How I help people end disputes

An interview with John O’Brien

TO DISAGREE WITH SOMEONE is a healthy and very human thing to do, says John O’Brien during our interview. It is our differences in opinion that make us individuals, and this fosters conversation and debate.

Where they do disagree, parties often discover that the facts and interpretations underlying their initial opinion may overlap but are seldom identical to those of the other. If we listen, learn and accept new facts and interpretations from each other, our opinions tend to change and we can come to an agreement on the subject matter, which is often quite different to what both parties understood when the initial disagreement occurred.

Disputes occur when parties become entrenched or positioned in their opinion and tend not to be swayed by new facts or new interpretations.

This is the stage at which John Farage O’Brien may be asked to intervene, either to advise one of the parties or, if both agree, to sit as their conciliator or mediator to help them find a way to settle their dispute.

As John says: “At the core of every successful dispute resolution where parties have remained in control is a process where they have moved of their own accord from positional negotiation to principled negotiation, often with the assistance of a neutral third party.

“Closing a dispute is of paramount importance to any organisation wishing to progress in its core activity or business. Across the globe, commercial organisations are now choosing to remain in control during dispute resolution by using mediation processes. These have now surpassed the traditional, adversarial route of litigation.”

Closure is achieved primarily in two ways — one, where the parties themselves remain in control by assisted negotiation, mediation or conciliation and reach a settlement by agreement; and two, where the parties lose control and an arbitrator or judge finally decides the outcome for them.

In fifteen years of resolving contractual disputes between public sector and private sector organisations, O’Brien has witnessed creative energies flowing backwards and forwards between well-organised parties fully engaged in a mediation process.

John recalls: “Any willingness of both parties to investigate and then accept new facts and interpretations from each other, coupled with accepting changes to their initial opinions, was rewarded with successful early closure, settling the differences by agreement and avoiding a full-blown, time-consuming and costly dispute.”

And the firm often has a hand in ensuring that early closure: “If the parties want us to act as the referee, whether as a conciliator, mediator, or arbitrator, in that case I, as principal consultant, will sit with the parties, and set out to manage the dispute to achieve a speedy and fair closure.”

As only five per cent of arbitration hearings proceed to final award, and 95% of disputes are settled without recourse to arbitration, John is a major cheerleader for conciliation and mediation as the supreme forms of dispute resolution.

Apart from their speed and relative simplicity, these forums have other advantages, the prime one being that the parties stay in control. As John says: “The success of mediation is rooted in a party’s ability to run its own live risk register from the outset, updated and recalculated when new facts or interpretations are discovered in the process. By doing so, that party creates its own opportunity to do something about it when the risks outweigh any potential rewards or success achieved by continuing in dispute.

“Commercial organisations that are risk aware do not need to have judicial decisions imposed upon them. They are capable of deciding for themselves what is a sensible and reasonable settlement as the risk matrices unfold.

“We’ve found that where parties failed initially to engage in mediation or conciliation, the dispute remained in a positional state which inevitably led to a judicial process. This usually meant an Arbitrator took full control and finally decided the outcome for the parties, sometimes years later.

“In arbitration, a party’s energies are completely absorbed in an adversarial process that steals time and resources. Each party indulges in drafting pleadings, pursuing discovery and attending hearings, not to mention the enormous costs of lawyers, consultants and expert witnesses for both claimant and respondent.

“It can be as expensive and time-consuming as a long court action,” John says.

The sting in the scorpion’s tail comes two-fold, of course, in the form of the penal costs of interest added to any monetary award on the substantive issue and the successful party having its legal costs taxed by either the Arbitrator or the Taxing Master.

And John points out: “Ironically, we have experienced parties that failed to engage fully in the first step, mediation or conciliation, only to find themselves battle-worn midway through an arbitration. They then mutually agree ‘time out’ to go right back into mediation, which becomes a parallel process in which settlement is reached and there is no return to arbitration.”

Parties appearing before John O’Brien will have the benefit of his fifteen years of experience with construction disputes, his wide knowledge and legal expertise, and his expertise in and forensic knowledge of the construction sector. And more will undoubtedly be reaching out to him for that service, as there is now a requirement for public works contracts exceeding €10 million in value to have a named ‘standing conciliator’ included.

