Every competitive sport requires an umpire or referee. Even in friendly games, there are conflicts and violations of the rules.
Business is competitive, too. Players try to cut corners or break the rules. That’s why we have courts to act as referees for business disputes. But courts are slow and expensive. Technology projects need on-the-spot umpires who can make calls and settle conflicts quickly and efficiently.
Typically, contracts for major technology projects include dispute resolution clauses that 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 or litigation path.
Escalation of disputes to individual executives or a steering committee can be effective, if they have the authority and motivation to negotiate a resolution. Often it just hardens positions on both sides. No one likes to admit they have 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 cost for both sides.
This is where a project umpire comes in. The umpire is an independent, neutral party, with technical and dispute resolution expertise, who can help the parties quickly and efficiently resolve the conflict.
How It Works
The project umpire role is based on the dispute resolution board (DRB), which has been used in the construction industry for more than 30 years. Where DRBs usually have three members, due to the size and technical complexity of large construction projects, smaller projects can achieve the same result with a single project umpire. [For more information on DRBs, see the Dispute Resolution Board Foundation website.]
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 arbitration decision.
In the construction context, in North America, 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.
Experience has shown that the parties usually accept DRB decisions, whether they are binding or not, because experienced neutrals have real persuasive power. The neutral has no personal stake in the dispute. He or she is impartial and fully informed of all the facts. The parties’ confidence in the DRB’s opinion or decision is enhanced because the DRB has been involved in the project since the beginning.
A project umpire’s non-binding report and recommendations may be admissible in any subsequent proceedings. This has a strong influence on the parties, encouraging them to either accept the recommendations or negotiate an acceptable compromise.
The parties may agree that the dispute process is confidential and statements made to the umpire by the parties will not 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.
The project umpire is a low-risk dispute resolution process for both parties, because they can still go to court or arbitration if the umpire “gets it wrong.” This avoids one of the greatest fears many parties have regarding binding arbitration as the first and final step in dispute resolution.
For this reason, it makes sense for project umpire decisions to be binding, so there is some degree of finality to the process, but for the parties to have a right of appeal. The parties may agree that appeals will only be heard at the end of the project, and that they will all be heard together. Experience has shown that, in most cases, parties win some decisions and lose some, and neither party is interested in appealing them when the project is completed.
Many of the kinds of disputes that arise in technology projects are ideally suited to resolution by a project umpire. They include:
- Whether specific services or deliverables are “in scope” or not
- Interpretation of requirements or specification documents
- Changes in requirements or specifications
- The cost and timing of changes
- Testing and approval of deliverables
- Whether service levels have been met and the consequences that apply
- Billing disputes (payment milestones; usage-based billing; etc.)
There are also many simple contract interpretation disputes that often arise. 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 good business sense to let the umpire decide.
Project umpires are a very cost-effective way to resolve disputes.
Costs vary based on the size, duration and complexity of the project, but construction industry statistics show that the average cost of a DRB is about 0.15% of the project cost (i.e. $15,000 for a $10 million project). The basic cost to have an umpire on call is about 0.05% of the project cost and the final tally is generally less than 0.25%, even for difficult projects with several disputes.
The parties usually split these costs 50/50.
Compare that to litigation costs, which will easily run into six figures, even for relatively simple disputes.