Why appoint a ‘DAB’?
Through my review of several court case summaries and reports, it can be seen that many of the Gulf’s construction projects disputes relate to ambiguities in the Contract documents, the inability of contracting parties to administer their Contracts and unsubstantiated/incomplete claims (whether Extension of Time or cost claims).
A review of the cases revealed that the contracting parties had often first tried to resolve their disputes through direct negotiations. However; and perhaps as a consequence of the world’s current economic dilemmas and other complications in securing appropriate project finance; contracting parties are often resistant to compromise and unwilling to disburse money on their projects to ensure smooth completion. Such unwillingness has often led to disputes being resolved through ADR (Alternative Dispute Resolution) or Litigation.
In numerous court cases it can be seen that the Engineer’s decision was disregarded by the court on the basis that the Engineer was a party appointed and paid for by the Employer. These court decisions focused on the fact that the Engineer was under commercial pressure that had influenced his impartiality. Furthermore, part of the Contractors’ claims had included failures relating to the Engineer’s performance thus compromising the Engineer’s impartiality / integrity as a solver of disputes. This anomaly has triggered the need for a credible third-party decision (adjudication) as a development of the Engineer’s Decision mechanism in order to resolve disputes prior to formal litigation.
The Dispute Adjudication Board or “DAB” was introduced under the FIDIC 99 “Rainbow Suite”, to resolve disputed Engineer’s determinations and decisions and to avoid the necessity to move to Arbitration as the only available ‘next step’.
Whether a “standing permanent” appointment as envisaged in the Red Book or an “ad hoc” appointment as in the Silver and Yellow Books, the “DAB” comprises of one or three suitably qualified persons (consideration should be given to the size, complexity and nature of the project works in deciding the number of persons) agreed between contracting parties in accordance with sub-clause 20.2 of the FIDIC 99 General Conditions. Appointed members shall be familiar with the Contract type, Jurisdiction Law, the works, and the technical and contractual issues that commonly arise during the execution of construction projects.
However, the “standing permanent” appointment has a significant advantage over the “ad hoc” appointment in facilitating the resolution of the issues by the “DAB” acting as a mediator through ongoing “without prejudice meetings” as the works progress thus mitigating the chances of misunderstandings developing into formal disputes, unlike the “ad hoc” appointment which takes place only after the formal dispute materialises.
“DAB” members shall have no personal, financial or professional interest with any of the contracting parties nor with the Engineer. Each “DAB” member enters into an agreement with the Employer and Contractor that strictly obliges him to be, and be seen to be, objective, impartial and independent.
FIDIC in its Annexes includes for a template and rules for the “DAB” appointment and operation. Considering the status of appointment, the Red Book includes rules for regular site visits during the execution of the works (with intervals of typically 3-4 months) and the organization and agenda for these visits. These same rules do not apply to the “ad hoc” appointed “DAB”’s. Other helpful rules are also provided relating to the Adjudication procedure and the decision making process which are applicable across the FIDIC Rainbow Suite.
FIDIC calls for the “DAB” to give their decision no later than 84 days from receiving the reference “or within such other period as may be proposed by the “DAB” and approved by both Parties”. For this to be achieved, the adjudication procedure should not commence unless the “DAB” is well prepared in order to avoid the process potentially being viewed as “rough justice”.
Remuneration terms and timing shall be agreed between all parties, and parties in dispute shall bear equal shares of the cost.
Termination of the “DAB” or any of its members can be achieved only by the mutual agreement of both Parties. The “DAB” appointment expires when the discharge referred to in Sub-Clause 14.12 [Discharge] shall have become effective (Red Book), or upon giving the decision on the dispute referred to it (Yellow and Silver Books).
If the “DAB” decision is considered to be unsatisfactory by one of the parties, then the next steps are clearly defined. The dissatisfied party shall issue to the other party and in no later than 28 days of receiving the decision, a notice of dissatisfaction with reference to Contract Sub-clause 20.4 including the details and reasons of his dissatisfaction. Except as stated in Sub-Clause 20.7 [Failure to Comply with Dispute Adjudication Board’s Decision] and Sub-Clause 20.8 [Expiry of Dispute Adjudication Board’s Appointment]”, neither Party shall be entitled to commence arbitration of a dispute unless a notice of dissatisfaction has been given in accordance with Contract Sub-clause 20.4. If no notice of dissatisfaction was received during the 28 days, then “DAB” decision shall become final and binding upon both Parties. It can be seen therefore that the DAB process has a clearly defined beginning and end.
Is it Mandatory?
