The second offering of the three-part Symposium on ADR and Commercial Finance at the ABA Business Law Section Annual Meeting addressed disputes arising in long-term, high-budget, tightly-scheduled, deeply interdependent projects — like building an airport — where “divorce is not an option.” According to Deborah Mastin, the issue is how clients manage unplanned adverse events that occur during projects, mitigate their impact and resolve the issues they present.
Was the unplanned event discussed with experienced people prior to the project’s beginning? Was there an agreement on how unanticipated events will be handled with a minimum of time? Delay in a construction project like an airport can cost hundreds of thousands of dollars a day, so the response to problems that threaten delay in the work must be timely and the solution must be accepted by everyone.
The Dispute Board is the appropriate engine to facilitate both dispute avoidance and dispute mitigation. Designees to serve on a Dispute Board must know both the industry and the particular project. Lawyers bring less to the table than industry veterans to. So well-recognized are the benefits of a Board that some players won’t bid on a project that doesn’t have a DRB. World Bank has required a DRB since 1995.
Success depends upon the people and the process. People need to be neutral trained, available, authoritative, and respected. The heart of the process is two contracts – one between parties and the other between parties and neutrals. The first sets forth both formal and informal expectations. In regular informal periodic meetings, all discussions should be considered confidential settlement negotiations, with no minutes taken, in order to allow frank discussion of problems. The Board facilitates a team approach to addressing the unexpected occurrence. The team meets with each other weekly, and meets with the DRB monthly.
Members of the team buy into a solution quickly; the added cost of the cure usually is substantially less than the added cost of both cure and argument and delay. In its meetings, the Board is free to raise issues that the parties haven’t raised, if addressing them will save money. The meetings are not restricted to contractually bound parties: Lenders, engineers, tenants, and other stakeholders should be invited to participate in meetings because they are impacted by delay and added costs that may flow from the problem.
Mastin emphasized that this is not a claims adjudication process; it’s a way for critical players in the project to get informal guidance — or formal decisions – needed to keep the project on track. The Board can also conduct formal arbitrations, but does so without sworn presentations or cross examinations, and seldom attorney engagement. A binding or nonbinding decision may ensue, depending on what the parties seek. DRBs present a project management process, not an adjudicative process.
The tantalizing question was then raised by Tom Walsh, of Brown & Walsh in Haverhill, MA: May this approach have application for commercial finance, including real estate finance? Indeed, is this perhaps a model for managing disputes that arise from all sorts of interdependent, long-term enterprises subject to project management, in which all parties will do well as long as the project is not diverted by prolonged adjudication of unanticipated contingencies?