Dispute Boards – The Most Important Aspects You Must Know

In our June 2024 webinar, Boyana Milcheva, Partner of DPC Law Firm, spoke about Dispute Boards and the most important aspects that you must know and understand.

What is a Dispute Board?

A Dispute Board is a board of impartial professionals "set up upon the signature or commencement of performance of a mid- or long-term contract, they are used to help parties avoid or overcome any disagreements or disputes that arise during the implementation of the contract."1

They have three basic functions. They stress the significance of both informal and formal approaches to resolving disputes. The Rules clearly state that when a potential disagreement arises, the Dispute Board (DB) may identify the issue and encourage the parties to settle it independently, without further involvement from the DB. If this is not possible, or the disagreement becomes more entrenched, the DB can offer informal assistance to help the parties reach an agreement. Alternatively, the DB may resolve the dispute by issuing a recommendation or decision following a formal referral process. Each of these functions plays an equally important role in minimizing the risk and cost of disruptions to the parties' contract.

Types of Dispute Boards

1. Dispute Review Board (DRB) – this kind of board makes non-binding recommendations; however, these can be immediately rejected;
2. Dispute Avoidance/Adjudication Board (DAAB/DAB/DB) – The decisions by this kind of board are binding, and they can be accepted or rejected immediately. It is important to note that the decisions are binding until the dispute is amicably settled;
3. Combined Dispute Board – the parties to the dispute may agree to the binding decision or recommendations.

Key Aspects of Dispute Boards

Dispute Boards are effective when constituted and planned for at the conception of the project. Their main role is to avoid disputes, which in turn will save the parties time and costs.

They are often viewed as being a form of project insurance, due to their relatively low costs. Dispute Boards are significantly cheaper than litigation; for example, in a project with a value of $350,000,000, the cost of a three-person dispute board will be roughly $405,000. This is 0.12% of the project cost.

Using the International Chamber of Commerce costs calculator, we calculated that if a $20,000,000 dispute was referred to an Arbitration, with three Arbitrators, the total cost of the Arbitrators (excluding Arbitrator expenses) would be $453,117, demonstrating how cost-effective Dispute Boards are.

Dispute Boards are also agile, and provide flexibility and swiftness due to the proactive roles of the Board and their knowledge of the project. The 2017 FIDIC suite provides for decisions to be made by the Dispute Board within 12 weeks. In UK standard forms of contract, where disputes can be referred to Adjudication, decisions can be achieved in a much shorter time, and can be expected within about 4 weeks. In comparison, an Arbitration can last anywhere from 12-18 months (sometimes longer, and litigation longer still). The main risk that parties run when entering into litigation is costs. Even if a party is successful, generally they will only ever recover a maximum of 60-70% of their costs.

An important point that Boyana highlighted, is that Dispute Boards are a "creature of the contract". Not all contracts contain provisions for Dispute Boards; however, contracts can be amended to include such provisions. The ICC have three standard ICC Dispute Board Clauses that can be inserted into a contract, which can be found here.

In conclusion, Dispute Boards represent a highly effective and efficient mechanism for managing conflicts in long-term contracts, offering a proactive approach to dispute resolution that can save both time and costs. By emphasising early intervention, and offering both informal and formal means of resolving disagreements, Dispute Boards can significantly reduce the risk of prolonged disputes and costly litigation. Their flexibility, speed, and cost-effectiveness make them an attractive alternative to traditional dispute resolution methods, such as arbitration and litigation. By using Dispute Boards, parties can tailor their contracts to include Dispute Board provisions, enhancing their project management and risk mitigation strategies. With their ability to resolve disputes in a timely manner, and at a fraction of the cost of other dispute resolution options, Dispute Boards are a valuable tool for any large-scale project.

This topic was discussed in our webinar 'Dispute Boards: The Most Important Aspects You Must Know' with Boyana Milcheva in June 2024. Click hereto view the webinar and presentation.

Footnote

1 International Chamber of Commerce, Dispute Boards – accessed here: https://iccwbo.org/dispute-resolution/dispute-resolution-services/adr/dispute-boards/

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.