Introduction

As reported in the last issue of Under Construction, the new NEC4 suite of contract documents was published on 22 June.

The NEC4 represents an iterative step forward from its predecessors. Many changes appear to reflect changes in law or market practice in the twelve years since NEC3 was published (see the new bribery and corruption and BIM provisions for example).

Also apparent is that the NEC4 suite includes a renewed emphasis on collaborative working. This is perhaps best represented by the new NEC4 Alliance Contract, but is apparent in other updates to existing contracts also – not least in an updated, conciliatory, approach to dispute resolution and (to adopt NEC4’s new nomenclature) dispute avoidance.

Resolving disputes

Options W1 (for projects where the UK’s Construction Act does not apply)) and W2 (for contracts subject to the UK’s Construction Act) will look largely familiar to users of the NEC3 contract in that they still anticipate resolving disputes by way of adjudication on substantially the same terms as before.

However, before a matter may be referred to an adjudicator, the parties must first attempt to resolve the matter without third party intervention by referring it to the parties’ nominated “Senior Representatives” who must seek to resolve the dispute in the following four week period.

Beyond a requirement to issue statements of case within the first week, the mechanism has no fixed procedure, allowing the parties to resolve the matter as they see fit. The parties can only refer any unresolved matters to the adjudicator at the end of four weeks. For UK based projects, which are subject to the Construction Act) and where option W2 would be used, this procedure is non-binding which reflects the unfettered right under the Construction Act to adjudicate “at any time”, but for iprojects where option W1 is being used, it would be binding on the Parties.

For projects using option W1, parties will be required to either seek to resolve the dispute in good faith (and will be subject to the NEC’s requirement to act in a spirit of mutual trust and co-operation in doing so) or effectively wait for four weeks before the dispute can be escalated.

Dispute Avoidance Boards

The NEC4 also introduces a new option W3, which provides for a “Dispute Avoidance Board” as an alternative to the two-tiered approach of negotiation by the Senior Representatives followed by adjudication. W3 is suitable where the Construction Act does not apply and is likely to be used mainly on international projects.

Option W3 envisages that at the start of a project a Dispute Avoidance Board will be appointed (comprised of one or three members at the option of the parties). Disputes would be referred to the Dispute Avoidance Board before being escalated to adjudication, in a manner that echoes the concept of the “Dispute Adjudication Board” under the current FIDIC forms of contract.

An interesting divergence between the approach under the current FIDIC suite and the new NEC4 is the language that the operative provisions are couched in. Under FIDIC, either party may refer a dispute to the Dispute Adjudication Board, who will ultimately give a decision that is binding on the parties (albeit with the right to escalate the matter through further tiers of dispute resolution).

Where parties under an NEC4 contract opt to use a Dispute Avoidance Board, they may find the mechanics to be fundamentally similar to those under FIDIC, but that care has been taken to express matters in more neutral language. Under the NEC4, parties would not refer “disputes” to the board, but rather “potential disputes”. Further, while the parties would be bound to refer the matter to the board before resorting to arbitration or litigation, the board’s decision is not legally binding but expressed as providing “a recommendation for resolving” the potential dispute. Practically, users may find the procedures very similar – they would have to appoint a board, refer their grievance to the board, and elect to either accept the board’s decision or escalate that matter further – but the authors of the NEC4 have evidently sought to make this a benign and conciliatory process.

This desire to foster good will and co-operation is taken further still. The Dispute Avoidance Board is to be appointed with a brief allowing it to “take the initiative in reviewing potential disputes”. The NEC4 also allows the parties to specify that the Dispute Avoidance Board will carry out periodic inspections throughout the life of the project in order to identify potential dispute. The intention appears to be to foster a collaborative environment that will prevent disputes from crystallising.

Conclusion

The NEC4 places a renewed emphasis on collaboration and this is particularly evident in its approach to disputes. Whichever dispute resolution option is preferred, the NEC4 contracts will ask the parties to seek a solution that avoids a dispute developing.

NEC4 has also moved towards the FIDIC suite’s concept of the “Dispute Adjudication Board” but has built on that concept further to give the board a remit to pro-actively identify issues before they become disputes. The FIDIC suite of contracts is also undergoing a revision under which the equivalent board is to be given a more proactive brief in avoiding disputes, which appears to be indicative of a coming together in approach of these two forms of contract.