Recently, I participated in a roundtable hosted by JAMS with experienced South Florida construction lawyers and retired circuit court judges to discuss the pros and cons of utilizing an initial decision maker (“IDM” and also referred to as a project neutral) or a dispute resolution board (“DRB”) to resolve disputes on construction projects. The IDM and DRB are designed to resolve disputes, specifically claims (whether for time, money, or both), during construction to keep the project progressing forward without being bogged down by the inevitable claim. There are numerous avenues to resolve disputes without resorting to filing a lawsuit or a demand for arbitration. The thought is that dispute resolution will be facilitated by techniques designed to assist the parties with the resolution of claims during construction. While direct discussions between the parties, meetings with the executives for business decision purposes, mediations, etc., are certainly helpful, sometimes these avenues are simply not enough to truly resolve a complex claim on a construction project that occurs during construction.
This is where the IDM and DRB come into play. Perspectives on the value of having an IDM or DRB and their defined roles are based on experiences. But, what is important is that these experiences can help you determine whether an IDM or DRB is right for your project to resolve claims during construction and, if so, how you want to contractually frame the role of the IDM nor DRB. As you know, the larger and more complex the project the greater likelihood that there will be disputes that occur during the course of construction. Knowing this, how do you want these disputes to be resolved during construction, and who do you want to resolve these disputes, so that (a) the project continues to move forward notwithstanding such dispute, (b) the parties believe the agreed-upon resolution technique will truly assist them to resolve the inevitable claim without having to file a lawsuit or demand for arbitration down the road, and (c) the person (or persons) resolving the dispute is deemed as credible and objective.
For example, the American Institute of Architects (AIA) incorporates the concept of an IDM to its General Conditions (see A201-2007) as the person that renders initial decisions on claims. If no person is selected as the IDM, the fallback is to have the architect serve in this role. The IDM is tasked with reviewing the claim and can approve the claim, reject the claim, request additional data, request a response to the claim, suggest a compromise, or advise the parties he/she is unable to render a decision on the claim. The General Conditions further provides:
15.2.6.1 Either party may, within 30 days from the date of an initial decision, demand in writing that the other party file for mediation within 60 days of the initial decision. If such a demand is made and the party receiving the demand fails to file for mediation within the time required, then both parties waive their rights to mediate or pursue binding dispute resolution proceedings with respect to the initial decision.
See AIA-A201, s. 15.2.6.1.
The Consensus Documents (ConsensusDocs) incorporates the concept of a project neutral (similar to IDM) or DRB in its General Conditions if direct discussions between the parties reach an impasse. The General Conditions provide:
12.3.1 The Project Neutral/Dispute Review Board shall be mutually selected and appointed by the Parties and shall execute a retainer agreement with the Parties establishing the scope of the Project Neutral/Dispute Review Board’s responsibilities. The costs and expenses of the Project Neutral/Dispute Review Board shall be shared equally by the Parties. The Project Neutral/Dispute Review Board shall be available to either Party, upon request, throughout the course of the Project, and shall make regular visits to the Project so as to maintain an up-to-date understanding of the Project progress and issues and to enable the Project Neutral/Dispute Review Board to address matters in dispute between the Parties promptly and knowledgeably. The Project Neutral/Dispute Review Board shall issue nonbinding findings within five (5) business Days of referral of the matter to the Project Neutral, unless good cause is shown.
12.3.2 If the matter remains unresolved following the issuance of the nonbinding finding by the mitigation procedure or if the Project Neutral/Dispute Review Board fails to issue nonbinding findings within five (5) business Days of the referral, the Parties shall submit the matter to the binding dispute resolution procedure designated in Paragraph 12.5.
See ConsensusDocs 200-2007, s. 12.3.1, 12.3.2.
If you like the concept of the IDM (project neutral) or DRB, then you need to consider whether you really want the architect or engineer of record to serve in any role, especially if you are the contractor. As the contractor, your claims may derive from the contract documents and you probably want a more objective party to resolve such claims. So the question becomes who do you trust to serve in this role? A practicing construction attorney? A mediator or arbitrator from a company like JAMS or the American Arbitration Association that has experience with alternate dispute resolution? An industry expert or experts that have no vested interest in the project other than to render initial decisions on claims? Do you want a combination of all to serve on a DRB? Does this person(s) participate in project meetings? This is an important consideration.
Next, what is the process you want the IDM or DRB to undertake to resolve claims? This process is important from a timing standpoint and proof standpoint. Do you want the IDM or DRB to simply resolve claims on paper; in other words, render a decision by virtue of the claim submitted and any response provided? Do you want the IDM or DRB to hear testimony from fact witnesses and, perhaps, experts? Do you want the IDM or DRB to hear legal argument from counsel? Do you want the IDM or DRB to have the authority to simultaneously examine experts to get at the heart of the truly disputed technical issues? And, when do you want the IDM or DRB to step in and render an initial decision? In other words, do you want direct discussions between the parties, mediation, a meeting with project folks, or a meeting with the business executives to take place first? After the initial decision? Or never?
Then, what is the avenue you want to undertake if you want to contest (or appeal for lack of a better term) the IDM or DRB’s initial decision as to a claim occurring during construction? This is very important because let’s assume a party does not like the initial decision. You want a mechanism to continue to discuss the claim and, perhaps, appeal the claim if discussions reach an impasse without that initial claim becoming binding. The next step would naturally be binding dispute resolution, whether arbitration or litigation, to finally resolve the merits of the claim. With this eventuality in mind, do you want the trier of fact (arbitrator, judge, or judge) to know that an IDM or DRB rendered an initial decision on this very issue and that decision was “x”? This is an important consideration because human nature suggests that if the IDM or DRB is an objective party(ies) / industry professional(s), the fact that they rendered the initial decision of “x” will probably carry credibility with the trier of fact. And, that credibility may be greater based on how the IDM or DRB rendered the decision. Think about it. If the decision was based on evidence or the consideration of testimony and experts, which may be analogous to the evidence and expert opinions presented at trial or arbitration, then it makes sense that the trier of fact is going to defer (perhaps unknowingly) to what the objective party / industry professional(s) decided regarding the claim. Conversely, if the evidence and expert opinions are different than those presented to the IDM or DRB, does this alteration impact the credibility of the witnesses or the claim? Although, knowing this may make it less likely to actually pursue binding arbitration or litigation as to the claim considering the merits of the dispute had been decided by a knowledgeable / objective party(ies).
Finally, how is the IDM or DRB going to be funded – how are the costs of the IDM or DRB going to be budgeted and allocated? This is another important consideration because this could be a costly endeavor. But, the costs may be worth it if the IDM or DRB is considered objective by the parties and the parties are truly engaged in the during construction dispute resolution techniques designed to avoid litigation or arbitration which could become more costly. Also, the costs may certainly be worth it–the larger or more complex the project–when you know going into it that there will be claims and it is in the project’s best interest to promptly resolve the claims.
Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.