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Construction arbitration: How to use innovation to increase efficiency

Karl Pörnbacher, head of the Hogan Lovells International Arbitration team in Germany, delivered the keynote speech at Vienna Arbitration Days 2021, which was held remotely on 12 February and focused on innovation and constants within construction arbitration. Read on to discover the key takeaways from Karl’s speech.

Constants of construction arbitrations include, notably, their complexity and the continued criticism of being too expensive and slow. When it comes to innovations, the construction industry should consider increasing the use of dispute avoidance mechanisms and how to manage arbitration proceedings more effectively, including the use of new technologies and increased digitalization that arose from the COVID-19 pandemic.

Increasing the use of dispute avoidance mechanisms

Parties are encouraged to try alternative dispute resolution (ADR) methods that best fit their projects and internal decision-making processes more conscientiously. Some ADR methods to consider are mediation and dispute boards (DBs). Despite the effectiveness and benefits of the methods, in continental and Eastern Europe the use of mediation and DBs is still rather limited.

While parties rarely agree on mediations in their contract, the ad-hoc use of mediation tends to yield good results. In some matters, the mediator may be able to help the parties structure their negotiations to develop mutually beneficial solutions. Additionally, the mediator may also be able to integrate “evaluative elements” with regard to causality and quantum, hence allowing the parties to make informed commercial decisions.

Turning to DBs, the dispute avoidance objective of DBs is missed in far too many cases. Parties often neglect to appoint a DB before a dispute arises due to cost considerations or distrust toward DBs. However, if appointed at an early stage of the project, DBs could be an effective means to prevent the often costly escalation of conflicts.

Effective management of arbitration proceedings

The front-loaded and active management of the proceedings by qualified tribunals is the key to achieve efficiency in construction arbitrations. The players can implement the following tools to help manage arbitration proceedings more efficiently.

Prompt decisions on procedural and substantial questions

Tribunals can be reluctant to make staggered and rapid decisions on issues like jurisdiction, statute of limitations, or whether a notice of dissatisfaction was given properly and timely. Although early decisions on such issues could increase efficiency of the proceedings, tribunals tend to defer such decisions until the main hearing. Likely reasons include that hearings on such individual topics traditionally were difficult and costly to organize, needed substantial involvement of the tribunal at an early stage, or simply because the tribunal hoped the issue would go away or that it could be dealt with in the main hearing.

Embracing the new normal and, where possible and appropriate, using remote hearings to deal with individual topics as they arise can help to achieve prompt decisions.

Advance identification of issues to be addressed by the parties

As part of the active and front-loaded case management, tribunals, together with the parties, should identify the key issues to be addressed as soon as possible. While this approach presupposes that the tribunal promptly examines the parties’ submissions, it would allow the parties to devote their resources to the most relevant questions.

Dealing with experts effectively

Tribunals often struggle to deal with expert reports based on different facts and methodologies, potentially even addressing different issues and, as a consequence, arriving at opposite conclusions.

To avoid the additional time and costs associated with tribunal appointed experts, where appropriate, tribunals should ensure the use of the same methodology, set of facts, and documents; determine the issues to be addressed by the experts; and facilitate expert conferencing, enabling the parties’ experts to identify areas of (dis)agreement and potential causes of disagreement.

Implementation of best practices

Regarding the implementation of these suggestions, there is no need for new construction arbitration-specific rules. Inefficiencies are not caused by a lack of appropriate rules, but a lack of understanding and implementation of the existing rules next to insufficient management of the respective processes.

Because of this, continued development and promotion of “best practices” to increase efficiency in construction arbitration is crucial. The ability and willingness to apply those best practices should be key criteria for the selection of counsel, arbitrators, and adjudicators.

Conclusion

The COVID-19 pandemic has brought unique challenges to the construction industry, but at the same time has presented the arbitration community with a unique opportunity to organize construction arbitrations more efficiently through the use of new technology and increasing digitalization.