“That’s a role that John Farage O’Brien are perfectly suited to,” says John, “and also in providing independent risk assessments, something that senior public sector decision-makers absolutely require.”

“So, for those senior public sector officials who have not yet come across me in their dealings, I am very happy to offer a no-obligation consultation, whether in connection with appointing me as standing conciliator on a PWC or to obtain an independent risk assessment on the merits of a claim.”

Those who engage John Farage O’Brien to mediate can be confident in their choice — but so also will the lucky party which engages John’s firm to advise or represent.

He says: “We specialise in the construction sector, representing clients in dispute — contractors, construction professionals, public bodies such as local authorities, public procurement entities and PPPs. At ADR hearings, we advise and represent them, bringing to bear a wealth of experience both in dispute resolution and in commercial management, quantum, procurement, design, methodologies, project and programme management and the legal aspects of construction contracts.

“We have handled cases totalling more than €2.5 billion in contract value since 2003, the vast bulk of which involved public sector bodies. When we advise a client —whether public body or contractor — we bring to bear an absolutely ferocious attention to detail, a forensic analysis of every element of every document, agreement, report, and act by either party.

“Construction cases can be extraordinarily complicated, so our breadth and depth of experience here is key.”

John is a Fellow of The Chartered Institute of Arbitrators (FCIArb, Dip.Arb.Law) and a practising CIF Arbitrator. He is a fully accredited Mediator with the Centre for Effective Dispute Resolution (CEDR). He is also a Chartered Quantity Surveyor (ASCS MRICS, BSc.Surv. Dip.Const.Econ), a Chartered Civil Engineering Surveyor (MCInstCES), a Construction Technician (Dip.Const.Tech) and a practising Conciliator on the CIF construction panel

A paper presented to the Dispute Resolution Board Federation webinar 4th March 2021
By NG Bunni

Dispute Adjudication Boards were developed by FIDIC following the successful American experience of Dispute Review Boards and first appeared in the 1995 Orange Book for Design- Build and Turnkey projects. The Board’s function of “Review” was changed to “Adjudication” in order to simulate the Engineer’s Determination or Decision under the earlier editions of the FIDIC Forms.

Following the successful use of Dispute Adjudication Boards, which I will now refer to as “DABs”, in the Orange Book, the function of a DAB was incorporated into the 1999 Red, Yellow and Silver Forms of Contract. However, in the Red Book, a Standing DAB was provided for, which related to a DAB being appointed for the duration of the entire project, whereas, in the Yellow and Silver Books, an adhoc DAB was provided for, which related to a DAB being appointed only after a dispute had arisen. The idea of an adhoc DAB was proven to be a mistake and was subsequently abandoned in the 2017 editions of the FIDIC Forms.

In Ireland, the first Contract using the 1999 FIDIC Yellow Book and, thus a DAB, was the Dublin Light Rail Project, for short it is referred to as the “Luas”. Although this Contract used the Yellow Book, which provided for an adhoc DAB, the Employer’s lawyers had identified the mistake of using an adhoc DAB and instead, a Standing DAB was incorporated in this Project. The Project was designed as a fast public transport system for parts of the south of Dublin City and construction on the Project commenced at the end of 2001, with the Works being completed in September 2004. It had nine main Contractors and the Employer was known as the Railway Procurement Agency, the “RPA”. I was appointed as a sole Standing DAB for the duration of the Project. By the time it was completed, most of the problems faced were solved around the discussion table and only two disputes were referred to a full adjudication process. Arbitration was therefore not required to resolve any of the disputes that arose. This Project was taken to a second stage in February 2007, where the Rail Network was extended to part of the City Centre. The Employer continued to be the RPA and this second stage had only five main Contractors. Again, the same Form of the FIDIC Contract was used and I was, once again, appointed as a sole Standing DAB. The second stage of this Project was completed in March 2011.

The combined cost of the two stages of this Project was over €700 million and, once again, all of the problems that arose were resolved through discussions and no arbitration was needed or instigated.

During 2006/2007, the Irish Government had formed a Committee to adopt the use of the FIDIC Contracts in Ireland for construction projects. This was partly as a result of the success of avoiding arbitration in the Luas Project. We were just nearing the end of our work when the Irish Construction Industry was dealt a significant blow. The Committee was disbanded and we were informed that the relevant authorities had decided to use a new form of contract, which was later named as the Public Works Contract.

