DISPUTE AVOIDANCE PROCEDURES (“DAPs”) — THE CHANGING FACE OF

CONSTRUCTION DISPUTE MANAGEMENT

PAUL A GERBER
Director of Studies, Construction Law,
Law School, University of Melbourne
Consultant, Lander & Rogers, Lawyers

INTRODUCTION
Several decades ago the health profession worked out that it is better to spend
money trying to get people to quit smoking than to have the significantly greater
expense of treating the ever-increasing number of people with smoking related
illnesses. The construction industry seems to finally be grasping this concept of
prevention being better than cure. We are seeing a growing awareness in the
construction industry that proactive rather than reactive measures are the answer,
and a consequential readiness to embrace Dispute Avoidance Procedures (“DAPs”).
DAPs are providing the construction industry with innovative systems for stopping
the conflicts, which inevitably arise during the course of construction projects, from
escalating into disputes. They represent a refreshing new way of looking at, and
responding to, the underlying causes of disputes, rather than merely trying to
improve existing processes.
This article1 provides an analysis of the theoretical and practical aspects of DAPs
and concludes with a look at some of the deficiencies in the current models of DAPs,
and how these might be addressed in the future in an effort to promote wider
utilisation of this proactive conflict management tool.

DAPS MODELS
ADR is now universally acknowledged as the umbrella term used to describe a range
of dispute resolution techniques including such diverse models as mediation, mini
trials and expert determination. In a similar vein, DAPs is increasingly being
recognised as the umbrella term used to describe the preventive measures being
adopted on large-scale construction projects.
There are currently three different DAP models being utilised on projects around the
globe, namely:
1 This article is based on a paper presented at The King’s College Construction Law Association Construction Law 2000 Conference in London on 5 June
2000. An abridged version was published in [2000] 73 Australian Construction Law Newsletter 5.

Pt. 1]
Dispute Avoidance Procedures
123
1. Dispute Resolution Adviser (DRA) (also known as a a Project Neutral or
Dispute Resolution Expert);
2. Dispute Adjudication Boards (DABs) (under FIDIC);
3. Dispute Review Boards (DRBs) (from America).

Electronic copy available at: http://ssrn.com/abstract=2270265

While much has written about DRBs2 and DABs,3 there has been a noticeable
absence of research examining these developments in the broader context of a shift
in conflict management strategies. This article aims to pull together the diverse
dispute avoidance developments and compare the different models within the
framework of the DAP paradigm.

Dispute Resolution Adviser (“DRA”)

The first recorded use of a DRA was on the Queen Mary Hospital Project in Hong
Kong.4 This was a complex hospital refurbishment with many challenging
circumstances. The primary objective of the Principal was to avoid costly after-the-
fact determinations. It was decided that the best way to achieve this was through a
two-tier system:

1. Informal dispute avoidance through site visits and familiarisation meetings

enabling partnering techniques to be used and solid relationships to be
built; and
2. A system of dispute resolution starting with maximum party control and
then introducing a series of steps with each one becoming more
interventionist and as a last resort, final resolution by way of short-form
arbitration.

On the Queen Mary Hospital project the parties signed a partnering charter and the
DRA attended site monthly. At these site visits he engaged in pro-active activities to
try and identify future problems and take measures to overcome them.
The parties had 28 days to challenge any decision, certificate or evaluation made
under the contract. Failure to do so rendered the decision final and binding. If the
decision, evaluation or certificate was challenged the parties had to first attempt to
resolve the matter by good faith negotiations. If this was not successful in resolving
the dispute a formal notice of dispute was served and the DRA got involved. He was
free to choose the most appropriate ADR technique be that mediation, mini-trial or
expert determination. If the mediation was likely to require specialist knowledge then
a neutral person other than the DRA was appointed.
2 Richard Shadbolt, ‘Resolution of Construction Disputes by Disputes Review Boards’ [1999] 16 ICLR 16; Gordon Jaynes, Dispute Review Boards: The
World Bank is Aboard [1996] 13 ICLR 1; Andrew Pike, ‘Dispute Review Boards and Adjudicators’ [1993] 10 ICLR 157; and Matyas, Mathews, Smith &
SperryConstruction Review Board Manual 1996, McGraw-Hill, New York.
3 Christopher Seppala, The New FIDIC Provision for a Dispute Adjudication Board [1997] 14 ICLR 4.
4 Sai-On Cheung, ‘The Alternative Dispute Resolution Movement in the Construction Industry in Hong Kong’ (1999) Australasian Dispute Resolution
Journal 98 at 108; C Tsin,’Dispute Resolution Adviser System in Hong Kong—Design and Development’(1997) 63(2) Arbitration 67.

