Dispute Avoidance in Large-scale Construction Projects

As construction projects have become more complex, time has become more important and making a return on investment is now integral to projects in a global marketplace where a cheaper alternative was needed to the multi-year litigations that has dogged large projects.
 
Litigation and Arbitration is a major risk for Contractors and funders and has often become a fight to insolvency for one or both parties. Further the construction risk profile makes funding large infrastructure projects an expensive business. The Industry has realised the difficulties and has been addressing the issues.
 
In the USA, a study was undertaken and the results published in 1974[1] which commented on the damage being done to the industry by claims, disputes and litigation[2]. Many of the recommendations were aimed at reducing the litigation risk problem. Since 1975, the USA and the rest of the world have adopted Dispute Boards as a means of reducing the litigation risk. Worldwide these are regarded as an overwhelming success.
 
The standard model in the USA is a three-man Dispute Board where the Board – unlike an arbitrator – has the power to question and investigate issues, but then merely gives its opinion or recommends to the parties a resolution to the dispute[3]. Despite the litigious nature, the recommendation remains the preferred Dispute Board format and is still incredibly successful in reducing disputes in the USA[4] and having the Dispute Board’s recommendation taken up and applied as part of the resolution of the final price for the work. Elsewhere in the world there is a preference for a binding decision to be produced by the dispute board, which itself creates issues around the enforcement of the binding decision.
 
Dispute avoidance is a very important part of the Dispute Board role. It is possible to practice dispute avoidance by operating a light touch and asking the parties very searching questions aimed at identifying ways of avoiding disputes. However, there can be conflicts between dispute avoidance techniques and dispute resolution, natural justice requirements for binding determinations. For instance, can a dispute board seek to mediate a settlement and if that fails revert to issuing a binding decision that may be influenced by what was gleaned during the mediation phase? In most jurisdictions the answer is an emphatic no.
 
In some circumstances the projects, or parties need to avoid disputes can be so important that it has led to several alternative models aimed at avoiding the potential breach of natural justice, the UK seems to be at the forefront of this movement.
 
One choice would be to adopt the USA model of having a Dispute Board that can only produce an opinion or recommendation. This can be excellent in some jurisdictions where the opinion or recommendation is likely to lead to moral and commercial pressures to adopt the opinion or recommendation. In other jurisdictions, some parties will simply ignore an opinion or recommendation as there is no compulsion to comply.
 
A further level of complexity is created by the adoption of statutory adjudication in the UK and several common law[5] countries. The problem this creates is that if the project adopts opinions and recommendations rather than binding decisions as its Dispute Board model it leaves itself exposed to the statutory process. If the project adopts the binding model they could find their procedure struck down by the Courts as not complying with the legislation.
 
This dilemma has led to the creation of dual systems on very large projects. The dual system works by the Employer setting up two separate boards: one to conduct the binding Statutory Adjudication and a second to provide dispute avoidance[6].
 
A good example was the 2012 London Olympics[7]. The games had to take place on a specific date, the project could not be allowed to slip. The Olympic Delivery Authority (“ODA”) wished to ensure that any Adjudication went to a panel of exceptional adjudicators, so that they could achieve high quality decisions. Second, the ODA wanted an even more experienced team of dispute avoiders to work with them and the contractors to avoid disputes.
 
The ODA therefore set up two panels and procured the works by requiring the insertion of a requirement to refer matters to these two panels. The process was a major success in terms of dispute avoidance and delivering the project on time[8].
 
Transport for London (“TfL”) decided to set up a Conflict Avoidance Panel (“CAP”) on the Crossrail Project[9] - this is one of the largest construction projects in Europe[10] and involves the construction of a new tunnel across London and the extension and refurbishment of several stations. Neither TfL nor the main contractors wanted to have a major commercial dispute that could impact the project delivery. Therefore, they agreed, post commencement to insert a conflict avoidance panel into their contracts. The panel is administered by the Royal Institution of Chartered Surveyors and has operated since 2014 to avoid disputes. The CAP is regarded by both TfL and the contractors as a success.
 
The main reason that the separate dispute avoidance panel is so successful on these projects is that they are largely unencumbered by the need to comply with rules of natural justice and by a lack of procedures that restrict the panels ability to adapt to the particular problem in hand. For instance, whilst the CAP is in theory a 21-day process, the author’s experience is that by talking to the parties about the problem and how best to set about resolving the particular issues, it is usual to agree a bespoke procedure for the individual problem. So, on one appointment the panel may provide an opinion, on another they may mediate and on a third the panel may task the parties with carrying out specific exercises and then reporting back with the results.
 
It is likely that this model of having a separate and specific dispute avoidance panel will be seen in other major projects and it is hoped it will develop around the world. The ability to influence the project outcome is a real advantage.
 
A recent initiative has seen the creation of a pan-industry conflict avoidance pledge[11] to seek to work to avoid lengthy disputes in the construction and property industries.
 
The future for dispute avoidance techniques on large projects looks set to develop and provide real benefit to many projects. There will be a greater need for Dispute Board Members who fully understand both legal and technical issues and have the quasi-judicial ability to provide a service whilst ensuring that the parties maintain respect and trust in the Members.

Peter is a dual qualified construction professional and barrister. He has 38 years’ experience in the construction industry and has worked as legal adviser on major projects around the world.  According to The Legal 500 UK Peter has acted in several international multimillion-pound disputes, he 'stands out as being a specialist' and is recommended as 'extremely knowledgeable, tactical and reliable'.  After 15 years working in the construction industry, Peter was called to the Bar in 1994.

Peter has acted in a wide variety of construction, building, civil engineering, mechanical and electrical engineering, water and sewage engineering, power, clean room and IT disputes, as well as in professional negligence matters involving architects, building surveyors, quantity surveyors, civil engineers, M&E engineers and project managers.
Peter has significant experience of FIDIC, JCT, ICE, NEC, IChemE, IMechE and EPC contracts both in the UK and internationally as well as PFI and PPP experience both in the UK and internationally.  Peter negotiated one of the first PFI Hospital projects in the 1990’s and since then has been involved in a number of disputes over PFI and PPP arrangements both in the UK and Internationally.

Peter can be contacted on +44 ( 0 )20 7583 8055 or by email at peter.collie@3pb.co.uk
 
Peter Collie
Barrister
LLB (Hons), LLM, FCIOB, FRICS, FInstCES, FCIArb, FIOC, LCGI
Chartered Construction Manager, Chartered Surveyor and Chartered Arbitrator
3PB Barristers
3 Paper Building
Temple
London
EC4Y 7EU
https://www.3pb.co.uk/barristers/peter-collie/construction-and-engineering/