NEC4 Changes & Dispute Resolution

cost management

NEC4 Changes & Dispute Resolution

The NEC has announced that it is publishing a NEC4 fourth edition of the New engineering and construction contract at its annual conference on the 22 June. It?s now over 12 years since the NEC?third edition was published and without any doubt, it?s had a major impact both in the UK and overseas.

NEC says that this fourth edition is as a result of feedback from industry and in response to what clients are demanding. Although we have yet to see what is going to be published, my concern is that on balance, the majority of changes may benefit the Contractor and not the Employer. Its very important that contracts and risk allocation between the parties to any contract is equitable. NEC has published a white paper titled “The Next Generation – An Explanation of the Changes and Benefits” as I would expect the paper sets out some of the NEC4 changes and benefits. They state that NEC4 changes are “a positive development” but the white paper falls short of identifying the risks.

It’s my view that the risks of NEC4 change should be debated and what is now required is a more critical appraisal of the proposed NEC4 changes by the construction market place.

One key change is the introduction of new dispute resolution provisions. It?s good to hear from the NEC that a more consensual approach to dispute resolution is going to be included in NEC4. It?s always been a bit odd to me that clause 10.1 to

?work together in a spirit of mutual trust and co-operation?

has led to statutory options for adjudication or arbitration.

Whilst I except that those forms of dispute resolution are mandated by Parliamentary statute they are also adversarial and not consensual.

Statute does not stop the parties from deciding to use other more expedient and cost-effective means of dispute resolution to resolve their differences if it is agreed.

The NEC white paper explains the change and benefits as follows

Consensual dispute resolution

NEC4 has introduced a four week period for escalation and negotiation of a dispute, which takes place prior to any formal proceedings are commenced. This requires nominated senior representatives of each party to meet and try to reach a negotiated solution. It is a mandatory requirement where dispute resolution option W1 applies, but is consensual where dispute resolution W2 applies (in the UK where the Housing, Grants, Construction and Regeneration Act 1996 applies). The benefit of this is to improve the chance of a negotiated solution being reached, and maintain collaboration between the parties”.

open-book cost managementAlthough I welcome a more consensual approach to dispute resolution – its going to be no good if the parties do not have a stronger mandate within the contract to settle differences amicably. I am concerned that the new NEC4 provisions will not go far enough. They sound to me more like a limited form of negotiation that you decide to use if you feel like it. It does nothing to promote a more conciliatory approach to disputes and prevention of escalation where Option W2 applies.

We will have to wait and see what form, the actual NEC4 drafting takes before we can jump to any conclusions. However, its already clear that NEC4 could have gone further and opted for a more conciliatory approach to disputes and included mediation and an option for stepped dispute resolution which would have provided better options for Employers to de-escalate conflict quickly!

The Dispute Avoidance Board secondary Option W3 is a helpful option but it will probably not be more suited to major and international projects and not used for the majority of small to medium sized projects in the UK.

For more information about NEC4 changes please see my news bulletin

Don’t forget to watch part 2 as well.