Common Law Jurisdictions differ when it comes to deciding whether or not it is mandatory to refer the dispute to a “DAB” before arbitration (or litigation) can commence. In some jurisdictions courts, it has been confirmed that referral to the “DAB” before arbitration is mandatory where it is clearly defined as such in the Contract obligations, while in other jurisdictions, even though the “DAB” decision was considered as being part of the Contract obligations, courts decisions emphasized that Adjudication caused delays in resolving disputes and therefore Arbitration was chosen as the appropriate dispute resolution procedure for that Jurisdiction.
In any event, contracting parties shall always keep in mind that if they agree to a “DAB” then the “DAB”decision will likely have a legal effect and will bind the parties to a certain extent.
Advantages Vs Disadvantages
When it comes to Cost and Time, Adjudication whether on a “standing” basis or “ad hoc” is considered to be a fast track and cost-effective dispute resolution mechanism compared to Arbitration or Litigation.
Adjudication is a process controlled by the contracting parties unlike Litigation where the control is removed from the contracting parties and is delegated to the court.
Furthermore, “DAB” members are chosen by the contracting parties, they are of technical background and understand the issues impacting upon the construction industry. On the other hand, courts arbitrators, judges and lawyers, in the absence of technical and construction industry experience, sometimes hand down decisions which are authoritative and based on very narrow legal interpretation of contract clauses rather than industry practice.
Most of all, Adjudication being a confidential procedure undertaken during the execution of the works does most to ensure the quick resolution of disputes and therefore a continuous healthy working relationship between the contracting parties which should lead to smoother completion of Contract works.
On the other hand, the “DAB”’s actions are limited to the matters expressly defined in the Contract and during the currency of the Contract. Whilst the “DAB” decision must be respected by the contracting parties throughout the course of the Contract, the “DAB” decision does not necessarily lead to settlement of the dispute itself. Either of the contracting parties can subsequently refer the dispute to the court following Contract closure as a fresh new disputed case. Thus a “DAB” decision is by no means final.
Furthermore, a ‘poor’ decision can cause financial troubles and disruption to the Works until a revised decision is provided to the party of dissatisfaction. This might also affect the “DAB” remuneration where the party of dissatisfaction might delay due Payments until a more satisfactory decision is provided.
However, in my opinion such disadvantages are considered insignificant in comparison with the commercial value of a timely “DAB” decision whilst the works are ongoing.
NEW Release of FIDIC Rainbow Suite 2017
One of the major concepts that FIDIC is seeking to promote under its new release of the “Rainbow Suite 2017” is dispute avoidance and disputes resolution procedure.
Changes are expected to be introduced to the Engineer’s role, however the Engineer will still act for the Employer in terms of determinations and inspections, however the Engineer will be required to act “neutrally” when reaching an Agreement on the determination. Failure to reach an Agreement would likely take the dispute through the Adjudication route.
Another expected change is the introduction of a new Sub-clause to have the “DAB” as a Dispute Adjudication/Avoidance Boards (“DAABs”), which stresses the importance and the great value of “DAAB” in avoiding not only resolving disputes.
One of the issues that is still unclear is whether the new Rainbow Suite has revisited the absence of a time frame under FIDIC for referring claims to arbitration following a “DAB” decision. Resolution of this issue will possibly challenge the “DAB” procedure effectiveness and potentially lead to time and cost inefficiencies.
Effective commercial management and well-prepared, fully substantiated claims are at all times key to a financially successful project and a necessary precursor to a successful Adjudication. Good commercial management will reduce the likelihood of Adjudication, but in the event that the need arises then Adjudication performed in accordance with a well-documented procedure is most likely to lead to a satisfactory decision for all parties.
“DAB” early engagement in projects before disputes are crystallised adds the greatest value. Appointing the “DAB” to assist in the identification of potential risks and gaps related to the Contract and the in parties performance of their duties which might develop into disputes, and also the using the “DAB” to advise on ways to AVOID such disputes will ultimately protect the contracting party’s interests and minimise the chance of their projects being delayed and budgets being exceeded. Nevertheless, and if disputes do materialise, the “DAB” assists in resolving disputes in a sensible manner and in accordance with the Contract terms.
Adherence to any “DAB” procedure prescribed in the Contract is essential and is often considered by tribunals or courts when the dispute is referred to arbitration or litigation.
Finally, in my opinion, it’s very important that Adjudication procedures form part of any construction contract. However, they should be tailored to be commensurate with the business size, the complexity and volume of the works in order to bring the maximum commercial value to the business.
This article was kindly provided by guest writer, Leen Thawabi, Commercial Consultant at DBSConsult and all opinions expressed are her own.