenges encountered in practice that should inform the
research agenda of FIDIC-NET in relation to DRB/DABs.
Participants came from the Bahamas, Denmark, Germany, United States and United
Kingdom although many have had experience of DRB/DABs on projects in other countries
such as China, Ethiopia, Ireland, Kenya, Romania, Russia, Sri Lanka, Tanzania, Turkey
Ukraine and the United Kingdom. The list of participants is attached as Appendix A.
The Report is structured as follows. The DRB/DAB concept and its implementation in the
FIDIC family of contracts are first outlined for the benefit of readers unfamiliar with the
subject. The concept and operation of UK style adjudication, which shares many features in
common with the DRB/DAB, are then described. The third part of the report explains the
principles of natural justice because they need to be understood to appreciate fully some of
the issues discussed at the workshop. Finally, the actual discussions are summarised under
the following themes:
operation of contractual provisions on constituting the DAB;
amendment of DAB provisions in contracts;
developing appointment practice;
negotiation and execution of the tri-partite agreement;
remuneration of DAB members;
qualities for DRB/DAB membership;
quality of presentations to DABs;
appropriate training;
decisions or recommendations;
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decision-making by the DAB;
scope of decisions;
response decisions;
enforceability of DAB decisions;
informal advice of the DAB;
DAB effect on the contract administration;
influence of funding organisations on the DAB process;
discounts for DAB;
feedback on DABs
the Engineer and the DAB.
2.0 The DRB/DAB CONCEPT
The concept of a DRB was developed in the US in response to high incidence of disputes on
major projects, particularly those involving underground construction. A DRB is a panel of
three members of recognised knowledge, experience and professional standing in relation to
construction disputes jointly appointed by the contractor and the employer on a construction
project. The role of the panel is to make recommendations on how any dispute that arises
from the project is to be resolved by the contractor and the employer. To allow them to
perform this function, the DRB keeps abreast of project matters through regular visits to the
site and being supplied with key project documents.
In January 1995 the World Bank introduced dispute resolution by a DRB into the version of
the FIDIC’s Red Book that formed part of its then current Standard Bidding Documents for
Procurement of Works (World Bank 1995). The type of DRB introduced had the distinction
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that, whilst the US-style DRB makes completely non-binding recommendations, a
recommendation of the DRB in the 1995 Standard Bidding Document became binding if
neither party served notice of dissatisfaction with it within 14 days after its receipt.
FIDIC introduced in 1996 the concept of a DAB that makes decisions immediately binding
pending final resolution of the dispute by amicable settlement, arbitration or litigation. If
neither party serves notice of dissatisfaction with the decision within 28 days of its receipt it
becomes finally binding. The FIDIC DAB was first specified for use in the Conditions of
Contract for Design/Build and Turnkey. In the same year FIDIC published a Supplement to
the fourth edition of its Red Book, which also offered the DAB as a replacement of the
Engineer in his traditional role as the first instance tribunal for disputes. The DAB shared
with the US-style DRB the common features of a tribunal of three members and dispute
resolution real time. All the current FIDIC contracts except the Green Book provide for
dispute resolution by DABs.
Under the 1999 Orange and Silver Books the DAB is constituted only when a dispute arises
and is terminated after delivery of its decision on the dispute. This type of DAB is referred to
an “ad hoc” DAB whilst the variant that is in operation for the duration of the project is
referred to as a “standing” or “permanent” DAB. The provision for ad hoc DABs has come in
for some criticism. The critics point out that knowledge developed from continuing
involvement with the project is at the heart of the effectiveness of the DRB/DAB concept.
Furthermore, steps necessary to constitute a board after a dispute has arisen will take time,
thus allowing the parties’ positions to harden before the board is available to act.
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3.0 UK STYLE ADJUDICATION
In the UK the concept of “adjudication” was introduced in the 1970’s and was initially used
for temporary settlement of payment disputes between main contractors and their sub-
contractors. It required a payment dispute to be referred to an independent third party, the
adjudicator, who could make any one of three decisions available to him: (i) that the main
contractor was to make the disputed payment; (ii) that the sub-contractor was not entitled to
the payment; (iii) that the disputed payment was to be made to a trustee stakeholder account
pending amicable settlement or an arbitration award on the dispute.
In 1996 the UK Government, on the recommendation of a committee set up to look into
improvement in the practices of the construction industry, passed the Housing Grants,
Construction and Regeneration Act 1996 (HGCRA) giving parties to virtually all
construction industry contracts the right to refer contractual disputes for resolution by
adjudication. Adjudication under the HGCRA entails referring the dispute for determination
by an adjudicator, who must make the decision within 4-6 weeks after the referral. Failing
agreement by the parties on the person to act as adjudicator, either party may apply a
designated institution to appoint the adjudicator. The decision of an adjudicator, which must
be made within 4-6 weeks after the reference to the adjudicator, is binding on the parties until
final resolution of the dispute by agreement, arbitration or litigation. It is stated expressly in
the legislation that, in making a decision on a dispute, the adjudicator does not act as an
arbitrator. This provision has the effect that English arbitration law does not apply to
adjudication.
