ADR options on construction contracts
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ADR options and procedures under the Australia Standard forms of contract, the pros and cons of each, and the framework provided for ADR in standard Australian construction contracts
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ADR options on construction contracts
- 1. ADR OPTIONS ON AUSTRALIAN CONSTRUCTION CONTRACTS The Case for Single Person Dispute Boards with Peer Dalland LEADR&IAMA Forum Wednesday 19th August 2015 Sydney LEADR&IAMA Forum 19 AUGUST 2015 1 Peer Dalland Dalland Associates Pty Ltd
- 2. General Conditions of Contract • The building and construction industry in Australia use a large number of different standard forms of contract. • These standard forms are often modified extensively, resulting in the interpretation of standard terms and phrases becoming uncertain. • Bespoke General Conditions of Contract used in many industries and by some Principals generally transfer all or most risks to the Contractor. LEADR&IAMA Forum 19 AUGUST 2015 Peer Dalland Dalland Associates Pty Ltd 2
- 3. “standard forms of contract” • How standard forms of contract are used and on what type of project, has been the subject of several studies and reports over recent years. • Some of the more recent reports provide enlightened reading for anybody involved in the drafting and administration of construction contracts in Australia: LEADR&IAMA Forum 19 AUGUST 2015 Peer Dalland Dalland Associates Pty Ltd 3
- 4. Reports on Construction Contracts in Australia 1. Standard Forms of Contract in the Australian Construction Industry Research Report by Melbourne Law School, chaired by Professor John Starkey. June 2014 2. Scope for Improvements 2014 by Ashurst Australia, Australia Constructors Association and Infrastructure Partnerships Australia 3. Standard Form of Contracting; the Role for FIDIC Contracts Domestically and Internationally by Toby Shnookal and Dr. Donald Charrett – 2010 4. Guide to Global Construction Dispute Resolution published by Clyde & Co 2015 LEADR&IAMA Forum 19 AUGUST 2015 Peer Dalland Dalland Associates Pty Ltd 4
- 5. FINDINGS LEADR&IAMA Forum 19 AUGUST 2015 Peer Dalland Dalland Associates Pty Ltd 5 • The consensus from all the reports indicates that over 60% of projects use standard forms • 60-80% of these are amended • Amendments mostly involved changes to the risk allocation, • which in turn is believed to lead to increased cost and more claims (1).
- 6. Scope for Improvement • The Ashurst/ACA report observes that: • “The trouble with many of the standard forms of contracts are that they are quite old now and so heavily amended in most projects that they are not serving the purpose they were originally intended for. They do not allow contractors to quickly and efficiently appreciate the risk profile for any specific project.” (2) LEADR&IAMA Forum 19 AUGUST 2015 Peer Dalland Dalland Associates Pty Ltd 6
- 7. History of Australian standard General Conditions of Contract • The first standard general conditions of contract in Australia was the CA24 published by the Institution of Engineers in 1952. • Was published as AS 2124 in 1978 and in 1992 took JWP publication NO DISPUTE into account • AS 4000 published in 1997 was intended to replace AS 2124 • AS 11000 draft 2015 (revision of AS 2124 – 1992 and AS 4000 – 1997) LEADR&IAMA Forum 19 AUGUST 2015 Peer Dalland Dalland Associates Pty Ltd 7
- 8. Objectives of Australian General Conditions of Contract • Defines the responsibilities and obligations of the Parties to the Contract. • Provide rules and guidelines for the administration and execution of the works under the contract. • Defines risk allocation, insurance provisions, payment regimes etc. • Facilitates day to day administration and execution. • Provides rules and procedures for disputes resolution. LEADR&IAMA Forum 19 AUGUST 2015 Peer Dalland Dalland Associates Pty Ltd 8
