Are Dispute Boards the Solution for Good Flow in Construction Projects?

The construction world is a complex one where each piece and/or phase should align with one another. Like in a washing machine, if one gear does not comply with its function properly, it will affect the rest of the system.

Subcontractors, suppliers, vendors, and others are important factors in construction projects. Even disputes have their role in construction projects because if a dispute affects the continuity of the project, it will affect the subsequent phases.

Unfortunately, it is all too often common for that to occur. A subcontractor not performing its work correctly or on time will sometimes result in a legal dispute. How to correct the subcontractor’s fault? The first option usually used by contractors (at least in Mexico) is a lawsuit.

This reactive method affects more parts of the washing machine. The natural consequence of filing a lawsuit not only hurts the commercial relationship, it further affects the on time delivery of the project.

One potential solution may be the use of dispute boards. Three factors to consider:

1. The early find and notification of a rift. Under some model contracts (like FIDIC), the contractor who finds an issue has a short time for notice. The failure to notice the issue on time may result in losing rights to arbitration. Early notice may help to find early on specific situations that can affect the project, and may force contractors to manage the project more strictly.
2. No suspension of work. One potential benefit of dispute boards is that the project work continues. In other words, the project will continue while the parties are attempting to resolve the dispute.
3. Impartial members appointed by the parties. The board resolution or recommendation is typically by a panel, usually three members, who the parties appoint at the beginning of the project. The panel is impartial in nature because the members are typically external to the project and to the parties.

The three points above are typical of many dispute boards. These are three good reasons to increase the use of dispute boards in complex construction projects. However, there are still jurisdictions (like Mexico) that continue to reject the use of this kind of alternative dispute resolution.

From my perspective, the increased use of dispute boards would benefit public projects due to the complexity and urgency of those projects.  It would be very helpful to have a board, external to the interest of the parties, conscious of the flow of the project, knows the background, and is ready to solve a claim without stoppage of work.

What are then the reasons to reject the use of dispute boards? One potential answer (at least in Mexico) will be provided in the next submission.

Author Juan Pablo Sandoval is a Jr. Partner at COMAD, S.C. His email address is jpsandoval@comad.com.mx.