Dispute Resolution Procedure for Complex Projects (Aug 2019)
For a considerable time, there have been moves to find a process for the most suitable Dispute Resolution Procedure (DRP) approach in large complex projects. The use of Dispute Arbitration Boards (DABs), Dispute Resolution Boards (DRBs), arbitration, adjudication, mediation, expert determination or negotiation has been applied in multiple formats and structures. There seems currently to be a move to include all options, even where some of the included options may be inappropriate or contradictory.
The purpose of this paper is to consider an approach which has a clear structure, allows parties to provide all relevant information, has a supervision role and which ultimately brings finality by agreement or binding determination at a cost which is proportionate, within the parties’ control and is manageable within an acceptable time line.
The process suggested has evolved from the application of mandatory escalation / mediation / adjudication / arbitration / litigation processes. It also has drivers in the feedback from clients, on the need to resolve disputes quickly, at reasonable cost, and by applying correct knowledge and facts as to the issues arising. The emphasis is on both the speed of resolution, which is a relative position and a pragmatic approach providing solutions within industry norms.
The process suggested allows multiple parties to be represented appropriately at a technical level without having multiple experts and representatives. It provides for a single database of relevant documentation with mandatory disclosure requirements regulated by the appointed supervising person.
In a number of recent projects, it has become apparent that where there was a particular reason for intransigence on behalf of a party, there was a high level of frustration among the other parties that their only clear route to resolution was litigation or arbitration, despite provisions intended to facilitate an early and amicable resolution to the issues.
In part, the approach is also prompted by the concerns expressed in some situations that advisors involved in the dispute resolution process have a greater interest in perpetuating the process than finding efficient and cost effective solutions.
Currently there are multiple approaches to the appropriate DRP approach within a contract, this conundrum goes deeper than just selecting the words, the forum and choice of law.
Typically, modern drafting will consider approaches using a number of methods of DRP which may include:
- Escalation; this means referring the matter to senior members of the executive who generally are briefed by the people who have been handling the issues up until that point. Unless you have an executive decision maker who is willing to challenge staff positions or require them to rethink their positions, this is unlikely to resolve specific issues. It may however at a higher level, allow a simple commercial decision based on value of business against the cost of a dispute to bring the matter to an end on a simple financial settlement basis.
- Escalated negotiation; this requires executive or nominated senior staff to revisit negotiations and to act as quasi experts on behalf of their own organisations to determine if the arguments and decisions made by others can be sustained as arguments in the long term. This approach can often work where third-party advisors/lawyers/accountants/engineers/surveyors etc are brought in to give a genuine objective third party view. This allows the executive not to undermine the staff position but to adopt a third-party position and resolve with internal integrity maintained.
- Negotiation; this is an understated art and deserves a degree of revival in industry. Preparing properly for a negotiation is more than reading a brief history and turning up for a meeting. It means achieving a deep understanding of your opponent’s position, motivation and strategy and devising a structure and strategy which undermines the opponent and demonstrates your ability to win the arguments. The power of negotiation as a method of resolution should never be underestimated. It can cut an otherwise long and expensive process down to a few discussions.
- Expert Referral; this is an increasingly common approach in drafting specific DRP points. As a methodology it has much to be said for it but the approach has to correctly identify the question to be answered, the information to be made available and the process to be used in allowing the expert to determine the answer. A lot depends on the process, the transparency and the willingness of the parties to have findings against them. Experts should be used as technical experts in their own field and not as general decision makers in place of executives. Expert referral takes the process outside the contract and requires the parties to agree to a separate contractual process, with a third party appointed to ascertain facts and law and make assumptions and determinations often on limited information, timescales and budgets.
- Mediation; the concept often needs to be explained. It can take many forms and different proponents tend to promote their own variety of mediation. In its essence, mediation is a form of negotiation with a referee who from time to time expresses a subtle opinion on who is winning or losing an argument. It is, in the right format, an excellent forum for allowing opposing parties to get things “off their chest” which in itself is often a release of mutual hostility and allows a constructive solution to be found. As with many forms of what used to be called alternative dispute resolution processes, mediation is now mainstream, but it depends on the terms of the referral, the willingness of the parties and the expertise of the mediator. It is a process requiring the parties to contract into a dispute resolution process beyond the terms of the contract and so it is a separable process and potentially subject to extraneous rules.
- Adjudication; Depending on the jurisdiction this may be mandatory under statute or voluntary or compellable under contract. In all its forms, it may be regarded as a short/abridged form of arbitration with a single panel member making a decision with defined short timescales and on the basis of abridged submissions. In the UK adjudication was introduced by statute in the 1990s primarily to resolve abuse of power by larger firms in the construction sector and to prevent smaller firms being pushed into insolvency and reverse the trend away from participation in the industry. It is seen as useful in certain circumstances, but it has limited recourse options and appeals are complicated for a number of reasons. As a final and binding methodology, it is not popular because of the abridged nature of proceedings. Used in the right way it is successful and effective.
- Arbitration; This for many years has been viewed as a sinecure for a DRP process whether through an arbitration clause, a requirement to have DAB, promotion of arbitration because of confidentiality or promotion of arbitration because of expertise on the arbitration panel. Arbitration, as with Expert Determination, Mediation and Adjudication requires a process outwith the contract. It is susceptible to jurisdictional rules and local law applications. It requires a dispute arising in relation to a contract to be within the scope of the arbitration provision in the contract or (depending on the jurisdiction) it may not be subject to arbitration but court process. A particular arbitration clause may not include all disputes and so the objective of confidentiality is ineffective. The panel appointed is usually 1+1+Chair appointment and so the objective of having technical experts appointed is never a secure position because appointments now tend to be of arbitrators with a reputation in a particular sector. Timelines and procedures in arbitration are becoming more extended and more costly than court procedures and the effectiveness of the whole process is becoming of questionable efficiency in the overall consideration of DRP processes. Recent law reports on arbitration appeals suggest a general level of growing dissatisfaction with the arbitration process.
