By Dr Samer Skaik
There is a box in the contract data of every works contract that gets filled in by someone who will never have to live with the consequences.
It is usually completed late in the tender preparation, often by a procurement officer working through a template under time pressure, sometimes by copying whatever was in the last one. It determines whether the project will have a dispute board sitting alongside it from the beginning, or whether one will be assembled at some future moment when things have gone wrong.
I have asked a number of public officials who made that decision on their project. In most cases the honest answer is that nobody made it. It was inherited.
That is a shame, because it is one of the more consequential choices in the entire procurement, and it is genuinely a choice. Both models are legitimate. They suit different projects. What they do not do is cost the same, behave the same, or produce the same outcomes, and a public employer that understands the difference can make a decision it will be glad of four years later.
Two different animals
A standing board is appointed at the outset and remains in place for the life of the contract. It visits the site at regular intervals, receives the progress reports, meets both parties, and accumulates an understanding of the project as it unfolds. When a disagreement arises, it already knows the context. Under the current FIDIC forms it can also be asked, informally and jointly, to help the parties resolve a matter before it becomes a formal dispute at all.
An ad hoc board does not exist until it is needed. When a dispute crystallises, the parties appoint members, the members read into the project, and a decision follows. Once the dispute is over, the board’s role ends.
Written down like that, the ad hoc model sounds efficient. You only pay for what you use. There is no retainer running month after month on a project where nothing is going wrong. To a finance officer looking at a cost table, it is obviously the cheaper option, and I understand entirely why it appeals.
The difficulty is what it looks like in practice.
What actually happens when you call a board
By the time a dispute is serious enough to refer, the relationship has usually deteriorated. That is the environment in which the parties must now jointly agree on three individuals, agree their fees, and sign an agreement with each of them.
You can imagine how that goes. Every name proposed by one side is scrutinised by the other for some sign of affinity. Availability is a problem, because good candidates are booked. Fees are negotiated in an atmosphere where neither party wants to appear to concede anything. Weeks pass. Sometimes months. On several projects I am aware of, the appointment process alone consumed more time than the eventual adjudication.
Then the board arrives knowing nothing. It must be educated about a project that has been running for three years, by two parties who now have a strong interest in how it is educated. It reads the correspondence as a historical record rather than as something it watched being written. And crucially, it has no avoidance function to perform, because the thing it might have helped avoid has already happened.
So the comparison is not really between an expensive board and a cheap one. It is between a board that can prevent disputes and a board that can only decide them — and a decision, however sound, is always the more expensive way to resolve a disagreement.
Making the argument inside your own institution
Many project or contract managers I spoke to are already persuaded of this. Their problem is not conviction. It is that they have to justify a recurring cost to a finance department or an audit function that will ask, entirely reasonably, why the organisation is paying three people a monthly retainer to do nothing visible.
I have watched that conversation go badly many times, usually because the project manager argues on the wrong ground. Arguing that the board is good practice, or that the bank encourages it, or that the industry regards it as beneficial, tends not to land. Finance officers are not moved by professional consensus. They are moved by exposure.
Three arguments do tend to work.
The first is that the standing board converts an unknown, potentially very large contingent liability into a small, known, budgetable annual cost. That is a framing finance directors understand instinctively, because it is how they think about insurance. The retainer is not a fee for services rendered; it is a premium against a risk the organisation is already carrying whether it pays or not.
The second is that the cost is bounded and the alternative is not. You can state, at the outset, what the standing board will cost across the construction period, within a fairly narrow band. Nobody can state what an international arbitration will cost, because that depends on the other party’s conduct, and it will be a multiple of the board’s lifetime cost. I set out the cost structure in more detail in an earlier post in this series.
The third argument is the one that carries most weight with audit functions and is the one project managers most often forget. A standing board produces a contemporaneous, independent record of what happened on the project. Years later, when someone asks why a variation was accepted or why an extension of time was granted, the answer is not the recollection of an official who has since retired. It is a reasoned document produced at the time by people with no stake in the outcome. For an organisation whose decisions are subject to review, that has real institutional value quite apart from dispute resolution.
When ad hoc is genuinely the right answer
I do not want to overstate the case. There are contracts where a standing board is disproportionate, and pretending otherwise damages the argument where it matters.
Short contracts are the obvious category. On a works package of twelve or eighteen months, the fixed costs of establishing and maintaining a board are harder to justify, and the window in which avoidance can operate is narrow. Low-value contracts with simple, well-defined scope and no significant ground risk are another. Where both parties are domestic, the applicable law is local, and any eventual dispute would go to a local forum rather than international arbitration, the downside scenario is far less alarming and the calculation shifts.
There is also a middle option that gets overlooked. A single-member standing board costs roughly a third of a three-member one and retains most of the avoidance benefit. On mid-sized contracts this is frequently the right answer, and it is available in the contract data if somebody thinks to select it.
Filling in the box properly
If you are preparing a tender, a short list of things worth deciding deliberately rather than by default.
Decide the number of members, and decide it against the actual risk profile of the contract rather than its headline value. Ground risk, interface complexity and the number of stakeholders matter more than the number itself.
State the appointment deadline explicitly, and choose a date the organisation can actually meet given its own approval chain. A deadline that your legal review cycle makes impossible is worse than a slightly longer one you will honour.
Name the appointing entity that will step in if the parties cannot agree. Leaving this blank is a common and avoidable oversight.
Confirm the fee arrangement and where the employer’s share sits in the cost tables, before the financing arrangements are locked.
And give some thought to what you are actually looking for in a member under a standing model, because it differs from the ad hoc model in one important respect: you are asking someone to commit years of periodic availability, not to take on a single discrete assignment. Availability over the long run is the constraint that most often bites, and it is worth asking candidates about it directly and early.
The person who fills in the box
I keep returning to that template, because it is where this is decided in practice.
The people who suffer the consequences of an ad hoc board on a complex five-year project are the project team, three years later, and the officials who have to explain the arbitration to a parliamentary committee two years after that. The person who chose it was a procurement officer working at speed on a document with four hundred other fields in it, who had no way of knowing that this particular field was different.
If your organisation delivers infrastructure regularly, the highest-value thing you can do with this post is not to agree with it. It is to go and find out who fills in that box, and have a fifteen-minute conversation with them.
This post is the fourth in a series for public sector employers delivering infrastructure under internationally financed contracts. Related reading: The First Four Weeks, What Does a Dispute Board Actually Cost?, and Why the World Bank Uses DAABs.
Similar Posts:
- What Does a Dispute Board Actually Cost? A Straight Answer for Public Employers
- The First Four Weeks: How Public Infrastructure Employers Set a Project Up to Avoid Disputes
- Dispute boards: the missing link?
- EPC Forum 2013
- When the Banks moved onto FIDIC 2017: What Public Employers Inherited With the New Contract
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