Any money directed by an adjudicator to be paid by one party to another becomes a sum due
under the contract and must be paid within a prescribed timetable. The intended recipient
(usually a contractor or a sub-contractor at any level in the contractual chain) has a statutory
right to suspend performance of the contract until payment is made. The decision may also be
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enforced through the courts by commencing proceedings in the normal way and applying for
summary judgment, which is an expedited procedure that does not involve trial in court. The
rationale for the procedure is that there is no need for any trial as there could be no defence to
the failure to comply with the adjudicator’s decision. Only a small fraction of adjudicators’
decisions have been enforced through the court as the parties voluntarily comply with the vast
majority of adjudicators’ decisions.
With the exception of a small proportion, applications for summary judgment to enforce
adjudicators’ decisions have generally been successful. The only grounds on which such
enforcement has been successfully defended have been that: the adjudicator acted without, or
beyond his or her, jurisdiction; the adjudicator acted in breach of the rules of natural justice in
arriving at the decision; the intended recipient of payment decided by the adjudicator is
insolvent.
It is clear from this brief description that adjudication has a number of features in common
with dispute resolution by a DAB as provided for in the FIDIC family of contracts. The main
differences are:
adjudication is supported by statute whereas it is only a contract that underpins the
DAB;
the adjudicator must be an individual whilst the DAB is often a panel of three
individuals;
the adjudicator has less than half of the time allowed the DAB to make a decision.
4.0 NATURAL JUSTICE
"Natural justice" is a label used to describe the obligation of the court or other tribunal to do
justice by all the parties to the dispute before it. It is a fundamental principle of English law
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and many other legal systems. The elaborateness of court procedures in such jurisdictions,
e.g., requirement, as standard practice, for statement of case, statement of reply, disclosure of
documents relied upon by each side and extensive cross-examination by each side, is often
justified on a need to ensure that natural justice prevails.
There are two rules within the general natural justice principle. First, the tribunal must not be
biased in any way for or against any party to the proceedings. It must be not only impartial
but also seen to be so. Second, the procedures of the tribunal must be such that each party is
given a reasonable opportunity not only to put forward its case but also to understand and
challenge the case against it.
It is now settled under English and Scottish law that an adjudicator must comply with the
requirements of natural justice in deciding a dispute referred to him or her.1 It is fair to
conclude that under English law this duty also applies to the DAB. No challenge to
enforcement of an adjudicator’s decision on the grounds that the timetable in itself does not
give each party the opportunity to put forward its case or defend itself has as yet succeeded.
Challenges to the enforcement of the decision of a DAB on perceived inadequacy of the 84-
day is therefore unlikely to succeed in the UK courts. We are therefore concerned with
mainly circumstances in which it could be said that, assessed objectively, bias affected the
decision of the DAB.
1 See Amec Capital Projects Ltd. v. Whitefriars City Estates Ltd. [2004] EWCA Civ
1418 in which it was stated in the Court of Appeal that a decision by any private law
tribunal, including adjudicators, reached in breach of the rules of natural justice is
liable to be held invalid or unenforceable.
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Bias comes in many different forms. In the context of a judge in court its essence is captured
succinctly by this description by the Court of Appeal in Re Medicaments and Related Classes
of Goods (No.2)2, at para 37:
“Bias is an attitude of mind which prevents the judge from making an objective determination of
the issues that he has to resolve. A judge may be biased because he has reason to prefer one
outcome of the case to another. He may be biased because he has reason to favour one party rather
than another. He may be biased not in favour of one outcome of the dispute but because of a
prejudice in favour of or against a particular witness which prevents an impartial assessment of the
evidence of that witness. Bias can come in many forms. It may consist of irrational prejudice or it
may arise from particular circumstances which, for logical reasons, predisposes a judge to a
particular view of the evidence or issues before him”.
Lord Phillips of Worth Matravers MR stated the test of bias in any given situation thus:
“The court must first ascertain the circumstances which have a bearing on the suggestion that the
judge was biased. It must then ask whether those circumstances would lead a fair-minded and
informed observer to conclude that there was a real possibility…that the tribunal was biased”.
It has to be noted that, in the context of resolution of disputes from international contracts,
not only must it be asked whether there is an obligation to comply with the requirements of
natural justice but also what natural justice means in the law governing the DRB/DAB
procedure.
5.0 SUMMARY OF DISCUSSIONS AT THE WORKSHOP
This section now provides a summary of the issue discussed at the workshop. The discourse
has been presented under the themes already identified in the introduction. Any references to
clause numbers are to the MDB Harmonised version of the Red Book unless specifically
2 Re Medicaments and Related Classes of Goods (No. 2) [2001] 1 WLR 701
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stated otherwise. However, the term DAB is retained in the report although the MDB
Harmonised Red Book uses the term “Dispute Board” in place of the “Dispute Adjudication
Board”.
