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“Private money is available again and therefore other forms of contract are back in use; mainly RIAI and FIDIC contracts with NEC becoming increasingly popular. While everybody agrees that dispute avoidance is better than dispute resolution, disputes inevitably happen in construction projects and a number of imminent developments mean the approach to disputes will change again. For now however, it is largely determined by the fact that most disputes in recent years have been dealt with under the PWC contracts.
The PWC contracts provide for conciliation with a binding recommendation to be issued by the conciliator in the event that the parties cannot reach agreement. Either party may reject the recommendation and refer the dispute to arbitration. Payment must only be made in accordance with a recommendation on the production of a bond. Arbitration is lengthy and expensive and bonds are not easy to obtain. It is no surprise therefore that the vast majority of disputes have been resolved at conciliation either by agreement during the conciliation process or after the issue of a recommendation but before proceeding to arbitration. Experience suggests that parties are increasingly engaging in conciliation with a genuine aim of resolving the dispute and are in effect treating the conciliation as a form of mediation, although the contracts as drafted do not strictly provide for this.
There are two developments under way in Ireland which will change the dispute resolution landscape in Ireland over the next few years. The first are the interim amendments to the PWC contracts and the second is the introduction of adjudication under the Construction Contracts Act 2013. Whether the change is for the better is yet to be seen.
1. The PWC Amendments
The Government Contracts Committee has been conducting a review of the PWC contracts over the last year. One of the recommendations arising from the review is the introduction of interim measures amending the dispute resolution process in two ways:
- By providing for a mandatory management escalation process – this will see potential disputes referred to senior level management in both the employer and contractor organisations before proceeding to conciliation. The senior management will be named in the contract and operate as a Project Board. The Project Board will be responsible for engaging in informal dispute resolution in order to prevent or at least minimise claims proceeding to conciliation;
- By the introduction of a Nominated Conciliator to be appointed at the outset of the project – all disputes which cannot be resolved by the Project Board will be referred to this Nominated Conciliator.
The proposed amendments to the contract conditions are expected in October. However, these changes will only apply to contracts with a value in excess of €10 million, though there is an option to include them in projects with a lesser value.
While the Construction Contracts Act became law on 29 July 2013, it still has not been commenced and come into effect. Once in force, it will introduce statutory adjudication for payment disputes in construction contracts. Statutory adjudication will apply to contracts with a value in excess of €10,000, excluding most private residential contracts. Any party in the contractual chain, except suppliers unless also responsible for installation, can refer a claim concerning payment to adjudication. A decision will be given within 28 days, with an extension of up to 14 days if the parties agree. The decision of the adjudicator will be binding until finally settled by the parties or determined differently either by a court or by arbitration.
Dr Nael Bunni has been appointed as the Chairman of the Panel of Adjudicators. The selection process for the Panel of Adjudicators is underway. The Code of Practice is currently being drafted. Work is being carried out to determine whether amendments to the rules of court are required. Whether the courts system will allow a change in its rules to allow fast tracking of adjudication decisions is still being determined.
What Does the Future Construction Dispute Resolution Landscape Look Like?
That is not entirely clear. We will have a strengthened conciliation procedure with the emphasis on early intervention to avoid disputes and the proactive management of disputes as they arise. Experience shows that conciliation can provide a relatively informal forum, which can be treated almost like a mediation affording parties a practical and relatively inexpensive means of resolving disputes by agreement.
We will also have a mandatory fast track adjudication process sitting alongside conciliation. Experience elsewhere suggests that adjudication can lead to an increase in disputes and adversity between the various parties in the contractual chain and inevitable court challenges. Undoubtedly, a forum for resolving disputes quickly is attractive, but without an effective means of enforcing those decisions, it is difficult to see how adjudication can achieve that objective.
It is impossible to conclude other than “we will wait and see”.”