The background to the launch of the procedure lies in the CEDR's response to the dispute resolution mechanism suggested for the NHS standard form PFI contract in the Office of Government Commerce guidance issued in August. This proposes a three-stage dispute resolution process encompassing negotiation, adjudication and arbitration. Mediation and other forms of alternative dispute resolution are only mentioned briefly, and a footnote to the schedule suggests that alternative dispute resolution would not be appropriate for construction contracts. It is unclear why this is considered to be the case.
Since then, the OGC has stated that mediation is considered to be the preferred dispute resolution route in most cases. The CEDR sees its new dispute resolution procedure as bridging the gap between the standard form PFI contract and the OGC guidance.
So how does it work? Broadly, the procedure is as follows: When a dispute arises, the matter must first be referred to the parties' senior executives. The executives meet within a pre-agreed timescale and if they resolve the matter, the resolution is recorded in writing and is final and binding.
If the senior executives are unable to resolve a dispute, the parties have a choice: they can mediate, adopting the CEDR mediation rules, or they can adjudicate. They can of course mediate at any time, whether before or after the dispute has been referred to adjudication.
If the parties choose to adjudicate in the case of a construction dispute, they may follow the CEDR rules or a pre-agreed procedure. They can also choose to adjudicate if it is a non-construction dispute, adopting the procedure in the contract.
The parties may at any time in this process appoint a project neutral. The neutral can be requested to do any one of a number of things, such as advising on the interpretation of the contract, assisting in resolving problems that may arise in relation to the project and advising on the avoidance or resolution of any disputes. The project neutral is independent of the parties and so has to act impartially. He or she cannot be appointed in any other role in the dispute process.
The parties may at any time agree to refer a dispute to an expert for determination under the procedure set out in section 7.
The decisions of the adjudicator or the expert are final and binding unless, within a pre-agreed timescale (90 days is suggested), either party gives notice to the other that it is dissatisfied with that decision. If that happens, the parties have the option to specify in the procedure whether the final recourse is to the courts or to arbitration. There is a caveat however: if the dispute in question has a value or potential financial impact below a certain threshold (£50,000 is suggested) the decision of the adjudicator or expert is final and binding.
There are lots of good things in the CEDR dispute process. For example:
- The procedure is flexible, allowing the parties to choose to mediate or adjudicate or appoint an expert. The use of the project neutral is also a good idea, encouraging a constructive approach to the management of the project.
- The process allows the parties to retain control of the dispute for as long as possible before it is finally referred to arbitration or the court. This is sensible: the longer the parties retain control, the more likely it is that the dispute will be resolved before it acquires a life of its own.
- The financial threshold suggested in paragraph 8.1 is a good idea, helping to reduce the possibility that the costs of resolving a dispute will spiral way beyond the value of the dispute itself.
Although mediation is an option that is always open to the parties to any contract, even if not enshrined in the dispute resolution process itself, expressly including the procedure in the contract always helps to focus attention on the issue. Ultimately, of course, irrespective of what the contract says, the settlement of disputes always depends on the willingness of the parties to reach a sensible compromise.
Simon Lewis is a partner in solicitor Dickinson Dees in Newcastle upon Tyne.