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LEGAL

Dispute djudication Boards


a preferred mechanism for
tunne _. ~.g projects? illrich Helm and Fabian
Bonke of the international
law firm Hogan Lovells
Tunnelling projects typically go hand-in- permanent five member Board. With the
hand with uncertainty, as even with a project having a total value of US$14bn, only International LLP here talk
thorough investigation the exact geological 13 disputes arose, of which 12 were settled us through why Dispute
conditions are unpredictable and during pre-arbitration. The use of DAB procedures
construction the design has to be adjusted received a boost in 1995 when introduced in Adjudication Boards could
to the actual ground conditions. These one of the FIDIC Books, which are today be the preferred dispute
adjustments can lead to additional costs and considered to be possibly the most
delays, thereby challenging contract frequently used contract forms for settlement mechanism for
administration and project management. As international infrastructure projects. Due to the underground
a consequence of the above, tunnelling is the populari ty of these standard forms, DABs
prone to disputes. Construction contracts are now prevalent in construction projects construction industry
should thus provide a system for resolving such as tunnelling. According to the
claims and disputes on compensation in (fragmentary) data collected by the Dispute What a re DABS?
order to avoid the escalation of the dispute Resolution Board Foundation (DRBF), almost DABs consist of one or three impartial
and to maintain good relationships during 3000 projects included Dispute Resolution experts, who are preferably experienced and
these long-term projects and beyond. Boards like DABs. This prevalence of DABs in highly trained engineers. In comparison to the
Dispute Adjudication Boards (DABs) are particular can be expected to further Engineer who has conferred decision-making
designed to serve this exact purpose. DABs increase in the tunnelling sector with the functions under the FIDIC Conditions of
aim to avoid the occurrence of disputes publication of a new FIDIC Book designed Contract. the DAB acts truly independently.
during construction and to promote the early specifically for Underground works (see our The Engineer, however, is subject to a conflict
resolution of disputes. latest article in the last Tunnelling Journ al of interest he is hired and paid for by the
In the tunnelling sector, DABs were first Issue April/May 2017). DABs are also Employer, being his agent in some cases,
made use of in 1987 in the Anglo-French recognised by the Intern ational Tunnelling while still being expected to act impartially
Channel Tunnel Project and consisted of a Association (ITA) for tunnelling projects. when deciding on disputes. This conflict of

