Will Dispute Boards replace Adjudicators in the UK?

The JCT standard forms of construction contract are the most common family of standard forms used in the UK construction industry. Since the introduction of statutory adjudication under The Housing Grants, Construction and Regeneration Act 1996 (as amended) (the “Act”), the JCT forms have provided for parties to refer disputes to adjudication, before turning to arbitration or litigation. What the JCT forms haven’t done, until now, is provide for the use of dispute boards. This changed in May this year, when JCT published its Dispute Adjudication Board Documentation 2021 (“JCT DAB”).

The JCT DAB contains a set of rules and enabling provisions for the establishment and running of a Dispute Adjudication Board (a “DAB”) under the JCT 2016 Design and Build and Major Project forms of construction contract.

Dispute boards were originally born in the USA in the 1960s. They were typically composed of experienced, independent, construction industry professionals, who would be retained by the parties to a major project, to follow the progress of it, and make swift recommendations for the resolution of any disputes which might arise, and to assist the parties to settle them quickly. (This would help avoid the heavy costs of major litigation in the USA).

Since those early days, dispute boards have traditionally become more popular on international projects. By way of example, the FIDIC forms of contract, a commonly used standard form for international projects, provided for DABs in its 1999 suite. The DAB is a decision-making body, which can have one or three members. The limited use of DAB as a decision-making body (rather than a body which simply makes recommendations) in the UK is in part due to the success of UK statutory adjudication, which allows parties to a construction contract to refer a dispute to adjudication at any time for a swift decision. It is seen as a quicker and cheaper alternative to arbitration or litigation; an alternative that does not always exist in other jurisdictions. Dispute boards thus fill that gap on international projects and provide a means for parties to work with an independent panel (or occasionally a sole member) to try and resolve disputes before becoming embroiled in formal proceedings.

The 2017 suite of the FIDIC forms developed DABs into “Dispute Avoidance and Adjudication Boards” or “DAABs”. It did so by emphasising the powers which the members of the dispute boards should have, to encourage the parties to resolve their disputes rapidly, cost-effectively and amicably.

With the publication of the JCT DAB, JCT has recognised the increasing role of disputes boards and the benefits of taking a proactive and conciliatory approach to brewing disputes between parties on ongoing projects. The JCT DAB rules are heavily based on the 2014 CIArb dispute board rules but have been amended to be Act compliant. The rules focus on dispute avoidance but also allow the DAB to run an Act compliant adjudication, if necessary. We discuss some of the potential advantages and disadvantages of the JCT DAB below.

Advantages:

• The parties know who will be dealing with any issues on the project. This gives a level of certainty that isn’t always there with adjudication, as often an adjudicator is appointed by a nominating body named in the contract. The JCT DAB rules provide for each party to nominate a DAB member, and the two nominees then select the third member who acts as chairperson. Each party therefore has an opportunity to nominate someone they think will have the requisite skills (or, from a more cynical view, who may be more sympathetic with a particular party’s role on a project).
• The DAB will (or ought to) know the ins and outs of the project. The JCT DAB rules require the DAB to attend site or hold meetings regularly, with a visit or meeting every two months being the default frequency if not agreed between the parties. JCT consider this will encourage parties to “moderate their behaviour”, as parties will know they may ultimately have to answer to the DAB.
• Parties will have the benefit of three minds rather than one, which could be particularly helpful on complex technical or legal issues that arise. Similarly, a DAB can bring a blend of skills to a project that the parties can use as a useful resource. (Although there is the option of a sole person DAB under the JCT DAB, which is also the default number if the parties don’t agree to three members).
• As referred to above, dispute boards are intended to be proactive rather than reactive, with the emphasis on avoiding disputes. Under the JCT DAB, parties can refer a matter or Dispute to the DAB at any time for a non-binding “informal advisory opinion” – this can be by way of written note or even an informal discussion that seeks to resolve any disagreements. Parties can also request a non-binding “Recommendation”. The idea is that the Recommendation is a useful tool for parties looking to test the merits of their case, without committing to a full-blown adjudication (and the resulting binding decision).
• The JCT DAB is not intended to interfere with parties’ statutory rights to adjudicate and to obtain a binding decision. The parties are still free to adjudicate at any time, albeit the dispute must be referred to the DAB pursuant to the JCT DAB rules.
• The JCT DAB rules are supported by the CIArb, and it is the CIArb that parties are directed to turn to if they fail to establish a DAB or replace a DAB member.

Disadvantages:

• The JCT DAB is intended to work alongside the Design and Build and Major Project forms of construction contract. Such forms are often used for larger and more complex UK-based projects, where the costs of maintaining a DAB for the duration of a project may be proportionate and justifiable. As a result, the JCT DAB in its current form may not be suitable for smaller projects, which is arguably where cost savings from avoiding adjudications would be even more welcome.
• It may be hard to enlist DAB members who are able to commit for the duration of a longer, more complex project. The JCT DAB rules require the parties to name the DAB in the Contract or by a date agreed in the Contract or, if no date is stated, within 28 days of the Contract being entered into. A lot can change between the date of the Contract and practical completion (and beyond), particularly on the more complex projects the JCT DAB is designed for use on; securing a consistent DAB on a project that rolls on for some years can be challenging.
• The DAB is likely to have seen the “unpolished” exchanges between the parties before any formal submissions are made as part of an adjudication or via the Recommendation process. Whilst the JCT DAB rules require the DAB to only deal with what is in front of them when forming its Decision or Recommendation, in practice the DAB will have detailed project knowledge and it may be hard for them to abandon that.
• We’ve lauded the benefit of three minds versus one above, and the blend of experience and skills that that brings, but it might not always be a case of more the merrier. Having three people dealing with any one issue may give rise to internal conflicts or inefficiencies.
• The Act envisages one adjudicator, rather than three, and the validity of a Decision made by a DAB has not yet been tested, which could tempt a disgruntled party looking to challenge an unfavourable Decision.

Notwithstanding the potential pitfalls discussed above, a move towards a more collaborative dispute avoidance approach should be welcomed and the JCT DAB offers this opportunity where other standard forms used in the UK don’t. As noted above, the CIArb rules are not Act compliant. The NEC form is often used for large-scale infrastructure or engineering projects and NEC4 introduced a Dispute Avoidance Board option (Option W3), but it is not suitable for use in the UK if the contract in question is subject to the Act. Following user feedback, NEC issued NEC Practice Note 5 in 2019 which provided a Z clause for the use of the Dispute Avoidance Board in contracts subject to the Act. However, the Dispute Avoidance Board can only provide recommendations and adjudications are dealt with separately under Option W2. In its 2017 suite, FIDIC introduced the DAAB. In a similar manner to the JCT DAB, the DAAB can issue informal advisory opinions and recommendations, as well as formal binding decisions. Contrast this with the ICC, whose rules provide for different types of board: a Dispute Review Board, which is tasked with producing non-binding deliverables, in the form of informal advice and recommendations, a Dispute Adjudication Board, which is permitted to issue binding decisions, or a combination of the two. This affords parties with lots of flexibility but the ICC rules, like the others, are not Act compliant.

Uptake of the JCT DAB remains to be seen, and the relative benefits to each project of establishing (and funding) a DAB will vary with their complexity and scale, but at least parties involved with UK-based projects now have a workable alternative to statutory adjudication, with a form of contract that many will be familiar with.