Key elements of the JV/partnership strategy process, including guidance on how to select partnership type, and build a business case.
JANUARY 2023 – Just as joint ventures are prone to misalignment and disputes among partners with independent interests and objectives, construction projects are also prone to disputes between developers who own the property and the contractors who manage the construction. In both contexts, disputes are costly. The construction industry has been at the forefront of developing innovative techniques, most notably the dispute review board (“DRB”), which could also be useful for joint ventures, particularly those involving capital intensive projects.
DRBs have become quite common on very substantial infrastructure type projects around the world, many of them involving hundreds of millions of dollars or more…DRBs can look at disputes as they emerge and make recommendations to the parties with a view to ‘nipping in the bud’ such incipient disputes.Sir Robert Akenhead, international Arbitrator, and former Judge of the UK High Court“Dispute Review Boards and Other Standing Neutrals”, by Randy Hafer & CPR Construction Advisory Committee Dispute Resolution Board Subcommittee, CPR Dispute Prevention Briefing: Construction, … Continue reading
The goal of a DRB is to have on standby a pre-selected group of experts who are up to speed on a project so they can be quickly deployed to resolve disagreements, allowing the project to swiftly move on and avoid costly delays. The DRB is set up at the start of the project and generally consists of a panel of three construction experts (although it might be just one expert for smaller projects). The panel is given an initial introduction to the scope, timeline, and objectives of the project and receives regular updates (e.g., monthly, quarterly) on progress and challenges throughout the life of the project through some combination of site visits, reports, and meetings with key project management personnel and representatives from the partners. When a dispute arises that the developer and contractor cannot quickly resolve among themselves, the issue is referred to the DRB, which is expected to quickly review the matter and render a recommendation. Generally, the DRB’s decision is usually non-binding (although the parties can elect to make it binding), but the decision will be admissible as evidence in court in the rare instances where the parties elect to pursue litigation. The fees of the DRB are generally shared equally between the developer and the contractor.Ibid. Setting up a DRB does require some upfront investment of time and money, but these costs are minimal compared to the time and expense of prolonged disputes or a legal battle. Studies comparing projects with and without DRBs have shown that projects with DRBs have less cost overruns (in terms of volume and dollar amounts) and delays compared to projects without DRBs.Ibid.
The key benefits of utilizing a DRB are:
- Speed. Selecting neutrals before a dispute has arisen and having the neutrals already up to speed greatly accelerates the dispute resolution process compared to starting the process of selecting and hiring neutrals, preparing background materials, and allowing the neutrals to digest those materials after the parties are already in dispute and awaiting resolution to move forward.
- Effectively resolving disputes. According to the DRB Foundation’s database, which includes over 1,200 construction projects undertaken since 1975 that have used DRBs, 98% of disputes referred to a DRB do not result in any subsequent arbitration or litigation.“Dispute Board Manual: A Guide to Best Practices and Procedures”, by the Dispute Resolution Board Foundation, available for download at https://www.drb.org/dispute-board-manual (accessed Dec. 9, … Continue reading
- Preventing disputes. In addition to the DRB’s efficacy in resolving disputes, DRBs have also been found to have the effect of preventing disputes. Having a neutral on standby incentivizes parties to work with their partners in a forthcoming and productive manner, knowing they will quickly be held to account for any untoward behavior. The DRB Foundation has found that 60% of construction projects with a DRB have no disputes.“Dispute Review Boards and Other Standing Neutrals”, by Randy Hafer & CPR Construction Advisory Committee Dispute Resolution Board Subcommittee, CPR Dispute Prevention Briefing: Construction, … Continue reading
Could a DRB be appropriate for your JV? A DRB could be an effective tool if your JV is ripe for frequent tension or misaligned interests among the owners that could result in disputes. JVs that will involve (a) material capital intensive projects, (b) one of the owners providing material services to the JV, or (c) an operator that will receive significant reimbursement or payment from the JV could all be strong candidates for using a DRB or a single standing neutral to quickly resolve disputes and allow the JV to get back to business. To explore whether a DRB could be appropriate for your project or how to create a comprehensive and effective misalignment management system [add link to Misalignment Management article over bold text] for your JV, contact us to learn how Ankura can help.
“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 GeneralIbid.