Overcoming barriers to adopting NEC4 adjudication in Hong Kong

From my years of experience as an international construction adjudicator, I believe there are a still few hurdles to getting NEC4’s dispute-resolution regime more generally accepted in Hong Kong − particularly the requirement for mandatory adjudication. This is still seen as ineffective by some due its non-binding nature, and that it may be too quick to achieve real justice. It is interesting to note that in Malaysia, contractual adjudication is sometimes only used for determining statutory payment claims. Certainly speed is a benefit of adjudication in safeguarding a contractor’s cash flow, typically 10 working days in Queensland in Australia, though this can still lead to perceptions of ‘rough justice’.

But in my experience, the four-week time frame for NEC adjudications does not result in unjust decisions. Indeed, the ‘sunk-cost fallacy’ is often evident in arbitrations and court cases, where spiralling expenditure on lawyers, expert witnesses, oral hearings and lengthy submissions does not necessarily result in a more fair and just decision.

Choosing an adjudicator

The fairness and quality of an adjudication very much depends on the quality of the adjudicator. The first step to making adjudications more effective therefore is to select an adjudicator based on their professional background and construction expertise. Depending on the type of dispute, subject matter and technical aspects, an adjudicator who possesses both a legal and technical background is usually preferable. And for NEC disputes, extensive knowledge of NEC contracts and case law should also be a prerequisite.

Additional important characteristics of an adjudicator are their independence and impartiality. Adjudicator-nominating bodies generally have codes of conduct for their panels of adjudicators, and any individual who fails to comply may be subject to disciplinary action and removal from the panel. It is vital for adjudicators to be fair, always observing and acting on principles of natural justice.

In Hong Kong and elsewhere in the world, the increasing diversity and professionalism of adjudication panels means NEC users now have a far better choice of adjudicators – and therefore a far better chance of resolving their disputes effectively through adjudication.

Using senior representatives

The 2017 NEC4 contracts introduced the concept of ‘Senior Representatives’ from each party attempting to resolve disputes before adjudication. Their roles are defined in clause W1.1 as scrutiny of the parties’ submissions and then attending as many meetings and using any procedure necessary to resolve the dispute in three weeks. They must then produce a list of resolved matters and unresolved matters that need to go forward to adjudication.

The method has been used in the UK for many years with good results. However, it may be a challenge to adopt it in Hong Kong as there is no minimum qualification or standard selection procedure for the senior representatives. Under the 2019 amendments to NEC4, qualified dispute resolution advisors or mediators may be drafted in to the role at any time, but care needs to be taken to ensure they act in a ‘spirit of mutual trust and co-operation’ and not as ‘hired guns’.

Two-stage approach

A possible way forward for NEC users in Hong Kong is to adopt a two-stage approach, with stage one as a trial for payment-related disputes only (see Yeu, 2019 for more details).

In option W1 of the NEC4 Engineering and Construction Contact, there are four areas of dispute: a dispute about an action or inaction of the project manager or supervisor; a dispute about a programme, compensation event or quotation for a compensation event which is treated as having been accepted; a dispute about an assessment of defined cost which is treated as correct; and any other matter.

It is recommended that, as a first stage, only the payment-related areas should be referred to adjudication. Extension-of-time disputes in Hong Kong can be very complex and tedious, making it difficult for an adjudicator to reach a fair decision in the tight timeframe. After successful implementation and evaluation of payment-only adjudications, consideration can then be given to extending adjudication to cover all dispute areas. Another possible adjustment is to specify the standard appointment process for senior representatives and the exact procedures for their three-week dispute-avoidance process.

Key Points

NEC4’s mandatory adjudication is still perceived by some users in Hong Kong as ineffective for dispute resolution.
A two-stage approach is recommended, with only payment-related disputes referred to adjudication initially, and more care taken with appointing adjudicators.
Contracts could also specify the appointment process for senior representatives and the exact procedures for their three-week preadjudication process.

Reference

Yeu A (2019) The 15th Anniversary of the HKSAR Government Construction Adjudication Rules – revolution or evolution? Journal of The Hong Kong Institution of Engineers, September 2019.

Case confirms NEC4 Y(UK)2 amendments in PSC, TSC and DBOC

NEC4 PSSC with a mix of prices and work on a time charge basis

How to resolve illegal or impossible requirements in NEC contracts