- 9. PHILOSOPHY • The Australian General Conditions of Contract mostly reflect a different, more old fashioned philosophy, than do the General Conditions of Contract used internationally such as the FIDIC General Conditions of Contract and the Engineering and Construction Contracts published by the Institution of Civil Engineers ICE) in the UK. LEADR&IAMA Forum 19 AUGUST 2015 Peer Dalland Dalland Associates Pty Ltd 9
- 10. Engineering and Construction Contract (ECC) • In their introduction to ECC contracts, the ICE states that • “The ECC is the first of what could be termed a ‘modern contract’ in that it seeks to holistically align the setting up of a contract to match business needs as opposed to writing a contract that merely administers construction events.” LEADR&IAMA Forum 19 AUGUST 2015 Peer Dalland Dalland Associates Pty Ltd 10
- 11. Ethos of ECC • “The whole ethos of the ECC, or indeed the NEC suite generally is one of simplicity of language and clarity of requirement. It is important that roles and responsibilities are equally clear in definition and ownership” LEADR&IAMA Forum 19 AUGUST 2015 Peer Dalland Dalland Associates Pty Ltd 11
- 12. Philosophy of AS 11000 • The draft AS 11000 attempts to bridge the gap and provides inter alia that the “Overriding obligations” of the Contract is one of “Good faith” LEADR&IAMA Forum 19 AUGUST 2015 Peer Dalland Dalland Associates Pty Ltd 12
- 13. Mutual trust, cooperation and good faith • “The Principal and Contractor each agree: (a) to act reasonably in a spirit of mutual trust and cooperation, and generally in good faith towards each other; and (b) that such action shall not derogate from their obligations to comply with the Contract.” LEADR&IAMA Forum 19 AUGUST 2015 Peer Dalland Dalland Associates Pty Ltd 13
- 14. Contra proferentum • It will be interesting to see how the obligations in AS 11000 will sit with the recent trend in some Common Law jurisdictions to amend Contracts to exclude the doctrine of “contra proferentum”. • The risks will then become unidentifiable and very difficult to price on any project, with the intention clearly to give the Principal an “unfair” advantage. • This doctrine is embedded in Civil Codes around the world, were a contractual clause to exclude it from a Contract would be void. LEADR&IAMA Forum 19 AUGUST 2015 Peer Dalland Dalland Associates Pty Ltd 14
- 15. What happened to “No Dispute” • Where are we heading in Australia with these trends. • The JWP “No Dispute” published in May 1990 by the NPWC (National Public Works Conference) and NBCC (National Building and Construction Council) was for a while the new bible for construction contracts. • It also advocated mutual understanding and trust between the parties as an objective in the dispute resolution process. LEADR&IAMA Forum 19 AUGUST 2015 Peer Dalland Dalland Associates Pty Ltd 15
- 16. “NO DISPUTE” Summary of guidelines for Dispute Resolution (1990) • Encourage, facilitate and expedite genuine negotiation • Avoid legal representation • Avoid arbitration and litigation processes • Specify compulsory conferences of senior management of both parties before embarking on formal third party processes • Concentration on cost mitigation of the problem area, rather than procrastination about negotiating and resolving the dispute. • Be cost-conscious, contemplating end financial implications of resolution processes once genuine negotiation have failed • Encourage use of alternative dispute resolution processes LEADR&IAMA Forum 19 AUGUST 2015 Peer Dalland Dalland Associates Pty Ltd 16
- 17. 25 years later • Do we use these guidelines today? • We still have excessive legal representation • Do government bodies adhere to the guidelines and principles of “No Dispute” – no reference in GC21, although conferences of senior management has been retained • Non-government contracts seem to be heading back to the pre-”No Dispute” regimes, by amending the standard forms of contract. LEADR&IAMA Forum 19 AUGUST 2015 Peer Dalland Dalland Associates Pty Ltd 17
