Collaboration in the NRC Project: exploring dispute resolution under NEC

This is the fourth of our series of articles providing an introduction to the NEC (New Engineering Contract) series of contracts, in light of its proposed use on the Reconstruction with Changes Project in Peru. In this article we explore dispute resolution under NEC, considering the commonly used options of adjudication and Dispute Avoidance Boards.

As we noted in our previous articles, collaboration is a key philosophy for NEC. The suite of contract aims to act as a stimulus to good management rather than a fall-back position relied upon in dispute situations. When disputes do occur, NEC has specific provisions to deal with them.

NEC is a popular contract choice for pragmatic clients wishing to adopt a collaborative approach to projects.

Outside of the UK, Option W1 will be engaged. Option W1 includes an escalation and negotiation step, where senior representatives attempt to reach a solution, before an adjudication is held if the escalation is unsuccessful. Under Option W1, an impartial adjudicator is appointed by the parties before the contract start date. That adjudicator is appointed on a lasting basis, and will endure for the duration of the full project. They act whenever the parties refer a dispute to adjudication, and will deal with that specific dispute only. Any decision is interim binding, and can only be challenged in specific circumstances. This option mandates that a dispute must be adjudicated before it can be decided in any other manner – usually by referral to the tribunal, most often either arbitration or litigation before the court.

Another practice that can be adopted under NEC is a Dispute Avoidance Board (DAB). The purpose of a DAB is to help deal with disputes before they become overblown. The DAB is appointed at the start of the project and consists of either one or three members, of which the client and contractor choose and appoint an equal number with the final (or only) member jointly appointed. It deals with "potential disputes" by giving a non-binding recommendation.

The DAB can visit the works regularly, so the members are up to date on progress and may help to spot potential disputes before they occur. Unlike an adjudicator, they are more likely to have proactive involvement during the life of the project. If a dispute is notified to the DAB, its members may visit site and make a recommendation as to resolution. If the parties are unhappy with that proposal, it can be referred to another form of dispute resolution within four weeks.

DABs accord with the overarching philosophies of NEC and can have a positive impact on project management and relationships between the parties – if they are treated in a spirit of collaboration and dispute avoidance. DABs proactive engagement with projects can prevent minor issues escalating to become disputes, and the DAB can offer informal advice on a regular basis. If a dispute does occur, they will likely have been familiar with the problem from its inception and are well placed to understand both sides of the issue. However, enquiry into a dispute is limited and the parties often have the opportunity to challenge their decision, so while minor issues may be ironed out, larger ones may remain (and are delayed in being resolved in a more formal way). The cost of DABs can also be an issue with parties that argue they are unnecessary. Others argue that potential costs savings of avoiding or resolving disputes at an early stage is worth the additional project cos

NEC is a popular contract choice for pragmatic clients wishing to adopt a collaborative approach to projects. However, the contract can only achieve those aims if those acting under it abide by it, and parties must bear in mind that they should act in the spirit of the contract to take the most benefit from it; including within a disputes scenario.

Read other items in Construction and Engineering Brief - February 2021

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