On an article by Mr. John Farage O’Brien published in Construction News, February 2021.

I was very fortunate that this article was published whilst preparing my presentation for this webinar. Mr. O’Brien is a prominent construction consultant in Ireland and, in his article, he lucidly explains the adverse effects of the PWCs on the Irish Construction Contracts scene, which, combined with two other events, he said created “the perfect storm”.

The first version of the PWC was introduced in 2007 to replace the GDLA and the IEI Forms of Contract when, as Mr. O’Brien articulates, driven by a cost-saving effort, a ‘politician’s brief’ was developed. However, Mr. O’Brien explains that what many politicians at the time did not understand was that construction contracts are all about risk allocation and that the risk ought to remain with the party who is best placed to manage it in order to achieve commercial value. Failure to allocate a risk correctly can result in huge expense. Unfortunately, this absence of understanding of the nuances of risk allocation went unchecked and the PWC was introduced for all public works projects.

Mr. O’Brien continued his explanation that the objective of the PWC was to ensure fixed lump sum contracts, which would provide cost certainty. Although the price of the tenders under this “new” form of contract were expected to be slightly higher than those tendered under the previous government contract forms, the objective of the PWC was that there would be no other costs attached to any project.

Mr. O’Brien further explained that whilst the PWC’s fixed lump sum contract prices seemed great in theory, the politicians who initiated the drafting process did not fully grasp the mechanics of the Irish construction industry and that there were some very real problems with the PWCs. The first problem, as Mr. O’Brien correctly pointed out, was that these forms of contract were untried and untested, as nowhere in the World used forms such as these. Whereas the GDLA and IEI Forms of Contract were based upon their UK counterparts, meaning that parties to projects under these Forms of Contract could see that such contract worked in the UK, the entirely new PWC had no precedent from which parties could derive any interpretive certainty and this problem remains today. I would point out that this problem has been exasperated by the fact that the PWC has been amended no less than fourteen times since its inception.

The second event that Mr. O’Brien refers to is the global financial crisis of 2008. This stunted any meaningful assessment of the PWC so it was impossible to establish whether or not it actually worked.

The third event that Mr. O’Brien refers to as part of his description of the “storm” is the effect of the introduction of the 2010 Arbitration Act, which, he says, made the situation even worse, due to the fact that the case-stated procedure in 1954 Arbitration Act that applied then was abolished and therefore no one could obtain judicial interpretation of the individual clauses in the PWC. Mr. O’Brien insinuates that this may be due to the drafters of this Act not giving full consideration to the use of the PWCs, where there was no authority to assist in the interpretation of the clauses therein. The 2010 Act effectively erased any chance that the construction industry had of creating a case precedent for the PWC.

The final point that I would like to take from Mr. O’Brien’s article is his reference to the revisions to the PWCs, of which there were many and some of which had extremely problematic effects. He gave the example of the amendment in version 1.4 on 28th July 2011. An amendment therein stipulated that each party would pay their own costs in arbitration,regardless of which party effectively “wins”. This was enabled by Section 21 of the 2010

Arbitration Act, with the removal of the prohibition on contract terms which makes parties liable for their own costs in any event. This amendment is considered to be hugely inappropriate and inequitable to be included in a form of contract drafted by the Government, particularly as it directly contrasts the Irish Superior Court rules where costs follow the event.

Getting back to the main theme of my presentation, the dispute resolution mechanism under the PWC when it was first introduced was conciliation, followed by arbitration. With the introduction of the Construction Contracts Act, 2013, which came into force in July 2016, Statutory Adjudication became another step that had to be included in the PWC. Despite there being over fourteen changes made to the PWCs, no dispute avoidance mechanism was included alongside the dispute resolution mechanism. As such, dispute avoidance, which is part of the DAB procedure, was no longer in use in Ireland since the introduction of the PWCs in 2007.

