One of the reasons that mechanics liens are such a great construction payment remedy is that a lien filing will typically be enough to force payment, making litigation unnecessary. Even the threat of a mechanics lien (in the form of a Notice of Intent) typically speeds up payments. Everyone hates litigation – even more than they hate liens. It’s risky, expensive, and at the end of the day, often it’s only the lawyers who win.
To avoid litigation, many construction contracts call for mediation or arbitration. But there’s another form of alternative dispute resolution that’s especially effective in the construction industry – the use of a Dispute Resolution Board or “DRB.”
Dispute Resolution Boards (DRBs)
First, let’s note that a Dispute Resolution Board is not the absolute cure for all disputes in the construction industry. Currently, DRBs are usually only used for massive projects. They have been particularly helpful for highway and other large infrastructure projects, as well as other projects that combine public and private resources — a project structure that’s commonly known as a P3 project. This means that the average contractor or specialty sub may not ever end up on a project that’s big enough to warrant having a DRB in place.
However, Dispute Resolution Boards are gaining popularity. Read on as we’ll discuss:
What a DRB is, and,
Why DRBs work
1. What Is a Dispute Resolution Board?
Admittedly, we aren’t the DRB experts, but our friends at Construction Executive have a nice overview of the subject of DRBs. Also, keep in mind that DRBs can go by a number of different names: Dispute Resolution Boards, Dispute Review Boards, Dispute Adjudication Boards, or simply Dispute Boards. For the sake of clarity, at least for this article, we’re sticking to “Dispute Resolution Boards” or “DRBs.”
Anyway, a DRB is pretty much exactly what the name implies, that is, a board of individuals that resolves disputes on construction projects. It can be anywhere from 1-3 people, though conceivably a board could include many more individuals. They’re appointed before any disputes arise – typically at the time of the contract. Also, these people typically aren’t lawyers! Rather, they’re experts in the field for whatever project they’re used on. For a project where a DRB is present, typically, an owner and the general contractor will agree on who will serve on the DRB. Sometimes, both sides will nominate a member and then the pair will appoint a third member.
2. Why Do Dispute Resolution Boards Work?
DRBs work for a number of reasons. First, they work because both parties agree to let a neutral third party (the Dispute Resolution Board) either make a decision or recommendation on how to resolve the dispute. You may be thinking “Wait, that’s just the same as a mediator or arbitrator.” But hold on! DRBs are more involved.
Beginning with the contracting stage, all the way through completion – the members of the Dispute Resolution Board are involved and understand the ins and outs of the projects well as the relationships of all parties. They typically even perform walk-throughs to check on the job. Because the third party in this situation is simultaneously impartial and intimately informed with the project, it’s easier to come to a fair result on disputes.
The real magic with Dispute Resolution Boards is their preventative value. According to the Dispute Resolution Board Foundation, 60% of projects utilizing a DRB have no disputes at all. Further, 98% of the disputes that reach the Dispute Resolution Board don’t go on to further litigation or arbitration.
Why’s that? There are a number of factors that could move the needle in either direction here, but importantly, utilizing Dispute Resolution Boards sets the tone from the start of a project. Expectations are clear, and so is the method to resolve disputes.
Honestly, we love the DRB approach! Preventative measures (just like proactively sending preliminary notices on your projects) combined with extra transparency and communication sounds a lot like what we consider to be Construction Payment Utopia.