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Dispute avoidance the key to cost containment and proift retention

By Ric Barton

This article was featured in IAQ’s 2016-2017 Yearbook

Dispute Avoidance Boards (alternatively known as Dispute Resolution Boards) offer the Queensland industry a highly effective, yet under-utilised, way to reduce project delays and legal costs arising from contractual issues. Flagstaff Consulting Group senior principal, Ric Barton, explains the concept and highlights the results it achieves.
With the Australian construction industry currently turning over in the vicinity of $100 billion annually, and employing – directly and indirectly – one million individuals, ensuring a major project runs smoothly should be of the utmost priority for everyone involved.

Yet it’s estimated that 10 per cent of major Australian construction projects run up legal costs to the tune of – in turn – 10 per cent of the project’s total outturn cost.

Disputes commonly account for half of these legal expenditures.

In fact (speaking from the contractor’s viewpoint), it’s not unusual to learn of projects the legal costs of which reach, or even exceed, the contractor’s full pro t margin.

This creates the obvious time, cost and quality- related risks of which all project owners are acutely aware.

An obvious alternative

Over the past three decades, we’ve seen the introduction of numerous forms of co-operative contracting. Yet, arguably, none has consistently and reliably controlled costs and schedule.

Given that these new, alternative contractual formats were intended, rst and foremost, to avoid disputation, it’s more than a little surprising that the concept of the ‘Dispute Avoidance Board’ (‘DAB’) hasn’t simply been injected into more traditional, ‘hard money’ contracts. This is especially so in light of the fact that, in those instances where this approach has been taken, the results have been outstanding.

For the record, the term for this organism – which had its origin in the United States – was historically ‘Dispute Resolution Board’, its primary function being to resolve disputes on-site and in a timely manner. Whilst fully retaining its disputes resolution authority, the emphasis has been re-shaped, in the Australian context, to one of dispute prevention in the rst instance. Thus, the term ‘Dispute Avoidance Board’ is more common here, and its use is important in ensuring the establishment of the correct mindset and culture.

Low-key to date . . . but extremely effective

As we move further into an era in which interests within the industry are being urged to look outside the box for (productive) ways to introduce cost ef ciencies, now is an opportune time to acknowledge an impressive fact: The 63 dispute boards that have been implemented since 2003 have steered the associated 26 billion AUD worth of projects to completion without a single dispute moving outside the contract.

While their utilisation has been sporadic, DABs have certainly been used on some key-note projects here in Australia (albeit in a low-key manner), starting as far back as the 1980s . . . the rst involving a DAB being the Sydney Ocean Outfall Tunnels and Ocean Risers Project.

Early DAB-driven Queensland projects – and ones in which I have been involved – included two Townsville City Council initiatives: the 2006/2007 Ross River Dam Lifting & Upgrade Project, and the 2010/2011 Waste Water Treatment & Upgrade Project.

Both were typical of projects that would otherwise have been fraught with on-site contractual problems. Yet, conversely, each was delivered without a single legal issue.

The Ross River dam project (representing Townsville’s drinking water supply), by way of example, involved the lifting of a long, low, multi-zoned existing embankment, along with a concrete spillway and its gates.

Meanwhile, the Council’s Waste Water Treatment project involved major new and upgrade concrete works, with process plant and reticulation immediately adjacent to, upon, and connected to the existing services.

Each was a project modifying a critical service to a city of 180,000 people. Interruptions were not an option, and none were experienced.

A more recent Queensland project, delivered with extraordinary success, in no small part thanks to its pro cient DAB, was the Brisbane Airport Corporation’s 2014/2015 Second Runway Land ll & Surcharge Dredging Project.

This work involved dredging the ne sand from the pristine Moreton Bay and forming it in relatively thin layers over a huge area of cleared swamplands immediately adjacent to the existing airport terminals and runways, at the same time as implementing a tightly controlled management plan in a highly environmentally- sensitive location.

Meanwhile, two current major projects employing the Dispute Avoidance Board concept (one of which I sit on) are Transport & Main Roads’ Gateway Upgrade North (GUN) and Kingsford Smith Drive (KSD). Effectively the rebuild of multi-lane commuter arterials with the potential for traf c control and stakeholder nightmares, TMR has opted to incorporate DABs into hard money contracts.

