Should You Use the DRB or Go Straight to Arbitration?

Laura Brazil and Anthony Labib | Forum on Construction Law

Dispute Resolution Boards (“DRBs”) continue to grow in popularity, particularly for major infrastructure projects. As such, we can expect that construction lawyers will increasingly be advising clients on whether to send a dispute to the DRB or go directly to arbitration. In this post, we outline a few of the factors that may inform whether your client should submit a dispute to the DRB or go straight to arbitration.

DRBs (also known as “Review Boards”) are most common in major infrastructure projects. They typically consist of three independent and impartial experts, such as engineers. Lawyers can also make up the DRB. The DRB is actively involved in the project from its inception so its members are familiar with the parties and need little time to get up to speed on the events leading to a dispute.

When disputes arise, the parties may refer it to the DRB. The DRB will then typically investigate the dispute, hear submissions from each side through an informal process, and render either a binding or a non-binding opinion, depending on the nature of the DRB. The precise process followed by a DRB depends on the terms of the applicable contract.

DRBs usually play a very important role in major projects by dealing with issues as they arise on site.By providing prompt decisions, they allow construction projects to proceed without delay. Real-time prevention and resolution by the DRB often promotes open communication, trust, and cooperation between the parties.

When considering whether to refer a dispute to the DRB, clients may be concerned that most DRB decisions are non-binding recommendations. There is a risk the parties will still need to arbitrate (or even litigate) after a DRB recommendation is rendered. Fortunately, it appears that the vast majority of disputes resolved by DRBs do avoid further dispute resolution steps.1

However, DRBs may also have some downsides. In Canada, there are reports that parties are increasingly seeking a lawyer to chair the DRB committee because of their knowledge of legal processes.2 The emphasis on legal procedure may erode the cost and time-saving benefits of the DRB while leaving the parties without the benefits of arbitration, such as finality of the decision.

Moreover, the nature of the dispute may not be within the DRB members’ expertise. While members of the DRB with engineering expertise may be well positioned to adjudicate technical disputes, claims involving contract interpretation and other legal matters may be outside their expertise. Such disputes might be better left to an adjudicator with legal training.

Parties should also consider whether they will end up arbitrating or litigating related disputes. In one high profile project involving the construction of a subway station in Toronto, Canada, one dispute was resolved through the DRB but over 40 individual claims are still being litigated.3 If the parties are already incurring the expense of complex litigation, there may be little benefit gained by hiving off one issue for a separate hearing through the DRB.

The DRB’s heavy involvement in the project can sometimes be problematic too. Depending on the relationships that form on site, parties may benefit from the fresh perspective of an arbitrator who is new to the project. An arbitrator may alleviate any concerns about bias from members of the DRB who have worked on site for months or years.

Overall, DRBs are usually an excellent option for resolving disputes in real time on site. However, it is still important to weigh the other dispute resolution options carefully before choosing to proceed with the DRB.



“Construction Dispute Resolution Arbitration and Beyond”, American Jurisprudence Trials, August 2021 Update, by Thomas H Oehmke and Joan M Brovins.
https://canada.constructconnect.com/dcn/news/government/2019/10/dispute-resolution-board-use-on-the-rise-in-canada.
Walsh Construction Company Canada v. Toronto Transit Commission, 2020 CarswellOnt 8055, 2020 ONSC 3688.

Seven Proactive Steps to Avoid Construction Delay Disputes

Michael Pink | Construction Executive

Delays, cost overruns and disputes have long been part of the commercial construction industry, making the work of reactive forensic analysis by consultants and attorneys a necessary component. Yet many internal practices and issues within construction companies strongly correlate with projects that result in legal disputes and financial losses. There are seven proactive steps that can help companies minimize losses and claims.

PREPARE A COST- AND RESOURCE-LOADED CRITICAL PATH METHOD SCHEDULE

This is the first step any contractor can take to establish and document a manpower plan, a timeline and an intended flow for its work. Doing so is beneficial for two reasons: it will become the basis for measuring impacts and variances to both cost and schedule in a delay, dispute or claim setting; and it will serve as a great project management resource or tool. Without thinking through manpower, durations and workflow in great detail at the beginning of the project, contractors put themselves at risk of becoming delayed and blowing the budget.

