Dispute boards: the missing link?

Leonora Riesenburg.

After the Dispute Review Board (DRB) Foundation and Society of Construction Law (Gulf) met to discuss dispute boards and their function in the local market, many praised the ‘checks and balances’ proffered by the mechanism.

The rationale behind the dispute board is simple. The DRB provides a non-binding recommendation to contracting parties that have appointed a board of three independent experts, intended to comb out difficulties either prior to the offset of, or in answer to, a problem.

A similar principle applies to the Dispute Adjudication Board (DAB), save that the DAB’s decision has interim-binding force.

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Dispute boards have been given tour de force by the active support of the Dispute Board Federation, the Dispute Resolution Board Foundation, ICC, and standard-form contract authorities including the International Federation of Consulting Engineers (FIDIC).

This form of independent regulation has had a warm welcome in the West. Interestingly though, collaboration contracts such as NEC have been tested in territory, most notably by Abu Dhabi’s Aldar Properties in the early phases of Al Raha Beach Development, and failed to take flight.

Creating valuable opportunities for periodic review is fine in theory. In practice, however, it is rare that two parties’ agendas will be aligned in such a way as to capitalise on the opportunity.

Competing interests are a particular concern when more than two parties are involved. Returning control to the employer and the contractor is only worth the paper it is written on to the extent that the employer and contractor play ball.

In the case of long-term appointments, a day rate, allowances and disbursements customarily need to be shouldered for all three board members, over the course of the life of the project, however lengthy. The cost implications can be staggering.

The fact of the matter is that employers will never want to pay above a budgeted figure for the contracted services, and service providers will be bent to do their utmost to secure their minimum margin.

The equation only ever balances if the margin for error is not eroded. Commercial reality dictates that errors are made and a price tag is attached to each of them. It is the allocation of these risk events, and in turn its cost, that is the bone of contention among contracting parties.

The effectiveness of an independent administration, in the form of dispute boards, in the context of this tension, is questioned.

The UAE has been slow to apply FIDIC 1999, calling for the appointment of a DAB as part of its dispute process. If and when adopted, the standard conditions are often heavily modified and reinstate the engineer’s traditional role as a de facto ‘dispute manager’.

Further the language of contracts in territory is slow to entertain the admissibility of recommendations or resolutions in any subsequent arbitration or legal suit.

When legal fees are calculated on a percentage fee basis, irrespective of complexity, the mathematical exercise rapidly dwarfs the financial benefits attributed to the DB.

The Abu Dhabi Municipality has moved the markers further afield with its Municipality Construction Contract, essentially a heavily modified form of the 1999 FIDIC Contract for Construction, by making it mandatory for a ‘standing’ DAB to be appointed once a dispute has arisen.

A ‘standing’ DAB is in effect a half-way house. Where the Municipality Contract gives on one hand, it takes on the other: the engineer’s role in dispute resolution is re-assigned to the employer.

One would not need to go into any further detail to entertain that dispute boards, particularly given their limited application in territory, are not a means to an end.

There is no real replacement for proper internal administration coupled with continuous sound legal counsel and guidance to complement to the day-to-day workings of commerce.

Leonora Riesenburg is a senior legal consultant with Galadari & Associates.