New dispute resolution options coming in NEC4
The new NEC4 contracts, due out this summer, will include a number of entirely new options. Whilst we’re yet to see the new contracts, it’s clear that some of the NEC Panel’s efforts have been focused towards areas that are commonly the subject of changes to the standard form through Z clauses.
In terms of dispute resolution, two new concepts have been introduced; Dispute Avoidance Boards and a period for escalation and negotiation.
Dispute boards have been deployed for some years on larger projects and particularly those in cross-border transactions. To accommodate dispute boards into an NEC contract, Z clauses are currently needed. NEC has introduced Dispute Avoidance Boards into the new NEC4 contracts so that amendments in this regard may not be required.
With the new option W3 to be included in NEC4 contracts, the board members (typically three in number) are appointed at the outset of the contract, provided with contract documents and regular opportunities to visit the site. Then, should prospective or actual disputes arise, the members are well-placed to provide a recommendation to resolve the dispute. The dispute may then only be referred to the courts or arbitration if the recommendation is not accepted by the parties.
There are amendments to what was previously the Adjudicator’s Contract to accommodate the appointment of Dispute Avoidance Board members. The new document will now be known as the Dispute Resolution Service Contract.
A four week period for escalating and negotiating the dispute has been introduced. No formal reference to dispute resolution will be possible until the four week period has concluded. This interferes with the statutory right of parties to a construction contract to refer a dispute to adjudication at any time so will only be consensual for contracts that fall under the HGCRA in Great Britain and the Construction Contracts Order in Northern Ireland. This will be mandatory in other contracts, where option W1 is utilised. Such escalation provisions are common in contracts and therefore the inclusion of these new provisions should remove another reason for Z clauses.
This four week period would seem an ideal opportunity to introduce mediation as a route to avoid formal dispute proceedings. Mediation is hugely under-utilised in the construction industry and maybe this is a chance for it to be used?