5.01 Operation of Contractual Provisions on Constituting the Board
Clause 20.2 provides for the appointment of the Board as follows. The Contract allows for
either a 3-member or a sole member Board. The number of board members on any particular
contract must be stated in its Contract Data. Where this has not been done the parties are to
agree the number, failing which a 3-member board applies as the default position.
The date by when the DAB must be constituted is to be stated in the Contract Data.3 The
methodology for joint appointment of the DAB is left to the parties provided it is completed
not later than 21 days before the deadline specified in the Contract Data for the appointment
of the DAB. If 21 days before the specified deadline a 3-member board contractually required
is not in place, it is to be constituted by an appointment methodology that starts with each
party nominating a candidate for membership of the DAB for approval by the other party.
The two members appointed by the parties in this way then identify and recommend a
candidate for approval by both parties as the third member of the DAB.4 The third member is
to take on the role of chairman of the DAB. There is a default mechanism for appointing the
DAB if the methodology described fails to achieve full constitution of the DAB.5
Alternatives to the appointment process were reported. It would appear that, for 3-member
DABs, it is unusual for a party to reject the nominee of the other party although the
contractual requirement for approval suggests that a party has a right to withhold approval. A
3 This is stated as 28 days after the Commencement Date, which is defined in Clause 1.1.3.2 as the date
of Contractor’s receipt of the Engineer’s confirmation under Clause 8.1 of the parties agreement that the pre-conditions for commencement have been satisfied.
4 This procedure is probably quicker that the parties themselves selecting the third member in consultation with the two members already appointed
5 See Section 5.04
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suggested alternative procedure was for the parties, first, to appoint the chairman jointly who
would then identify and recommend the other members for joint appointment by the parties.
It was argued against this alternative that many contractors and employers often want to feel
that they have on a board a person whom they believe will protect their interests. The issue of
the relationship between a Board member and the party that nominated him/her is explored
separately later in the report.6
5.02 Amendment of DB Provisions in Contracts
The main types of amendment of the DAB provisions in contracts that participants had come
across were to have an ad hoc board where the contract required a standing board and to
require a sole member board instead of a 3-member board. The main reason for such
amendment was to keep costs down. Such amendments require the agreement of both parties.
However, it was unclear the extent to which the contractors had a real say in the decision to
make these amendments.
5.03 Developing Appointment Practice
Where it is a sole member board there is a tendency for any nomination by one side to be
rejected by the other. The provision for a third party as nominator of the Board member
prevents the impasse that would otherwise result.7
Failure to comply with the DAB provisions on the timetable for the constitution of the Board
is common. Participants reported instances where the parties began the procedures for
appointing the Board only after disputes had arisen. In their opinion, the disputes could have
been avoided if the DABs had been in place from the beginning as provided for in the
contract.
6 See Section 5.08 7 See Section 5.04.
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In many developing countries local lawyers/engineers are often appointed to Boards. In one
reported instance the Government (the employer) insisted on a local chairman of the board
who did not have the experience to manage the board proceedings. Whilst such members are
often highly experienced as engineers or lawyers, they often lack the experience and skills
required for effective membership of DABs.
5.04 Negotiation and Execution of the Tri-partite Agreement
The Employer, the Contractor and each member of the DAB must enter into a contract in a form
provided in the Red Book. This form is referred to as the “Dispute Board Agreement” (DBA). It
incorporates General Conditions of Dispute Board Agreement (GCDBA) and the Procedural Rules as
an Appendix and Annex, respectively. The GCDBA spells out the obligations and rights of the three
parties to the agreement. The Procedural Rules govern procedure in the performance of the function
of the DAB.
It was reported that a common reason for delay in establishing the DAB was failure by a
party to take all the necessary steps, for example, nomination of a member for approval by
the other or the withholding of approval of the other party’s nominee. This situation raises the
issue of how to proceed in the face of such conduct. It was suggested that in English law a
dispute adjudication agreement could be implied, thus allowing the DAB to become
operational as intended under the construction contract. Clause 2 of the GCDBA stands in
the way of such an implication. It states that, unless otherwise stated, a DBA takes effect on
the latest of three dates:
the Commencement Date stated in the Contract Data;
when the DBA is signed by the Employer, the Contractor and the DAB member;8
8 As the third date will always occur after the second date, the latter may be ignored in assessing the
date the agreement comes into effect
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when the DBA for each member has been signed by all concerned.
The Contract anticipates this problem; Clause 20.3 provides for an appointing entity or
official specified in the Contract Data may be requested by either party or both parties to step
in and make a remedial appointment where failure to nominate a member or rejection of a
nominees hold up the constitution of the Board.