- 18. EXISTING FORMS • At this point in time we seem to be stuck with the old favorites; • AS 2124 • As 4000 • GC21 Edition 2 LEADR&IAMA Forum 19 AUGUST 2015 Peer Dalland Dalland Associates Pty Ltd 18
- 19. DISPUTE RESOLUTION PROCESSES COMMONLY USED IN AUSTRALIAN CONSTRUCTION CONTRACTS • Arbitration • Expert Determination • Dispute Boards – 3 member boards • Litigation LEADR&IAMA Forum 19 AUGUST 2015 Peer Dalland Dalland Associates Pty Ltd 19
- 20. LESS USED OPTIONS • Single Person Dispute Board (SDBM) • Dispute Advisory Services (Hong Kong model) • Facilitation – similar to above, but can be structured to suit a particular project. • In addition there is also SOP adjudication under various state legislations. LEADR&IAMA Forum 19 AUGUST 2015 Peer Dalland Dalland Associates Pty Ltd 20
- 21. MEDIATION • This is often included as the first step in a tiered approach to dispute resolution on some contracts LEADR&IAMA Forum 19 AUGUST 2015 Peer Dalland Dalland Associates Pty Ltd 21
- 22. ARBITRATION • Under current procedures this can be long- winded and costly, but it will eventually deliver a fair and robust decision in most construction disputes. • IAMA developed procedures for a fast track arbitration process LEADR&IAMA Forum 19 AUGUST 2015 Peer Dalland Dalland Associates Pty Ltd 22
- 23. EXPERT DETERMINATION • A well-known ADR process in Australia - entrenched in some government forms of contract, such as the GC21 used in NSW, for disputes up to a value of $ 500,000 • Depending on the Rules, it can be a relatively quick process and the outcome will generally be determined on written submissions only. • The Expert Determination will normally give reasons and will be contractually “Final and Binding” with no recourse to litigation or arbitration. LEADR&IAMA Forum 19 AUGUST 2015 Peer Dalland Dalland Associates Pty Ltd 23
- 24. DISPUTE BOARDS • THE AUSTRALIAN MODEL • Normally 3 person Dispute Board based on DRBF procedures • Delivers non binding recommendations LEADR&IAMA Forum 19 AUGUST 2015 Peer Dalland Dalland Associates Pty Ltd 24
- 25. SINGLE PERSON DISPUTE BOARD (SDBM) • FIDIC Single Dispute Board Member provisions apply to projects of all sizes • I introduced SDBM provisions on an AS 4000 contract in NSW in 2003 with an initial value of 10mill. • I also successfully argued for the establishment of a SDBM on a major road project in Afghanistan with a Bid value of around USD 450mill and several hundred km in length. LEADR&IAMA Forum 19 AUGUST 2015 Peer Dalland Dalland Associates Pty Ltd 25
- 26. DISPUTE ADVISOR/FACILITATOR • Similar to a Single Person Dispute Board, but is not determinative. The DRA is a one-person standing board set up in the conventional manner at the commencement of a construction project. • In all cases, the DRA is appointed by agreement between the owner and the contractor immediately after the construction contract is signed. The DRA fees are paid equally by the parties. LEADR&IAMA Forum 19 AUGUST 2015 Peer Dalland Dalland Associates Pty Ltd 26
- 27. STATUTORY ADJUDICATION PROCESSES • Very time efficient, but can deliver “rough justice” • SOP adjudications are only intended to be binding in the interim LEADR&IAMA Forum 19 AUGUST 2015 Peer Dalland Dalland Associates Pty Ltd 27
- 28. AS 4000 dispute resolution provisions Standard form of contract: Conference and Arbitration LEADR&IAMA Forum 19 AUGUST 2015 Peer Dalland Dalland Associates Pty Ltd 28
- 29. GC21 EDITION 2 • Issue Resolution by Senior Executives • Referral to Expert Determination; <$500,000 • Litigation LEADR&IAMA Forum 19 AUGUST 2015 Peer Dalland Dalland Associates Pty Ltd 29
- 30. AS 11000 (draft) dispute resolution provisions Various options are listed to be selected by the user, normally the Principal prior to calling tenders Conference and Arbitration Conference Expert Determination Litigation Contract Facilitation Dispute Resolution Board LEADR&IAMA Forum 19 AUGUST 2015 Peer Dalland Dalland Associates Pty Ltd 30
