Resolving Construction Disputes: Review of State DOT Processes (2024)
Chapter: IX. DISPUTE RESOLUTION ON LARGE DESIGN-BUILD AND P3 PROJECTS
loss of productivity claim was deficient. This is not intended to suggest that the Central Specialties award is wrong. It does demonstrate that even a reasoned arbitration award may lack sufficient detail to have precedential value to others. What is clear is that the arbitrators in both the Granite and Central Specialties arbitrations could have concluded that the contractor was due money for its loss of productivity claim, but nevertheless found that the contractor failed to meet its burden of proving cause-and-effect.
Another arbitration order from North Dakota that we will discuss is captioned Gowan Construction v. North Dakota Department of Transportation, administered by the AAA and decided on or about June 27, 2022. What is unusual about this order is that the arbitrators granted summary judgment denying the contractor’s claim. As noted in several sections of this digest, it is rare for arbitrators to grant these motions, as they generally believe it appropriate to hear the whole case before ruling—particularly to avoid having their awards vacated for failure to consider relevant evidence. In this case, the arbitrators looked at the claim and the contracts, concluded that they did not need any other evidence, and denied the claim outright.
The basis of the claim was that the supplier to a DBE subcontractor had refused to honor its price for geofabric material because of supply chain problems it experienced due to COVID-19. The supplier’s contract price was $0.65/square yard and it demanded a price of $0.92/square yard, which cost the subcontractor $158,000. The general contractor passed this through to NDDOT, which rejected the claim on the grounds that it did not bear the risk of material price increases.
The arbitrators were sympathetic, noting that this was a substantial (41%) increase on the material cost of the geofabric. However, the arbitrators found nothing in the contracts that shifted the risk to NDDOT of escalations in material prices, as both the subcontract and the prime contract were fixed price lump sum contracts. With no explanation, they rejected the notion that the claim could be based on force majeure, acts of God, or any other contract theory.
IX. DISPUTE RESOLUTION ON LARGE DESIGN-BUILD AND P3 PROJECTS
There is no question that when a DOT is undertaking a large, complex project delivered through design-build or some form of public-private partnership (P3), the industry will take a close look at the claims and disputes process anticipated by the DOT. In large part this is because of the higher levels of risk associated with these projects. However, it is also because the pool of potential contractors or concessionaires is much more limited, and the entities that enter into these contracts carefully weigh how, among other things, changes, claims, and conflicts will be determined. As discussed in Chapter VIII, relative to the Travelers study, this is particularly the case today, as many of the country’s largest infrastructure contractors have made the business decision to shift their work away from lump sum, competitively bid design-build and P3 projects. The dispute resolution process is one of many risks that will lead them to make go/no-go decisions on projects.
To be clear, the issue of dispute resolution processes is not confined just to large design-build or P3 projects. For example, if the project involves a tunneling component that will use a tunnel boring machine, tunneling contractors virtually mandate that a DRB be used—otherwise they will not bid. This is the case not only for design-build projects, but also for projects delivered through design-bid-build or a Construction Manager/General Contractor (CM/GC) approach.
As discussed in Chapter IV, many DOTs have implemented dispute resolution processes to address these concerns on some of their design-build and P3 projects. Two of several examples cited were Virginia DOT’s Hampton Roads Bridge Tunnel (HRBT) project and Pennsylvania DOT’s Rapid Bridge Replacement Project. The HRBT project is being delivered through a design-build process. As noted, while VDOT does not conventionally use DRBs, it implemented a traditional, three-member standing DRB for that project primarily to address its tunneling component. PennDOT’s project is a P3 project that does not involve tunneling, but where PennDOT used a DRB for the first time. It, too, was a traditional, three-member standing DRB that met throughout the life of the project until it was completed in 2021. Georgia DOT and North Carolina DOT are among others that have modified their “standard” dispute resolution approach to address P3 projects.
The discussion about how to implement ADR on design-build projects is a bit simpler than it is for P3s. For those DOTs that commonly use some form of ADR, the decision is generally no different than would be the case for any project, although the system may become more robust for a large design-build project. The DOT could decide, for example, to use a standing DRB rather than an ad hoc one, particularly given that the cost associated with the DRB is negligible compared to the project cost.
However, if the DOT does not commonly use an ADR process, it may have to rethink its existing process. Some may decide that having access to third parties through a DRB, independent expert, or other means might be in the best interests of the project and give the DOT some advice, or at least some “political cover,” if hard commercial or technical decisions need to be made. In reality, however, the typical business case for DOTs who do not commonly use ADR is much simpler. It is driven by market forces that are needed to make for a viable project – i.e., what do bidders that the DOT wants to be interested in the projects expect or demand from the DOT in the way of claims/dispute resolution?
The discussion about P3 is much more complicated. Everything that was discussed earlier is true for P3, particularly the need to get marketplace interest. However, P3 services can consist of many types of services. If it is simply being used as a way to deliver a design-build project, then there is no real issue. But what if the concessionaires include not only design-build, but also financing, operations, and/or maintenance that extend over a decades-long period? This requires major thinking as to how to effectively implement an ADR process.