5.05 Remuneration of Board Members
Each member is to be paid:9
a retainer per calendar month from the date when the agreement took effect until the
month in which the Taking-Over Certificate is issued;
a daily fee for each day or part of a day spent on the duties of the DAB be it travelling
to and from meetings or the Site, Site visits, hearings, reading submissions, and
preparing a decision;
reasonable expenses;
tax properly levied in the Country in which payment is to be made to the member.
The retainer per calendar month and daily fees for a Member are to be stated in the DBA. In
view of the greater responsibility of the Chairman, there is a good case for his daily fee to be
higher than that of any other Member. FIDIC’s 1996 Supplement to the fourth edition of its
Red Book provided that where the appointment of a DAB member omitted to state the daily
fee, it was to be that of arbitrators under International Center for Settlement of Investment
Disputes (ICSID) regulations.10
Where a member performs the duties without his or her fees
9 See Clause 6 of GCDBA 10 This was $3,000 per day on 1 January 2008.
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being stated in the DBA or agreed by the parties the appointing entity or official is to
determine them.
Many participants reported reluctance of some parties to accept payment of retainers. This
required the member to do, at no charge to the parties, everything necessary for staying
abreast with developments on the project. Two main suggestions for dealing with no retainers
were made: (i) the Member bills for the time used in performing the task of staying abreast
with the project at the agreed fee rate; (ii) the Member builds the retainer into the fee rate for
site visits and like.
Uncertainty was reported not only about the level of fees but also the procedures whereby the
fee is agreed with a DAB member. There was anecdotal evidence of fees ranging from £3000
per day for international DAB members to $100 per day for Board Members who are
nationals of the country where the works are in a developing country. In some cases the fee
rate was stated in the contract. The practice of stating the fee in the contract long before the
Board has to be formed often frustrates the establishment of the Board, particularly where the
stipulated fee rates were unrealistically low.
Whenever bids from potential Board Members are invited the fees rates in the bids can vary
considerably. Such variation can be confusing to employers not familiar with the DAB
process. Very often government engineers in the employer organisations need some publicly
available fee framework to justify level of remuneration to their senior management or
government ministers.
The fees are to be reduced to reflect the decreasing involvement of the DAB as the project
progresses towards completion. However, they are fixed for the first 24 calendar months
unless it is provided otherwise in the DBA. Thereafter they are to be reviewed by the
Employer, the Contractor and the Member every year. The GCDBA however provides that
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the retainer fee is to be reduced by one third with effect from the first day of the calendar
month following that in which the Taking-Over Certificate is issued.11
The reduced retainer
fee is payable on the first day of each month until termination of the DBA.
There were instances where the parties insisted on fixing the fee rates of DAB members for
the entire duration of their projects. Some DAB Members normally deal with this by
requesting a fee rate a little higher than where there is agreement to keep the fees under
review.
5.06 Qualities for Board Membership
The type of dispute that may be referred to the DAB is stated in Clause 20.4 in extremely
wide terms: “a dispute (of any kind whatsoever) between the Parties in connection with or
arising out of, the Contract or the execution of the Works, including any dispute as to any
certificate, determination, instruction, opinion of the Engineer”. Considering the width of the
disputes clause, it is impossible to predict at the time of constituting a DAB the type and
nature of disputes that will be referred to it. The ideal DAB is therefore one that has the mix
of professional knowledge, understanding and skills necessary for resolution of a wide range
of disputes. The only requirements of a member stated in the Red Book are that he or she is:
(i) fluent in the language for communications defined in the contract; (ii) professionally
experienced in the type of construction involved; (iii) professionally experienced in the
interpretation of contractual documents. 12
A view that had some support from participants was that, to have the appropriate mix of
professional experience and skills within a DAB, it should have a lawyer, a civil engineer and
a contractor (i.e., a person from a contracting background). To ensure such a mix, the parties
need to consult each from the start of the nomination process. However, in practice, a 11 The first edition of the 1999 Red Book provides for a reduction of 50% 12 See the second paragraph of Clause 20.2
16
dilemma commonly faced is whether or not to match the other side in terms of the expertise
of their nominee. For example, if the dispute turns on a point of Baratanian law and one side
nominates a Baratanian lawyer should the other party also nominate a Baratanian lawyer?
Not doing so entails the risk that the point will be decided on the understanding of the only
Baratanian lawyer whose opinions the party that nominated him or her may well have
verified before the nomination.
It was strongly voiced by some participants that relevant professional knowledge or
experience alone would be not enough. Additional attributes considered essential were:
awareness of the DAB process; ability to communicate one’s viewpoint to the other DAB
members with sufficient clarity and to persuade; awareness of the natural justice implications
of actions taken whilst a DAB Member; possession of a suitable personality.