There are several critical keys to the successful implementation of a Dispute Avoidance Board:

Strategic selection of the Board’s members

A Dispute Avoidance Board typically comprises three members.

Central to the success of a DAB is that the parties feel able and comfortable to place full con dence and trust in these members – individually and collectively. This con dence must not only be in place at the outset, but must be maintained throughout the lifecycle of the project.

A shortlist of possible members is compiled by the parties, and the nal membership agreed as part of the pre-contract negotiations.

Key DAB member attributes to be considered include the relevance of an individual’s expertise to the speci c project, their level of seniority, their known integrity, and their understanding of contract law and dispute resolution as it applies to the contractual format in question.

Highly desirable disciplines are those which complement the over-arching skill set from each of the contracting parties. Whilst parties more experienced in the utilisation of DABs may choose to be exible with regard to the speci c backgrounds they require to be represented, newcomers to the concept may be best served by ensuring that at least one of the panel members is a practicing contract disputes lawyer.

(It is my own preference that one of the DAB members be a lawyer, to ensure that if a dispute does go to court, neither side has had its position compromised from a legal perspective.)

The key, however, is not to limit the selection criteria purely to technical skills, but to bring on board individuals who genuinely understand – or at least have the capacity and the willingness to understand – the nature and unique characteristics of each party’s business model and business environment.

Early involvement of the Board

While the cultural bent of the parties is to resolve issues amicably, or at least non-litigiously, the best assurance of this results from early intervention.

When a project is live, a proactive DAB will meet at regular intervals, walking the site, attending meetings, listening to what all parties are saying, and deriving a gut feel of the dynamics and chemistry . . . all the while being driven by ‘a stitch in time saves nine’ type of thinking.

It is often the case that it takes a while for people to gain con dence in what, to them, is a relatively new way of working. Where, for example, a contractor might not have previously been involved in a DAB, it can take that party a few months to warm to the idea and see its value – even though a client might have strongly recommended it following their own favourable experience.

Appropriate empowerment of the Board

Typically, the DAB is empowered to make binding decisions up to a speci ed dollar limit – thereafter,

any board decision being subject to appeal.

The granting of power, however, must also be viewed from a less formal perspective.

It is the DAB’s role to facilitate discussion of developing problems and/or dif cult subjects. This is the nature of the ‘avoidance’ component of the board’s overall function and, for it to be enacted with optimum effectiveness, a genuine spirit of co-operation must prevail, above and beyond simply the acknowledgement of a written mandate.

To assist and empower this objective, by way of example, all proceedings at the formal DAB meetings are conducted on a ‘without prejudice’ basis.

It should also be stressed that all parties must remain actively cognisant that the board’s members have been selected (i.e. when appropriately selected) for their depth and breadth of both industry and contractual experience, for their lack of bias, and for their trustworthiness from the perspective of both the project owner and the contractor.

Thus, there must be the recognition and acknowledgement that, within the contractual terms, the DAB is at all times aiming for a best- for-project resolution.

Distinguishing dispute avoidance from mediation

The primary distinguishing factor between dispute avoidance and mediation is that dispute avoidance relies on a close and continually evolving understanding of the project, while mediation is an ‘after the fact’ approach.

Both have their places, but clearly the most cost-effective management of disputes is to avoid them to start with, resolving issues and differences at the earliest possible moment – and certainly keeping them on-site to the greatest degree possible.

A Dispute Avoidance Board might not be a cast- iron guarantee of a hassle-free project, but – in my experience – the decision to have a DAB monitor and guide a project’s contractual issues is a decision that represents tremendous upside and very little downside.

This article was featured in IAQ’s 2016-2017 Yearbook – Click here to view the Yearbook

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Ric has both chaired and participated in numerous boards and committees responsible for project management, dispute avoidance/resolution and advisory purposes, at both corporate and project levels. Alongside Ric, Flagstaff have numerous members with strong industry credibility and qualify for participation in dispute avoidance and resolution roles.
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