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This article was first published in the September 2024 issue of Middle East Consultant.
Construction disputes can be difficult to resolve at the best of times, which is why ensuring contracts contain an appropriate dispute resolution clause is one of the best ways to manage and resolve conflicts in the early stages.
Given the significant growth in the size and value of construction projects in the Middle East, alternative methods of dispute resolution such as Dispute Review Boards (DRBs) are an option that may be used to resolve disputes.
Where parties are unable to avoid or resolve a dispute, DRBs can be used to achieve settlement without going head-to-head in a confrontational arena such as arbitration or court action.
However, as TBH Associate Director Craig Sandison points out, while this more flexible alternative to arbitration will hopefully be adopted in more forms of contract in the Middle East in the future, the difficulty right now is their enforceability (or lack of it).
What is a DRB?
As the title suggests, a DRB is a panel of individuals appointed to resolve disputes in construction and engineering contracts.
When a dispute arises, a DRB may be established as a requirement stipulated by the provisions of the contract or by agreement of the contracting parties on an ad-hoc basis. The Contracting parties may agree to the DRB dispute clause as part of the terms and conditions of the contract as an alternative or precedence to arbitration or court proceedings.
While other dispute resolution processes such as mediation and arbitration usually only occur when a dispute arises between the parties, a DRB seeks to help parties avoid litigation and seek a ‘best-for-project’ resolution rather than just provide a dispute resolution alternative.
The contracting parties may favour the implementation of a DRB to resolve disputes in order to avoid the lengthy and costly process of formal dispute resolution such as arbitration or litigation.
Some may consider the informal and fast-paced approach of DRB dispute resolution may result with incorrect determinations and decisions, when compared to the formal dispute processes. However, data from the Dispute Resolution Board Foundation has shown that 98% of construction projects that used DRBs for conflict resolution since the late 1980’s were completed in-house, without progressing to arbitration or litigation.
How did DRBs come about?
The first practical application of a DRB was back in 1975 during the construction of the second bore of the Eisenhower Tunnel in Colorado.
The concept went on to gain further traction in 1989 when the American Society of Civil Engineers promoted DRBs in their manual “Avoiding and Resolving Disputes During Construction.”
International institutes such as the World Bank recognised the value of DRBs in 1995 by including a three-person DRB option in its standard bidding document “Procurement of Works” for contracts exceeding $50 million and DRBs are now mandatory for large World Bank contracts following this move.
What is the ideal composition of a DRB?
DRBs are usually composed of a panel of neutral third-party experts, often three members, who may be nominated by the contracting parties at the outset of the contract.
The board should ideally comprise of individuals with a blend of experience and skills relevant to construction disputes and may include professionals with technical expertise, commercial contracting and financial knowledge or with professional legal experience relevant to the industry.
This mix of experience ensures that the board can address different aspects of disputes while providing balanced and informed recommendations.
The board functions in similar way to a law court or arbitral hearing but will generally conduct proceedings in a more informal manner. Unlike litigation where a judge or panel of judges will be appointed by the courts, in a DRB the parties will be able to select and nominate the members of the board.
How would DRBs benefit the industry in the Middle East?
Construction-related claims in the Middle East tend to be substantial and often complex, as a result of this, parties often prefer arbitration and sometimes court determination to resolve disputes. Often arbitration and litigation result in a lengthy and costly process, which can be harmful to both parties both financially and in terms of reputation.
Where construction contracts present a commercial risk of uncertain or costly dispute resolution procedures, contractors may price this risk within tenders or may elect not to consider the contract at all. The inclusion of an option to resolve potential disputes by means of DRB, may provide contractors with more confidence to bid for the work.
Can DRB procedures be made a part of contract documents?
Many construction contracts include a clause establishing a DRB. The procedures for the DRB are often integrated into the contract’s general or supplementary conditions.
However, on occasion such clauses are deliberately crossed out from standard contracts due to a culture that believes that prolonging disputes and eliminating DRB provisions will discourage harmed parties from seeking formal resolution of its claims, and provide an advantage to the other side in negotiations.
Documents like invitations to bid or requests for proposals should also mention the planned formation of a DRB to align with other dispute resolution methods outlined in the contract.
What is the case for incorporating Dispute Review Boards (DRBs) into construction contracts in the Middle East?
Given the continued growth of construction in the Middle East — and the ever-increasing size of projects – it appears likely that claims and disputes will not go away, if anything — they are just going to become more prolific. By using DRBs, parties can avoid costly contractual disputes.
To ensure the future viability of the industry, it is increasingly necessary for stakeholders to consider alternative methods of dispute resolution, to avoid the increased and additional cost that is often a biproduct of arbitration and litigation.
This will not only reassure and encourage those contractors currently operating in the region, it will also encourage new entrants from other international regions. The expansion of DRB resolution also demonstrates a commitment to improvement and advancement of the industry within the region.
Overall, DRBs are a valuable tool for managing disputes in construction projects, as they can help avoid formal dispute resolution processes – which is particularly important in the ever-expanding Middle Eastern market.
A big step towards making DRBs more widespread in the region would be to establish them as a legal requirement in contracts. The UK Construction Industry has benefited from the introduction of adjudication in construction contracts as a statutory requirement. Such a legal requirement will mandate parties to use this form of alternative resolution, rather than simply opt in or agree to using it.
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