TUNNELLI NG JOU RNAL 43


LEGAL

interest created an element of scepticism disputes is generally at the discretion of the kinds of disputes conclusively.
towards the too strong role of the Engineer, DAB. It would normally be expected to One key strength is the focus on dispute
eventually leading to a shift of powers from conduct a hearing and possibly to request avoidance. With the availability of a- often
the Engineer to the DAB. The first edition of written submissions from both parties prior to permanent- DAB, disputes can be resolved at
the FIDIC Red Book still resolved disputes by this hearing. The DAB's decision should briefly an early stage which helps to save money and
written decisions of the employer's engineer, describe the matter in dispute, the rel evant time and thus to maintain good project
whose decision was final and therefore could facts and the basis for its decision, particularly relationships. The parties are reluctant to take
only be altered by an arbitral award, without including the applied contractual provisions. tenuous or extreme positions in a dispute, as
an intermediary DAB. The 1996 Supplement Apart from dispute settlement, regular site that may result in losing their credibility with
to the FIDIC Red Book then introduced the visits should form part of the routine work of the Board members. Also, the reoccurring
option to reduce the Engineer's role to a - still the DAB. Good knowledge of the site, problem of aggreg ation of unresolved claims
important- first instance decision-maker experienced by actually visualising it, can be a is minimised since the DAB encourages the
while conferring the pre-arbitral role to the major advantage at a later stage when it parties to promptly refer disputes. Critics,
DAB. comes to disputes. Therefore, regular site however, cast doubt that DABs actually bring
DABs render temporarily binding decisions visits by the DAB can reduce the works for these advantages. Parties who are willing to
that differentiates them from Dispute Review reconstructing historical events later. The settle amicably would do this without a DAB,
Boards (ORBs) or mediators. ORBs render non- frequen cy of those routine site visits is highly and Parties that are not willing to settle will
binding advice on disputes and are more dependent on the actual project or the state not accept a DAB's decision and will
commence arbitration in any event. Without a
doubt, DABs do not always make a difference
One other great strength of DABs to a dispute. However, from our research and
is the vast technical expertise of its experience, there are a number of cases
where DABs provided for an adequate forum
members. DAB members are typically to find an acceptable solution to a dispute.
Even if parties are generally willing to settle
experienced engineers, who are amicably, they can disagree as to the exact
familiar with both the technical issues conditions of a compromise. Having an
unbiased and experienced Board render the
and best practice in the decision can ensure that settling is made
construction sector. easier for both sides.
One other great strength of DABs is
the vast technical expertise of its
prevalent in North Ameri ca. Mediation is members. DAB members are
common across the globe and its use is not typically experienced engineers,
limited to only construction cases. A neutral who are familiar with both the
mediator attempts to identify and resolve technical issues and best
the disagreement between the parties, acts practice in the construction
as a communication channel between the sector. l imits, however, can
parties and may propose settlement be reached when it comes
solutions. If the parties, however, are not to legal and contract
capable of reaching an agreement the interpretation issues. These
mediator is not entitled to make a binding issues are preferably
decision. resolved by legal experts
who are specialised in
DAB appointment and routine construction law cases. The
operations dispute settling mechanism
The parties of a FIDIC Yellow Book-contract that the FIDIC contracts provide
can choose between a DAB consisting of one takes advantage of the respective
or three members. FIDIC recommends three organ's abilities and considers those
members when the project volume exceeds limitations. The Engineer works as a
US$25M . In this constellation, each party will first filter for disputes that do not inherit
normally select one member and the legal but technical problems. Many of these
chairman will be appointed by these two technical and/or less contentious issues can
appointed members. Sometimes the contract of it. As a guideline, the FIDIC Red Book already be resolved in this first step, when
will contain a list of people who can be provides for visits in intervals between 70 and both parties are satisfied with the Engineer's
appointed for the DAB. In this case the parties 140 days and additional visits during critical determination following the claim. Disputes
are obliged to choose a person from that list. phases of construction. During these site visits ari sing from the determination might then be
The DAB should be appointed as early as the DAB should be informed about the resolved by a DAB's decision. Thanks to the
possible, thus at the commencement of progress of the project, as well as existing or qualification of the Board members and their
construction, and should remain in existence potential difficulties. Additionally,the parties close involvement in the project there is a
throughout the lifespan of the project. Early would have the opportunity to bring forward high chance the dispute can be settled
appointment is key in order for the members issues that they consider as important to conclusively at this stage.
to detect problems on site and to become them. Furthermore, DABs are said to be relatively
conversant with the project. inexpensive. There have been surveys on the
The main task of a DAB is to resolve the Strengths and limits of DABs costs of DABs reaching the conclusion that
disputes that the parties refer to it. The exact Without a doubt. DABs have their strengths they only make up for 0.05 % to 0.3 %of
procedure for making a decision on these but cannot be a forum to resolve all different the total project costs. Usually costs of the