Table 4. Dispute Resolution Mechanisms on Major P3 Projects
| Project Name | Delivery Method | DOT | Dispute Resolution Mechanism |
|---|---|---|---|
| Michigan I-75 Modernization Project (Segment 3) | DBFM | Michigan DOT | DRB |
| I-77 Managed Lanes Project | DBFOM | North Carolina DOT | Mediation |
| Belle Chasse Bridge and Tunnel Replacement | DBFOM | LaDOTD | Third Party Facilitator; Mediation |
| Central 70 Project | DBFOM | Colorado DOT | DRB |
| US 36 | DBFOM | Colorado DOT | DRB |
| Metro Region Freeway Lighting | DBFM | Michigan DOT | DRB |
| Rapid Bridge Replacement Project | DBM | PennDOT | DRB |
| SH99 Grand Parkway Segment F/G Project | DBM | TxDOT | Mediation; Dispute Avoidance Boards |
| North Tarrant Expressway Segments 1 & 2 | DBFOM | TxDOT | Mediation; Dispute Avoidance Boards |
| I-595 Corridor Roadway Improvements | DBFOM | FDOT | DRB |
Is the DOT only going to use, for example, a DRB for the design/construction component? What if there is a dispute during construction that changes the financial model for the multi-decade commercial relationship? Is the construction DRB capable of understanding how to address those disputes, or will those disputes be off-limits to the DRB? Will there be a different DRB for financial issues that affect the financial model and overall commercial relationship? Will a new DRB be used for either operations and/or maintenance? Given the structure of many P3 projects, will the design-build contractor (who will have a contract with the concessionaire) have the ability to present its claims before the construction DRB and, if so, how? There are likely dozens more questions that can be asked about how this will work, but the reality remains—this is complicated.
Several notable transportation P3 projects recently resulted in terminations of the relationship between the public owner and the concessionaire—specifically the Denver Great Hall project at Denver International Airport and Maryland’s Purple Line rail project. Each of those projects used standing DRBs whose members were appointed but were either never used (Denver Great Hall) or used sparingly. Neither DRB was asked to consider the disputes that led to termination of the relationship. In both cases, the DRB knew virtually nothing about the details of the disputes between the parties. Whether or not this was intended is one thing, but if a DOT is going to use a standing DRB for a long-term design-build-finance-operate-maintain (DBFOM) P3 arrangement, it needs to think about questions like this.
It is beyond the scope of this digest to delve into this subject deeply. Several industry papers have considered the use of DRBs on P3 projects. One is published by the DRBF, which provides a thorough discussion of the various issues in using DRBs on decades-long contracts that might have financing, operations, and maintenance services.427 Another is a recent publication authored by a graduate student at CalPoly Pomona entitled, “The Effective Use of Dispute Review Boards on Public Private Partnerships in North America.”428 This latter publication is particularly useful to readers of this digest as it includes a detailed explanation of the dispute resolution mechanisms used in 10 major P3 projects, projects which are being delivered by DBFOM, design-build-finance-maintain (DBFM), and design-build-maintain (DBM). These projects are described in Table 4 (“Dispute Resolution Mechanisms on Major P3 Projects”).
In summary, the contract documents for these projects show that: (a) six are using DRBs; (b) one is using a third-party facilitator; (c) two are using Dispute Avoidance Boards; and (d) four have contractual mediation. None are using arbitration as the final “binding” process.
Because the number of DOT projects that are using P3 as a delivery vehicle is already substantial and continues to grow, it is difficult to provide a simple answer to how DOTs are viewing the disputes process. Based on the available literature, it appears that DOTs are using conventional DRBs for the design and construction process. Even though some transportation agencies (e.g., the New York/New Jersey Port Authority’s Goethals Bridge Project) considered or actually specified both a “technical” and “financial” DRB, nothing readily available in the published literature suggests this is happening.429 Readers interested in this subject further should consult with one of the many P3 advisors
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427 DISPUTE REVIEW BOARD FOUNDATION, RECOMMENDED BEST PRACTICES FOR USE OF DISPUTE REVIEW BOARDS (DRBs) ON PUBLIC PRIVATE PARTNERSHIP PROJECTS IN THE U.S. AND CANADA, (July 21, 2015), available at https://drbf.memberclicks.net/assets/Recommended-Best-Practices-for-Use-of-Dispute-Review-Boards-DRBs-on-Public-Private-Partnership-Projects-in-the-U.S.-and-Canada.pdf (last visited October 29, 2023).
428 Gayathri Melaedvattil Jaganathan, The Effective Use of Dispute Review Boards on Public Private Partnerships in North America, (2022) (Graduate project, CalPoly, Pomona), available at https://scholarworks.calstate.edu/downloads/2r36v392c (last visited October 29, 2023).
429 While the Port Authority assembled a financial DRB on Goethals, that DRB was disbanded after its first meeting.