It was in 2015 that a third stage of the Luas Project, the Luas Cross City Project that was extending the Luas to the northern part of the City, commenced and had to use the PWC. The main Contractor in this stage of the Project was one of the five main Contractors in the second stage of the Luas Project and, although the Employer had changed its title, it was effectively the same Employer as in the first and second stages of the Project. Having been aware of the advantages of dispute avoidance that were implemented through the DAB procedure in both stages of this Project, they wished to have a similar procedure in their contract superimposed by the PWC. Having been the sole Standing DAB on the first and second stages of the Project, I was invited to participate in a discussion of how this might be done. This resulted in the creation of the position of the “Standing Conciliator”, and a set of rules had to be drafted for use in this position. The Project was substantially completed in November 2017 and, although it was a very complex Project with many difficulties, as it involved many civil engineering works in the middle of a busy city centre, all of the problems were resolved using the mechanism of the Standing Conciliator and without any reference to arbitration.

Due to the success of the idea of the Standing Conciliator, the drafters of PWC picked up this idea and attempted to implement the principle of the Standing Conciliator in a “Project Board”, but, unfortunately, they failed to implement the essential parts of the rules that were developed for the Standing Conciliator under the third stage of the Luas Project. The main problem was that the dispute avoidance mechanism must begin from the very start of the events that lead to a dispute.

SHOW SLIDE “MANIFESTATION OF A DISPUTE” AND EXPLAIN.

In implementing the idea of the Standing Conciliator and the Project Board, the drafters of the PWC issued Guidance Notes to accompany the PWC. The present Guidance Note 3.1.1, Dispute Resolution, which, although expressing the correct sentiments of dispute avoidance, failed to show a proper procedure for achieving successful avoidance.

SHOW GUIDANCE NOTES AND EXPLAIN WHERE THEY GO WRONG.

I would like now to go to Clause 13 of the PWC and explain the problem with respect to the manifestation of a dispute in that Clause. In Sub-Clauses 13.1.1 and 13.1.2, it is stated that the dispute management procedure for resolution of disputes could only arise from Sub-Clauses 10.5.4 and 10.5.5 of the Contract. Therefore, dispute avoidance could only be used after the Employer’s Representative had given a determination and a dispute is in the making. Dispute avoidance is therefore too late. There are many other problems with Clause 13, but, unfortunately, I do not have the time to deal with those now.

What about the future? What needs to be done now is to either properly adopt the mechanism of the Standing Conciliator; or else properly incorporate that mechanism into Contractual Adjudication. Of course, there is no problem in having Contractual Adjudication alongside Statutory Adjudication, but I will leave those ideas with Gerard Monaghan.

On a final note, I believe that, at present, a firm of consultants, Indecon, has been appointed by the Office of Government Procurement to investigate the operation of the roles of the Standing Conciliator and the Project Board, with the view to updating national policy in dispute avoidance and I wish them luck with their work.

I now hand you back over to Gerard.

The View From the Arbitrator’s Chair

John O’Brien has a fundamental belief that in life people can generally be separated into two distinct groups, those with integrity and those without. He has found that this aspect has given rise to many of the disputes his firm has been involved in over the years

JOHN’S VIEW IS that a significant number of sub-contractors — and indeed main contractors — have carried on their business for many years with an unhealthy reliance on trust rather than on contract. In times of continuity of work or in a construction industry boom, arrangements based on trust and past history have worked reasonably well where symbiotic working relationships take precedent over dispute. About us

The Irish construction industry crash and subsequent recession brought in its wake a rash of disputes where parties pulled back to the respective contractual positions they initially signed up to, or to a contractual arrangement they understood at the time of contract. While we found there were genuine disputes on entitlement, we also found that there were also many ‘fuzzy’ disputes created by parties to survive the downturn.

Artificial disputes are manufactured simply to avoid payment in an attempt to maximise profits

Says John O’Brien: “We have seen an increasing number what I call ‘artificial’ disputes, where one party simply owes money to another under contract, but has not got the requisite funds to meet the contractual obligation to pay, as that party is itself owed money or simply cannot sell the asset(s).

“If this party admits that he has not got the money to meet his liabilities, then his company may be forced into receivership or liquidation and any chance of recovery is to a great extent lost. The party who owes the money simply ‘invents’ a dispute to buy his company valuable time. He then procrastinates through the negotiation and conciliation processes in the hopes that his own financial position improves to a point where he can meet his liabilities.”

Other artificial disputes are manufactured simply to avoid payment in full, in an attempt to maximise profits.