The issue of what is usually done to ensure suitability of a candidate for a DAB membership
was discussed. Some reported experience of vigorous interviews by parties before a decision
to nominate is taken. In the context of ad hoc DABs, the candidate’s views on the general
nature of the issues in dispute may be explored. It was reported that, in the US, such
interviews for board membership are usually unnecessary, as the candidates are usually fairly
well known from repeat appointments. The more common practice is for the parties to accept
each other’s nominee without hesitation, with much of any detailed scrutiny being reserved
for the candidate for the chairman of the board.
It was reported that there is very little practice in the US of using standard DRB provisions;
every employer drafts its own bespoke provisions. Such provisions are often drafted to keep
the involvement of lawyers in the DRB process to a minimum. The result of this approach
has been that, apart from a few well known lawyers who qualified in engineering before they
17
took up law, very few lawyers are appointed to boards. Considering the wide scope of the
disputes clause in the FIDIC family of contracts, such a strategy would be counterproductive.
5.07 Quality of Presentations to Boards
The quality of presentations to DABs on behalf of parties was found not to be as good as they
could be. It is not uncommon for Board Members to notice that a party with a very good case
is not presenting it well enough for the Board to find in its favour. As an illustration, consider
a situation where the Board considers that a party has a good case on the principle of a claim
but the other side simply refuses to defend on quantum that appears exaggerated because of
fear of being perceived as accepting the claim in principle. Suggested appropriate actions
open to the Board in response to a serious lack of presentational skills include:
take any action open to a judge in similar circumstances;
appoint an expert to give an opinion on the matter in issue;
field “soft” questions designed to give appropriate party the chance to remedy the
omissions;
stop the proceedings and require the parties to provide written answers to a list of
questions designed to capture the missing information.
5.08 Relationship between a DAB Member and Nominator
The issue here is the level of contact that a DAB member can properly maintain with the
party that nominated him. It arose in three related contexts: (i) the stated need for each party
to be satisfied that there is on the Board his nominee who will protect his interests; (ii) a
suggestion that the DAB member nominated by a party failing to present his case properly
could alert the party to the presentational shortcoming; (iii) an inclination on the part of a
Member to ensure that his nominator’s case is fully understood within the DAB.
18
It was common agreement that a DAB Member must not act as an advocate of the party that
nominated him or her. The question was how far he may properly go in protecting the party’s
interests without being an advocate. It was reported that a DRB in the US was dissolved
when one of the Members was seen having lunch with one of the parties. This course of
action would be justified in English law, as the test of bias is objective: whether a fair-minded
and informed observer would conclude from the contact or other related complaint that there
is a real possibility of bias.
5.09 Appropriate Training
So far most of the available training provision has been designed for delivery over two days.
In view of the requirements for effective Board Membership outlined above, could such
training ever be sufficient?
There are accreditation schemes operated by the likes of the International Chamber of
Commerce, FIDIC and the Dispute Review Board Foundation. However, the view was
expressed that such schemes appear to have been designed to rule people out for Board
Membership and generate income for the institutions operating them. An approach designed
to enlarge the pool of potential Board membership is far superior. For this reason a more
comprehensive training programme, involving taught elements to impart knowledge and
understanding and pupillage, role plays and simulations designed to hone “soft” skills, is
called for.
5.10 Decisions or Recommendations
Participants were split on the question whether the decision of a DAB should be enforceable.
An argument against enforceability is that all the evidence has been that DRB that make
recommendations only are generally effective in avoiding arbitration and that many
19
Governments are likely to delete the DAB provisions if the contract provides for enforceable
decisions.
The main case for having enforceable decisions is based on experience with the
recommendation model. Government officials have difficulty complying with non-binding
recommendations because of the risk of being criticised for complying without any legal
obligation to do so. There is also the risk of a contractor going into insolvent liquidation after
having been paid pursuant to a DAB decision that is later determined to have been incorrect.
For this reason, some employers impose an obligation on the Contractor to procure an
unconditional bond as precondition for receiving payment on a DAB decision against which a
notice of dissatisfaction has been served. Such international construction bonds are extremely
difficult to procure, as some banks require the contractor to deposit the amount of the bond.
5.11 Decision-Making by the Board
The Procedural Rules annexed to GCDBA provide only a general procedural framework.
Knowledge on good practice followed in a range of difficult situations that are bound to arise
in the course of the proceedings is not available in the public domain. Such situations include:
the extent to which a lawyer DAB member should defer to an engineer member on an
engineering matter and vice versa; most appropriate action where a member lacks experience;
party requests for extension of time to take steps in the proceedings; unethical conduct by a
Board Member.
5.12 Scope of Decisions
It was suggested that the DAB should decide the principle of a case referred to it, leaving the
quantum issues, such as the amount of additional payment and length of extension of time, to
negotiation between the parties. This approach was justified on two main grounds. Firstly,
many disputes are so complex that DABs would find it extremely difficult to settle all the
20
issues within the 84-day timetable allowed under the contract. The second justification is that
it entails less cost on the parties.
