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CEDR’s dispute resolution procedure for PFI and long-term contracts

This year has been relatively quiet on the adjudication front, with relatively few reported cases. Consequently, I keep finding myself having to look at other things to write about. This has meant the topics have become more diverse as time goes on (and even Star Trek has managed to creep into the blog!). This week is no different, and it is the turn of CEDR’s dispute resolution procedure for PFI and long-term contracts.

CEDR’s dispute resolution procedure for PFI and long-term contracts

I’m not sure if you are familiar with CEDR’s dispute resolution procedure for PFI and long-term contracts. I wasn’t until the other day. Certainly, it isn’t something that I have come across in practice (despite being a member of CEDR’s construction adjudication panel). That made me wonder what it is and how long it has been around. A quick search on CEDR’s website reveals the procedure was first launched in September 2002. A second edition followed in 2004. I’m not really sure what version we are up to now, but the copy I have is dated 2016.

When would you use this procedure?

CEDR’s website refers predominantly to infrastructure projects under the banner of PFI and PPP. It notes that such projects are:

“…usually large scale, long term, high profile, and involving multiple parties in complicated financial structures and contractual relationships.”

Within this, CEDR includes the procurement of buildings, facilities management and construction services. As you might expect when these types of things are procured, there is always scope for a dispute. CEDR highlights a number of common issues, such as the:

“…interpretation or application of contract terms, unforeseen cost over-runs, re-financing difficulties, termination of contracts, defect claims, or disputes between contractor and subcontractors…”

The sort of disputes it envisages runs the gamut of what we might consider to be fairly typical construction disputes.

CEDR’s website goes on to describe a need in PFI and PPP disputes for the “support of experienced neutrals who are well versed in the complexities of these arrangements”. Arguably, the same could be said for any construction dispute that involves parties who infrequently find themselves in conflict with their contracting party. Even “regulars” sometimes need the help of a neutral.

Why am I interested in the procedure for PFI and long-term contracts?

I was interested in the procedure for a number of reasons, not least because of the way it is written to take account of disputes that fall within what it calls “construction disputes” under the Construction Act 1996, and disputes that fall outside the Act’s scope. I presume this allows for flexibility when it is included in a contract, but could cause confusion to those parties less familiar with the provisions of the Construction Act. As we all know, the question of whether a party is a party to a construction contract is one of the more contentious areas and has generated considerable case law. On top of that, we have the exclusions included in the various Exclusion Orders. Part of me wonders whether it would have been simpler to follow the NEC’s approach of having two separate dispute resolution regimes, depending on whether the Act applies or not to the parties’ contract.

A multi-tiered dispute resolution clause

The other feature that struck me was the way the dispute resolution clause escalates (or is multi-tiered) so that:

  • Parties start with “Senior Executives” meeting and attempting “in good faith” to resolve the dispute (clause 3).
  • If that fails, the parties may appoint a “Project Neutral”, who is “independent of the parties” and will act “impartially in the provision of all advice and assistance to the parties”. The “Project Neutral” may be consulted on multiple occasions (also under clause 3).
  • Thereafter, the parties may agree to refer their dispute to mediation. CEDR is named as the appointing body and the CEDR mediation rules will apply to any mediation (clause 4).
  • We then move on to adjudication. If the dispute is a construction dispute (as defined), then clause 5 applies. However, if the dispute is not a construction dispute, the parties can only refer a dispute to adjudication if they both agree. Any adjudication will proceed under the provisions of clause 5. These provisions are a bit like the adjudication provisions of the Scheme for Construction Contracts 1998, but not quite the same.
  • The parties can, at any time, agree to refer a dispute to expert determination (clause 7).
  • Finally, if an adjudicator determines a dispute, that decision will be final and binding on the parties if the value is less than an agreed sum (expressed at “[£50,000]” in the rules) (clause 8.1). Alternatively, the parties can serve a notice of dissatisfaction within X days (expressed at “[90 days]” in the rules) (clause 8.2). Only then will the dispute be determined by an arbitrator or a court, depending on what the parties have agreed.

At any time

The one jump-out feature of all of this for me is the way that clause 5.1 is written. It appears to make the provisions of clause 3 compulsory: only if the dispute is not resolved by “Senior Executives” can adjudication become an option. That may be fine for non-construction disputes, but fetters a parties right to refer a dispute to adjudication “at any time“. As Dyson J said in Herschel Engineering Ltd v Breen Property Ltd:

“Section 108(2)(a) of the 1996 Act expressly states that a party may refer a dispute to an adjudicator ‘at any time’… As I said in Macob Civil Engineering Ltd v Morrison Construction Ltd [1999] BLR 93, 97:

‘The intention of Parliament in enacting the Act was plain. It was to introduce a speedy mechanism for settling disputes in construction contracts on a provisional interim basis, and requiring the decisions of adjudicators to be enforced pending the final determination of disputes by arbitration, litigation or agreement.'”

I’m also trying to get my head around the idea that this procedure could be included in a “long-term contract” that isn’t a construction contract (as defined), but then an issue arises under that contract which falls within the definitions in sections 104 and/or 105. How would that work in practice? Surely, if the dispute falls within the provisions of the Construction Act 1996, that makes the whole contract a construction contract? If so, then many of the provisions in this schedule fall away (and the parties may find themselves having to look at the payment provisions of the Act and/or the Scheme). Or maybe I’m missing something. It not, then while the procedure’s intentions are admirable, it may have more limited application than those who drafted it think. Perhaps this is why I’ve only just come across it now.

MCMS Ltd Matt Molloy

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