44 TUNNELLING JOURNAL
LEGAL

Figure 1: Comparison of the current of the claim, the Engineer makes an expires, the NOD is deemed to have lapsed
and new FIDIC books appropriate determination. When a party is and be no longer valid, leading to the
dissatisfied with the determination, it gives irrefutable presumption that both Parties have
CURRENT YELLOW AND RED BOOK notice to the other party of its intention to conclusively accepted the determination. Also
refer the dispute to a DAB, without being new is that Arbitration can only be
bound by a time limit. After its appointment, commenced within 182 days after the NOD
the DAB then renders a decision within 84 following the DAB's decision, but not before
days. In case of disagreement with the DABs the 28th day after the day the NOD was given
decision, the party has to give a Notice of (even if no attempt at amicable settlement
Disagreement (NOD) to the other party within was made). The parties will on the one hand
28 days. The Red and Yellow Books then benefit from streamlining the procedure . On
provide for a period of 56 days for a last the other hand, the parties will have to make
attempt at dispute avoidance and amicable sure that they respect the time limits in order
settlement. Arbitration can subsequently be to preseNe their own ri ghts. The parties thus
commenced under the rules of the require a well-organised contract
Intern ational Chamber of Commerce (ICC), management also while working with a DAB.
without any time limits. Hereby, a party is not
entitled to bypass the DAB by directly Conclusion
initiating arbitration proceedings but the DAB In summary, DABs provide no "one-size-fits-
NEW YELLOW BOOK proceedings are rather a necessary all " solution. Especially complex legal issues
AND UNDERGROUND BOOK precondition. call for the expertise of contract lawyers and
(Differences To Current Book In Green) cannot be solved by a Board of technical
New FIDIC Yellow Book and FIDIC Book experts. The elaborated system provided by
for Underground Works FIDIC with a tiered dispute resolution
In particular the DAB procedure in the FIDIC mechanism partly avoids these limits by
Yellow book has been criticised for different combining the DAB procedure with other
reasons, which will be addressed in the new forms of dispute settling such as arbitration.
edition of the FIDIC Yellow Book (rel ease Despite this limitation, the merits of the
expected in September 2017) and the new FIDIC's DAB procedure are notable. The Board
FIDIC Book for Underground Works (release members provide for high technical expertise
of test edition expected in 2019/2020). allowing for an early resolution of a high
One point of cri ticism has ari sen from the amount of disputes and even their avoidance
fact that the DAB is appointed ad hoc, when at relatively low costs. Because of its close
disputes have already arisen. Thus, the involvement in the construction process, a
challenging task of appointing the Board permanent DAB can anticipate contentious
members appears in the midst of a dispute issues and ideally resolve them without much
and the Board members cannot assist in expenditure. Only few, legally complex
avoiding disputes in the first place. Taking disputes are brought to arbitration, saving
account of these concerns, the new Books time and resources. Therefore the DAB
now set a greater focus on dispute avoidance. procedure was implemented in the FIDIC
This is illustrated by the addition of "Dispute standard forms as a crucial part of the
DAB will be shared equally by the parties. Avoidance" to the name of the Dispute provided dispute resolution mechanism. It has
These costs seem particularly low when Adjudication Board. As has been proven to be already proven to be successful in the current
compared to those expected in arbitration or successful in the FIDIC Red Book and FIDIC FIDIC Books and considering the
litigation and the loss of productive project Gold Book of 2008, the DAB is now improvements in the new FIDIC books will
time. In some cases, there is, however, no constituted as permanent instead of ad hoc have even more positive effects. It is however
altern ative to arbitration or litigation and any and, therefore, remains in place until the important to note that the tight deadlines for
additional work by a DAB might cause works are completed. This is expected to have the assertion of claims and complex
unnecessarily incurred additional costs. As set a positive effect on dispute avoidance, as procedural rules require the parties to set up a
out, this might be the case if legal and prevention is only possible before a claim is well-organised contract management
contract interpretation issues ari se. Or the made. The availability of informal assistance throughout the entire project.
dispute escalates to such an extent that the by the DAB to resolve disputes at an early
parties aim to reach a binding decision that is stage also supports dispute avoidance. ACKNOWLEDGEMENTS
also immediately enforceable against the Furthermore, it has been cri tically raised
other party. that the DAB procedure would take too long . Ulrich Helm is Partner and Fabian Bonke is
The FIDIC Books now provide for tighter an Associate in the Frankfurt Office of the
DABS IN THE FIDIC BOOKS deadlines for the whole dispute resolution international law firm Hogan lovells
Current FIDIC Yellow and Red Book including the procedure in front of DABs. This lnternationalllP. They are part of the
In the widely used FIDIC Yellow and Red Book will very likely apply to the upcoming Yellow Infrastructure, Energy, Resources and
DABs hold key role in their tiered dispute Book and the upcoming Book for Tunnelling Projects Group and frequently advise on
resolution mechanism. In short, the DAB is and Underground Works. Hereafter, a party tunnelling and other large infrastructure
deployed after a determination by the who is dissatisfied with a determination by projects. The authors particularly thank
Engineer and before arbitration commences. the Engineer, now has to give a first NOD to Ms Nora Stumpf for providing valuable
A typical procedure would be as follows: One the other party within 28 days. No longer support in drafting the article. The views
party considers itself entitled to additional than 28 days after this, the dispute has to be expressed in this article are solely those of
payment due to altered conditions and gives referred to the - already appointed, as it is the authors.
notice of this to the Engineer. If he approves permanent - DAB. If this period of time

TUNNELLING JOURNAL 45