USE THE CPM SCHEDULE FOR MANAGING THE PROJECT, NOT AS A REPORTING TOOL

As projects become impacted and delayed over time, the end date often stays the same. This indicates the schedule is being compressed, which typically results in costly overruns. Although the optimism of a scheduler or construction team in this situation is admirable, it’s also a telltale sign that the schedule is no longer being utilized as a means to manage the project. Rather, it has become a tool to show the project owner that everything is okay, and the truth eventually presents itself too late. CPM scheduling technology is useful, but it requires collaboration and a dose of reality. If a project is delayed, the delay should be shown in the CPM schedule and discussed with the teams involved to prepare and document a mitigation strategy to overcome that delay. Additionally, teams should not remove logic and shorten durations unless doing so is part of a thoroughly discussed mitigation strategy. Crashing the schedule month after month is a bad habit that results in an infeasible, unusable schedule, which inevitably starts costing all stakeholders more money in a silent, unknown and inconspicuous way.

TRACK MANPOWER IN A DISCIPLINED AND DETAILED FASHION

While manpower is tracked on most projects for accounting and payroll purposes, it is rarely captured in a manner that allows productivity to be studied and understood at the level it needs to be in construction. Productivity should be studied at the activity or task level, as per the CPM schedule, or at the very least for every trade in every area of the project (e.g., on a given floor). This data also needs to be captured every day for all work going on in a project. If tradesmen worked on an activity, how many people worked and for how long should be tracked and documented. This provides powerful information as it relates to controlling costs and schedules.

STUDY IMPACTS AND CAUSATION REGULARLY

If project management has created a resource-loaded baseline schedule, has updated it and utilized it to accurately reflect the planned course of construction on a regular basis, has tracked detailed manpower breakouts on a daily basis and has used that information to build a robust as-built schedule in real time, then management has the ability to understand impacts and causation at any given point of the project, throughout the life of the project. One of the key reasons projects become delayed or impacted, or they suffer from budget overruns, is the lack of knowledge of critical impacts as they are occurring. Critical delays and impacts often begin as minor issues and eventually snowball into major problems that a project can’t recover from. The sooner critical impacting issues are identified, the better chances are of overcoming them.

DISCUSS PROBLEMS AS THEY ARISE

Contractors may think it’s a bad idea to discuss impacts with anyone because it’s a lose-lose situation. The industry has become so dispute heavy that construction companies often avoid discussions about problems because they either don’t want to “show their cards” or because they fear the owner will throw a fit if they use the term delay, impact, cardinal change or any variation thereof.  While this is understandable, more information and collaboration help improve projects—and if construction companies can establish open-door policies related to such information, they may find that projects run smoother, trust increases, disputes decrease and relationships become stronger in the long run.

DOCUMENT THE OUTCOME OF DISCUSSIONS ON DELAYS

Stakeholders should make sure that all discussions about impacts, mitigation plans, acceleration requests and other aspects of a project are documented. This ensures no funny business arises when a project is in closeout. Project correspondence, such as requests for information, change orders and letters are all part of the process, but email is sufficient and efficient for documentation purposes. It’s amazing how often a verbal conversation is forgotten or “misinterpreted” when millions of dollars are at stake. 

USE TECHNOLOGY

Part of the reason the above recommendations are not successfully implemented is because the process is fairly specialized and time consuming, and therefore an expensive proposition. Trying to train people and/or ask them to add this to the list of things they do—is a dead end as well. There are more and more technologies out there that support the schedule management and analytics process—and designed in a manner that is for non-schedulers. With a little training, these tools can add maximum value. To make the most of these proactive steps, construction companies should establish a protocol for getting it done with multiple project management personnel. Setting up effective systems leads to transformation—saving time, money and relationships in the process.


