13th Annual Spring Symposium in Dispute Resolution

1. 13th Annual Spring Symposium in Dispute Resolution April 25, 2013 1

2. DRB Presentation • What is a DRB? • History of DRBs • Benefits of DRBs • Recommended elements for a successful DRB • DRB ethics • DRB selection • Dispute Resolution Board Foundation (DRBF) • A success story 2

3. WHAT IS A DRB? 3

4. Dispute Review Board (DRB) A DRB is a board of impartial professionals formed at the beginning of the project to follow construction progress, encourage dispute avoidance, and assist in the resolution of disputes for the duration of the project. 4

5. Dispute Review Board (DRB) “… a real-time ADR process for the resolution of issues and claims, controlled by the owner and the contractor.” 5

6. Dispute Review Board (DRB) A Dispute Review Board has the ability to "look forward" in a collaborative way to help the parties minimize impacts of unplanned events that will affect the job tomorrow, rather than "looking back" to assess blame for yesterday (distinguishing DRBs from mediation and arbitration, which only look back). 6

7. HISTORY OF DRBs 7

8. History of DRBs • Early 1970’s tunneling industry conducted studies on dispute resolution • First DRB used on second bore of I-70 Eisenhower Tunnel in Colorado in 1976 • 1996 DRB Foundation established; DRB Manual published • By 2010 over 2,200 US projects worth US $200 billion 8

9. History of DBs - International 1981: First International DB, El Cajón Dam, Honduras 1995: The World Bank makes DBs mandatory for all World Bank-financed projects over US $50M 1997: Asian Development Bank & European Bank for Reconstruction & Development adopt DB Worldwide, roughly 100 DRB contracts using DRBs start every year, worth over US $5 billion per year 9

10. Application to Types of Projects Public and Private Projects • Airports • Bridges • Buildings • Dams • Energy • Highways • What do they have in common? • Lengthy duration • Complex site and/or construction methods • High risk • Ports • Power plants • Underground • Universities 10

11. Region 1 DRB Projects 1975-2010 11

12. 293 55 4 1 1 22 2 21 6 33 7 4 1 1 44 25 1 5 13 2 1 26 2 12 1 2 667 3 12 5 2 5 DC 10 1 1 36 824 4 17 1 Puerto Rico 12

13. DRBs in Texas • Started in 1993 • Owners: US Dept. of Energy (4) Dallas Area Rapid Transit (17) TX Dept. of Criminal Justice (5) North Texas Tollway Authority (1) MTA of Harris Co. (6) The City of San Antonio (1) • Contract values ranged from $9 to $140 million 13

14. Low Cost Resolution High Cost Resolution Negotiation Partnering Facilitation DISPUTE REVIEW BOARD Early Neutral Evaluation Joint Experts DISPUTE REVIEW BOARD Less Control More Control Mediation Mini-Trial Arbitration Court Special Master Court Settlement Conference Bench or Jury Trial ADR Continuum 14

15. BENEFITS OF DRBs 15

16. Primary Benefits of the DRB Process • Claim avoidance • During periodic meetings, the DRB reviews the status of outstanding issues and inquires about any potential problems or disputes. • Dispute resolution • Early identification and resolution of disputes in“real time” is critical to the success of the DRB process. 16

17. Other Benefits of the DRB Process • DRB recommendation is helpful for: • Owners because it provides a basis and record for making decisions. • Contractors because it provides an early opportunity to resolve disputes that may impact project schedule or cash flow. 17

18. DRB Reviews The DRB process appears to be effective in assisting in the resolution of disputes, leading to more timely completion of projects, reduced cost overruns and avoidance of claims. Utilization of DRBs on larger projects can serve to motivate greater cooperation between parties resulting in fewer unresolved claims and a reduced litigation potential. Florida Department of Transportation, Office of Inspector General 18

19. DRB Reviews WMATA believes the presence of the Board encourages both the owner and contractor to settle their differences in most instances without DRB hearings. In cases where hearings are necessary, resolutions can be reached fairly and expeditiously. The Board can also prove beneficial in minimizing the adversarial relationships of the parties and is useful in guiding resolution to issues prior to them becoming a dispute. Washington Metropolitan Area Transit Authority, Department of Capital Projects Management

20. DRB Reviews The Dispute Review Board…is truly a Best Practice within the industry. It is practical, reliable and cost-effective. Federal Highway Administration 20

21. University of Washington DRBs used for over 20 years • 60 "vertical" projects valued at $6 Billion • 2 formal DRB hearings • 6 informal hearings • No arbitration or litigation 21

22. DRB Track Record The DRB process has experienced a very high rate of success in resolving disputes without arbitration or litigation. Resolution rate to date: over 98% of matters going to the DRB do not go on to later arbitration or litigation. 22

23. RECOMMENDED ELEMENTS FOR A SUCCESSFUL DRB 23

24. Recommended Elements for a Successful DRB • DRB members are neutral and subject to the approval of both parties. • DRB members sign a Three-Party Agreement obligating them to serve both parties equally. • DRB’s fees and expenses are shared equally by the parties. 24

25. Recommended Elements for a Successful DRB • DRB is organized when work begins, before there are any disputes. • DRB keeps abreast of job developments by periodically reviewing relevant documentation and regularly visiting the site. • A DRB Advisory Opinion can assist the parties in the early resolution of a dispute. 25

26. Recommended Elements for a Successful Standing DRB 7. Either party can refer a dispute to the DRB. An informal but comprehensive hearing is convened promptly. The written recommendations of the DRB are non-binding, but are admissible later in arbitration or litigation. 26

