ADR options on construction contracts

Peer Dalland Dalland Associates Pty Ltd

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ADR OPTIONS ON AUSTRALIAN CONSTRUCTION CONTRACTS

The Case for Single Person Dispute Boards

withPeer Dalland

LEADR&IAMA Forum Wednesday 19th August 2015 Sydney

LEADR&IAMA Forum 19 AUGUST 2015


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General Conditions of Contract

• The building and construction industry in Australia use a large number of different standard forms of contract.

• These standard forms are often modified extensively, resulting in the interpretation of standard terms and phrases becoming uncertain.

• Bespoke General Conditions of Contract used in many industries and by some Principals generally transfer all or most risks to the Contractor.



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“standard forms of contract”

• How standard forms of contract are used and on what type of project, has been the subject of several studies and reports over recent years.

• Some of the more recent reports provide enlightened reading for anybody involved in the drafting and administration of construction contracts in Australia:



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Reports on Construction Contracts in Australia

1. Standard Forms of Contract in the Australian Construction

Industry Research Report by Melbourne Law School, chaired by Professor John Starkey. June 2014

2. Scope for Improvements 2014 by Ashurst Australia, Australia Constructors Association and Infrastructure Partnerships Australia

3. Standard Form of Contracting; the Role for FIDIC Contracts Domestically and Internationally by Toby Shnookal and Dr. Donald Charrett – 2010

4. Guide to Global Construction Dispute Resolution published by Clyde & Co 2015



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FINDINGS


• The consensus from all the reports indicates that over 60% of projects use standard forms

• 60-80% of these are amended • Amendments mostly involved changes to

the risk allocation, • which in turn is believed to lead to

increased cost and more claims (1).


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Scope for Improvement • The Ashurst/ACA report observes that:

• “The trouble with many of the standard forms of contracts are that they are quite old now and so heavily amended in most projects that they are not serving the purpose they were originally intended for. They do not allow contractors to quickly and efficiently appreciate the risk profile for any specific project.” (2)



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History of Australian standard General Conditions of Contract

• The first standard general conditions of contract in Australia was the CA24 published by the Institution of Engineers in 1952.

• Was published as AS 2124 in 1978 and in 1992 took JWP publication NO DISPUTE into account

• AS 4000 published in 1997 was intended to replace AS 2124

• AS 11000 draft 2015 (revision of AS 2124 – 1992 and AS 4000 – 1997)



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Objectives of Australian General Conditions of Contract

• Defines the responsibilities and obligations of the Parties to the Contract.

• Provide rules and guidelines for the administration and execution of the works under the contract.

• Defines risk allocation, insurance provisions, payment regimes etc.

• Facilitates day to day administration and execution.• Provides rules and procedures for disputes

resolution.



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PHILOSOPHY

• The Australian General Conditions of Contract mostly reflect a different, more old fashioned philosophy, than do the General Conditions of Contract used internationally such as the FIDIC General Conditions of Contract and the Engineering and Construction Contracts published by the Institution of Civil Engineers ICE) in the UK.



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Engineering and Construction Contract (ECC)

• In their introduction to ECC contracts, the ICE states that

• “The ECC is the first of what could be termed a ‘modern contract’ in that it seeks to holistically align the setting up of a contract to match business needs as opposed to writing a contract that merely administers construction events.”



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Ethos of ECC

• “The whole ethos of the ECC, or indeed the NEC suite generally is one of simplicity of language and clarity of requirement. It is important that roles and responsibilities are equally clear in definition and ownership”



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Philosophy of AS 11000

• The draft AS 11000 attempts to bridge the gap and provides inter alia that the “Overriding obligations” of the Contract is one of “Good faith”



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Mutual trust, cooperation and good faith

• “The Principal and Contractor each agree:(a) to act reasonably in a spirit of mutual

trust and cooperation, and generally in good faith towards each other; and

(b) that such action shall not derogate from their obligations to comply with the Contract.”



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Contra proferentum

• It will be interesting to see how the obligations in AS 11000 will sit with the recent trend in some Common Law jurisdictions to amend Contracts to exclude the doctrine of “contra proferentum”.

• The risks will then become unidentifiable and very difficult to price on any project, with the intention clearly to give the Principal an “unfair” advantage.

• This doctrine is embedded in Civil Codes around the world, were a contractual clause to exclude it from a Contract would be void.



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What happened to “No Dispute”

• Where are we heading in Australia with these trends.• The JWP “No Dispute” published in May 1990 by the

NPWC (National Public Works Conference) and NBCC (National Building and Construction Council) was for a while the new bible for construction contracts.

• It also advocated mutual understanding and trust between the parties as an objective in the dispute resolution process.



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“NO DISPUTE”Summary of guidelines for Dispute Resolution (1990)

• Encourage, facilitate and expedite genuine negotiation• Avoid legal representation• Avoid arbitration and litigation processes• Specify compulsory conferences of senior management of

both parties before embarking on formal third party processes• Concentration on cost mitigation of the problem area, rather

than procrastination about negotiating and resolving the dispute.