Eight Tips for Mediating High-Profile Construction Disputes

Patricia Thompson | JAMS

Large-scale global construction disputes often present a complicated mix of factors, such as publicity-associated risks, government oversight, huge project size, a large number of implicated parties and momentous damage issues. At the International Association of Lawyers (UIA) 29th World Forum of Mediation Centres on June 24, 2021, I had the opportunity to moderate a conversation on this topic with panelists Steven Nelson of Texas, Professor Stefan Leupertz of Germany and Christopher Miers of the United Kingdom. Our discussion included perspectives from practitioners and neutrals who have experience helping to resolve conflicts involving some of the world’s most recognized buildings and sites. We offered a host of valuable lessons for neutrals, counsel and parties to consider when negotiating highly visible and newsworthy construction disputes.

I have distilled our discussion into eight key highlights, tips and takeaways:

  1. Build trust and understanding through robust pre-session preparation with the mediator.
    The mediator and parties should work together in advance of the mediation to devise an agreed-upon process to exchange information—if necessary, in a series of meetings or conferrals—so that everyone will trust the settlement process and understand one another’s positions on the technical, insurance, legal and damages issues relevant to settlement.
  2. Understand “big picture” issues and ensure key decision-makers are involved, engaged and present.
    The mediator should determine, as early in the process as possible, the identities of the key decision-makers, whether there are entities who are not “at the table” but who need to be involved, which other disputes may be implicated by the settlement of this one and how to include all necessary issues and persons in the negotiations at hand.
  3. Set expectations for a full mediation process of multiple and ongoing conversations and negotiations.
    It is important that the parties and mediators understand that in these types of disputes, mediation will most likely not be a one-time event. It may involve a series of sessions, each for a particular purpose, such as educating the parties or mediator, establishing ground rules and addressing high-priority issues.
  4. Clearly explain and respect confidentiality parameters, and use curated caucuses to allow for frank exchanges.
    Parties need to know that they can openly express their concerns to the mediator and the other parties, and that they won’t be disclosed to anyone outside the “room.” This may involve putting parties who have similar interests into groups so that they can speak more freely with each other. The involvement of governmental overseers or decision-makers requires special considerations and confidentiality.
  5. Leverage focused sessions with technical experts to hone in on areas of agreement and difference.
    The idea of splitting participants into groups can also work well if the mediator brings together all of the technical experts involved in the dispute—perhaps without the parties or counsel present—so that they can discuss with each other and with the mediator where consensus can be obtained and better understand what remains in dispute or unknown.
  6. Use the neutrality of mediator proposals to mitigate any perception of capitulation.
    Mediator proposals can be especially helpful to overcome situations where corporate or governmental representatives present at the mediation may not have the authority to bind the party they represent, so they must make recommendations to others who have higher authority and may be sensitive to public criticism. The mediator can “take the blame” for the substance of the proposal, which then saves face for those in a decision-making hierarchy who may agree with and recommend that proposal, but without implying that they have personally concluded that the party they represent is guilty or at fault.
  7. Turn to additional neutral assessments to bolster a settlement’s fairness and inoculate against any appearance of damaging admissions.
    Another way to broach the same sensitivities is for the mediator to arrange for non-binding evaluation by another neutral or neutral panel, or hold a mock jury trial, based on an expedited presentation of the parties’ evidentiary positions. This way, the parties can rely on this independent evaluation as a basis for settlement, without appearing to admit any fault.
  8. Establish standing neutrals who are on call to address issues in their infancy in order to avoid full-blown disputes.
    Finally, the panel agreed that an excellent way to resolve disputes on high-profile projects is to avoid public disputes altogether through use of standing neutrals, similar to or in the form of dispute resolution boards. These experts in construction contracting, the construction techniques of the project and/or the legal obligations of the parties can be retained at the outset of the project to essentially stand by to resolve issues as they arise, as well as meet regularly with the parties, keeping them informed of the progress of the project and the issues under discussion on a real-time basis. They also can provide a ready forum in which parties may address disagreements or concerns at their infancy, when they can most easily be resolved.

What Is the Best Way to Avoid Rezoning Disputes?

Collier Marsh | Construction Executive

Construction companies and developers are accelerating projects in the southeast and throughout the country as the economy rebounds from the worst of the COVID-19 pandemic. Whether they are building commercial, industrial or residential projects, these developments often require rezoning to maximize an investment. But rezoning disputes can add significant delays and costs to a project and can even defeat the project altogether.

