The ABCs of DRBs: What They Are and How Well They Work
For a host of reasons, disputes have become increasingly prevalent in the construction industry. When they affect deadlines, productivity and costs, they must be dealt with promptly to keep the project on schedule and the budget on target. One approach to resolution, which has been evolving since its inception almost 30 years ago, is the use of a Dispute Review Board (DRB).
The Evolution of Resolution
Over the years, the construction industry has resolved claims and disputes through a variety of methods. For a long time, informal negotiations and rulings by the architect or engineer were sufficient to resolve most disputes at the job level.
As contracts became more complex, competition increased, and the demands of government agencies, environmental regulations and public interest groups encumbered the construction process, a growing number of disputes were resolved through litigation.
By 1966, arbitration had become the preferred means of resolution. This alternative to litigation provided an objective arbitrator (or arbitrators) with expertise in the field of construction to hear the dispute. Then, as now, arbitration proved less expensive than a court proceeding and took less time to resolve the problem. Over the next decade, most standard contracts (i.e., American Institute of Architects, Associated General Contractors, and National Society of Professional Engineers) contained arbitration clauses. Even so, both litigation and arbitration added substantial cost and time to a disputed project. The industry needed a good, workable alternative.
DRBs Enter the Scene
In 1975, the Dispute Review Board process was used for the first time during construction of the second bore of the Eisenhower Tunnel project, just outside of Denver, Colorado. With relatively few disputes, which were quickly resolved, the underground industry (below-surface construction, which at the time primarily consisted of mined tunneling) deemed the DRB process a success. DRBs have since grown popular for all types of construction.
The Dispute Review Board generally comprises three impartial professionals who are experienced in the specific type of construction proposed. Ideally, project participants agree upfront to employ the board’s assistance in avoiding and resolving disputes as the construction project progresses. Unlike arbitration findings, a DRB’s recommendations are normally non-binding.
Ingredients for an Effective DRB
Typically, the owner decides to provide for an alternative method to resolve disputes and has the requisite DRB provisions incorporated directly into the bidding documents and the Owner-Contractor Agreement. The DRB provisions essentially consist of two contract documents: the DRB Specifications and the DRB Three-Party Agreement. Several sources of model DRB provisions are available.1
The DRB Specification addresses the qualifications and experience of the board members; operations and procedures for dispute resolution; admissibility as evidence of board recommendations in subsequent proceedings; and the basis of compensation. The Three-Party Agreement addresses the responsibilities of the parties; legal relations; member replacement; and termination of the agreement.
Involved parties reap maximum benefits from a DRB if it is implemented from the very start of a project — after the contract is executed and before construction begins. Many times, however, despite the fact that a DRB is specified in contract documents and timing is outlined in the standard Three-Party Agreement, the DRB provision is left inactive until normal resolution of a dispute or claim is unsuccessful. By this point, parties are already experiencing friction. Since nominating, approving, and empanelling the board takes time, appropriate instructions must be included in both the IFB and the contract specifications, and the selection process must proceed accordingly, so that the DRB is approved and in place before construction begins or problems arise.
Another key to successful use of a DRB is the board’s ability to secure the trust of all parties through their knowledge, understanding and impartiality. If the parties lose faith in the board, they may refuse its recommendations or challenge its jurisdiction, which can prolong resolution indefinitely. Board members must be careful not to advocate for the party that nominated them. To help prevent this kind of bias, the specification can provide that each party nominates one DRB member who must be approved by the other party. These first two DRB members can then suggest the third board member, subject to the approval of both parties.
One more element crucial to the DRB’s success is the role of the parties’ counsel during the hearing. Often, owners and contractors, as well as DRB members, either bar attorneys from participation in hearing presentations or allow them full, direct participation. The practical and recommended approach is to permit counsel to attend and confer with the client without directly participating in the hearing.
Variations in the Process
DRBs continue to evolve and incorporate the strengths of other dispute resolution techniques. Several variations have been employed with limited success. Typically, they are adaptations of either the structure or the procedure under which the DRB operates. Some of the more common variations are discussed here.
DRBs that are employed by an agency or authority are sometimes referred to as Regional DRBs. A single party, usually the owner, selects the board members. Since the board is not selected for a specific project, it does not meet regularly for site visits and project updates. The Regional DRB mobilizes only after an issue is identified and the dispute is ready to be heard.
DRBAA (After Award)
If contract documents do not provide for the immediate implementation of a DRB process, the parties may do so by change order. Typically, parties seek this approach only after they have developed a backlog of disputes. Utilizing the DRB in this manner sacrifices key advantages, such as the board members’ familiarity with the project and the cooperation that is established before relationships become adversarial.
DRBAC (After Construction)
Utilizing a DRB at the end of construction to hear a laundry list of claims amounts to little more than an informal non-binding arbitration panel. Once again, all the unique benefits of the DRB are lost and more problems are created by soured relationships and firmly entrenched positions.
This process usually involves brief discussions (with no formal oral or written presentations) among the parties in dispute and the DRB, immediately following or prior to a site visit by the board. After the discussions are held, the DRB typically confers privately and then reassembles to provide recommendations and entertain questions. All recommendations made by the board in these informal hearings are non-binding. If the dispute is not resolved, the parties can elect to bring the issue back to the DRB formally.
Do DRBs Really Work?
The Dispute Resolution Board Foundation (DRBF), founded in 1996, includes construction professionals from all kinds of industries. The organization publishes a newsletter that provides the latest information on the use of DRBs.2 Its records (which date back to 1988) show that through 2002, 97.9% of disputes on contracts employing DRBs were settled without litigation. Although the vast majority of projects included in this database relate to civil infrastructure projects, the numbers for other types of construction are rising. Clearly, DRBs can be extraordinarily successful in many situations.
DRBs for the Future
Multiple party relationships on today’s complex construction projects can create challenges for current model DRBs. What happens when disputes and claims arise out of services provided by third parties, like the designer or the subcontractor? Although it is not unusual for subcontracts to reference, and therefore incorporate, the terms and conditions of the prime contract, the applicability of the provisions that specify dispute resolution mechanisms is not absolute. The Three-Party Agreement centers on the relationship among owner, contractor, and DRB, and presently does not provide for subcontractor input. Furthermore, agreements between owner and designer almost never link to the duties and obligations of the owner and the contractor. Modifying the current DRB provisions to be both applicable and enforceable for third parties may present a significant hurdle.
Ultimately, the DRB process can be extremely effective in mitigating delays and claims on a wide variety of projects. If it can adapt to the ever-changing construction industry and still retain the fundamental concepts of early implementation and judicious selection of neutral DRB members, it can be an effective technique well into the future.
1 These models can be obtained by contacting organizations such as the American Society of Civil Engineers, the Dispute Resolution Board Foundation, the American Arbitration Association, and the International Chamber of Commerce.
2 Dispute Resolution Board Foundation, 6100 Southcenter Boulevard #115, Seattle, Washington 98188, 206-248-6156, www.drb.org.