Unsurprisingly, a volatile and disrupted economic climate will likely have a flow-on impact upon major infrastructure projects. For example, the COVID-19 pandemic continues to deeply disrupt economic activities globally, including the construction industry. The war between Russia and Ukraine has also caused significant disruption. As a result, a growing number of disputes have arisen from, amongst other things, delays to the completion of projects, material shortages, inability to mobilize manpower and equipment, increases in costs and payment defaults.
Dispute Boards (“DB”) can be a highly effective mean of resolving such disputes. In fact, a survey of the Dispute Resolution Board Foundation (“DRBF”) identified that, in 2018, the number of projects with Dispute Boards is over 2,800 across nearly 60 countries, with a construction value of USD 280 Billion. Further, just over 98% of matters referred to a DB are resolved with only 2% progressing to arbitration or litigation.
DBs can be divided into three groups: dispute review boards (“DRB”), dispute adjudication boards (“DAB”) and dispute conciliation boards. This article focuses on the most popular form: DABs.
Despite the resounding success of DBs globally, the adoption of DBs in the construction industry in the Middle East has traditionally been muted, and still remains low. That said, the industry has seen an increase in the number DBs being set up to resolve claims arising from the COVID-19 pandemic. This article sets out some of the proven advantages of DBs and explores how DBs can be an effective means of resolving disputes in the wake of ongoing global economic disruptions. Further, we present some of the reasons why the construction industry in the Middle East has traditionally been reluctant to use DBs.
What are Dispute Boards?
Broadly, a DB is typically comprised of an individual or a panel of three individuals who, under the terms of a contract, either:
- provide non-binding recommendations to the contracting parties (DRB); and/or
- make binding decisions (DAB).
DBs developed in the United States (as DRBs) during the early 1950s as a means of amicable dispute resolution. During the 1960s, DBs gained popularity on large civil engineering projects, mainly in the United States. Progressively, the use of DBs was introduced into standard form construction contracts as the benefits of Alternative Dispute Resolution (ADR) became more widely recognised. A number of countries also began implementing a statutory framework to promote ADR. For example, in the United Kingdom the Housing Grants, Construction and Regeneration Act 1996 introduced a statutory right to adjudicate disputes under construction contracts. Lord Ackner praised the adjudication process, stating: “Adjudication is a highly satisfactory process, it comes under the rubric ‘pay now, argue later’ which is a sensible way of dealing expeditiously and relatively inexpensively with disputes which might hold up important contracts.”1
Other countries have followed suit, notably Canada, Australia, Malaysia and Singapore.
Why consider DBs now – The FIDIC example
DBs are widely used in the FIDIC “rainbow suite” of construction contracts. Parties can choose to appoint either a “full-term” (or “standing”) DAB that is established from the outset of the project. Alternatively, they might appoint an “ad hoc” DAB if and when a dispute arises.
Under the FIDIC 2017 edition, the DAB was renamed and is now referred to as the Dispute Avoidance/Adjudication Board (“DAAB”). The DAAB procedure in the FIDIC contracts is mandatory, both for standing and ad-hoc DAABs.2
Some of the distinct advantages of using DBs, in particular DAABs are:
- DAAB procedures settle disputes within a specified period, which can take as little as a few months. For instance, the DAAB has 84 days to decide a dispute. Such procedures allow the parties to resolve disputes quickly, and help focus the parties on the key issues.
- DAABs provide a definitive decision. The parties will obtain a determination of their dispute that is contractually binding (albeit, not directly enforceable in the same way as a court judgment or arbitral award). The DAAB’s decision is binding on both parties who “shall promptly comply with it whether or not a Party gives a NOD [Notice of Dissatisfaction]”.3 The decision is also binding on the Engineer.4
- A standing DAAB will often make regular site visits, periodically review communications between the parties, and deal with issues as and when they arise. Through their familiarity with the project and the parties, a standing DAAB may be called upon to express an informal opinion on a particular matter as well as formally resolve disputes that are referred to it. This may be especially important in the context of disputes stemming from the effects of COVID-19 and the war in Ukraine, which may cause a series of associated issues as these crises develop.
- DAABB procedures generally allow for relatively detailed submissions. While the hearings are very different to those in arbitral and court proceedings (for example, more informal), the written submissions are often extensive and detailed so as to ensure a thorough presentation of each party’s positions.
- DAABs have relatively flexible procedures and evidential rules, which helps to accommodate a shorter procedure, and facilitates the resolution of matters that are evolving in real time.
All of these features make DAABs an attractive tool to promptly resolve issues or disputes as they arise from both the ongoing disruptions and during the months and years that will be required for the world to return to some form of normality.
The Middle East Reluctance
Despite their success in many jurisdictions around the world, the Middle East has been slow to adopt DBs. There are a number of potential reasons for this.
Whilst FIDIC standard form contracts are amongst the most widely utilised construction contracts in the Middle East, many construction contracts in the United Arab Emirates (“UAE”) are based on the 1987 FIDIC suite, which does not provide for DABs. Where the 1999 FIDIC forms have been used, which does provide for DAB, employers often delete the DAB clauses. In doing so, proponents of DABs would argue that the opportunity to resolve disputes effectively and economically is lost, exposing parties to the time consuming, costly and relationship damaging alternatives of arbitration or litigation.
Culturally, the UAE construction industry seems to prefer deferring the resolution of issues nearer to the completion of the project, rather than when they arise. For whatever reason, but perhaps skepticism, employers are also more willing to rely on the engineer retained by them to give a determination (as provided under the 1987 FIDIC forms), than to rely on an independent DAB. In this regard, there is a perception that the DAB process favors the contractor over the employer. Therefore, many employers, and their consultants in the UAE have thus far been reticent to engage with DABs. The result is that they remain unfamiliar with DABs and their advantages.
That being said, however, the UAE federal government appears supportive of DABs. For example, under the Federal Arbitration Law, partial or interim awards may be enforced by the UAE courts.5 Therefore, it is possible that a party might request an arbitral tribunal to recognize a DAB decision as an interim or partial award, which can then be enforced in the UAE courts.6
The potential for timely and cost-efficient dispute resolution by DABs has led the Emirate of Abu Dhabi to require DABs to be used by law in its standardized construction contracts – albeit that these only used for government-led projects.7
Conclusion
In the wake of the COVID-19 pandemic and the ongoing war in Ukraine, economic precarity and geopolitical instability will continue to cause disruption to the construction industry, thus fueling disputes. The implementation of DAB-like procedures during the lifecycle of a project can help to resolve these disputes more efficiently and effectively, and perhaps mitigate serious disruptions to the industry. Whilst the Middle East construction market has yet to embrace the potential of DABs and DBs generally, FIDIC and other actors in the industry see the benefits of DBs and it may only be a question of time before those in the Middle East industry see the same.
1 D Griffiths, ‘Do Dispute Review Boards Trump Dispute Adjudication Boards in Creating More Successful Construction Projects?' (2010) Chartered Institute of Arbitrators, 76 Arbitration 4
2 Replacing the requirement prior to the 1999 Edition to refer a dispute to the Engineer before going to arbitration.
3 Sub-clause 21.4.3 of the 2017 Red Book
4 Sub-clause 21.4 of the 2017 Red Book
5 Article 39 of Federal Law No. 6 of 2018
6 A DAB decision is not directly enforceable before the UAE Courts.
7 Law Number 21 of 2006
