C O N S T R U C Dispute Review Boards: What the Case Law Though a success Says About Them story, DRBs have been involved in BY DANIEL D. MCMILLAN litigation. This Mr. McMillan is a partner in the Los Angeles office of Jones article looks at Day and is the co-chair of Jones Day’s international con- some lessons to struction practice. He is a frequent writer and speaker on be learned from issues of interest to the construction industry. The views these cases. expressed are solely those of the author and should not be attributed to the author’s firm or its clients. ispute review boards (DRBs) are a specialized form of alterna- D tive dispute resolution (ADR) developed for the construction industry. T ens of billions of dollars worth of construction have been completed in the United States on projects employing DRBs, most of that construction for public projects. For more than two decades, advocates of DRBs have touted the process as a unique form of ADR with an unmatched record of assisting projects in reach- ing completion with no litigation over construction claims. The small but growing number of cases in - courts. The typical DRB is composed of three volving DRBs, however, demonstrates that the industry experts, usually engineers or architects, DRB process is not immune from conflict. If experienced with the type of construction DRBs are to be a valuable ADR tool, users of the involved in the project. Ordinarily, the owner process should be aware of lessons that can be and the general contractor (GC) each appoint gleaned from the available body of case law. The one DRB member and the first two members lessons highlighted in this article can help pre- select the third member. Regardless of who vent unpleasant surprises and increase the likeli- appoints a DRB member, the owner and the GC hood that the DRB process will be successful in must approve all members of a DRB. Each mem- avoiding disputes or resolving them without liti- ber is obligated to be neutral and impartial. gation or arbitration. DRBs are established by contract between the owner and the GC. Model DRB provisions are Nature of the DRB Process available from the Dispute Resolution Board Understanding the typical DRB process pro- Foundation (DRBF) and the American Arbitra - tion Association (AAA). 1 In general, these provi- vides important context for the lessons from the Reprinted with permission from the Dispute Resolution Journal , vol. 65, no. 4 (Nov. 2010-Jan. 2011), a publication of the American Arbitration Association, 1633 Broadway, New York, NY 10019-6708, 212.716.5800, www.adr.org.
C O N S T R U C T I O N sions specify that the DRB is to be constituted at meetings. By contrast, mediators, arbitrators, the outset of the project and that the parties must judges and jurors become aware of the construc- submit disputes to the DRB before proceeding to tion project only after the dispute arises. litigation or arbitration. On large projects, the DRBs are intended to address disputes when DRB agreement often calls for the DRB mem- presented by the parties during the course of the bers to receive project documents, make periodic construction process, not at the conclusion of the site visits, attend project meetings with the owner project, as is often the case in litigation or arbi- and contractor, conduct informal hearings on tration. This “real-time” consideration of dis- disputes that are submitted to the board, and putes is meant to help preserve the working rela- issue written recommendations for resolving dis- tionship between the owner and the GC by not putes. These recommendations are not binding allowing issues to linger unresolved. When dis- unless accepted by the parties or a party fails to pute resolution takes place years later, after the reject the recommendations within the specified project has stalled or been completed, the history time limits. Most model DRB provisions provide of the project needs to be reconstructed for a that the DRB recommendations are admissible in judge, jury, or arbitrator, which can involve con- subsequent proceedings should a dispute remain siderable time and cost to the parties. The DRB unresolved. process is designed to avoid this problem by One case demonstrates that, absent some legally sufficient justification (such as waiver, estoppel or unconscionability), courts will not permit a party to ignore a DRB provision requiring exhaustion of the DRB process as a condition precedent to litigation. According to conventional wisdom, four pri- addressing disputes when the surrounding events mary features of the DRB process working in or circumstances are fresh. combination distinguish it from other binding The third feature of DRBs, the non-binding and non-binding dispute resolution processes. nature of the panel’s written recommendations, The first of these features is the expertise DRB makes the process different from arbitration with members have. Like arbitration and mediation, its final and binding arbitration award, and from the DRB process allows the parties to select the litigation with an enforceable, though appealable neutrals who will serve on the board. The experts judgment. The admissibility of DRB recommen- that are preferred are engineers and seasoned dations in subsequent proceedings also distin- construction professionals who understand the guishes DRBs from mediation, since all media- technical issues that frequently arise on large tion communications are treated as confidential projects. Many proponents of DRBs discourage and may not be used except in furtherance of set- appointing attorneys to the panel. However, as tlement. Because DRB recommendations are DRB practice continues to evolve, parties are admissible in subsequent proceedings relating to increasingly seeing the value of having an attor- the dispute, parties can manipulate the DRB ney or retired judge experienced with construc- process to create evidence for use in litigation or tion law on the board. This is because legal and arbitration. To prevent this kind of misuse, procedural issues are often intertwined with the model DRB provisions are sometimes modified resolution of technical issues. The expertise and to make DRB recommendations inadmissible in status of the DRB members make it less likely a subsequent legal proceedings. party will pursue marginal claims and ensures that parties are more likely to afford careful con- Lessons from DRB Cases sideration to DRB recommendations. There are about 13 substantive court decisions The second notable feature is the early in - involving DRBs that can be easily accessed using volvement of the DRB on the project. DRB traditional legal research tools, 11 of which are unpublished decisions. 2 The most significant of members gain familiarity with the project and its problems from the outset. This knowledge base these cases, discussed below, contain a number of is developed from the DRB’s review of project important lessons for DRB neophytes as well as documents, periodic site visits and progress sophisticated users of DRBs. These lessons N O V E M B E R 2 0 1 0 / J A N U A R Y 2 0 1 1 2
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