Main contractors identify two sources of revenue on construction contracts. The first and obvious source is the employer which has contracted them, and the second source — at least where the main contractor has little regard for future relationships — is made up of contractually naive sub-contractors. Advantage is often taken.

John notes that the clue to the term “implied professional skill” lies in the title “contractor”. About us

If you are a contractor, you need to be absolutely aware of what you are contracted to do and what your duties and obligations actually are. He adds that a contractual claim is an expected process under any contract and should not automatically end in dispute.

“Many cases are doomed because parties fail to consider properly if in fact an entitlement exists under the contract,” he says. “A disgruntled party can be blinded and become entrenched in personal pride, pursuing notional ex gratia or ‘equitable’ payments to recover his losses, where these really have no merit under the contract. He simply has not done what it was he was supposed to do.”

John insists that unless entitlement is firmly established from the outset of a dispute, the claimant may be throwing good money after bad by pursuing a notional entitlement.

“If you are in fact to blame, admit it to yourself first, then admit it to others, then take your medicine, accept your losses and move on with your life. The alternative could be a very expensive waste of time.”

Once entitlement is established the client has a formidable force on their side

And if John feels a client needs to receive this kind of message, he will advise them honestly and bluntly: “What we do involves being very straightforward in our advice on this.”

John believes that the success of John Farage O’Brien lies in the company’s ability to start from a firm base, to ascertain if an entitlement exists, and to quantify the likelihood of recovery.

Once entitlement is established, however, the client has a formidable force on their side. John Farage O’Brien sets about building the case from the ground up, founded on clear facts supported by hard evidence. The company sets out to maximise the client’s chance of success in the negotiating forum, and in all cases has succeeded in this.

The company’s success record is enviable — and envied.

After 14 years as a contract claims consultant and advocate, managing construction disputes for clients amounting to a total of €2.5 billion in project value, and acting as an arbitrator and conciliator, John O’Brien reflects on the lessons learned

IT NEVER CEASES TO AMAZE ME that many of the professional people I meet have no idea that some of the biggest commercial contract disputes in this jurisdiction are fought, settled or decided behind closed doors. I recall at least one lawyer making the cringe-worthy statement that “if one fails to settle in Arbitration, one can always go to court”.

Wrong. You Can’t

This is the reality of alternative dispute resolution (ADR) — all hearings, whether conciliation, mediation, arbitration or adjudication, take place behind closed doors and in total confidence, with no public access, no reporters, and gagging clauses common. No ‘verdicts’ are published — in fact, only the parties to a dispute and their representatives are aware of the existence of the dispute.

The confidentiality of the ADR process is something that we as professional practitioners are obliged to take very seriously. But confidentiality brings both positive and negative effects, not just for parties to the process but the construction industry at large.

The positive effects are, firstly, that parties can wash their dirty linen safe in the knowledge that the public will never know the outcome of the dispute nor their private business and its commercially sensitive information.

Secondly, ADR has the benefit of having a construction industry expert sitting in the chair to assist in resolving disputes in this most complex field.

Thirdly, the final, heavy-duty tier of ADR is arbitration, and it is both final and binding. The dispute is over. No appeal, no challenges and, most important, no additional costs to the parties (the only exception being in a very limited set of circumstances of misconduct by the Arbitrator, for which there has yet to be a successful application to the High Court under the 2010 Arbitration Act). Arbitration gives closure to commercial entities in dispute, allowing them to move on with their business.

Negative Consequences

But l’ve also seen instances of negative consequences from this in camera system, and I group them under two headings:

Firstly, the ADR process loop is never closed — unlike a dispute that has been referred to court and where a judgment has been published. In such circumstances, the court’s control loop is essentially closed where published judgments permit sub-contractors, main contractors and employers to evaluate the standing of their dispute in law. This allows the aggrieved party to consider if there really is a cause of action, and if not, it can stand down its army and retreat before wasting a lot of time, effort and money. With ADR, there is no publication of either judgment or argument.

Secondly, ADR is open to abuse by respondents with deep pockets who can avoid public accountability and possible reputational damage behind the closed doors of the arbitration chamber.Such respondents may, for example, deploy strategies of frustration in order to deplete the war chests of even the strongest of claimants and try and beat them into commercial surrender — regardless of how strong their entitlement is.

[  Read more >>  ]