Disputes can arise in any construction project if the contract is not managed effectively. These disagreements can range from minor disagreements to major claims that can significantly impact project timelines and budgets, not to mention stressful for those involved. Most importantly, they impact the result and value being delivered for the client and should be avoided – and with the average cost of a dispute in the thousands, hundreds of thousands, or even millions, the best preventative measure being effective contract management.
Our recent NEC Clinic saw Dr Stuart Kings running through how best to avoid disputes – and importantly how to manage them effectively if disputes are raised.
The NEC’s dispute resolution mechanisms
As well as laying out the standardised contract, the NEC provides guidance notes intended to help guide through relevant processes, with practical examples to demonstrate application. If you have no choice by to go down the formal resolution route, the most relevant guidance document would be Volume 4, where the dispute resolution section breaks down what to do next.
As with other elements of the NEC suite, there is a clear set of procedures to follow if disputes arise, with three main routes.
- Option W1: Applies to contracts that sit outside of the Construction Act, and therefore a rarer option to be selected. This option also includes a time limit for notifying on a dispute, which must be done not more than 4 weeks after the party becomes aware of the dispute.
- Option W2: The most commonly used off-the-shelf option, which complies with the Construction Act. Crucially, there is no time limit set in the clauses here, meaning that disputes can still be raised years after completion – though generally speaking, as time goes by, the less likely it is a dispute would be raised.
- Option W3: Rarely used, this option also applies to contracts that sit outside of the Construction Act. The main difference being the establishment of a Dispute Avoidance Board, which is there to act quickly if disputes arise has to be an odd number of people to ensure an overriding decision.
It’s also important to note that under Option W2, the wording has been selected very carefully to have compliance with the Construction Act
For all options, the key goal is to reach a resolution before needing to escalate to adjudication through submitting statements of case to senior representatives named in the contact data. These statements of case are limited to 10 pages of A4 and supporting evidence but should seek to crystallise the area of dispute. And as adjudicators will examine how parties have acted throughout the process before adjudication, it is in the interest of all parties to exhaust all options prior to escalation.
Ultimately, the nature of construction projects has inherent risk for disputes – so understanding the NEC’s dispute resolution procedures is crucial for managing these situations and making sure you’re not on the back foot.
Adjudications
Hopefully the issue is resolved before this step needs to be taken, but if the parties cannot agree a resolution, then the next steps would be adjudication, which is where horns can really lock on disputes and cause longstanding damage to relationships.
Adjudicators will consider the case at hand and reach an advised decision – considering similar disputes to inform their decision. It’s important to note that there are deadlines to meet for providing information, and for the adjudicator’s decision to be made – unless extended by agreement.
Going to tribunal
Vitally, the adjudication decision is binding but not final – the dissatisfied party must notify such within 4 weeks, otherwise it will lose the right to tribunal, which is the final step. In some cases, parties have been known to get prepped behind the scenes before making this notification to gain a front foot at tribunal.
In the most extreme cases, timing is tactically approached to frustrate the other party, forcing the 4-week cut off for dissatisfaction notification falling in periods of high annual leave, such as the Christmas period for example.
If either party notifies dissatisfaction the case is referred to tribunal for a final ruling via one of two routes:
- Arbitration – if the arbitration procedure is stated in Contract Data part 1
- Litigation – following the courts process
This is where a final ruling will be made by the court, concluding the dispute procedure. It’s also where things become even more expensive and drawn out, as well as stressful for those individuals involved.
No organisation wants to end up in these severe situations, so taking the key steps towards avoiding disputes is always advisable – and by taking proactive steps, you can minimise the risk of disagreements and keep your projects on track. Effective contract set up and management is there to provide protection against things escalating as far as courts, thereby protecting the investment made in the project in question as well.
Read more about how to avoid disputes in your contract management with our top tips here – and get in touch to find out more about how Sypro’s software can help protect your projects.
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