Have you ever faced a problem or issue that, had someone rung the alarm bell early, a crisis could have been avoided? Perhaps the problem could have been resolved by discussing it the moment that it arose or when multiple options were still on the table. And better yet, having access to key players who can help separate fact from fiction. These scenarios reflect the benefits of Real-Time Dispute Resolution. This article examines two options using Real-Time Dispute Resolution to avoid litigation on construction projects: Dispute Review Boards and the use of mediation during the course of a project to resolve issues. Both tools allow the parties to stay focused on the project and avoid getting caught up in commercial issues.
Dispute Review Boards
Dispute Review Boards (DRB) were first used in the mid-1970s on a major tunneling project in Colorado. DRBs are widely credited with a 90 percent-plus success rate on hundreds of projects worth over $23 billion in contract value. The DRB is a creature of contract formation. The beauty of the DRB process is that it can be modified to meet the needs and the peculiarities of the project. The Dispute Resolution Board Foundation is the nonprofit organization that promotes the use of DRBs. Its website, www.drb.org, is a great starting point to gain information on the use of DRBs. The website offers model DRB language for contract dispute clauses, model agreements for the parties and DRB panel members, and manuals for the parties and DRB panel to utilize in implanting a DRB on a project.
A typical DRB has three members, although smaller projects may utilize a one-person DRB. The owner and contractor create a panel each by selecting a nominee acceptable to the other party. The two nominees select a panel chair who is likewise deemed acceptable. All three members of the panel act as neutrals to the parties, and the chair quarterbacks the process. The DRB is a real-time sounding board to the problems and issues encountered on the project.
The make-up of the DRB is critical to its success. A credible DRB should have members who understand that particular type of construction and have dealt with similar issues in their careers—in other words, the panel has “been there, done that.” Typically, the panel is made up of engineers and contractors. I have served on DRBs that include construction professionals with strong backgrounds in cost or schedule issues. Because contract language plays a critical role in understanding and avoiding a conflict (i.e., defining the project’s scope of work and what constitutes a change order), the chair of the DRB is often an attorney who knows construction law and is well-versed in alternative dispute resolution.
An effective DRB panel works as a team to help the project avoid litigation. The advantage of the DRB process is that the parties can openly discuss what skill-sets they want on their panel and base their panel selection on the anticipated issues and problem-solving that their project is likely to encounter.
The DRB panel, the owner, and the contractor together identify the DRB duties and responsibilities in a “Three Party Agreement.” The owner and contractor normally share the cost of the DRB panel. Ideally the DRB panel is selected at the beginning of the project. Depending on the project size and complexity, the DRB meets on site regularly to discuss the status of the project, gain real-time access to issues, and to troubleshoot potential problems that the DRB members have experienced on other projects or when the data warrants attention. The DRB typically reviews relevant project data.
The ground rules for the DRB process are outlined in the DRB operating procedures agreed upon by the parties and the DRB panel. The parties decide on the frequency of meetings and whether disputes are handled on an “informal” (no written opinion) or “formal” (written opinion) basis. All opinions are typically non-binding. The parties agree on how any DRB opinion can be used in other forums if the dispute is not resolved via the DRB. Bottom line is that there is full buy-in by the parties on how the DRB will operate.
On-site meetings are valuable because the DRB can see first-hand the progress—or lack thereof—on the project, ask questions, and develop a dialogue with the parties. This forum encourages open discussion among the parties about issues that could impact the project. On a monthly basis, these meetings put teeth into real-time resolution, allowing the DRB to ask the infamous Watergate question: “When did you know about the issue and what did you do about it?” It is revealing when a party knew about an issue, but sat on it for four on-site meetings. That accountability helps drive an honest dialogue among the parties, especially on projects that are over a year in duration.
When a formal hearing is requested, it follows the notice process and written submission of papers and exhibits agreed to by the parties. A formal hearing is typically a one-day process. Most DRBs do not allow attorney participation in the hearings or during the site visit or meetings. Team participants give presentations, and there is typically no direct cross examination by the parties. The DRB panel is allowed to ask questions. Because the overall process is more relaxed than an arbitration or court proceeding, it results in a more extended and focused conversation than the project site meetings but with the caveat that in a formal hearing the DRB panel will issue a finding, albeit a non-binding decision.
The parties may also ask the DRB panel for an informal advisory opinion, which takes place at a regularly scheduled site meeting. It is oral, non-binding, and based on a more limited presentation to the DRB. The informal opinion is a continuation of the DRB acting as a sounding board. If the parties disagree with an informal opinion, they are free to proceed to a formal hearing.
According to the American Arbitration Association, DRBs have the highest success rates of any real-time resolution tool. Most DRB problem-solving results in zero disputes and little to no formal hearings. That is the power of a real-time sounding board of experienced construction professionals that the parties trust and respect. DRBs are about trust in the judgment of the panel. That trust is developed in part because of the experience in the industry that the panel possesses and the fact that the project team has the ability over time to size up the panel and for the team to form its own conclusions regarding the judgment and expertise of the panel. The fact that the panel is given key project data, in real time, allows the parties to get to the heart of the issue and avoid disputes.
When to Use Mediation
DRBs are effective in three situations: (1) technical disputes; (2) the contract is clear and concise on the issue in dispute; (3) the project data provides a clear answer. However, there are projects where the contract language is not clear, project data is conflicting, or the issue at stake cannot be made at the project level due to the dollar amount, politics, or other reasons. In other words, it is a complex issue in which the decision maker (most likely not at the project level) needs help sorting out options and making a decision. In these situations, an experienced mediator is an important tool. Timing is key. Bringing in a mediator, that both parties trust, as soon as an issue that cannot be resolved at the project level is identified, allows the project team to stay focused on the project and not on commercial issues.
In delivering information to decision-makers, team members can become heavily invested and get “dug into their position.” That almost always creates a bias in their information based on loyalty to their team, cognitive dissonance, selective devaluation of adverse information, and confirmation bias. Well-intentioned team members can contribute a heightened exacerbation of difference between decision-makers, and their entrenched positions are typically hardened by objective opinions of their experts and lawyers.
Using an experienced mediator during the course of the project and as close as possible to when the issue is identified can address these issues, helping the parties process information and make an informed business decision. They know how to be soft on people, but hard on the problem. They are expert at finding an acceptable, face-saving path of retreat. They explore “out of the box” solutions. Effective mediators will give entrenched team members, whether saboteurs or merely blockheads, enough rope to expose their true intent or incompetence to their respective decision-makers. Bringing in a great mediator while the project is in progress is like having a great card counter on your side in a game of blackjack. The odds of success, problem solving, and avoiding disputes—and litigation—just went through the roof.
Kenneth M. Roberts is a partner at Schiff Hardin.