By Dr Samer Skaik
Of all the questions I get asked by public sector clients, this is the one that arrives most often by private message rather than in the meeting.
People are slightly embarrassed to ask it. There is a sense that enquiring about the cost of a dispute mechanism is somehow unserious, or that it reveals you have not read something you should have read. So the question gets asked quietly, usually after the formal session has ended, and it is almost always phrased the same way: what does one of these actually cost us?
It is an entirely reasonable question and I wish more people asked it earlier and out loud. A project manager who cannot answer it cannot get the budget line approved, and a budget line that is not approved is one of the most common reasons a board never gets appointed at all. So let me try to answer it plainly.
Where the money goes
A standing dispute board on an internationally financed works contract generally costs money in three ways.
The first is a retainer, usually monthly in a range of &1500-$4000. This pays for availability and for the unseen work: staying current with the project, reading progress reports, maintaining files, being reachable. People sometimes query the retainer on the basis that nothing appears to be happening. That is rather the point. You are paying for a panel that already understands your project on the day something goes wrong, rather than one that has to be educated about it over three months while the site sits idle.
The second is a daily fee, in the same range as the retainer fee, but payable for the days actually worked: site visits, meetings, hearings, and the time spent producing decisions. This is the variable component and it is where a project’s costs diverge from the budget, usually because the number of referrals turns out higher than anyone assumed.
The third is expenses — travel (business class flight), accommodation, and in some arrangements a cancellation charge where a scheduled visit is called off at short notice. On projects in remote locations, or where board members are drawn from several continents, this is not a rounding error. I have seen expenses approach the fee component on a genuinely difficult site.
Multiply by three if you have a three-member board, which is standard on contracts of significant value. And note that the parties share the cost equally, so the employer’s budget line is half the total. Under the standard arrangement, the contractor generally expends from a relevant provisional sum, settles the invoices and recovers the employer’s share through the ordinary payment mechanism, which means the cost appears in your certificates rather than as a separate invoice — a detail worth confirming with your finance team before they see it and query it.
The number people actually want
What everyone really wants is a percentage, and this is where I have to be careful, because the honest answer has a range in it.
For a standing three-member board on a large infrastructure contract, the total cost across the life of the project is typically a fraction of one per cent of the contract value — and on very large contracts, a small fraction of one per cent. The employer bears half of that. For a small project, the percentage is much higher and can go up to 5% of the contract value.
I would encourage you not to take that from me or from anyone else as a planning figure. Ask two or three candidate board members directly what their retainer and daily rates are, work out the likely number of visit days over your construction period, add travel from wherever they are based, and build the number yourself. It takes an afternoon. Any board member worth appointing will give you their rates without hesitation.
The comparison that matters
Here is the part I would most like public officials to internalise, because it is the argument you will need to make to your finance director.
The relevant comparison is not between having a board and spending nothing. It is between having a board and having the disputes that a board would have prevented.
A single international arbitration on a major infrastructure contract — foreign seat, institutional rules, tribunal fees, counsel in a hard currency, delay experts, quantum experts, three or four years of it — will very often cost each party much more than the entire lifetime cost of a standing board, and that is before you count the cost of the underlying delay to the asset. I have watched projects where the legal spend on one dispute exceeded what the board would have cost for the whole construction period by a wide margin, and the dispute concerned a question the board could have addressed informally in a fortnight.
There is also a cost that never reaches a budget line at all. When there is no board, disagreements sit unresolved. Unresolved disagreements slow work. Slowed work extends the programme. Extended programmes attract prolongation claims. A public employer that saves the board’s retainer and then pays eighteen months of prolongation has not saved anything, but the saving is visible in the accounts and the loss is not.
Where the money is genuinely wasted
I do not want to pretend that dispute board costs are never excessive. They sometimes are, and it is worth being clear about what causes it, because the causes are largely within the parties’ control.
The most common is a mismatch between the board and the contract. Three members with international travel on a contract that does not warrant it is a real waste, and a single member is perfectly appropriate on many projects. That decision is made at procurement stage, in the contract data, often by someone copying a template. It deserves five minutes of actual thought.
The second is uncontrolled referrals. A party that refers everything, including matters that could plainly be settled, will drive costs up sharply. This is usually a symptom rather than a cause — it tends to happen where the relationship has already failed — but it is worth naming.
The third is badly prepared submissions. A referral supported by three thousand pages of undifferentiated documents costs more to decide than the same referral properly organised, because somebody is being paid by the day to read it. Employers have more control over this than they think, particularly through the instructions they give their own consultants.
The fourth is unnecessary travel, and here there is now a legitimate alternative. Where site conditions and the nature of the visit allow, conducting some meetings remotely can meaningfully reduce cost without reducing the board’s effectiveness. The point is not to eliminate physical visits — a board that has never walked the site is not doing its job — but to stop paying for three intercontinental flights to attend a meeting that did not require anyone to look at anything.
Getting it through your own system
A practical note, because the budget question is often really an approvals question in disguise.
On most bank-financed projects the employer’s share of dispute board costs is a legitimate project expenditure. Where agencies run into difficulty, it is usually not because the cost is ineligible but because nobody identified it early, so it has to be found from somewhere else mid-implementation, which requires reallocation, which requires approvals, which takes months. The failure is one of planning rather than of eligibility.
So: raise it at project preparation, before the financing agreement is signed if you possibly can. Confirm with your task team or project officer how the cost is to be treated. Get it into the procurement plan and the cost tables. Make sure whoever drafts the contract data has actually decided how many members the board will have and by when it must be appointed, and until when it should operate (i.e. a fixed term or linked to a milestone), rather than leaving the template default in place.
None of this is difficult. It is simply the sort of thing that only gets done if somebody is told to do it.
A last thought
I have been asked, more than once and always politely, whether someone who sits on these boards is the right person to be explaining why they are worth paying for. It is a fair challenge and I do not have a clever answer to it. The development banks require these boards on the projects they fund, and they do so having watched the alternative play out across decades of infrastructure lending on several continents. They are not sentimental institutions.
The cost of a dispute board is knowable, budgetable, and small relative to the thing it exists to prevent. The main obstacle is not the money. It is that nobody asks the question until the point at which the answer no longer helps.
This post is the third in a series for public sector employers delivering infrastructure under internationally financed contracts. Related reading: The First Four Weeks, Why the World Bank Uses DAABs.
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- The First Four Weeks: How Public Infrastructure Employers Set a Project Up to Avoid Disputes
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- When the Banks moved onto FIDIC 2017: What Public Employers Inherited With the New Contract
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