Adjudication is, of course, only one type of dispute resolution. In a paper prepared for the RICS, Nicholas Gould outlines the various options and suggests some of the advantages and pitfalls offered by them.
Introduction
Arbitration was for many years the traditional method for the final resolution of construction disputes. That position has changed for a number of reasons. First, the increasing use from 1990 onwards of a range of ADR techniques, primarily mediation, and then the introduction of adjudication introduced on 1 May 1998.[1] Arbitration and litigation have also been the subject of review. A new Arbitration Act was introduced in 1996, and litigation procedures were also reformed during that year.
This article outlines the range of dispute resolution techniques that are now available in the construction industry. It considers the main driving factors for choosing any particular route and considers the practical applications of the principal techniques.[2]
Arbitration
Arbitration is a private dispute resolution process, in which the parties to the dispute agree to have it settled by an independent third-party arbitrator and to be bound by the decision that he or she makes. The agreement could be entered into after the dispute has arisen, or, as is more common, an agreement could be included within the contract. JCT forms of contract include an arbitration provision as does the ICE and indeed many of the other standard forms.
The arbitrator could be chosen by agreement between the parties or appointed by a nominated body identified in the contract, such as the Royal Institution of Chartered Surveyors. The jurisdiction of the arbitrator is fixed by the terms of the arbitration agreement and the scope of the dispute referred to the arbitration in the notice of arbitration. The Arbitration Act 1996 states in section 1(a) that “the object of arbitration is to obtain a fair resolution of disputes by an impartial tribunal without unnecessary delay or expense”. The Act allows the parties to agree how the dispute is to be resolved, subject to public interest safeguards.
The arbitrator is to act fairly and impartially between the parties, giving each of them an opportunity to put their case. The arbitrator should also adopt procedures which are suitable for the particular case and avoid unnecessary delay or expense, and to provide a fair means for resolving the dispute.
Three of the primary reasons why arbitration is selected in preference to litigation are:
- Privacy and confidentiality: Arbitration is generally private and exclusive. It is only in a small number of cases in which a right of appeal by the courts is accepted that the issues between the parties are made public.
- Choice of arbitrator: The parties can choose the arbitrator or arbitration panel, but are unable to select a particular judge.
- Flexibility: Arbitration is generally a more flexible and versatile process than litigation. For example, the parties could agree that an arbitrator could make a decision based upon commercial principles rather than being restrained by the strict application of the law.
Time and cost have also been considered an advantage, although many have complained that arbitration is a costly and time-consuming process. More recent experience has suggested that some arbitrators have reformed the process, most notably because of their experience with the rapid process of adjudication. Some arbitrators have brought their adjudication experience into arbitration and are able to deal with arbitrations in a more efficient and cost-effective manner.
100-day arbitration
Two separate 100-day arbitration procedures have been produced. CIMAR produced an optional 100-day arbitration procedure requiring the parties to:
- serve a claim, if not already served, within 14 days;
- serve a defence within 21 days;
- serve a reply (and any defence to a counter-claim) within 14 days;
- subject to each of the above serve all documents, witness statements and experts’ reports; and
- no further documents can be served unless requested by the arbitrator.
The hearing should not exceed 5 days, and the arbitrator is required to provide his or her award within 18 days of the hearing.
On 1 July 2004, the Society of Construction Arbitrators issued its 100-day arbitration procedure. The arbitrator has an overriding duty to make his award within 100 days from delivery of the defence to the arbitrator or the arbitrator’s direction. As a result, the 100-day procedure does not start until all of the defences have been served. It could therefore take some time to reach that point. However, once the pleadings are completed there is then the benefit of concluding the arbitration within 100 days.
There appears to be very little experience of the 100-day procedure currently, although it is hoped that more parties will, in the interests of saving costs, adopt the 100-day procedure for those disputes that cannot be finally resolved by way of adjudication, or some other form of ADR.
