Mediation and the DRB

Mediation and the Dispute Review Board (DRB) process are widely used in the construction industry to resolve disputes and avoid costly arbitration or litigation.  But can these two methods be used effectively in tandem? And if so, how?  That question is the heart of this article.

DRBs Defined

Dispute Review Boards (DRB)[1] have existed in the construction industry since 1975, when the first DRB was implemented on the Eisenhauer Tunnel project in Colorado.  Over the years, these boards have been known by various names, including Dispute Review Boards (DRB), Dispute Resolution Boards (also DRB), Dispute Boards (DB), Dispute Adjudication Boards (DAB), and Dispute Avoidance and Resolution Boards (DARB). 

In its most common form, a DRB is comprised of three neutral experts jointly selected and approved by both parties before construction begins.  The Board holds regular meetings at the jobsite, typically on a quarterly basis, to discuss progress, schedule, problems, payment, change orders, potential future disputes, and other matters.  After the meeting, the DRB members perform a walk though of the construction site to observe the progress of the work.  When claims arise on the project, the parties submit the disputes to the DRB in an informal manner, usually without lawyers participating.  After submissions by the parties and an informal hearing, the DRB issues non-binding recommendations, often on liability only, which the parties can accept, reject, or use to negotiate a settlement.  Depending on the contract terms, unresolved disputes may proceed to arbitration or litigation, normally on a de novo basis, although the DRB recommendations may be admitted into evidence.

The Dispute Review Board Foundation (DRBF) is the premier body for education and critical thought regarding DRBs.  The DRBF publishes the DB Manual (DRBF 2019), a comprehensive resource on the DR process and procedures.  For additional information on DRBs see also, Adrian L. Bastianelli, III & Robert A. Rubin, Dispute Review Boards and Other Forms of ADR, in Constr. ADR 569-578 (ABA 2014).

Traditionally, DRBs were administered by the project owner rather than by an ADR provider or other third party.   While this approach can work effectively, it may lead to complications if issues arise regarding the administration of the DRB process.  For example, what happens if there is a dispute over payment of the DRB members or one party demands a DRB member be disqualified due to a conflict or improper action?  Recently the American Arbitration Association and the International Centre for Dispute Resolution (AAA-ICDR) developed new rules and procedures to administer DRBs, referred to as DARBs.  See Adrian L. Bastianelli, III, The New AAA-ICDR Dispute Avoidance And Resolution Board Rules, 24:1 Under Construction (ABA Winter 2023).  These services are similar to the services AAA-ICDR provides for arbitrations.

Dispute Avoidance Through DRBs

When DRBs were first introduced, the focus was on dispute resolution. The concept was that three neutral experts, jointly selected by the parties, who had seen the project and disputed work, and knew the people, could issue reasoned, real-time recommendations to resolve disputes during the work based on non-adversarial presentations.  The thought was that parties would listen to the respected experts who knew the job rather than proceed to litigation and expend large sums of money to have a judge who knew nothing about construction decide the dispute.  And it has been very effective.

While dispute resolution resulting from the DRB formal recommendations is important, the DRB has a second purpose that may be even more important and less appreciated by many: dispute avoidance.  The regular job site meetings, where the DRB and the parties engage in non-adversarial discussions of progress, scheduling, construction problems, payment, change orders, present and potential future disputes, and other matters in real time and the subsequent joint observation of the work, creates trust and respect between the parties and has a strong dispute avoidance effect.  After the meetings the parties often attack the problems and disputes rather than show up at the next meeting with the same open items.  As a result, many jobs with DRBs are completed without any disputes being presented to the DRB for resolution, much less engaging in arbitration or litigation. 

Over time, many DRB members have become more proactive and focused on dispute avoidance.  The DB Manual at 106 states:

The dispute avoidance role requires a DB to undertake several fundamental tasks in overseeing a project: independently monitoring key project indicators in real time, addressing issues and potential disputes as they arise, facilitating communications between project participants and encouraging cooperative problem solving/decision making. These steps are all important in achieving the objective of a dispute-free project.

When the AAA-ICDR developed its new rules and procedures for DRBs, it sought input from stakeholders and other outside sources. The feedback overwhelmingly favored an emphasis on the dispute avoidance aspect of DRBs rather than the dispute resolution features.  Thus, AAA-ICDR focused on dispute avoidance and re-named its process Dispute Avoidance and Resolution Boards (DARB). 

Dispute avoidance procedures come in two formats in DRBs.  First, and most importantly, during regular job site meetings the DRB members proactively attempt to assist the parties in avoiding disputes to prevent them from going to a formal DRB hearing; or worse, to arbitration or court.  As discussed above, the regular DRB meetings alone tend to encourage the parties to resolve their disputes in real time on their own.  Second, most DRB rules and the DARB Rules provide for an optional, expeditious, informal, down and dirty presentation of a dispute, typically at a regular meeting of the DRB, with immediate DRB recommendations that are non-binding even if there is a later formal DRB hearing on the claim.  These early recommendations can serve as a practical tool to help the parties settle and resolve their disputes in real time with minimal cost and disruption.

Mediation

Most parties to construction contracts are familiar with mediation, where a mediator, often a lawyer, attempts to assist the parties in resolving their dispute using facilitative and/or evaluative techniques.  Like DRBs, mediation aims to avoid disputes and prevent costly arbitration or litigation and has also proven to be very successful.