There are proactive steps construction companies can take to avoid disputes as they are working to secure rezoning approval, as well after the rezoning is complete. During the initial rezoning process, before a final municipal decision, one of the best practices is to anticipate opposition and address it head-on. As for post-approval disputes, those often come down to how carefully a company followed the local procedures and, where applicable, the local evidentiary requirements.

AVOIDING PRE-APPROVAL DISPUTES

Disputes during the rezoning process typically arise with neighbors and other stakeholders who oppose the project. Before initiating a rezoning, a developer should identify who might oppose the project and why. Anticipating the opposition helps companies evaluate in advance what they can and cannot include in their proposal to appease these stakeholders. If there isn’t much room to give, this step at least helps companies prepare thoughtful talking points to articulate and defend their positions.

The key is figuring out what is most important to the opposition. For this reason, another best practice is to maintain an open line of communication with those who are opposed. Taking the time to listen to their feedback can go a long way. Adapting to the feedback can help prevent, or at least mitigate, rezoning disputes.

For example, take a company that is developing a commercial project that backs up to a residential neighborhood. That company should anticipate from the start that some neighbors will not be excited about the increase in traffic, noise and—at a fundamental level—the change to their neighborhood. The company should be prepared to exceed minimum requirements to mitigate the impacts of their project. Among other things, it should consider adding landscaping, enhancing buffers and taking other steps to make the project more palatable to the neighborhood. By engaging with neighborhood stakeholders early and listening to their concerns, a developer can identify and prioritize the concessions that will make the biggest difference.

AVOIDING POST-APPROVAL DISPUTES

Just because rezoning has been approved does not mean developers are in the clear. The best methods to avoid post-approval challenges to rezonings depend, in large part, on the type of approval received. For purely legislative decisions, one of the biggest threats to a rezoning approval is procedural errors. Rezoning procedures vary greatly among municipalities, but common errors include incomplete rezoning submissions and improper notice to the community that inhibit the community’s ability to participate in the rezoning process.

For purely legislative rezonings, make sure to follow the local requirements to a “T”—and make sure to document compliance with those requirements. These best practices require an investment in understanding exactly what is required form the start. When construction companies endeavor to rezone for the first time in a new municipality, it is especially useful to partner with attorneys and consultants who are familiar with the local requirements.

Another common rezoning process is through quasi-judicial proceedings. Quasi-judicial proceedings have elements of legislative decisions, but the decision-making body also acts like a judge and reaches a final decision based on evidence submitted for their consideration.

With quasi-judicial proceedings, complacency can be the enemy. When a project doesn’t face much opposition, there can be a tendency for companies to get complacent in collecting and properly presenting evidence, especially because there are costs that accompany a thorough submission. In North Carolina, for example, the best practice is to engage expert witnesses such as appraisers or engineers to testify in satisfaction of local requirements. Expert costs are worth the early investment; omitting these experts hurts the chances of success and makes an approval more susceptible to reversal after the fact. And fighting a challenge to an approved rezoning can be far more costly than early investment in a thorough submission.

CONCLUSION AND AN IMPORTANT NOTE ABOUT LOCAL NUANCE

Some disputes are inevitable, but they are actions contractors can take to minimize them. One of the best ways for construction companies to avoid disputes during the rezoning process is to anticipate opposition, listen to the opposition and adapt in the feasible ways that are most important to the opposition. As companies go through rezonings, they should also invest in understanding the local requirements and preparing the strongest evidence when required.

That last part—understanding the local requirements—is critical. Zoning is inherently local. Municipalities all have their own ordinances, procedures, and decision-makers. As a result, the best practices in one city may be vastly different from another just down the road. For this reason, an overarching step construction companies can take is to partner with attorneys, engineers and other consultants who are familiar with the specific requirements where the development is planned. Listening to local experts can help to avoid all sorts of pitfalls.

A Classic Blunder: Practical Advice for Avoiding Two-Front Wars

William Underwood | ConsensusDocs

“Ha ha! You fool! You fell victim to one of the classic blunders – the most famous of which is ‘never get involved in a land war in Asia’ – but only slightly less well-known is this: ‘Never go in against a Sicilian when death is on the line.’”[1]

Vizzini forgot to include “never fight a two-front war with your owner and a subcontractor” on his list of classic blunders, but it certainly belongs there.  This article examines practical tips and tricks for general contractors to avoid the classic blunder of a two-front war, including recommended contract provisions and sound project documentation practices. 