Mediation and Conciliation
ADR is usually taken to mean “alternative dispute resolution”, or “appropriate dispute resolution”. The most frequently encountered ADR technique is mediation or conciliation. There is little difference between the processes; however, a distinction that can be drawn is that in the construction industry conciliation might be more evaluative. An example of this is the ICE conciliation procedure. If the parties cannot agree a settlement, then the conciliator will make a binding recommendation. On the other hand, CEDR promote a process of mediation whereby the mediator does not make a recommendation.
Mediation is essentially an informal process in which the parties are assisted by one or more neutral third parties in their efforts towards settlement. Mediators do not judge or arbitrate disputes. They advise or consult impartially with the parties in order to try to find a mutually agreeable resolution to the dispute. Normally, a mediator cannot and does not impose a decision on the parties but assists them through their own settlement.
This does not mean that mediation is a soft option. Mediators should and do use a variety of techniques to explore the basis of the dispute and seek a resolution. This can often mean that the parties need to make some tough decisions during the course of the mediation. Essentially, the parties must reach an agreement and so need to take a sensible and pragmatic view about the issues in dispute. In some respects, the soft option is to allow the judge or arbitrator to make that decision for them. In many mediations, the parties need to make some difficult decisions about whether to pursue or abandon parts of their claim.
The main benefits of mediation are:
- Speed: The average mediation lasts 1-2 days. Complex multi-party, multi-million-pound disputes can be resolved in this period. There is of course a short period of time leading up to the mediation during which the parties exchange relevant documents and outline their position.
- Costs: Clearly a short mediation is far cheaper than a lengthy trial or arbitration.
- Confidentiality: The proceedings are, like mediation, confidential.
Mediation has grown steadily in the UK since 1990 and is now used in a wide range of disputes, especially construction and engineering disputes.
Expert Determination
Expert determination is a process in which the parties instruct a third-party expert to decide their dispute. The parties agree in their contract (or once a dispute has arisen) that an expert will decide a technical or valuation issue. It is frequently encountered in rent reviews and company valuations. Expert determination is also encountered in multi-stage dispute resolution procedures, whereby an expert might determine a valuation or technical matter, while disputes about the legal meaning of the document are referred to arbitration or the courts.
Providing that the expert considers the question put to him or her, then a decision cannot be appealed. In the case of Nikko Hotels (UK) Ltd v NEPC Ltd[3] the judge considered that provided the expert asked the correct question, then the decision will be binding, even if the decision seemed entirely incorrect. However, if the expert answered the wrong question the decision would be a nullity.
Adjudication
A contractual adjudication procedure was included in the now out-of-date domestic forms of subcontract. However, it was rarely used in practice, and the powers of an adjudicator were quite limited. A statutory backed adjudication procedure was introduced on 1 May 1998 under section 108 of the HGCRA. This built upon one of the recommendations of the Latham Report.
Under Part II of the Act, a party to a construction contract has the right to refer “at any time” a dispute arising under the contract to adjudication. The Act only applies to “construction contracts” which are defined within sections 104 and 105 of the Act. However, this covers most of the construction operations carried out in the UK, as well as appointments of construction professionals, such as surveyors. Providing that the construction contract complies with the minimum requirements of section 108 of the Act, then the contract can set out any supplementary adjudication procedures.
The eight minimum requirements of section 108 are:
- there must be a right to serve a notice “at any time” of an intention to refer a dispute to an adjudicator;
- an adjudicator should be appointed within 7 days of the notice;
- an adjudicator is to reach a decision within 28 days;
- the time for the giving of the decision may be extended by a further 14 days if the referring party agrees;
- the adjudicator must act impartially;
- the adjudicator may take the initiative in ascertaining the facts and the law;
- the decision of an adjudicator is binding; and
- an adjudicator has immunity, unless acting in bad faith.
An adjudicator’s decision is binding and must be complied with, unless or until the matter is resolved in litigation or arbitration, or the parties settle their differences by consent.
A large number of adjudications have now been carried out, and the general consensus appears to be that the procedure is very successful. The cases that have been reported can be seen at the Adjudication Society’s website.[4] The DTI has recently consulted the industry about some amendments to adjudication legislation, and although some improvements would certainly be welcome, it seems that any changes to the legislation will be minimal.