- 31. FIDIC • Claims procedures • Engineer’s determination • Referral of dispute to DAB • Dispute Adjudication Board (mandatory) LEADR&IAMA Forum 19 AUGUST 2015 Peer Dalland Dalland Associates Pty Ltd 31
- 32. TIME COMPARISON CLAIM ASSESSMENT • AS 11000 – • Superintendent’s decision – 90 days • AS 4000 • Superintendent’s decision – 56 days • GC21 EDITION 2 • Principal’s decision - 56 days • FIDIC • Engineer’s sc.3.5 determination – 84 days LEADR&IAMA Forum 19 AUGUST 2015 Peer Dalland Dalland Associates Pty Ltd 32
- 33. TIME COMPARISON REFERRAL/OBTAIN ADR DECISION • AS 11000 – • ADR referral only - 110 days Decision/award plus plus • AS 4000 • Referral only to Arbitration - 126 days Award; anybody’s guess • GC21 EDITION 2 • Expert Determination - 215 days • FIDIC • Dispute Board Decision - 140 - 168 days LEADR&IAMA Forum 19 AUGUST 2015 Peer Dalland Dalland Associates Pty Ltd 33
- 34. SUMMARY • The claims procedures under standard forms of contract take too long • The dispute referrals take too long • Determination of disputes take too long • Current processes do not work easily with SOP LEADR&IAMA Forum 19 AUGUST 2015 Peer Dalland Dalland Associates Pty Ltd 34
- 35. Suggested improvements • Determinative Dispute Resolution by Single Person DB; 3 person DB on larger more complex projects appointed at the start of the project • Shorten claims procedures – GC21 and FIDIC both identify an issue or dispute within 84 days. AS 11000 takes 110 days – needs to be shorter LEADR&IAMA Forum 19 AUGUST 2015 Peer Dalland Dalland Associates Pty Ltd 35
- 36. AS 4000 • AS 4000 can easily be amended to provide for Single Person Dispute Boards • Contain provisions which are familiar to most Principals, Contractors and Supervision Engineers in Australia. • FIDIC provides alternative well established standard forms of contract (refer 3) LEADR&IAMA Forum 19 AUGUST 2015 Peer Dalland Dalland Associates Pty Ltd 36
- 37. Fast dispute resolution processes • Determinations within 56 – 84 days must be binding and “final and binding” if Notice of Dissatisfaction has not been issued within a certain time (28 days is popular) • Total time therefore between 140 days and 168 days (calendar days) • Remedy must be arbitration, which should be referred within a minimum and maximum time period. LEADR&IAMA Forum 19 AUGUST 2015 Peer Dalland Dalland Associates Pty Ltd 37
- 38. CONTRACTUAL ADJUDICATION • Contractual Adjudication is likely to avoid SOP Adjudication Applications, as its decisions can review and override the SOP Determinations • DB Tripartite Agreements provided for in the Contract, will stand outside the Contract if the Contract is terminated and should be able to determine issues arising from termination. LEADR&IAMA Forum 19 AUGUST 2015 Peer Dalland Dalland Associates Pty Ltd 38
- 39. THANK YOU LEADR&IAMA Forum 19 AUGUST 2015 Peer Dalland Dalland Associates Pty Ltd 39
Editor's Notes
- The building and construction industry in Australia use a large number of different standard forms of contract. These standard forms are often modified extensively, resulting in the interpretation of standard terms and phrases becoming uncertain. Bespoke General Conditions of Contract used in many industries and by some Principals generally transfer all or most risks to the Contractor.
- The building and construction industry in Australia use a large number of different standard forms of contract. These standard forms are often modified extensively, resulting in the interpretation of standard terms and phrases becoming uncertain. Bespoke General Conditions of Contract used in many industries and by some Principals generally transfer all or most risks to the Contractor.
- Some of the more recent reports provide enlightened reading for anybody involved in the drafting and administration of construction contracts in Australia:
- The “Sharkey Report” provides for some interesting observations, although the total survey responses are less than 300.