• Be cost-conscious, contemplating end financial implications of resolution processes once genuine negotiation have failed

• Encourage use of alternative dispute resolution processes



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25 years later

• Do we use these guidelines today?• We still have excessive legal representation• Do government bodies adhere to the guidelines

and principles of “No Dispute” – no reference in GC21, although conferences of senior management has been retained

• Non-government contracts seem to be heading back to the pre-”No Dispute” regimes, by amending the standard forms of contract.



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EXISTING FORMS

• At this point in time we seem to be stuck with the old favorites;

• AS 2124• As 4000• GC21 Edition 2



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DISPUTE RESOLUTION PROCESSES COMMONLY USED IN AUSTRALIAN CONSTRUCTION CONTRACTS

• Arbitration• Expert Determination• Dispute Boards – 3 member boards• Litigation



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LESS USED OPTIONS

• Single Person Dispute Board (SDBM)• Dispute Advisory Services (Hong Kong model)• Facilitation – similar to above, but can be

structured to suit a particular project.

• In addition there is also SOP adjudication under various state legislations.



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MEDIATION

• This is often included as the first step in a tiered approach to dispute resolution on some contracts



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ARBITRATION

• Under current procedures this can be long-winded and costly, but it will eventually deliver a fair and robust decision in most construction disputes.

• IAMA developed procedures for a fast track arbitration process



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EXPERT DETERMINATION

• A well-known ADR process in Australia - entrenched in some government forms of contract, such as the GC21 used in NSW, for disputes up to a value of $ 500,000

• Depending on the Rules, it can be a relatively quick process and the outcome will generally be determined on written submissions only.

• The Expert Determination will normally give reasons and will be contractually “Final and Binding” with no recourse to litigation or arbitration.



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DISPUTE BOARDS

• THE AUSTRALIAN MODEL • Normally 3 person Dispute Board based on

DRBF procedures• Delivers non binding recommendations



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SINGLE PERSON DISPUTE BOARD (SDBM)

• FIDIC Single Dispute Board Member provisions apply to projects of all sizes

• I introduced SDBM provisions on an AS 4000 contract in NSW in 2003 with an initial value of 10mill.

• I also successfully argued for the establishment of a SDBM on a major road project in Afghanistan with a Bid value of around USD 450mill and several hundred km in length.



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DISPUTE ADVISOR/FACILITATOR

• Similar to a Single Person Dispute Board, but is not determinative. The DRA is a one-person standing board set up in the conventional manner at the commencement of a construction project.

• In all cases, the DRA is appointed by agreement between the owner and the contractor immediately after the construction contract is signed. The DRA fees are paid equally by the parties.



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STATUTORY ADJUDICATION PROCESSES

• Very time efficient, but can deliver “rough justice”

• SOP adjudications are only intended to be binding in the interim



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AS 4000 dispute resolution provisions

Standard form of contract:Conference and Arbitration



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GC21 EDITION 2

• Issue Resolution by Senior Executives• Referral to Expert Determination; <$500,000• Litigation



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AS 11000 (draft) dispute resolution provisions

Various options are listed to be selected by the user, normally the Principal prior to calling tenders

Conference and ArbitrationConference Expert Determination LitigationContract Facilitation Dispute Resolution Board



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FIDIC

• Claims procedures• Engineer’s determination• Referral of dispute to DAB• Dispute Adjudication Board (mandatory)



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TIME COMPARISON CLAIM ASSESSMENT

• AS 11000 – • Superintendent’s decision – 90 days

• AS 4000• Superintendent’s decision – 56 days

• GC21 EDITION 2• Principal’s decision - 56 days

• FIDIC• Engineer’s sc.3.5 determination – 84 days



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TIME COMPARISON REFERRAL/OBTAIN ADR DECISION

• AS 11000 – • ADR referral only - 110 days

Decision/award plus plus• AS 4000• Referral only to Arbitration - 126 days

Award; anybody’s guess• GC21 EDITION 2• Expert Determination - 215 days

• FIDIC• Dispute Board Decision - 140 - 168 days



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SUMMARY

• The claims procedures under standard forms of contract take too long

• The dispute referrals take too long• Determination of disputes take too long• Current processes do not work easily with SOP



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Suggested improvements

• Determinative Dispute Resolution by Single Person DB; 3 person DB on larger more complex projects appointed at the start of the project

• Shorten claims procedures – GC21 and FIDIC both identify an issue or dispute within 84 days. AS 11000 takes 110 days – needs to be shorter



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AS 4000

• AS 4000 can easily be amended to provide for Single Person Dispute Boards

• Contain provisions which are familiar to most Principals, Contractors and Supervision Engineers in Australia.

• FIDIC provides alternative well established standard forms of contract (refer 3)



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Fast dispute resolution processes

• Determinations within 56 – 84 days must be binding and “final and binding” if Notice of Dissatisfaction has not been issued within a certain time (28 days is popular)

• Total time therefore between 140 days and 168 days (calendar days)

• Remedy must be arbitration, which should be referred within a minimum and maximum time period.



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CONTRACTUAL ADJUDICATION

• Contractual Adjudication is likely to avoid SOP Adjudication Applications, as its decisions can review and override the SOP Determinations

• DB Tripartite Agreements provided for in the Contract, will stand outside the Contract if the Contract is terminated and should be able to determine issues arising from termination.



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THANK YOU