Dispute boards
Dispute boards cover the concepts of dispute review boards (“DRB”) and dispute adjudication boards (“DAB”). DRBs initially developed in the USA. DRBs comprise three independent people who evaluate disputes during the course of the project and make settlement recommendations to the parties. The recommendations are not binding.
Each party selects a board member, and the parties may then agree on the third, or if they cannot agree the two board members will select the third board member. The DRB then periodically visits the site to gain familiarity with the project and the individuals working on the project. This means that if a dispute arises the board members understand the project and have already built some rapport with the individuals working on the project. They can then deal with disputes by hearing presentations from the parties and suggest solutions.
The term DRB can be misleading, as many contracts that include a DRB now provide for the DRB to make binding decisions. One should therefore carefully check the contracts in order to see what it is the DRB is actually doing.
More recently, a DAB process has been included in the 1999 FIDIC suite of standard form contracts. The key distinction between a DRB and a DAB is that a DAB considers submissions from the parties and then issues a written binding decision. The parties are obliged to comply with the decision, and unless they issue a notice of dissatisfaction within 28 days of the giving of the decision, the decision becomes final and binding.
The FIDIC form of contract provides a period of 84 days from the notice of dispute to the giving of the decision. The FIDIC contract is relatively widely used on substantial international projects. If FIDIC were to be used in the UK, then the DAB procedure would not comply with the HGCRA (because the decision is not given within 28 days) and so the parties will be able to refer a dispute to adjudication under the Scheme for a decision within 28 days. However, FIDIC is used on large international projects where the UK legislation does not apply. Further, the 84-day period is more appropriate for international projects where the DAB members will probably need to travel from various parts of the world in order to meet up and review the projects. Coordinating DAB meetings therefore takes time.
Project mediation
Project mediation attempts to fuse team building, dispute avoidance and dispute resolution into a single procedure. A project mediation panel is appointed at the commencement of a project. It comprises usually a lawyer and one commercial expert who are additionally trained as mediators. There is an initial meeting at the start of the project in order to familiarise the project team with the procedures.
The panel visits the project during the course of construction. They become familiar with the project and the individuals working on the project. The project mediators are then available to resolve any differences, hopefully before they escalate. Project mediation is, therefore, very much a dispute avoidance technique, although with the ability to hold informal or formal 1-day mediations during the project to resolve any issue that might arise.
It is a recent development and has only been used on a small number of occasions. However, it does offer some distinct advantages:
- Economy: It is far more economic than a DRB or DAB, and is therefore available for use on many small and medium-sized contracts. A single project mediator could of course be used on a smaller project.
- Dispute Avoidance: Many in the construction industry now place great emphasis upon dispute avoidance and are more willing to face up to and deal with disputes in a commercial manner. Project mediation allows such players in the industry to avoid and resolve disputes more economically.
- Confidentiality: It is confidential and effective.
The author has drafted a project mediation procedure that CEDR is hoping to launch later this year. A standard procedure will be available for those would like to use project mediation on their projects.
Conclusion
There is clearly a wide range of dispute resolution techniques available to those working within the construction industry. Many of the standard forms will dictate the applicable dispute resolution technique for a particular project. Care is therefore needed when putting together contract documents. Thought should be given to the most appropriate dispute resolution technique for a particular project, or better still a dispute escalation clause should be included which provides for disputes first to be considered by senior managers before progressing to mediation and then either litigation or arbitration.
If the Housing Grants Act applies, then adjudication will always be available “at any time”. In respect of arbitration, thought should be given to whether the 100-day procedure is an appropriate one that could be adopted for the project. For lower-value projects the 100-day procedure should certainly be seriously considered; however, for larger projects it is perhaps less desirable.
[1] Section 108 of the Housing Grants, Construction and Regeneration Act 1996 (“HGCRA”).
[2] For a more detailed discussion of each technique see N Gould, et al (1999) Dispute Resolution in the Construction Industry, Thomas Telford, London.
[3] [1991] 2 EG 86.