[2001
The International Construction Law Review
124
If the DRA and site representatives couldn’t resolve the dispute the DRA prepared a
report which he submitted to senior staff. The report contained an analysis of the
dispute and why settlement attempts had failed. The report might include a
recommendation for resolution, and was not admissible in any subsequent arbitration

Electronic copy available at: http://ssrn.com/abstract=2270265

 or litigation. The theory was that involving senior staff who were not involved in the
day to day management of the project brought a non-emotional perspective to the
dispute.
If the dispute remained unresolved 14 days after the report a short form arbitration
was convened. The DRA was clearly not permitted to act as arbitrator. The rules for
the short form arbitration were set out in the contract. Key elements included:
 it could only involve one claim or issue;
 it had to be conducted and concluded within one day;
 each party had an opportunity to present their arguments and the arbitrator was to
allocate time fairly between the parties;
 the arbitrator was to make a written report which included reasons within 7 days of
the hearing;
 the decision was final and binding subject to very limited rights of appeal;
 if the dispute concerned quantum a procedure called “final offer system” was
implemented. Each party wrote down its settlement figure and the arbitrator picked
whichever one he considered the most reasonable. This system provided incentive
for the parties not to exaggerate their position.
Colin Wall, the DRA on the Queen Mary Hospital project says5 there were numerous
problems (discovery of asbestos, changes in environmental laws, inaccurate
drawings of existing conditions, and several hundred variations requested by the
owner) but no disputes. Extensions of time and prolongation costs were all agreed.
The DRA believes that the co-operation needed to achieve this would not have been
present without the DRA structure. The DRA system had by the end of 1996 been
used on a further 15 projects in Hong Kong with no record of disputes.

DRBs
These can best be described as on site dispute management and resolution. It
typically comprises three independent persons who are selected by the contracting
parties. The unique feature of the DRB and probably the reason it has been so
successful is that it is appointed at the commencement of the project and, by
undertaking regular site visits, is actively involved throughout

5 Colin Wall, The Dispute Resolution Adviser in the Construction Industry, Building Research and Information 122.

Pt. 1]
Dispute Avoidance Procedures
125
the construction, becoming part of the project. It seems that the very presence
(“shadow”) of the DRB influences the attitudes and behaviour of those involved in the
project, which in turn leads to fewer disputes.
The DRB concept originated in the US on tunnelling and dam projects. Over US$22
billion of work has been or is being procured under contracts utilising a DRB, and
they are currently known to be in existence in Australia, Bangladesh, China, France,
Hong Kong, India, New Zealand, South Africa, Sweden, Uganda, UK and USA. 6
The DRB is established at the commencement of the project, preferably as part of
the construction contract. In America it is sometimes incorporated during the course
of the project by way of a change order. However, empirical evidence suggests that
this is not as effective since the DRB members do not have the same level of
familiarity with the project and participants as they would had they been involved
from the beginning.
Although a DRB usually consists of three members this is not mandatory. For
example the Channel Tunnel project had five person panels and the Hong Kong
Airport had a dispute review group of six members plus a convenor to cover all the
main contracts (about 20) awarded by the Hong Kong Airport Authority. Panels of
one to three members were selected depending on the nature and complexity of the
dispute. Thus a board can have a moving membership to suit the various stages of
the project or nature of the dispute (e.g. engineers for technical matters, quantity
surveyors for issues of quantum and legal members to deal with matters such as
interpretation of contract provisions).
The most common manner of appointing DRB members is for the contractor to
nominate one member (acceptable to the owner), the owner to nominate one
member (acceptable to the contractor) and those two members to appoint the third
member who will be the chairperson. Although two of the DRB members are partly
nominations, all three are neutral and required to act impartially.
Regular site visits enable the DRB members to become highly conversant with the
project and observe problems on site as they develop. Technical difficulties and their
ramifications can be readily appreciated and should the DRB be required to make a
recommendation, the members’ close knowledge of the project and issues permits
quick, well-informed, even-handed and consistent responses. Judges, arbitrators
and even mediators often experience great difficulty in trying to visualise factual
circumstances that existed several years earlier, merely by listening to others or
reading documents. On being asked to resolve a construction dispute there is
nothing quite so informative as having witnessed the technical and physical
conditions prevailing at the time. Thus DRBs avoid the difficulty inherent in
reconstructing historical events.
6 Matyas, Mathews, Smith and Sperry, Construction Dispute Review Board Manual, 1996 McGraw-Hill, New York.