Many participants took issue with the proposition. It was pointed out by a UK participant
that experience with UK adjudication suggests that the 84-day timetable for the DAB
decision is little justification, as many complex disputes are finally resolved in the UK by
adjudication within a much shorter period. A second argument was that the core of a dispute
referred to the DAB is often made of quantum issues, i.e., days and pounds, and that failure to
decide such matters would force the parties to refer to arbitration to satisfy their core need.
For example, an employer may make compromised settlement of a claim if the amount
claimed is below a certain threshold even if liability in principle is disputed. Finally, it was
argued that a decision on principle only plays to the contractor’s advantage; there is every
incentive to take a very expansive approach to the quantum issues. This concern can be
redressed by having a two-stage procedure: decision on principle followed a return to the
Board for decision on quantum if the parties fail to agree it.
5.13 Response to decisions
In most cases both parties serve notice of dissatisfaction although so far no DAB decision has
been known to have been referred to arbitration. In developing countries the employer’s
representatives feel obliged to serve such a notice to avoid personal criticism for the loss of
right to refer to arbitration. It was suggested that the DAB concept works best in China
although, so far, there has been only a few projects with DABs in that country. The reason
given for this view was that the respect for wisdom from a respected older person within
Chinese culture enhances the acceptability of the DAB concept in that country.
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5.14 Enforceability of DAB Decisions
Under Article II (3) of the New York Convention and Article 8 of the Model Law on
International Commercial Arbitration of the United Nations Commission on International
Trade Law (UNCITRAL), a court before which an action is brought on a matter within an
arbitration agreement must, if a party to the action so requests, stay the court proceedings to
the arbitration. The only exception allowed is where the arbitration agreement is “null and
void, inoperative or incapable of being performed”. Stay of court proceedings has the effect
that they are suspended to allow arbitration of the dispute to go ahead. England & Wales is
not only a signatory to the New York Convention but it has also implemented Article 8 of the
Model Law into the Arbitration Act 1996.13
Scotland has adopted the UNCITRAL Model
Law in its entirety. Article 8 has therefore been implemented in all the legal systems of the
United Kingdom.
The English Court of Appeal has stated repeatedly that any action brought in breach of an
arbitration agreement must, on the application of the party opposing the action, be stayed to
arbitration even if it is clear to the court that the opposing party has no defence in fact or law
to the underlying claim.14
However, applications to stay court proceedings to enforce
adjudicators’ decision to arbitration have so far failed.15
Unfortunately, the rationale for the
failure of such applications is far from clear although there is little doubt that the statutory
basis of UK adjudication is a factor.
13 See Section 9 of the Act 14 See, for example, Halki Shpping Corporation v. Sopex Oils Ltd. [1998] 1 WLR 726 and Collins
(Contractors) Ltd. v. Baltic Quay Management (1994) Ltd. [2004] EWCA Civ 1757) 15 See, for example, Macob Civil Engineering Ltd. v. Morrison Construction Ltd. [1999] BLR 93; Absolute
Rentals Ltd. v. Gencor Enterprises Ltd. (2001) 17 Const LJ 322; The Construction Group Centre Ltd. v. The Highland Council [2002] BLR 476; David McLean Housing Contractors Ltd. v. Swansea Housing Association [2002] BLR 125
22
The effect of an application to stay court proceedings brought to enforce the decision of a
DAB depends on the applicable arbitration law and the court’s application of it to the special
circumstances of enforcement proceedings. The arbitration agreement in the Red Book is
unlikely to be found “null and void, inoperative or incapable of being performed”. Where the
court is in a country that is signatory to the New York Convention or which has implemented
the UNCITRAL Model Law, or at least Article 8 of such Model Law, the case for stay of
court proceedings for enforcement of a DAB decision to arbitration must be overwhelming.
It would appear that the beneficiary of a DAB decision has therefore to convert it into an
arbitration award that can be enforced under the New York Convention or equivalent. There
are at least two obstacles on this route to enforcement, both linked to perceived deficiencies
in parts of the DAB provisions in the Red Book. Firstly, doubts have been expressed whether
there is a right to refer to arbitration a decision against which notice of dissatisfaction has
been properly served (Bunni, 2005). Secondly, it has been suggested that an arbitration
tribunal may not have the power to issue an interim award implementing the DAB decision
pending reconsideration of the substance of the dispute.
No experience or even knowledge of successful enforcement by this route to enforcement
was reported. On the contrary, the preponderance of legal opinion was that the DAB
provisions in the FIDIC contracts are not sufficiently clear on the status of the DAB decision
for arbitration tribunals to go down this enforcement route with confidence. In one reported
case a party took a decision to arbitration and requested an interim award requiring
immediate payment of the sum decided by the DAB to be payable. The tribunal declined to
do this on the ground that there was so much uncertainty in the provisions of the Red Book
23
on the effect of the decision that the arbitration tribunal had serious doubts whether they had
the power to do this.
