Dispute Review Boards (“DRB”) – sometimes referred to as Dispute Resolution Boards – are creations of the construction industry.[i] DRBs were developed by predominantly non-lawyer construction professionals who were dissatisfied with the use of arbitration and litigation to resolve construction disputes.
- 1. “Have It Your Way”
Like arbitration, the DRB process is a contractual undertaking that can be designed to fit the particular needs, requirements, and objectives of the parties to the contract. The DRB most often consists of three independent industry members with expertise in the type of construction being used on the project.
The key distinguishing feature between DRBs and arbitration panels is that DRBs make regular visits to the project site to allow its members to discuss, observe, and monitor the construction progress and potential disputes. These regular meetings and site visits help the DRB members become familiar with many of the facets of the project and equate themselves with the jobsite personnel. Thus, if a dispute is submitted to the panel, the DRB members have a great deal of knowledge about the circumstances of the problem to aid them in reaching a resolution. DRBs have the effect of encouraging open and honest communications between the parties during the project, which in turn, encourages resolution of disputes before they become formal claims.
The DRB can also provide verbal advisory opinions to the parties on an expedited basis. These advisory opinions are based on more limited presentations in the form of DRB recommendations. The opinions do not bind the DRB if the parties subsequently elect to present a claim through a more formal process.
- 2. DRB as an Alternative Dispute Resolution Panel
When a dispute cannot be resolved by the parties through negotiation, either party may submit the dispute to the DRB. The members then hear the dispute in an informal setting with presentations made by project personnel involved in the construction. Lawyers are typically not involved. The DRB then provides its findings and recommendations for resolution of the dispute with an explanation of its reasoning. The panel’s findings and recommendations are often limited to liability (entitlement), but, generally, are not binding. The findings and recommendations are often used to negotiate the settlement of the dispute. The contract may also make the findings and recommendations admissible in subsequent court or arbitration proceedings.
- 3. Selection of DRB Members
There are three general methods of selecting DRB members:
(1) Joint Selections: The parties meet together and agree on all three members of the DRB.
(2) Nomination of Each Party: Each party nominates a board member and those two members nominate a third member. All three DRB members must be approved by both parties. Typically the third member serves as the Chair. All three members of the DRB become neutral after appointment.
(3) Slate of Candidates: Each party proposes a list of 3 to 5 members. Each party selects from the other party’s list. The two DRB members then select the Chair subject to approval by both parties.
DRB members must be objective, impartial, neutral, and without conflicts of interests. To ensure neutrality, the DRB members must disclose any contacts they have or have had with either party prior to selection. The disclosure must be updated on a if there is any change.
In the early years of the DRB process, there was a reluctance to include lawyers on the panel because of a concern that their presence might result in more formal and adversarial hearings. There was also concern that members of the legal community might attempt to change the process for the worse (as appears to have happened to arbitration). Although in recent years, there have been more attorneys who were chosen as DRB members, the vast majority of construction professionals believe a panel with three attorneys is not a good idea.
- 4. Cost of the DRB Process
The DRB does not come without costs. The members typically charge on an hourly or a daily basis, plus expenses. The members are often not local and have travel expenses. The costs can range from 0.05% of the project costs for a relatively dispute-free job to an average cost of 0.15% for projects that referred disputes to the board or had difficulties. The cost of the DRB is split between the contractor and owner.
Comment: When subcontractors have disputes with prime contractors, which also involve the owner, an interesting question arises whether these disputes should be heard by the DRB. Since the DRB is appointed by the owner and prime contractor, and they alone attend the meetings and site visits, there is a strong argument that only disputes between the prime contractor and the owner should be decided by the DRB. However, subcontracts often contain language requiring that disputes arising from actions or inactions of the owner be presented on a pass-through basis. If the DRB is the dispute resolution mechanism in the prime contract, the subcontractor must then submit its dispute to the DRB. In such cases, it is good practice for the prime contractor to involve the subcontractor in the DRB meetings and site visits when the dispute first surfaces. A case in California found that the DRB process was presumptively biased against the subcontractor and excused the subcontractor from the obligation to comply with the DRB process before filing suit[ii].
[i] This post is drawn from Adrian L. Bastianelli III and Robert A. Rubin’s Chapter “Dispute Review Board and Other Forms of Construction ADR,” Construction ADR (2014), an excellent resource for the construction law practitioner.
[ii] Sehulster Tunnels/Pre-Con v. Traylor Bros./Obayashi Corp., 111 Cal. App. 4th 1328, 4 Cal. Rptr. 3d 655 (2003).