The recently launched NEC4 Engineering and Construction Contract has introduced substantial changes to its predecessor, the NEC3, including an entirely new set of provisions aimed at “Resolving and Avoiding Disputes”, also called Option W, and comprising an amended Option W1 (applicable in South Africa) and W2 (not applicable in South Africa), and an entirely new Option W3 (the Dispute Avoidance Board option) which will be dealt with in a later Alert.
Under the amended Option W1, a further stage in the tiered dispute resolution process has been added and parties are now obliged to make a meaningful attempt to resolve any disputes arising between them on an internal basis prior to embarking on the formal adjudication process. This new preliminary procedure set out in part W1.1 (which operates according to its own time period provisions set out in a Dispute Reference Table) entails the referral of all disputes to ‘Senior Representatives’ of the parties, who are appointed in terms of the contract.
Clause W1.1(2), amongst other things, provides that:
The Party referring a dispute notifies the Senior Representatives, the other Party and the Project Manager of the nature of the dispute it wishes to resolve. Each Party submits to the other their statement of case within one week of notification… (our emphasis)
The time periods set out in the Dispute Reference Table identify different categories of dispute, which of the parties may refer each category of dispute, and by when such dispute may be referred to the Senior Representatives.
W1.1(3) further provides that after receiving the statements of case, the Senior Representatives “attend as many meetings and use any procedure that they consider necessary to resolve the dispute over a period of no more than three weeks…” (our emphasis) and that “at the end of this period the Senior Representatives produce a list of issues agreed and issues not agreed” with the parties putting into effect the issues agreed. One should note that W1.1 of the Option contains no express time-barring provision.
Should any issues remain in dispute following this preliminary process, part W1.3 of the Option provides that a party disputing any such issue and wishing to embark on the second stage of the process may do so by issuing a notice of adjudication “within two weeks of the production of the (abovementioned) list…or when it should have been produced. The dispute is referred to the Adjudicator within one week of the notice of adjudication.”
As the provision governing this second adjudication stage in the process, W1.3 sets out its own notification and referral periods, ostensibly separate from those set out in W1.1, and the Dispute Reference Table.
W1.3(2) furthermore, among other things, contains the following time-barring provision also to be found in NEC3:
If a disputed matter is not notified and referred within the times set out in the contract, neither party may subsequently refer it to the Adjudicator or the tribunal (our emphasis)
As in NEC3, late notifications and referrals will run foul of time-barring provisions, defeating a claim in its infancy for failing to comply.
Unlike its predecessor in NEC 3, however, it is unclear which “times set out in the contract” require such strict observation. Does this provision specifically refer to the periods set out under W1.3? Or does it bear implications that go far wider and prescribe strict compliance with all of the time periods from W1.1 to W1.3?
The answer, at this stage, appears uncertain. Without the aid of the Adjudication Table set out in the NEC3 to anchor its meaning to a strict set of prescribed time periods, the scope of application of the NEC4 Clause W1.3 (2) remains unclear. On a strict interpretation of the wording of this provision, it is arguable that even a failure to strictly comply with the time periods contained in the less formal first stage of the process set out in W1.1 could be fatal for a party wishing to refer a dispute to adjudication.
Parties to NEC4 Contracts subject to Option W1 are urged to ensure that all disputes are timeously notified and referred in strict compliance with the provisions of Option W1 as a whole. Parties who find themselves lagging behind in timeously notifying and referring disputes may, further down the line, be faced with an argument that they are time-barred from doing so.