[2001
The International Construction Law Review
126
The cost of the DRB is borne equally by all parties. This overcomes the problem of
a contractor perceiving the engineer or superintendent as being biased because
he/she is paid by the owner.
How expensive a DRB will be will depend on the number and complexity of disputes
that arise. It is estimated that the cost of a DRB ranges between 0.1 per cent and 0.3
per cent of the total contract costs.7 However, these costs do not take into account
the lower bid prices that are known to result when contractors prepare tenders for
jobs with DRBs, as the tender does not have to be inflated to factor in the risk of
injustice or delay that may occur without the DRB.
As stated above the DRB attends site regularly (every few months) to observe
progress and talk to the parties about any potential disputes. It is often useful for the
 DRB to prepare a report at the conclusion of each site visit stating what occurred and
making suggestions as to how matters of concern could be progressed to settlement.
When a dispute cannot be resolved by the parties themselves it is referred to the
DRB who will then conduct a hearing at which each party has the opportunity to
explain their position. The “hearing” is conducted more like a site meeting than a full-
fledged trial or arbitration. Lawyers are generally not present, and expert witnesses
not necessary, as the DRB members have been selected for their expertise in the
type of project being undertaken.
After the hearing the DRB sets about writing its decision. It is not uncommon for this
to be done while the members are still on site. Some decisions may take longer,
particularly if there is a quantification of time or costs involved, but prompt resolution
is the touchstone of the DRB process. It is preferable that the DRB act as a single
entity and give a unanimous decision. Since the decision is non-binding, the DRB
must work hard to engender the confidence of the parties in its decision. Unanimity
will assist with this. The DRB’s product is its decision and this should be drawn up
carefully, with particular attention to ensuring that a party knows why it has failed on
a point or issue. As a general rule, the decision should be written for the
unsuccessful party’s benefit.
To achieve maximum benefit from a DRB, the procedures adopted should be
simple, easily understood, fair and efficient. To impose multiple steps of review and
negotiation prior to a DRB hearing being conducted can lessen the likelihood of
success by increasing confrontation. Furthermore, the longer it takes to get an issue
before the DRB the greater the chance of a party’s fantasy turning into an
expectation. The prompt attention of the DRB ensures that issues are isolated and
contained, not being allowed to snowball into unmanageable proportions (the
“global” or “total cost” claim).
Because of the proximity of the hearing to the actual dispute, greater certainty
prevails and the parties are usually satisfied that all material
7 Peter Chapman, Construction Industry Disputes Boards, a paper presented at a conference in New Delhi in 1997.

Pt. 1]
Dispute Avoidance Procedures
127
germane to the issue has been revealed. The result is that even unfavourable
decisions are likely to be accepted in good faith.

DABs
Dispute Adjudication Boards first appeared in the FIDIC contract in response to
concerns about the role of the engineer (the owner’s agent) in resolving disputes. In
particular, the World Bank was mandating the use of FIDIC on projects it was
funding, but requiring that it be amended to include a DRB. FIDIC decided to
address this by modifying its contracts to incorporate a DAB which differs from a
DRB in the following key respects:
 The parties are under an obligation to implement the decisions of the DAB, i.e. it is
immediately binding, whereas a DRB makes recommendations that the parties are
free to accept or reject.
 The DAB procedure is more structured and formal, e.g. a party is required to give
notice within 28 days of the circumstances giving rise to the claim, and provide full
particulars within 42 days. Thus a contractor’s claim before the DAB can be time
barred. This is not the case with DRBs.
 The DAB is required to give its decision within 84 days of receiving notice of the
dispute. This is significantly slower than the DRB.
 A matter cannot be referred to the DAB unless it is in dispute. Sometimes it may
be difficult to determine whether a dispute has in fact arisen, e.g. because
discussions are continuing or one party has not yet come to a final position in
disagreement with the other party.
 Any decision of the DAB is admissible in evidence in any subsequent arbitration.
Thus a party challenging the DAB’s decision will have to show it is wrong, which
may not be an easy burden to carry.
As between a DRB and a DAB, my preference is for the DRB. Although the two are
similar the greater informality, flexibility and speed of the DRB give it the edge. The
strict protocols set out in FIDIC can significantly delay the involvement and/or
decision of the DAB to the detriment of the project.