A practical method of enforcing the decision without resorting to the court or arbitration is
for the contractor to terminate his or her employment for breach of the obligation to comply
with the DAB decision. Unfortunately, participants doubted whether the contractor is entitled
under the termination provisions in the FIDIC contracts to terminate on this ground.
5.15 Informal advice of the Board
Experience with US style DRBs has been that informal advice of the Board on matters likely
to develop into disputes assists the parties to reach amicable settlement of such matters, thus
avoiding formal disputes that have to be referred to arbitration. Such advice does not involve
as much time as a dispute referred for a decision because the procedures are less formal and
without any requirement to prove every fact to the normal standard.
It was reported that decision-making using the DAB have been found to work best where the
parties ring-fence problems as they arise for the informal opinion of the board. Such advice is
often given within a very short time. The party at the loosing side of the opinion then
becomes aware of what the outcome is likely to be should the matter be referred for a
decision. There is therefore motivation to resolve the matter finally by negotiation. On a
project on which one of the participants had been involved the problems were kept from the
board, leading to large disputes at the end of the project.
It has been an issue whether a DAB that makes enforceable decisions should also offer
informal advice. There is some concern about natural justice issues that may arise where the
parties refer to the DAB, as a dispute, a matter on which the Board had earlier given informal
advice. There is the risk that the Board would be predisposed towards making a decision
24
consistent with the earlier advice, which could satisfy the test of bias already outlined. It was
reported that the Olympics Delivery Authority, the organisation set up to deliver the 2012
London Olympic Games, including the procurement of the necessary infrastructure, have
decided to have separate boards for informal advice to the parties and for deciding disputes.
The former are required to come from a technical background and do not have to have any
dispute resolution experience. The second panel has only a dispute resolution function. The
risk of informal advice tainting a subsequent decision with bias is thereby avoided.
It was cautioned that informal advisory opinion could spawn rather than avoid disputes if it is
not handled properly. In one reported case, the opinion went against the contractor, who then
decided to make an immediate referral of the matter back to the Board as a dispute because it
believed it had not been given the opportunity to put forward all the relevant evidence in the
proceedings for the informal opinion. The importance of clearly defining the matter on which
the opinion is sought and the need for the Board not to stray outside the boundaries of the
matter of interest cannot be overemphasised.
The Red Book, in the seventh paragraph of Clause 20.2, refers to the Board’s opinion on a
matter jointly referred to it by the parties. Neither party has a right to seek the DAB’s
opinion without the agreement of the other. The need for such express provision was
questioned as the parties, even in the absence of such provision, may take such action. Three
reasons were given in reply: (i) in the absence of such express provision the DAB may
decline to offer the sought advice on grounds of lack of jurisdiction; (ii) to avoid surprises
under any national law; (iii) to encourage the parties to use the board more as an advisory
body than a tribunal for resolving disputes.
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5.16 DAB effect on the contract administration
It was observed that, for various reasons, many projects are poorly administered and that the
presence of a DAB often has the effect of improving project management. Apart from the
effect of the conflict of interest associated with the Engineer’s role, which has already been
highlighted in previous workshops of this Network (Ndekugri et al, 2007), the appointment
of engineers by open competitive tender carries a serious risk of staffing the project with the
cheaper and less competent engineers. Furthermore, there is reluctance on the part of contract
administrators, who may be employees of the contract employer, to make major decisions in
favour of the contractor for fear of detriment to their careers or other negative repercussions.
There is therefore a tendency for engineers who act as contract administrators to welcome the
DAB concept as the Board reduces the need for them to make decisions against the employer.
5.17 Influence Funding Organisations on the DAB Process
In most projects carried out with the financial assistance of the international funding
agencies, the funders provide only a fraction of the necessary finance. It was reported that
external funding hardly exceeds 70% of total project costs. This funding policy means that a
borrower must fund the DAB itself if it decides to have one. Indeed, it is a policy of the EU
that its funding is for only the building component of the project and that it is for a borrower
who decides to use a DAB to finance it. Financially constrained employers see dispensing
the DABs as the most obvious way of making any necessary economies. Where the DAB is
not dispensed with, employers are often driven to demand the type of amendment to the DAB
provisions as already described in Section 5.02.
It has not escaped the attention of some of the funding agencies that many projects started
with their financial assistance grind to a halt because of conflicts on site. Such agencies,
particularly the World Bank, are very supportive of the DAB concept and will often push the
26
parties to appoint the Board without delay. The Asian Development Bank is reported to be
looking into making their funding arrangements and their procurement policies more
supportive of the DAB resolution method.
5.18 Discounts for DAB
One of the advantages claimed for the US style DRB is that it results in lower tender prices.
The DAB also offers such advantages. Indeed, some contractors offer discounts tied to
agreement to have a DAB on the project.