Admittedly, general contractors face a wide array of obligations on a project.  And perhaps one of the most delicate balancing acts is managing relationships with the owner and your subcontractors.  But far too often general contractors find themselves in the difficult position of fighting a two-front war against one (or more) of their subcontractors and the project owner. 

But this does not always have to be the case—there are ways for general contractors to reduce the risk of finding themselves in a two-front war.  And every project does not have to devolve in a circular firing squad with you in the middle.  That said, this article comes with the caveat that a general contractor cannot avoid a two-front war in every instance, nor does this article examine every imaginable way to reduce the risk of a two-front war (see e.ghttps://www.consensusdocs.org/pass-through-subcontractor-claims-liquidating-agreements-and-avoiding-a-two-front-war/).  But this article will provide an overview of several key tools that can be used to minimize the risk of falling into a classic blunder.

What’s good for the goose is good for the gander:  Flow down your obligations.

 One practical way to reduce the risk of a two-front war is to flow down the obligations outlined in the prime contract to your subcontractors.  And then require your subcontractors to flow those same obligations on down the line to their sub-subcontractors.  In doing so, your obligations to your subcontractors will closely mirror your obligations to the owner.  This—at least in theory—puts everyone in more or less the same boat, which in turn provides a better incentive for everyone to row in the same direction. 

 An easy way to accomplish this task is to incorporate the prime contract into your subcontracts.  This can be done through a flow down clause, similar to the one found in Section 3.1 of the ConsensusDocs 750 Subcontract.  Or it can be accomplished through a “back-to-back” arrangement, in which the prime contract terms are essentially copied right into the subcontract.  That said, either method can sometimes lead to practical conflicts in contract terms or a confusing overall framework of overlapping contract documents.  So if you cannot simply incorporate the prime contract wholesale, there are still key terms that should be passed on to the subcontractor.

 Liquidated damages provisions are an obvious example of an important item to include in a subcontract if a corresponding liability exists in the prime contract.  In other words, if you are liable to the owner for liquidated damages, then your subcontractors should be equally liable to you for these same damages in the event they delay the project.  However, it is important to not limit yourself strictly to just liquidated damages in the event of a delay—your subcontractor should be liable to you for all delay damages (e.g. extended general conditions), including, but not limited to, liquidated damages.  So careful contract drafting in this regard is important, as you do not want to inadvertently limit liability.  Again, this places everyone on the same footing regarding potential liability for liquidated damages.  And you will not be forced to battle over conflicting delay damages.

Payment terms are another prime example of a key flow down obligation.  For example, if the owner does not have to pay you for 30 days after receipt of an invoice, try to avoid separately tying yourself to a different—and potentially shorter—payment obligation to your subcontractor.  Otherwise, you run the risk of owing a subcontractor for work that you have not been paid for yet. 

And this includes not only the simple time for payment (e.g. 30 days), but also pay-if-paid and pay-when-paid obligations (a different topic for a different day).  If permitted in your jurisdiction, pay-if-paid and pay-when-paid provisions can be an effective way to avoid the risk of funding an owner’s project while you wait on payment.  But of course, your payment provisions must comply with all applicable laws (including any pay-if-paid or pay-when-paid provisions that you might consider adding), so it is important to understand the legal requirements when drafting your contracts.  But the simple fact is that you want your payment obligations to your subcontractors aligned with your payment rights in relation to the owner.  And you want to avoid bearing the risk of non-payment by the owner (again, understanding your jurisdiction’s laws is important).  That way, if there is a dispute, everyone will remain in roughly the same financial position. 

You should also flow down other liability limitations as well, like no-damage-for-delay clauses or consequential damage waivers.  For example, Section 5.4 of the ConsesusDocs 750 Subcontract contains a mutual consequential damages waiver.  The goal is to avoid liability for one set of damages to the owner while having separate (and potentially greater) liabilities to your subcontractors.  Again, this maintains the alignment of everyone’s obligations.