AREAS FOR IMPROVEMENT OF DAPS

Industrial disputes
One area where the current DAP structures are not going to be effective is industrial
disputes involving persons not parties to the DAP, i.e. trade unions. In Australia the
Trade Union movement is currently experiencing a revival and is causing significant
site disruption to construction projects with its push for a 36-hour week. It is difficult
to see how any of the current DAP models could resolve a dispute involving a union,
when the union is not a party to the process. One solution could be to appoint a
union rep as an ad hoc member of

[2001]
The International Construction Law Review
128
the DRB or DAB? This is an issue that warrants its own research and analysis, and
is simply raised here to highlight the existence of this issue.

Training & qualifications of DRB/DAB members

One of the biggest users of DRBs in America is Caltrans, the statutory body
responsible for Californian transportation infrastructure. Three years ago Caltrans
engaged consultants to do an evaluation of the process.8 The report concluded that
there was overwhelming support for DRBs by employees of both the principal and
contractor. One area that was identified as being amenable to improvement was the
training of potential DRB members. The UK construction industry has already seen
the consequences of having an inadequate pool of adjudicators. In order to avoid a
similar situation with DAPs, we should now be looking at training that addresses how
to be a DRA or member of a DRB or DAB. The DRB Foundation Inc in America runs
courses along these lines, but clearly we need a more international spread of such
training, as well as a broader program that covers other DAP models.
 Applicability to post completion defects
DAPs are designed to deal with conflicts that arise during the course of construction
projects. The idea is that once the project is over the role of the DAP ceases.
Generally, the DAP should continue in existence during the defects liability period,
i.e. until issue of the final certificate, rather than merely practical completion.
However, if defects are discovered subsequent to issue of the final certificate,
current DAP models offer no assistance.
One area for improvement could be to provide in the contract that the parties may
choose to recall the DRA, or reconvene the DAB or DRB, in the event of a post
completion dispute regarding, say, latent defects. The contract would have to be
clear as to the procedures to be followed, and the parties would have to carefully
consider such issues as whether the decision was final and binding, or merely a
condition precedent to proceeding to arbitration or litigation. If the former, what is
going to be the process for enforcing the decision in the event of default by one
party?
On the whole I consider the post completion use of DAPs to be problematic. The
DAP concept is founded on the premise of avoiding disputes during the course of a
construction project. The whole framework is based on keeping the parties on track
with the project. DAPs are not intended to, and in my view, could not adequately deal
with conflicts outside the ambit of an ongoing project. It would be dangerous to
attempt to extend their operation beyond the project time line, and may even result in
prospective users of DAPs being reluctant to come on board because of the
8 The Barrington Consulting Group Inc, Final Report dated March 17, 1997.

Pt. 1]
Dispute Avoidance Procedures
129
open ended nature of the arrangement. If issues arise after completion, these should
be handled through the well established avenues of ADR, litigation and arbitration.

Role of the insurer

To date not a lot of attention has been paid to how the insurer fits into DAPs. I think
they have a vital role to play both in promoting DAPs and in ensuring that they
operate effectively during the course of the project.
Insurers are often the ones who foot the bill in large construction disputes. Thus any
concept that reduces the risk of parties to a project ending up in litigation or
arbitration should be embraced and encouraged by the insurance industry. One way
the insurance sector could ensure greater use of DAPs is to offer reduced premiums
on projects where a DAP will be utilised. The reduction should reflect the reduced
risk of the parties ending up in court.
The other issue relating to insurers and DAPs is what, if any, role the insurer is to
play in hearings that may be conducted by the DRA, DRB or DAB during the course
of the project. On the one hand, having the insurer present may lead to a more
clinical and legalistic approach being taken, which is less conducive to a speedy
resolution of the matter at hand. On the other hand, the insurer is clearly entitled to
ensure that nothing is done that may jeopardise its position. This is an issue that
needs to be carefully considered and addressed prior to a DAP being embarked
upon.

CONCLUSION
Society has become very familiar and comfortable with the concept of preventative
medicine: it is better and cheaper to look after yourself and have regular checkups,
than treat an illness once it has taken hold. We can see this clearly in Australia
where health insurance companies are now offering financial incentives to their
members to join gyms, visit health farms, etc…
It is patently obvious that most problems tend to get worse over time and that all
parties benefit by early intervention and quick resolution—i.e. lancing the boil. DAPs
are the legal equivalent of preventative medicine—“preventative litigation”—and
should be embraced by all sectors of the construction industry. The initial investment
in setting up a DAP will be recovered many times over in savings that flow from
reduced disputes and early resolution of those that do occur.
The DAP movement is the most exciting development to hit the construction
industry since the advent of ADR, and will undoubtedly play a significant role in
ending the sordid practice of construction disputation that continues to thrive on a
global basis.