However, mediation and the DRB process differ fundamentally in their approach.  DRBs tend to focus on determining who is correct in the dispute, although a proactive DRB may go farther in addressing the parties’ interests.  In mediation, while attention is placed on identifying which party is right or wrong, i.e., the risk of losing in arbitration or court, the mediator primarily focuses on the parties’ interests. These interests often go beyond legal rights and wrongs.  The mediator’s goal is to help the parties find a business solution that is better than the alternative of arbitration or litigation, even if the solution is unfair from the perspective of which party is legally right or wrong.

DRBs and Mediation

There are instances where neither the dispute avoidance nor the resolution features of the DRB process succeed, and the parties reject the DRB’s recommendations, choosing instead to proceed to arbitration or court.  This may occur because the amount of money involved in the claim is too large for a party to accept the recommendations, the parties are too wed to their positions, or for other reasons.  Mediation may provide a way to avoid arbitration or litigation by shifting the focus from the parties’ legal positions of who is right and wrong, to the parties’ interests.  Mediation can work well in combination with the DRB process, but questions remain about the optimal timing for mediation and whether it is a good practice for a DRB member, who is also a seasoned mediator, to serve as the mediator on a project where the person is a DRB member and may hear the dispute at a later time.

When Should the Parties Mediate?

Unquestionably, mediation after the DRB recommendations have been issued has many advantages.  In preparing for and presenting at the DRB hearing, the parties have done their due diligence on the facts and legal aspects of the claim.  This level of due diligence eliminates one of the common barriers to successful mediation: a lack of knowledge of the facts and law regarding the dispute.  Additionally, the mediator has the benefit of the DRB’s non-binding recommendations on liability, and sometimes damages, provided by three neutral, knowledgeable experts the parties jointly selected to assist them in resolving disputes.  These recommendations provide the mediator with significant leverage in trying to assist the parties with assessing the risk of rejecting a settlement in mediation.  Finally, knowing that a substantial expenditure on arbitration or litigation is imminent if there is no settlement often motivates parties to resolve the dispute.

Mediation also can be used effectively during the project, concurrently with a DRB.  Many construction dispute resolution professionals recognize the benefit of mediating early, i.e., as soon as the parties have sufficient information and knowledge to reasonably evaluate the risks and costs of arbitration or litigation and the benefits of settlement.  See Guided Choice, Early Dispute Resolution, https://gcdisputeresolution.com.  This does not mean when they know everything there is to know about the dispute, just enough to make an informed decision on settlement.  If the mediation occurs before the formal DRB recommendations, the parties have saved the cost of their presentation to the DRB and the cost of the DRB drafting the recommendations.  Early mediation also helps preserve the working relationship between the parties.

Additionally, if the mediation occurs before the work giving rise to the dispute has been performed, the parties can mitigate damages by finding a less expensive solution to the underlying problem.  Early mediation also opens the door to creative non-monetary solutions. For example, the parties can reach a business settlement where one party agrees to do unrelated work on the project that would provide the other party with a significant benefit but does not cost the performing party much.  The parties can resolve disputes on a basis that doesn’t involve a decision about who is right or wrong on the underlying claim.  When disputes are addressed early, the range of solutions and possibilities are endless.

Should a DRB Member Mediate a Dispute for the Parties?

In some respects, a DRB member, who also is a seasoned mediator, may appear to be the ideal person to mediate a dispute.  The DRB member knows the contract, has observed the construction firsthand, understands the evolution of the dispute, knows the people, and is respected by both parties – what more could the parties want in a mediator?

But there can be problems with this approach.  When mediation occurs before a formal DRB hearing, the process begins to look very much like “med-arb,” in which the same individual first mediates the dispute and later decides it as an arbitrator. This process has been widely debated and criticized by many.  For a detailed discussion of the med-arb process and its advantages and disadvantages see, Adrian L. Bastianelli, III and Joseph N. Frost, Alternative Alternative Procedures to Resolve Construction Disputes, 15:2 J. Amer. College of Constr. Lawy. 1-14 (Summer 2021). 

The concerns that arise in the “med-arb” context also apply when a DRB member acts as a mediator: Will the parties be open and honest about their interests with the DRB mediator during the mediation knowing that the mediator may later decide the dispute as a DRB member in a formal hearing?  If the parties are honest in the mediation and divulge their weaknesses to the mediator or their bottom lines for settlement purposes, can the mediator “unring the bell” during a subsequent hearing on the merits of the case and forget what the parties told the DRB mediator during the mediation?  Can a party’s aggressive actions in the mediation, which sometimes occur, affect the DRB members view of the party, or may a party lose respect for the DRB member because of their interactions in the mediation?  Is one of the DRB members a good mediator who understands the difficult and complicated situation a DRB mediator faces in becoming a mediator before a formal hearing?  And there are many more potential problems when using this process.  Despite these potential pitfalls, the DRB mediator process offers significant advantages over traditional mediation and can be highly effective when handled skillfully by the DRB mediator.

If the parties elect to use a DRB mediator, they should only do so after the parties give informed written consent, i.e., the parties acknowledge that they are fully aware of the pitfalls in using a mediator that may later decide the dispute.  In addition, a set of rules should be drafted clearly defining the process.

Conclusion

While the DRB process and mediation are both aimed at avoiding costly arbitration or litigation, they use different processes to accomplish that goal. However, when thoughtfully combined, they can complement each other and enhance dispute avoidance and resolution.  The great advantage of ADR is that the parties can design a process tailored to their specific dispute and working relationship.  To fully realize the benefits of using DRBs and mediation together, both the parties and the DRB members must understand the unique role each plays and how to coordinate their use effectively.  When done right, this integrated approach can lead to timely, efficient, and lasting resolutions; all without the need to enter a courtroom or arbitration hearing.