“Project Umpire” — Alternative Approach to Governance of Complex Projects

As winter turns to spring and hockey gives way to baseball and soccer, I can’t help but think about the role of referees and umpires and wonder why we don’t use them more for commercial dispute resolution.

Every competitive sport needs a referee or umpire. Even in recreational leagues, players know there will be disputed plays, broken rules and conflicts.

Business is highly competitive. Technology projects, in particular, need on-the-spot umpires who can make calls quickly and settle conflicts efficiently.

Contracts for large, complex projects typically require disputes to be escalated to senior executives or a project steering committee before going to litigation or arbitration. Some contracts also include mediation as a “circuit breaker” before a dispute heads down the arbitration/litigation path.

Escalation can be effective, if the executives or steering committee have the authority and motivation to negotiate a resolution. Often, however, it just hardens positions on both sides.

No one likes to admit they made mistakes. Project managers fear they will be blamed for problems they are unable to solve. Senior executives may have other priorities or be unwilling to deal with the issues. So conflicts do not get escalated; or if they are, they may not be resolved effectively. The escalation process – if it takes place at all – is often just a restatement of each party’s existing position. There is little incentive or opportunity for a meaningful discussion to resolve the problem.

In the meantime, the dispute causes delays and extra costs for both sides. Litigation is not an effective option. Courts are simply too slow and expensive.

This is where a project umpire comes in. A neutral party, with subject-matter expertise and dispute resolution experience, can help the parties quickly and efficiently resolve the dispute.

The project umpire role is based on dispute resolution boards (DRBs), which have been used in the construction industry for more than 40 years. Where DRBs usually have three members, due to the size and technical complexity of large construction projects, smaller projects may achieve the same result with a single project umpire.

Unlike other forms of dispute resolution, which are activated only after a dispute has arisen, the project umpire is appointed at the beginning of the project. The umpire is an integral part of the project management process, available as needed, for the duration of the project.

The umpire is given all of the contract documents and briefed on the project at a kick-off meeting. He or she receives regular progress reports and minutes of project meetings throughout the project. Meetings are held with the project managers or steering committee – in construction, these meetings are often combined with a site visit, to see first-hand how the work is progressing.

The umpire is briefed on potential disputes as soon as they arise. Some disputes can be resolved by an informal discussion between the umpire and the parties, with the umpire acting as a facilitator or mediator. If there is no resolution, the umpire will adjudicate the dispute and render a decision.

Usually, there is an informal hearing and written report. At the hearing, each party has the opportunity to explain its position and present any relevant information and documents. The other party has an opportunity to respond. The umpire can ask questions and seek additional information. The intent is to determine the facts as expeditiously as possible.

The umpire’s report can take a number of forms, depending on what the parties want. It may simply be a neutral evaluation of the pros and cons of each side’s position. It may a non-binding recommendation or a binding decision.

In the construction context, in Canada and the United States, DRB recommendations are usually non-binding. In international projects, such as those sponsored by the World Bank and those that adopt the dispute process of the International Chamber of Commerce, DRB recommendations are binding unless one of the parties elects to appeal.

In most cases, when a neutral, independent umpire renders a decision based on the contract and the evidence submitted by both parties, it allows the parties to put that issue behind them and move on with the project, even if they are not completely happy with the result.

Experience has shown that the parties usually accept decisions, regardless of whether they are legally binding or not, because the panel is impartial and fully informed of all the facts. The parties have confidence in the umpire’s judgment because he or she has been involved in the project since the beginning. And the umpire will continue to be involved. So there’s a strong incentive to either accept the decision or recommendation – or to us it as the basis to negotiate another acceptable resolution of the dispute.

As with any mediation or arbitration, the umpire process is private and confidential. Statements made to the umpire by the parties cannot be used against them in subsequent proceedings. In practice, though, it would be very awkward for either party to later deny evidence given or arguments made to the umpire. And a failure to disclose relevant evidence to the umpire would be very damaging to a party’s credibility.

In commercial disputes, as in sports, umpires will sometimes make the wrong call. If project umpire decisions are to be binding, the parties may want to have a right of appeal if the umpire “gets it wrong.” The appeal may be limited to questions of law, including contract interpretation, or it may include findings of fact. Either way, this avoids one of the greatest fears many parties have regarding binding arbitration as the first and final step in dispute resolution.

In many construction projects, appeals can only be made at the end of the project. This is the case in the UK, where construction adjudication decisions can be appealed but only after the work is completed. Experience there has shown that, in most cases, when all is said and done, decisions balance themselves out and neither party is interested in appealing them any more.

You win some; you lose some.

Many of the types of disputes that arise in technology projects are ideally suited to resolution by a project umpire. They include:

• Ownership of jointly-developed technology
• The scope of license rights in a specific “field of use”
• Whether specific services or deliverables are “in scope”
• Changes in business requirements or technical specifications
• The cost and timing of changes
• Testing and approval of deliverables
•  Whether service levels have been met and the consequences if they have not
• Billing disputes (payment milestones; usage-based billing; etc.)

The umpire can also be used to resolved contract interpretation disputes. Each party reads a clause differently and they need a neutral interpretation to proceed to the next step.

In all of these cases, the parties need to continue to work together. They can’t afford to let these disputes hold up the project. If they can’t agree between themselves, it makes sense to let an umpire decide.

The key is to determine the terms of reference for the umpire at the beginning of the project. Otherwise, the dispute resolution process itself can just become another matter for dispute.

In 25 years of negotiating technology contracts I have constantly been amazed at how much faith both lawyers business people put in contracts. They seem to believe that the contract will resolve every issue and there will never be any disputes.

Anyone who has played – or even watched – competitive sports knows that this is simply not the case. There will always be disputes that need to be resolved quickly and fairly, so play can continue. The umpire or referee plays an essential role in every competition.