New FIDIC Practice Note: Dispute avoidance, focusing on dispute boards
On large-scale construction projects, dispute avoidance is critical when it comes to successful project delivery. It can reduce time and money spent on disputes (including enforcement of decisions), but also promote a healthy relationship between contract parties and other project participants, which is invaluable in long-term projects.
FIDIC’s Practice Note seeks to raise awareness of the dispute avoidance function of DAABs and provide advice on best practice.
What is a DAAB?
The 1999 FIDIC Suite of Contracts provides for dispute boards in one form or another. The 2017 editions of the FIDIC ‘rainbow suite’ maintain, and in fact expand, the dispute board provisions. However, parties often exclude these provisions when agreeing FIDIC-based contracts.
DAABs are a tool that can allow parties to resolve disputes before they resort to arbitration or litigation. In a “standing” DAAB, a panel of 1, 3 or more individuals (often specialised construction professionals) is appointed by the parties at the start of a construction project. They exercise a dual role throughout the life of the project: (i) help the parties avoid disputes by providing informal assistance to resolve disagreements between the parties before they crystallise into a dispute (i.e., dispute avoidance); and (ii) if a dispute does arise, make a formal decision on that dispute, with the benefit of having been involved in the construction project from the get-go (i.e., dispute adjudication). To exercise this dual role effectively, DAABs are often acquainted with the nature and progress of the construction projects, for example, by reviewing monthly reports or conducting regular site visits.
Parties may also choose to appoint an “ad hoc” DAAB as and when an issue arises. However, in practice a standing DAAB (as recommended by FIDIC) is more likely to promote successful dispute avoidance and resolution than one appointed on an ad hoc basis after a dispute has arisen.
FIDIC’s advice on best practice
DAABs are purely creations of contract – for a DAAB to succeed, the parties and DAAB members must (i) have confidence in the DAAB’s ability to perform its dispute avoidance role; and (ii) agree on how the DAAB will do so.
Accordingly, the Practice Note sets out the following 5 core tasks for every DAAB, which according to FIDIC, can contribute towards the DAAB successfully exercising its dispute avoidance role:
- Raising the parties’ awareness of the DAAB’s dispute avoidance role as early as possible and throughout the project. For example, FIDIC recommends that the DAAB convenes an ‘introductory’ or ‘kick-off’ meeting in the pre-commencement phase where the parties can discuss how dispute avoidance will work and establish a clearly defined communications policy, thereby allowing the DAAB to proactively flag issues and/or hold workshops with the parties to identify risks and mitigation strategies.
- Building and maintaining trust with the parties. FIDIC encourages DAABs to promote open dialogue and demonstrate to the parties their commitment to impartiality, independence and professionalism.
- Determining the place and time for dispute avoidance. Ideally, dispute avoidance should take place when key decision-makers are present (whether in person at site visits or virtually, on email or video-conference calls). FIDIC recommends that DAAB members actively and flexibly look for opportunities to provide assistance, and notes that the DAAB should try to avoid disputes as early as possible, before the parties become entrenched in their views.
- Identifying and communicating to the parties examples of matters that are appropriate for dispute avoidance. This includes, for example, opining on questions of contractual interpretation, assessing whether an instruction constitutes a contractual variation (and, if so, what additional time and cost may have been caused by a variation) or determining design responsibility and liability.
- Identifying the best form for dispute avoidance and encouraging the parties to engage with the DAAB to request assistance, whether this is informal discussions or the issuance of opinions (orally or in writing).
Parties may want to consider whether there may be benefits in using a DAAB to bolster the parties’ ability to resolve issues early. DAABs are creatures of contract, which means that parties can tailor a DAAB to their needs. For example, the parties can adjust the level of engagement they would prefer from the DAAB throughout a construction project. In multi-contractor and/or multi-package construction projects, there may also be opportunities to agree that the same panel of DAAB members will be appointed under each construction contract, so the DAAB can have a holistic understanding of the project, avoid inconsistent outcomes, and thereby contribute to the success of a project.
However, ultimately, DAABs are just one tool available to parties to assist with dispute avoidance. Parties should bear in mind that appointing a DAAB will necessarily involve upfront costs in the form of payment of DAAB members’ fees, and that the success of a DAAB will largely depend on the parties’ understanding of, and commitment to, the DAAB as an effective tool for dispute avoidance and resolution.
Thanks to Gaurika Mohan for her assistance with this article.