5.19 Feedback on DABs
UK institutions that nominate adjudicators have formal systems for obtaining feedback from
adjudicators and users of adjudication (Levy and Ndekugri, 2003). The institutions that
provide a nomination function in relation to members of DABs, are yet to develop such
feedback systems. Requiring written feedback from the parties and the chair of the Board was
suggested. Issues of liability that could arise from such feedback needs further investigation.
5.20 The Engineer and the Dispute Board
It is common practice for the Engineer to represent the Employer in DAB proceedings. This
is understandable since he has more detailed knowledge of the project than anybody else on
the Employer’s side. It was also reported that many contracts for the engagement of the
services of the Engineer now require the Engineer to assist the Employer with dispute
resolution.
6.0 CONCLUSION
Workshop participants were drawn from the United States, Germany, Denmark, the Bahamas
and the United Kingdom. Many participants reported direct experience of DABs across the
globe either as board members or legal and other advisers to project owners and their
27
contractors on projects with DABs. The workshop therefore allowed a pulse of the DAB
resolution technique to be taken.
Many parties to construction contracts were found lacking in their knowledge on the basics of
the DAB technique. It was therefore not surprising that their commitment to it was wanting
on some projects, including where they had already entered into contracts requiring the
establishment of DABs. On occasion Board Members have had to organise some remedial
training to enable smooth operation of their Boards. Lack of publicly available guidance on
levels of retainers and fees of DAB Members was a matter of particular concern, as some
participants had come across project owners who were not prepared to pay more than a $100
daily rate.
Standing DABs are sometimes appointed much later than contractually required. In some
cases the DABs were not appointed until a dispute had arisen. Some parties even went to the
extent of amending the contracts to require ad hoc instead of standing Boards. A common
reason for delay in appointing a DAB concerned protracted negotiations on entitlement of
DAB Members to be paid retainers and the levels of such retainers and fees. In some cases
the delay was attributable to failure of a party to nominate a Board Member or withholding of
approval of a nominee.
Participants had come across many instances of poor quality in the presentation of parties’
cases before DABs. Board Members are often torn between alerting the party, thus running
the risk of being in breach of the rules of natural justice in appearing to come to the aid of one
28
of the parties, and deciding the matter on the evidence presented. It was noted that so far, in
contrast to growing provision for the training of Board Members, there appears to be nothing
being done to address the problem of inadequate presentational skills.
It was suggested that the ideal DAB is one made up a lawyer and two engineers with
experience in the operating environments of employers and contractors, respectively.
Extensive years of relevant experience as an engineer were not enough for effective DAB
membership; knowledge of the DAB process, team-working skills, ability to articulate a
position and to persuade others of a contrary view and a suitable personality were also
considered essential. There is a strong case for a more comprehensive training programme
designed to impart these attributes. Such a programme is likely to entail taught elements,
pupillage, role plays and simulations.
Enforcement of DAB decisions by bringing proceedings against breach of the obligation to
comply with the decision is unlikely to succeed in countries that either are signatories to the
New York Convention or have implemented the UNCITRAL Model law or equivalent of its
Article 8 into their domestic law. This situation leaves enforcement through the interim award
of a follow-on arbitration tribunal and termination for non-compliance with a DAB decision
as the only practical routes available. Serious doubts were raised whether the provisions in
the FIDIC contracts on the status of a DAB are sufficiently clear for parties to go down any
of these routes with confidence.
29
REFERENCES
Bunni, N. G. (2005). “The Gap in Sub-Clause 20.7 of the 1999 FIDIC Contract for Major Works”,
International Construction Law Review, Vol. 23; Part 3, pp: 272-283.
Jaynes, G. L. (2006). “Dispute Boards – Goods News and Bad News: The 2005 ‘Harmonised’
Conditions of contract Prepared by the Multilateral Development Banks and FIDIC”, International
Construction Law Review, Vol. 22; Part 3, pp: 102-112.
Levy, L. and Ndekugri, I.(2003). “The Role of the Adjudicator Nominating Bodies in Adjudication
under Construction Contracts”, International Construction Law Review, Vol. 20; Part 3, pp: 413-429.
Ndekugri, I, Smith, N. J. and Hughes, W. P.,(2007). “The engineer under FIDIC’s conditions of
contract for construction”, Journal Construction Management and Economics, Vol. 25, No. 7, pp.
791-799.
World Bank (1995) Standard Bidding Documents for Procurement of Works, Washington.
30
APPENDIX: LIST OF WORKSHOP PARTICIPANTS
PARTICIPANT COUNTRY
Ilsoe Andersen Denmark
Murray Armes UK
Peter Chapman UK
Peter Collie UK
Edward Corbett UK
Jim Daniels UK
Robert Fitzgerald USA
Jan-Bertram Hillig Reading University
Sebastian Hök Germany
Will Hughes University of Reading
David Loosemore UK
Roger Maddrell UK
Colin Marshall The Bahamas
Issaka Ndekugri University of Wolverhampton
John Redmond UK
Nigel Smith Leeds University
Roger Wills UK
