Palópoli & Albrecht in the Revista Construção e Mercado – Arbitrage: the bridge between the agents of the sector

By Otávio Alfieri Albrecht

How to operate in conflict resolution in construction and infrastructure through arbitration.

Arbitral justice, as it is disseminated in the business world and sometimes in the legal environment, is costly and only applies to large disputes. However, simplified and settled procedures in particular in the old continent, the so-called Dispute Board (DB) and Fast-Track Arbitration, are taking up space in minor disputes, allowing agility and easy access to arbitration courts. Data from the Câmara de Arbitragem Empresarial – Brasil (Camarb), as well as from the largest Brazilian arbitration chambers, show that the civil construction, infrastructure and energy sectors lead the issues in arbitration proceedings, reaching 40% of disputes.

Especially when there is an international presence, the practice becomes almost mandatory by the guidelines of multinational companies. It should be noted that the barriers to the use of arbitration by the public administration have already been superseded, and the use of the arbitration clause in public-private contracting for large infrastructure projects has resulted.

In contracts for civil construction and high-rise infrastructure, the arbitration clause is indispensable and highly recommended by advocacy groups, because, as a “stationary work is expensive”, the sector needs a swift instrument to resolve conflicts. In smaller contracts, the need for rapid procedures to resolve or equalize conflicts has made the Dispute Board (DB) and Fast-Track Arbitration institutes commonplace in the construction and infrastructure sectors.

The sector is very complex in its activity, especially when we verified the need for involvement of several agents and independent participants, which are necessary for the diverse specialties of each one, giving rise to recurrent demands, such as contract renegotiations and controversies related to errors in projects of construction; settlement of accounts at the closure of works; compliance with schedule and application of fine for delay; differences in real estate development (such as area calculation and apportionment of expenses among contractors); execution of post-work guarantees; and underestimation of costs in turnkey projects.

In this universe of constant movement, in which days of delay can represent relevant figures of injury, many efforts are being made to develop cutting-edge mechanisms for the adoption of conflict prevention and resolution measures. The Dispute Board (DB) is an independent and impartial committee composed of experts in a particular area of expertise appointed by the parties to review and administer their contractual conflicts. It should be noted that the members of this committee can be pre-established in the contract or can be indicated in each case by the parties, so each one indicates a member of their confidence and these indicate by mutual agreement a third expert in the area of conflict.

The practice of the Dispute Board (DB), especially in the construction and infrastructure sector, has been widely agreed upon. Once the dispute has arisen, the parties submit it to the Dispute Board (DB), which may be based on different modalities, most notably the Dispute Review Board (DRB), whose manifestations are of a mere recommendation nature; and the Dispute Adjudication Board (DAB), whose determinations constitute for the parties obligation equivalent to the contractual obligation.

The problem encountered in the application of the Dispute Board (DB) modalities is the lack of binding effect of its pronouncements, allowing the reanalysis of all merit by the Judiciary, or even by the arbitration chamber. Thus, although more frequent use of this form of resolution or equalization of conflict, in the hypothesis of more complex controversies should be adopted as a mere pre-judicial or arbitral stage.

This was the best alternative found for the lack of linkage of Dispute Board (DB) by the civil construction and infrastructure sector. It was the adoption of Fast Track Arbitration, thus known in the international scenario, since it consists of a faster and simpler arbitration procedure, which aims at a quick and definitive solution of disputes, removing the judicialization of the litigation.

The procedure adopted for Fast-Track Arbitration is similar to that used in the Dispute Adjudication Board (DAB) in this case, as regards speed and simplification of procedure, with the advantage that the decision of the arbitral tribunal can not be reviewed. Similarly to the Dispute Adjudication Board (DAB), Fast-Track Arbitration may be composed of a panel of experts in the case in dispute. The damage detected in establishing the arbitration procedure in the Fast-Track Arbitration modality is that because of its simpler and more expeditious structure, the depth of the story, the arguments and the production of evidence are restricted. In this procedure, the focus is on celerity to the detriment of a deeper analysis of the facts.

It should be noted that the simplified and expeditious form does not compromise the guarantees provided for in the Arbitration Law, especially with regard to adversarial proceedings, ample defense and due process of law. In order to better illustrate the innovations of the Fast-Track Arbitration procedure, it is necessary to point out the aspects of the regulations of arbitration chambers that bring specific regulation, such as the appointment of only one arbitrator, reduced fees, and procedural rules aimed at speeding the procedure.

Undoubtedly, the vanguard that the civil construction and infrastructure sector presents when applying quick mechanisms of solution and equalization of conflicts. Considering the advantages and disadvantages of the Dispute Adjudication Board and Fast Track Arbitration, each actor should carefully evaluate the method of conflict resolution best suited to the subject of the contract to be drawn up.

“In contracts for civil construction and high-rise infrastructure, the arbitration clause is indispensable and highly recommended by law firms, because as ‘work stopped is expensive’, the industry needs a swift instrument to resolve conflicts.”