Ann Russo, Executive Director
Dispute Resolution Board Foundation
The Business Case for Dispute Boards
In the current global economic climate, many public and private sector construction works have been maintained as a priority, often cited as an engine for economic growth. The need for effective project management methods is as important as ever.
Dispute Boards (DBs) can be viewed as a best-in-class project management tool. Major construction projects feature significant levels of risk depending on project type, complexity, duration, and budget.
Project owners undergo a comprehensive review of risk and develop a plan to manage and mitigate them. Some defined risks may be covered by insurance, and others addressed through effective contract management processes.
Dispute Boards are an effective practice for managing risks related to cost and schedule, a common challenge for these complex projects. The neutral panel members have expertise in the type of work being performed. This provides the opportunity to monitor developments closely, and provide dispute avoidance benefits not found in other methods.
Should an issue escalate to a dispute, the DB provides the parties with an independent recommendation or decision at the project level. From a business perspective, traditional forms of dispute resolution can be costly, not to mention project staff being tied up preparing documentation rather than focusing on project delivery. Time is money, after all. And then the risk of delay and disruption, further escalating costs and eroding collaborative relationships.
What about the costs of the DB? DRBF studies and project owner reports consistently demonstrate DBs are a fraction of the cost of other dispute resolution methods. But those expenses may be hard to quantify and compare in the planning phase. DBs may well be thought of as a form of project insurance, an investment in minimizing or preventing future losses.
Parties regularly spend large sums of money on various forms of project insurance, such as general liability, professional liability, workers compensation, builder’s risk, umbrella policies, etc. And much like an effective DB, an insurance policy is deemed a success if it serves to prevent losses, with the insurance coverage resolving any losses that occur. The money spent on insurance premiums is regarded as a wise investment against project risk. DBs are also a wise investment in effective risk management.
The cost-benefit analysis for DBs demonstrates a positive return on investment. Fixed costs may be compared against the potential cost and time impacts of issues and disputes. In multiple reviews of past projects, including input from project owners’ internal analysis, the DRBF has found costs range from 0.05 – 0.15 percent of project costs. The DB process is relatively informal, benefitting from real-time information readily available to the parties and the panel. Comparison studies between projects with and without a DB almost always demonstrate fewer cost overruns and schedule delays.
The result? A positive return on investment from a cost perspective. But a review of DBs would not be complete without also mentioning the “soft” benefits that bring real results. Regular DB meetings promote open communications and enhance relationships. Issues are addressed early, when parties are amenable to resolution and positions are not hardened. Often, the DB facilitates solutions that enhance project management. And, if a dispute does arise, the DB process provides an orderly process which minimizes conflicts. Integrity and procedural fairness are a key component, and the DB provides the parties with well-reasoned and detailed findings which help management move forward.
“An ounce of prevention is worth a pound of cure,” said U.S. Founding Father Benjamin Franklin. Indeed, when facing a problem, spending a small amount early on is a solid investment against future troubles. In the case of complex projects where problems are anticipated, Dispute Boards are a solid solution.
For more information about the Dispute Board process, download a free copy of the DRBF’s Dispute Board Manual: A Guide to Best Practices and Procedures.