With the movement to very large infrastructure projects, especially public-private partnerships (P3s), a construction dispute resolution mechanism more commonly utilized in the United States and other nations is increasingly being used in Canada, says a leading Toronto construction lawyer.
Although not perfect and not suitable for every project, especially smaller ones because of the costs involved, dispute resolution boards are nevertheless less expensive and time-consuming than opting for arbitration or litigation, says Harvey Kirsh, who practices as an arbitrator, mediator, adjudicator, and referee with Kirsh Construction ADR Services Ltd.
Comprised of three “independent and impartial experts” — primarily engineers, the boards will investigate a dispute and then render a non-binding opinion.
The use of such boards is a condition which both parties have to agree to in the contract.
Similarly, they have to reach a consensus on the selection of all three members “who have an obligation to act impartially, without bias, and not have any conflict of interests.
“If they have had business dealings with the parties, they must make disclosure at the outset, and it is up to the party to waive that actual or potential conflict.”
Usually each party selects one DRB panelist, and then the two panelists select the Chair. As the disputes are often of a more technical nature, lawyers have traditionally not sat on boards.
However, that is changing and gradually lawyers are being asked to serve as chairs because of their knowledge and familiarity with legal and process issues. The board members’ fees are shared on equal 50/50 basis by both sides, he says.
Unlike more formal litigation or arbitration proceedings conducted off site, the hearings are usually held in the project site offices and it has been Kirsh’s experience that the parties appear without the benefit of legal counsel and that presentations are made by be one representative of each side, without any witnesses.
“There are no rules of evidence, no examinations or cross-examinations, no wide-ranging production of documents, and certainly virtually no legal process. And no precedent is set.”
The boards have considerable discretion on how they receive evidence, although how the hearing will be conducted is determined by the contract. It may or may adhere to the guidelines laid out in a Practices and Procedures manual written by the Dispute Resolution Board Foundation, says Kirsh.
An updated 2019 version of the manual is scheduled for release this November, says foundation executive director Ann Russo, pointing that an electronic version can be accessed without charge, while hard print copies are available for a nominal fee.
Headquartered in Charlotte North Carolina, the foundation is a non-profit international organization funded by membership, training, and conference fees which is dedicated to construction dispute avoidance. Its internal structure is divided into three different zones with separate boards of directors: Region One — the United States and Canada; Region Two — Europe, Asia, Africa, and Latin America; and Region Three which consists of Australia and New Zealand.
Founded in 1996, it has now 10,000 members in 70 countries that come from every construction-related sector whether it be contractors, architects, financial institutions, or government agencies, she says.
A major ‘accelerator’ in its growth was a decision by the World Bank that a dispute resolution system be used on projects over a certain size which it finances. In the United States the Florida Department of Transportation requires a dispute resolution system on all its projects, she says.
Dispute resolution boards have been employed on over 2,700 projects according to foundation’s records and that information is compiled through a variety of methods. Although DRB proceedings in private sector disputes are usually confidential, agencies such as the Florida DOT “do share their statistics.”
They are especially critical on tunnel projects “where changed conditions can lead to significant delays and additional costs,” says Gerald McEniry, senior consultant with the Montreal office of Revay and Associates Limited and the Canadian representative on the foundation’s Zone One board of directors.
McEniry learned about the advantages of dispute resolution boards on Ontario Power Generation’s Niagara Tunnel project where Revay acted as the consultant for the contractor. That ultimately led him to take the foundation’s training and subsequently serve on a number of boards.
Commenting on the composition of the boards, McEniry says it’s important to have the neutral perspective of “three wise men or three wise women.”
That is a viewpoint emphasized by Kirsh Construction ADR Services Ltd.’s Harvey Kirsh.
Asked by why the parties in a construction project agree to the establishment of Dispute Resolution Board which renders a non-binding opinion, Kirsh explains the use a credible and knowledgeable board can discourage them taking the more expensive and time-consuming route of arbitration or litigation at the end of the project.
“And waiting to the end of the project can present a real cash-flow problem, especially for the contractor.”
If, however, they are still not satisfied they are usually entitled to take the dispute to court or arbitration. The contract will dictate whether the board’s decision is admissible in the subsequent court or arbitration hearing, says Kirsh.