Complex projects raise a number of difficulties when it comes to dispute resolution. What are the key considerations and how can you best address these in your dispute resolution procedure?
Complex construction projects involve a lot of interfacing parties. This can make dispute resolution difficult and disruptive.
This article outlines dispute resolution options for complex projects and important considerations for drafting dispute resolution procedures.
Key considerations for choosing methods of dispute resolution
- Application of the Construction Act: The UK's Construction Act entitles parties to "construction contracts" (as defined by the Act) to refer disputes to adjudication at any time. Adjudication will be a primary consideration for parties to UK construction contracts.
- Timeliness of resolution: A dispute may disrupt and delay works on one package, but could also impact interfacing works, jeopardising the overall completion date of the project. A means to quick resolution of disputes can maintain progress and minimise disruption. "Parking" disputes until completion of the works might appear preferable to minimise disruption during the works but, on a complex project, completion could be years away. By that point the people best placed to resolve the dispute could have forgotten relevant detail, or may have left their organisation and there could be significant cost uncertainty until the dispute is resolved.
- Proportionality: Even on complex projects, not all disputes will be large or complex. A procedure that is shorter and lower cost than court/arbitration proceedings may be preferable in those circumstances.
- Confidentiality: How sensitive is the project? Does the dispute resolution procedure need to ensure that any proceedings are kept confidential?
- Multi-party options: In the event of a dispute involving multiple parties does your dispute resolution procedure provide for a single dispute resolution process involving all relevant parties (rather than separate procedures with each party)? This situation may arise where a dispute involves different package contractors across the project, or where a dispute involves different tiers of contractor within the supply chain.
What dispute resolution options are available?
There is a broad range of dispute resolution options available to parties. The options that work best and are most appropriate for any contract will depend on the particular requirements of the project and contract in question. Some of the available options are explored below:
Adjudication is the primary consideration for many UK construction projects as the UK's Construction Act entitles parties to "construction contracts" (as defined by the Act) to refer disputes to adjudication at any time. However, adjudication is not only available as a result of statute and can be included as a contractual right in contracts not caught by the Construction Act.
We are increasingly seeing contractual adjudication provisions included in contracts which do not fall under the Construction Act. Adjudication has become a well-established and widely used form of dispute resolution.
There are many advantages to adjudication: it provides for confidential, swift resolution of disputes at proportionate cost, minimising disruption to a greater extent than, for example, litigation or arbitration.
However, generally adjudication decisions will not be conclusive and will be subject to final determination in the courts/arbitration, leaving open the possibility of further proceedings. While it is possible to draft an adjudication procedure that allows for multi-party disputes, the key advantages of adjudication would be largely defeated by doing so. The intended 28 day process is already often too tight in the event of a fairly complex dispute being referred, and the addition of further parties would make it impossible.
For multi-party proceedings we therefore need to look to litigation/arbitration.
- Litigation: The advantage of litigation in multi-party situations is the court's powers to hear joint claims, and to consolidate related claims after they have been commenced. While careful consideration will be required before joint claims are commenced (for example, the cost risk when bringing a claim against multiple defendants must be considered), there may be circumstances where multi-party proceedings provide the most proportionate means to resolution.
- Arbitration: While the courts have discretion to hear multiparty disputes or join parties to / consolidate existing proceedings, there are no such inherent powers of a tribunal in arbitration. Parties wishing to use arbitration must, therefore agree appropriate rules upfront in the arbitration agreement, which will need to be consistent across all project contracts if the relevant joinder provisions are to operate effectively. Many institutional rules provide for joint proceedings / consolidation of proceedings but all relevant parties must agree to such rules upfront under their arbitration agreement. This will need to be considered when determining relevant contractual provisions to flow-down the supply chain, and when individual contracts are negotiated with separate suppliers to ensure inconsistencies do not arise.
3. Dispute Boards
If the value and scale of the project justifies the cost, another alternative method of dispute resolution is dispute boards which are utilised by the FIDIC suite of contracts and have been introduced as an option in the NEC4 engineering and construction contract. Dispute boards provide many similar advantages to adjudication. Proceedings will be confidential and may well result in quicker resolution than complex multi-party litigation or arbitration, particularly in the case of a standing board which is appointed for the duration of the project so is familiar with the project and its issues.
Dispute boards are a contractual mechanism so, again, the key consideration will be including appropriate terms within all applicable contracts to ensure all relevant parties are bought-into (and bound by) the process. The cost of a standing dispute board may well be prohibitive on smaller projects, although it is perhaps the large scale, long-term projects that may benefit most from dispute boards in any event.
4. Expert Determination
Another option to consider is expert determination. Expert determination can be a useful means of determining technical disputes where a specific specialised expert opinion is required. Expert determination in such circumstances may prove quicker and cheaper than other dispute resolution options. However, expert determination is not generally well suited where there is considerable dispute as to the law or facts. Expert determination should therefore be considered as part of the "mix" in a dispute resolution procedure, but is unlikely to be appropriate as the "sole" dispute resolution option.
5. Escalation Procedures
Do you require any steps to be taken before formal proceedings are commenced? Meetings of senior representatives or mediation, for example, could lead to earlier resolution of disputes and help preserve the commercial relationship between the parties. Whilethese escalation options cannot cut across a party's entitlement to adjudicate at any time under the Construction Act, they can set an intention of the parties and will apply outside of the adjudication context.
Dispute resolution procedure conditions precedent
Whichever method(s) of dispute resolution are chosen in the circumstances, the drafting does not step there. Parties should also consider any conditions precedent that can be built into their dispute resolution procedure to further tailor it to their requirements. For example, you may want to consider:
- Timescales for notification of claims: Do you require disputes to be notified within a certain time scale, to avoid disputes being "saved-up"? For example, the FIDIC contracts require the contractor to give notice of claims within 28 days. Similarly, the NEC3 contracts require compensation events to be notified within 8 weeks.
- Time limits for referral to final tribunal: Do you require a time limit on referring adjudicated disputes to final resolution in order to avoid "settled" dispute being revisited much later?
When it comes to dispute resolution procedures, one size does not fit all projects. Dispute resolution procedures are key clauses in project contracts and should not be treated as boilerplate. Parties should give specific consideration to the most appropriate form of dispute resolution for the project at the outset, having regard to some of the key considerations discussed in this article.
A variety of dispute resolution option can be layered and tailored to create the most effective and suitable dispute resolution procedure in the circumstances.