As noted above, it may not be possible to flow down the entirety of the prime contract.  But it is important to create as much alignment as possible between your contractual obligations to the owner and the subcontractor’s contractual obligations to you. This increases your chances of maintaining cohesive interests and corresponding obligations.  And doing so will reduce the risk of a two-front war in which an owner is claiming one thing under one set of contractual obligations while a subcontractor is claiming another under a different set of contractual obligations.

Color inside the lines:  Carefully define the subcontractor’s scope of work.

It is important to diligently and specifically delineate each subcontractors’ respective scope of work on the project.  And this is something that generally cannot be effectively accomplished through a blanket flow down of the prime agreement—the prime contract covers all of the work, but each subcontractor will likely only have a piece of that work.  Thus, one size usually does not fit all when it comes to subcontractor scopes of the work. 

Having a clearly defined scope of work will help avoid disputes down the road regarding what each subcontractor should be doing.  So be as specific as possible when defining the work.  And expressly cross-reference the specifications from the prime contract.  Further, involve as many technical project team members as needed during both the contract drafting process and the subsequent project execution process to ensure that the scope of work is properly defined, fully captured by the subcontractor, and then executed.  Doing so will not only provide a good foundation for your risk mitigation efforts, but it will also help you manage communications across all of the parties, including the owner and your subcontractors.  And as outlined below, good project documentation is a key tool in avoiding two-front wars.

So be specific when outlining each subcontractor’s scope of work.  This will help avoid confusion, aid in the correct allocation of risk, and keep everyone on the same page; all of which are important to avoiding a two-front war.

Clint Eastwood never loaded another man’s gun:  Carefully manage your project correspondence.

An entire article could be devoted solely to good project documentation practices.  But there are a few simple things to keep in mind when balancing owner and subcontractor interests.  As a basic staring point, do not load someone else’s gun.  Be mindful of definitively and aggressively placing all blame on one party for a project issue, particularly when you may not have all the facts or are otherwise in an evolving situation.  For example, if a subcontractor is delayed in advancing its work, it might be satisfying to write a letter or draft an email entirely blaming the subcontractor for the delay.  But if disputes arises, the owner will seize upon this writing as proof your subcontractor—and therefore, you—are the sole cause of delay.  In reality, the owner might have failed to provide timely RFI responses, which in turn delayed the subcontractor.  So be careful of unqualified, definitive positions before the full story is known.  Otherwise, you may find yourself backtracking later to try to get to the truth—which is often a very uncomfortable position.

To that end, it is wise to adopt a thoughtful and deliberate approach when documenting the overall project as a whole, not just when sending actual notices or claim letters.  So try to avoid knee-jerk emails or unnecessary comments in meeting minutes or daily reports, particularly when all of the facts may not be known.  It is also helpful to maintain the flow down position—relay that the owner claims (for example) that the project is delayed, or conversely that the subcontractor claims (for example) that it has been delayed.  In other words, do not unnecessarily or prematurely adopt one position or another as communications flow back and forth.  Otherwise, you run the very real risk of loading the other side’s gun.  And it usually ends up pointed at you. 

Overall, maintain a fact-based (“just the facts, ma’am”), reasoned approach to documenting the project and be extremely cautious of taking sides before all of the facts are known.  Although this balancing act can be tedious, it can pay dividends in the long run by keeping you out of a two-front war. 

Don’t be a potted plant:  Stay actively engaged with the owner and your subs.

Few things can be more conducive to a two-front war than a passive general contractor.  It is important to remain active in the management of the project (and this advice obviously applies to more than just avoiding two-front wars).   This includes active, diligent communication and facing any project issued head-on.  Do not hide things from the owner or your subcontractors.  If there is an issue, address it.  The longer items go on unresolved, the more likely they are to fester into a full bore dispute.  An ounce of prevention is worth a pound of cure.  So stay active, identify issues, maintain open communication with all parties, and seek timely resolution when appropriate.

In Conclusion

Every two-front war cannot be avoided every time.  But there are certainly practical ways to reduce and minimize this risk.  And adopting some of these approaches can help you avoid a classic blunder (that did not quite make Vizzini’s list).