- The first standard general conditions of contract in Australia was the CA24 published by the Institution of Engineers in 1952. This was amended over the years and eventually became AS2124 in 1978 when it was published by Standards Australia. AS 2124 in 1992 took JWP publication NO DISPUTE into account Became AS 4000 in 1997 intended to replace AS 2124 AS 11000 draft 2015 (noted as revision of AS 2124 – 1992 and AS 4000 – 1997)
- To provide rules and guidelines for the day to day administration and execution of the works under the contract. The administration of the Contract on behalf of the Principal is carried out by a designated Superintendent or Project Manager depending on the form of contract and method of delivery. The Superintendent or its representative, issues daily directions to the Contractor and makes daily decisions on a variety of issues which routinely emerge on any construction contract. The GC of C will also define the laws and statutes which governs the Contract, risk allocation, securities for performance, insurance provisions, payment regimes etc. To provide rules and procedures for the speedy resolution of disagreements and disputes. There are few, if any contracts, which anticipate the daily involvement of construction lawyers to resolve disagreements and disputes as they arise, sometimes on a daily basis on large projects, and the Contract will invariably provide for a process for speedy resolution of such differences. Initially the Superintendent is tasked with resolving any issue arising, and if required, to issue a decision on the issue within specified time limits, which may vary depending on the issue to be determined. This process is described in the GC of C and are designed to keep the works progressing without undue delays.
- In Australia, the General Conditions of Contracts and often numerous Special Conditions of Contract are frequently prepared by lawyers with very little input from the Engineering and Building fraternity who will be responsible for the day to day implementation and interpretation of the contract conditions. The AS General Conditions of Contract reflect a different philosophy to the General Conditions of Contract used internationally such as the various FIDIC General Conditions of Contract and the New Engineering Contracts (NEC) published by the Institution of Civil Engineers in the UK.
- The draft AS 11000 attempts to bridge the gap between and provides inter alia that the “Overriding obligations” of the Contract is one of “Good faith” Mutual trust, cooperation and good faith “The Principal and Contractor each agree: (a) to act reasonably in a spirit of mutual trust and cooperation, and generally in good faith towards each other; and (b) that such action shall not derogate from their obligations to comply with the Contract.”
- Anyway; back to ADR.
- The reports previously referred to would indicate that this is the case. Standard Forms of Contract in the Australian Construction Industry Research Report by Melbourne Law School, chaired by Professor John Starkey. June 2014 Scope for Improvements 2014 by Ashurst Australia, Australia Constructors Association and Infrastructure Partnerships Australia Standard Form of Contracting; the Role for FIDIC Contracts Domestically and Internationally by Toby Shnookal and Dr. Donald Charrett – 2010 Guide to Global Construction Dispute Resolution published by Clyde & Co 2015
- MEDIATION This is often included as the first step in a tiered approach to dispute resolution on some contracts and the courts may also require the parties to have attempted mediation before the courts will hear a matter. In my experience mediation is rarely successful in construction disputes and the parties will already have spent a lot of time in face-to-face meetings and conferences before a dispute is elevated to a more formal level. A proactive mediation procedure, which then becomes a conciliation/facilitation process, has been used with some success in Hong Kong and also in some ICC procedures.
- ARBITRATION Most of us are familiar with this process, but what are the pros and cons. Under current procedures this can be long-winded and costly, but it will eventually deliver a fair and robust decision in most construction disputes. IAMA developed procedures for a fast track arbitration process some years ago, but the concept has not, to my knowledge, been widely used.
- EXPERT DETERMINATION This is a well-known ADR process in Australia and it is entrenched in some government forms of contract, such as the GC21 used in NSW, for disputes up to a value of $ 500,000. Depending on the Rules, it can be a relatively quick process and the outcome will generally be determined on written submissions only. The Expert Determination will normally give reasons and will be contractually “Final and Binding” with no recourse to litigation or arbitration. IAMA have produced standard Rules and Procedures for Expert Determination, but some contracts provide variations to these.
