Appointing an Expert with Final and Binding Decision Authority

By Ben D. Nolan, III PE PSP, Managing Director, Construction Consulting, Berkeley Research Group LLP

Based on a True Story

The Situation

Imagine a situation where a large international general contractor has been terminated for default mid-project on two major unbonded educational campus projects on a UK protectorate island.  The government takes assignment of the subcontractors, who happen to be the only competent subcontractors on the island, to continue progressing the work until a completion General Contractor can be hired.  A year later, there has been only an additional ten percent progress and, due to a payment dispute, the subcontractors decide to terminate the government for default. After some negotiation, the parties agree to a termination for convenience and attempt to follow the contract ADR procedures, but they are generally unworkable given the peculiarity of the situation.  As a last resort, the parties agree to a mediation using an experienced Quantity Surveyor from the UK; the mediation fails miserably and the parties are at the end of the contractual ADR options.

The parties are determined to keep the pending dispute out of the island court system, so they get creative.  Queen’s Counsel suggests the appointment of an independent Expert to decide the disputes.  Candidates are identified from a global pool, a short list of face to face interviews are held, the preferred Expert spends a week with the parties working through representative issues and the parties agree on the Expert.  The resulting appointment agreement includes this clause:

“The parties agree that all decisions and awards made by Expert in the course or at the conclusion of the Valuation Exercise shall be final and binding on the parties…and the parties also waive irrevocably their right to any form of appeal, review, or recourse to any court or other authority with jurisdiction, insofar as such waiver may be validly made.”

This clause is the essence of the Expert with Final and Binding Decision Authority (“BDA”) ADR process.  To coin a phrase, I’ll call this particular ADR process the “BDA” process and the Expert the “BDA Expert”.

To Bind or Not to Bind

Having been that appointed BDA Expert and having issued that final, binding decision, I see many complex construction disputes that could potentially benefit from this BDA approach to ADR.  However, US litigators have not been inclined to take the leap of faith required to entrust a BDA Expert with their client’s fate in a construction dispute.  I believe with a little more understanding of their slightly altered role in the ADR process, US litigators could accept this binding ADR process to fairly resolve certain types of construction-related disputes.

There are many popular variations of non-binding ADR which involve independent expert analysis and recommendations, but none that I’m aware of that give the Expert this final and binding decision authority.  The primary reason is that the US litigators want to stay in control of the legal process.  This fear of being out of control (i.e. out of appeal options) is largely unfounded.  In the BDA process, the US litigators are still in control of the legal process, they are simply dealing with a very involved Expert instead of a lesser involved Dispute Resolution Board, a neutral listener, a mediator, an arbitrator, a panel of arbitrators, a judge or a jury.  Any arguments that would be made on appeal are made during the review of the Draft decision.

It is also crucial to recognize the difference between the level of involvement of the BDA Expert and these other triers of fact: the BDA Expert has complete access to all the facts from all parties throughout the analysis phase and decision process.  While the starting point is the traditional plaintiff’s statement of claim, from that point forward, the BDA Expert decides which claims merit consideration, works with the plaintiff and defendant to perfect the claim facts and conclusions, allows rebuttal from the defendant, allows re-statement of claims from the plaintiff, finalizes the BDA Expert analysis and issues a written DRAFT decision.  The parties can respond to the DRAFT decision, discuss any final points with the other parties and the BDA Expert and, after hearing all arguments, the BDA Expert finalizes the decision on that issue.  This process is repeated for all issues that are agreed to be decided.  In my experience, both parties were satisfied with the fairness of each decision, knowing that they had enjoyed the full benefits of natural justice.

Recognizing the Situation to Suggest Expert BDA

US litigators with experience in international construction dispute resolution will likely recognize the BDA Expert model, as it is an established ADR process in international venues.  In the US, disputes with certain characteristics would likely be good candidates for the BDA Expert approach:

• When the parties desire to design an expedited decision-making process on key disputed issues.
• When the parties desire the trier of fact to master the technicalities of large, complex technical disputes in order to fully understand and consider the underlying root cause of the dispute, including:
  • causes of late and out of sequence work,
  • causes of labor productivity problems,
  • assessing “or equal” equipment or material substitutions,
  • causes of equipment and material cost escalation,
  • responsibilities for design versus shop drawing details,
  • causes of equipment performance problems, and other things.
• When the parties desire to have individual decisions on a large number of disputed issues, such as:
  • an independent valuation of base contract work completed;
  • an analysis of entitlement to and valuation of disputed change orders;
  • an analysis and valuation of partially completed value engineering work;
  • a valuation of deductive credits for incomplete work or work not performed;
  • auditing of incurred costs in a termination for convenience;
  • an adjustment of final contract value due to the costs of correcting defective work;
  • an interpretation of disputed contract terms, such as the “value” of work completed under an AIA contract, i.e. is it the contract value or the actual cost incurred?
• When the parties desire to keep the dispute in a private ADR venue.
• When the parties desire to turn the decision over to a trusted third party.
• When the situation is so peculiar that other forms of ADR are unworkable.
• When the parties need to disclose, yet protect, commercially sensitive and auditable information.
• When the percipient witnesses are still available to participate as fact accelerators in the dispute resolution process.
• When the parties desire to maintain their business relationship with each other by reaching a fair resolution.
• When the parties desire an “open-book” approach to dispute resolution.

The Recommendation

Based upon my favorable experience with this BDA process, I recommend that US litigators consider this form of ADR in certain construction disputes.  It is a bold step for litigators to suggest an approach to ADR providing a BDA Expert with such final decision authority.  However, there is more fairness designed into this ADR process than in most other ADR processes, given the opportunities to state and re-state claims and to assure all your arguments are heard, fair and square.