Shaping Asia’s Infrastructure: The use of Disputes Boards for construction projects in Asia—takeaways and pitfalls

Introduction

An efficient and effective dispute resolution is key to minimise disruption to construction projects. Dispute Boards (DBs) is one such mechanism. 

According to a 2024 Kings College London study, 50.9% of construction projects in recent years adopt DBs, with increasing acceptance in several Asian jurisdictions. Despite this growth, concerns remain around costs, parties’ unfamiliarity, and enforceability.

This blog is the seventh in our series: “Shaping Asia’s Infrastructure”, which explores legal developments shaping infrastructure across Asia. This post suggests some key takeaways for parties looking to leverage DBs effectively for their needs.

Key takeaways and pitfalls

A DB is a contractual body that assists parties in avoiding or resolving disputes, typically as part of a multi-tiered procedure alongside engineer determinations and arbitration.

Parties are free to tailor DBs in many ways, including:

• forming a standing body to help avoid disputes at the outset (a Dispute Avoidance and Adjudication Board) or an ad-hoc body after the dispute has arisen (a Dispute Adjudication Board);
• granting the DB the power to issue binding decisions as opposed to non-binding recommendations or advice;
• specifying whether the DB’s decisions are subject to challenge;
• specifying enforcement mechanisms for the DB’s decisions; and
• tasking the DB with additional powers.

When tailoring these DBs, parties should consider the following:

• Is a DB needed? DBs may not be necessary for projects that are simple in nature with a short time frame.
• What kind of DB? Standing DBs may better support dispute avoidance, while ad-hoc DBs allow tailored appointment of panel members to specific issues in disputes, but may face constitution delays once disputes arise.
• Appointment process for DB: Ideally, parties would appoint the DB at an early stage in their construction project (e.g., during the tender process). However, when parties are unable to agree on the appointment of DB members (e.g., once a dispute has arisen), the process of appointment can drag out, delaying the dispute resolution process when it is most needed. One solution is to specify an appointing authority in the tender or contractual documents. For instance, the 1999 Rainbow Suite allows parties to specify the appointing authority in the Appendix to Tender. On the other hand, the 2017/2022 Rainbow Suite empowers the FIDIC President to act as the default appointing authority if the parties cannot appoint.
• Costs of engaging a DB: Parties should weigh the benefits and costs of using a DB. Using a DB will come with additional costs but may result in greater cost savings in the long run (e.g., from arbitration or litigation). A standing DB that is in place for the life cycle of a project will likely cost more than an ad-hoc DB that is only constituted to resolve a specific dispute. Parties will need to consider the size and complexity of their disputes and their relationship with their counterparties.

• Defining the process: DBs are most effective where the process is not overly complicated and litigious. However, this must be balanced against the risk of being overly simplistic and having a lacuna in the process.  

  As a starting point, parties can have recourse to a wide range of standard rules concerning DBs and incorporate model provisions in their contract, e.g., the FIDIC General Conditions of Contract or the ICC Dispute Board Rules. Where tailoring is necessary, parties should do so carefully, to ensure that the rules remain workable. 

  Parties may also consider limiting the number and length of party submissions, the time taken for individual steps and the overall DB process, and the involvement of external experts and counsel. Matters could be streamlined further by empowering the DB to provide its opinion or decision based on a document-only process (without having any examination of witnesses, experts, or hearing).    

• Consider jurisdiction-specific practices. Parties should be mindful of requirements or guidelines on DBs in their jurisdictions and when dealing with specific stakeholders. 

For example:

• Indonesia: The Indonesian Law No. 2/2017 contemplates that disputing parties may use a DB toresolve their disputes. DBs are optional under Government Regulation No. 22/2020 but may be mandatory in some circumstances. For instance, under Government Regulation No. 11/2021, which applies to ministries, regional government, institutions and service providers, DBs are mandated in construction projects involving foreign loans or grants or domestic loans or grants from the Indonesian central or local governments. 

Article 26 of Government Regulation No. 11/2021 further introduces mandatory qualifications for a DB member, requiring Indonesian citizenship, fluency in the language of the contract, and relevant experience and expertise. As under Government Regulation No. 22/2020, a DB’s decision is also final and binding unless an objection is made within 28 days from the date of the decision.

• Japan: The Japan International Cooperation Agency (JICA), which finances construction projects in developing countries, requires standing DBs to be used when projects are over three billion yen (approximately USD 19 million) (see JICA Director’s remarks). 

In other cases, JICA has encouraged the use of standing DBs to prevent disputes given the DBs’ familiarity with the contracts, effectiveness in preventing disputes, and faster time in achieving resolution. JICA “strongly recommend[s]” against using ad-hoc DBs because it is difficult for parties to agree once a dispute has arisen (see JICA DB Manual, p 7). 

• Singapore: The 2018 Singapore Infrastructure Dispute-Management Protocol (the Protocol) applies where parties have agreed to establish a DB according to the Protocol. The Protocol does not distinguish between a standing or an ad-hoc DB but allows an appointing authority (the Singapore International Mediation Centre or Singapore Mediation Centre) to step in, when requested, to appoint members of the DB. The Protocol also grants broad powers to the DB, for instance, to conduct site visits, order measures to protect trade secrets and confidential information, order the production of documents, and examine witnesses (see clause 13.2 of the Protocol).
  
  Consider jurisdiction-specific nuances for whether the use of a DB is mandatory before going to arbitration. In a dispute where one party is keen to resolve the dispute while the other may wish to drag out the process, the DB mechanism may become part of another delay tactic, e.g., by requiring parties to use the DB first before going to arbitration.

  Jurisdictions have taken different approaches to these situations. For instance, in Hong Kong, it is apparent from C v D [2023] HKCFA 1 that a failure to comply with a contractual requirement to use a DB is an issue of admissibility rather than jurisdiction— an arbitral tribunal has jurisdiction to decide on the claims even if the DB has not been attempted or fully exhausted. 

  In Decision 02/2020, a  Vietnamese court upheld the tribunal’s jurisdiction and refused to set aside an award, even though arbitration was initiated without going through the DB or mediation process.

  The position remains less clear in Singapore. In International Research Corp PLC v Lufthansa Systems Asia Pacific [2014] 1 SLR 130, the Singapore Court of Appeal considered obiter that a failure to comply with a contractual requirement before resorting to arbitration could be a jurisdictional defect. However, the Court of Appeal did not consider the jurisdiction and admissibility distinction, but instead focused on whether the preconditions were specific enough to be enforced and whether these had been complied with. The position is therefore unclear.

Conclusion 

DBs are gaining growing acceptance as a valuable means of managing complex construction disputes. With careful design and awareness of common pitfalls, parties can leverage DBs to prevent and resolve their disputes more efficiently.

Freshfields does not advise on the laws of Indonesia and Singapore, and this article should not be construed as legal advice.

*The authors thank their intern, James Liu, for his research assistance.