- DISPUTE BOARDS When discussing Dispute Boards, I have used the term Dispute Boards to include all types of Dispute Boards such as Dispute Adjudication Boards and Dispute Avoidance Boards (DAB), Dispute Review Boards (DRB), Dispute Resolution Board (DRB), Conciliation Boards, Mediation DRBs and Single Member Dispute Boards (SMDB). These are all variations of the Dispute Board concept and have similar rules and procedures. On a Construction Project the Dispute Board is established by special provisions in the main Contract
- SINGLE DISPUTE BOARD MEMBER (SDBM) FIDIC Single Dispute Board Member provisions apply to projects of any size. Dispute Boards have been successful and viable on project with values of around $1mill, and below. I have also served as SDBM on road projects involving construction of nearly 100km of road upgrading and employing over 2000 people. Many projects are suitable for Single Person Dispute Boards even if the value runs into hundreds of millions of dollars. It should also be noted that Dispute Boards should not be tied the dollar value of a project. A USD100 million project in a developing country may involve the construction of 100km of two lane highways or 60km – 80km of 4 lane motorways employing upwards of 2000 people and hundreds of major items of plant and machinery. Road projects are generally technically simple and straightforward and do not generally in my opinion, require a 3 person Dispute Board. I was part of a negotiating team a few years ago, which successfully argued for the establishment of a SDBM on a major road project in Afghanistan with a Bid value of around USD 450mill. It is of course imperative that the SDBM be suitably qualified, in this case an experienced Civil Engineer who was also listed on the FIDIC President’s List of Approved Adjudicators was appointed at the start of the Contract. This was, to my knowledge the first Single Person Dispute Board approved on an ADB funded project. The use of SDBM is gaining in use around the world, initially instigated by the WB some 8-10 years ago to operate in developing countries such as Ethiopia and Vietnam, mainly to reduce costs. The ERA has had over 100 road contracts using SDBMs or DREs as they were called under earlier 1987 FIDIC Red Book provisions.. These projects are partly funded by MDBs and the SDBMs are generally recruited from the FIDIC or Institution of Civil Engineers (ICE) lists of approved dispute adjudicators. The use of SDBM is very relevant to Australian construction contracts, and there are many privately funded as well as Local Government contracts, which could successfully benefit from the use of SDBMs, particularly if Adjudication DBs could be introduced to work with the SOP legislation. I successfully included SDBM provisions on an AS4000 contract in NSW in 2003. During the pre-tender briefing I was asked to explain the concept, which was well received by all potential tenderers.
- DISPUTE ADVISOR/FACILITATOR The DAA is based on the DRA system used for over 20 years in Hong Kong. It is very similar to a Single Person Dispute Board. The DRA is a one-person standing board set up in the conventional manner at the commencement of a construction project. In all cases, the DRA is appointed by agreement between the owner and the contractor immediately after the construction contract is signed. The DRA fees are paid equally by the parties. DRAs are selected for their experience in the construction industry and for their mediation skills. Many are also familiar with the arbitration process. In the HK DRA system, the DAA may prepare a report on particular disputed matters only. Such reports are confidential and are to be seen only by senior representatives of the Contractor and the Owner/Principal. This is standard for all Hong Kong DRA systems.
- Adjudication DRBs – recent proposals from the UK to be part of the statutory adjudication process adopted in the UK by the Housing Grants Construction and Regeneration Act of 1996. This concept allows the Parties to a Contract to choose the Adjudicator(s) at the start of the Contract and to keep the Adjudicator(s) for the duration of the Project, and to determine any disputes, which would normally be referred to an ANA under the Act. “Within the UK it is entirely possible for the contracting parties to establish a DB to adjudicate construction contract disputes within the statutory requirement for adjudication . As yet, there are no statutory requirements for DBs to be established to adjudicate disputes under construction contracts. It is, however, possible to establish a DB to act as the Adjudicator within the UK statutory adjudication regime and this is an approach currently being taken on several large projects.” (P.Chapman - Dispute Boards on Major Infrastructure Projects) The WA Act allows the appointment of an Adjudicator at the start of the project and this would also have the effect of establishing a permanent Dispute Single Person Board at the start of the project.
- Let us consider the draft AS11000.