27. Recommended Elements for a Successful Standing DRB The DRB members are absolved from any personal or professional liability arising from DRB activities, and cannot be called as witnesses in subsequent proceedings. 27

28. DRB ETHICS 28

29. DRB ETHICS Five Canons 1. Strong emphasis on disclosure 2. Conflict of interest shall be avoided - no ex parte communications with the parties 3. Do not divulge any confidential information to others unless approved by the parties. 4. Conduct meetings and hearings in an expeditious, diligent, orderly and impartial manner. 5. Impartially consider all disputes referred to it. Reports shall be based solely on the provisions of the contract documents and the facts of the disputes. 29

30. DRB SELECTION 30

31. Selection of Board Members An essential element in the DRB process is that all parties are completely satisfied with each Board member. Board members should be: • Experienced and technically qualified. • Impartial with no conflicts of interest. • Trained in the DRB process. 31

32. Criteria: Technical Experience Parties must evaluate qualifications for the specific project experience as to: • Type of construction • Specific construction methods • Type of project delivery method • Types of foreseeable disputes 32

33. Criteria: Other Skills • Experience with interpretation of contract documents. • Experience in resolution of construction disputes and Alternative Dispute Resolution. • Ability to analyze disputes and write reports in a clear, concise, and logical manner. • Complement other skills sets on DRB. 33

34. Criteria: Neutrality/Availability • Completely: • neutral • impartial • objective • Avoid conflicts of interest for the duration of the project. • Available to fulfill duties as required. 34

35. Criteria: Training/Role • Training, experience, and understanding of the DRB process and DRB role. • Dedicated to the objectives and principles of the DRB process and DRB role (including DRB Canons). • Demonstrated ability to manage people and processes. 35

36. Board Member Selection Methods • Typically, a three member Board is selected by: • Each party proposes a member for approval by other party; two selected DRB members nominate the third for party approval. • Each party proposes a slate of candidates, from which the other party makes a selection; two selected DRB members nominate the third for party approval. • Parties jointly select all three members. 36

37. Selecting the Third Member • Third member should supplement technical expertise and background of the first two members. • If to act as Chair, candidate should have DRB experience as well as expertise in managing processes. 37

38. Three-Party Agreement • Contract that binds DRB members and the contracting parties. • TPA includes: • Scope of DRB services. • Responsibilities of the parties. • Duration of DRB’s services. • Process for termination. • Legal relations. 38

39. Three-Party Agreement • TPA includes: • Compensation rates and expense reimbursement guidelines. • Cost splitting between parties. • Invoicing process. 39

40. Three-Party Agreement The TPA typically includes the following: Each Board member shall be held harmless for any personal or professional liability arising from or related to DRB activities. To the fullest extent permitted by law, the OWNER and the CONTRACTOR shall indemnify and hold harmless all Board members for claims, losses, demands, costs, and damages (including reasonable attorneys fees) for bodily injury, property damage, or economic loss arising out of or related to Board members carrying out DRB activities. 40

41. Dispute Resolution Board Foundation (DRBF) 41

42. DRBF The Dispute Resolution Board Foundation (DRBF), was established in 1996 and is a non-profit organization dedicated to promoting the avoidance and resolution of disputes worldwide using the unique and proven Dispute Resolution Board (DRB) method. 42

43. DRBF The DRBF provides assistance with the worldwide application of the DRB method by providing general advice and suggestions tailored for the conditions and practices existing in local areas. The DRBF publishes the DRBF Practices and Procedures Manual, which offers a thurough review of the DRB concept for owners, designers and contractors to employ the process more effectively. 43

44. DRBF Worldwide presence with Three Regions: 1 - United States and Canada 2 - Europe, Asia, Central and South America, Mexico and Africa 3 - Australia and New Zealand 44

45. Dispute Resolution Board Foundation 19550 International Blvd., Suite 314Seattle, WA 981881-206-878-3336Toll free (USA only) 1-888-523-5208Fax 1-206-878-3338 Email: home@drb.orgWebsite: www.drb.org 45

46. A Success Story: CDOTProblems Lead to a Solution 46

47. Background on New Disputes and Claims Resolution Spec 2005: More than 40 claims totaling over $19 Million 2006: QAR – Quality Assurance Review Basically said that the old process was not working costing both CDOT and contractors lots of $. CDOT/CCA Task Force Formed Goal was simply to reduce size and number of claims by developing a new spec, which added DRBs, and training for both CDOT and Contractor personnel. 47

48. Task Force Vision • Empower the project level people • Provide them with a step-by-step process with time lines to work with • Provide them with a tool to assist them - the Dispute Review Board of impartial experts • Resolving issues at the time they occur, not after the project is over 48

49. CDOT DRBs • Standing DRB: Typical three member board formed at the beginning of a project • On Demand DRB: Board formed when the dispute has not been resolved at the Project Engineer and Resident Engineer levels • No dispute can proceed to a claim unless it has been heard by a DRB 49

50. CDOT Track Record =SUCCESS In January 2008, the Dispute, DRB and Claim spec was added to CDOT contracts. Totals from January 2008 to December 31, 2012 • Contracts Awarded: 635 Totaling almost $2 billion • Standing DRBs: 13, Standing DRB Hearings: 3 • On Demand DRB Hearings: 13 (6 on 2 projects) • DRB Recommendations Rejected: CDOT – 0 Contractor – 4 • To Dec. 31, 2012, only one claim has reached the Chief Engineer, was settled after arbitration started 50