Basis of Approach
Core to the suggested approach is to put those responsible for decision making and representing their businesses commercial interests in control of the process. In practical terms this means agreeing a more detailed procedure than has more recently been used in dispute resolution clauses. It is recognised there are numerous bodies and rules which create a framework for dispute resolution to take place and the application of the submission and counter submission has been tried and tested over many years. In each case the process requires the application of contractual terms and conditions separately from the contract from which the dispute arises.
Existing approaches to drafting, in all but a handful of examples, use an approach of adopting generic provisions in the hope (often more than in expectation) they will not have to be used later. The alternative approach suggested here brings a more efficient, compact and confidential way of using a template of options through an intra contractual specified DRP which suits the parties needs and imposes a discipline on the parties in the management of the contract and the resolution of disputes as they apply during the term of the agreement.
Integral to the approach is the compliance requirement with the procedure. A failure by any party to follow the process has the consequence of a breach of contract.
In part the approach adopts elements of mediation, adjudication and case management from different jurisdictions. The application of the process is not dependant on any legal jurisdiction or formulation between local law and law of the contract. By maintaining the solution approach within the contract itself, the only enforcement issue is registration of a determination as a contractual right in the jurisdiction where it is to be enforced, which is considered to be an eventuality which parties would wish to avoid.
The availability of a prescribed process which is agreed in detail at the outset of a contract is not unusual, in almost every contract a dispute resolution clause refers to some basis for rules, legal jurisdiction and forum. What is different in this approach is the process is stipulated in detail within the contract by including it within the contract or as a schedule to the contract.
Finding the correct steps to follow will require early consideration and that means spending time on provisions that may never have to be applied. This applies across several areas of contract negotiations and drafting but in the case of dispute resolution clauses it creates the opportunity for the structure, management and application of relationship control across all parties to the contract.
The essence of the approach is to have a prescribed process with compulsory steps across every aspect of the process of managing issues or potential issues arising. It stipulates actions and timeframes which import a mechanism which in its application prevents an issue being litigated in a forum where the parties feel disenfranchised from the dispute resolution process.
Conventional processes start from an assumption that the parties want to be in argument and take opposing views. Preparation of submissions and bundles of documents are mainly for the benefit of the forum appointed to resolve a dispute and the assumption made is there is a need to set out the background, facts, history and position of parties on an adversarial basis.
The approach suggested here is to assume the parties are mature commercial entities which have explored the points in detail in the course of normal contract procedures. The starting point is to continue that process towards resolution with a mandatory requirement to resolve differences. This assumes the parties continue the process but at a certain point any party can require the process to be subject to the requirements of the procedure and rules. The procedure and rules are entirely within the contract and so do not require a separate set of rules or a separate contract to be entered into and negotiated. Cost is mitigated and time required is significantly reduced.
On a requirement being triggered the process of resolution is continued but under the control of a pre-identified (with alternatives) supervising person. The role of the person evolves as the process continues. In early stages it requires the discussions between the parties to be refereed and monitored, the person may then take the form of mediator or eventually of an adjudicator with the power to make final binding and enforceable decisions.
The terms of such appointment are included as a schedule to the contract and pre-accepted by the nominated person or persons. Importantly the person appointed should be familiar with the type of contract involved and preferably able to stipulate at least 5 years familiarity with the type of work being carried out.
This generic description gives a flavour of the intent; which is to leave the parties largely to resolve the issues within a forum controlled by them and in which they make the rules and timetable but within an environment where failure to reach a resolution may result on a resolution being imposed.
It also maintains within the corporate environment, governance and responsibility for the issues which means greater visibility of the source and management of the issues which will improve corporate performance on similar issues.
By applying the process correctly, inconsistent behaviours may be identified and indications of steps which may have led to avoidance of the issues can be identified. Within the process, reporting to senior management board, funders, and other third parties can be provided for so that oversight is maintained on the overall position under the contract.
The objective being to provide a process which suits the project and the parties while recognising the need to have formality and enforceability available.
The process, being within the contract, is confidential and so it is less vulnerable to current trends to have decisions which ought to be confidential, reported in media or to publish anonymised information but with enough detail for industry to identify the parties and the dispute. This means there is the ability within the process for absolute confidentiality to be maintained as an integral part of the contract and not as a contracted-out process. Applying the confidentiality obligations of the contract to DRP is generally part of the intention of the confidentiality provisions in the contract.
The opportunity to utilise a contract specific DRP clause with bespoke steps and procedures as appropriate to the contract and the parties, is a preferable and more efficient approach to managing issues within the contract, in a way which meets the needs of the parties to the contract and supports the basic commercial relationships and enables them to continue on a strong business footing.
Not all contracts will need this approach, although it could be applied in all contracts in simpler or a more extensive way depending on what the contract may require. The point being that the control remains in the hands of the parties and the inherent knowledge of the history and basis of the dispute continues in the process without having to restate information in an abridged or less clear way than may be appropriate.
By maintaining the proposed process as an integral part of the contract working relationships, it improves the ability to resolve issues in a mature and amicable way, without compromising business decisions.
The evidence of the projects in which this approach and process has been applied, is that it is more efficient, less expensive and with better long-term outcomes for the parties involved.