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.