Option W encourages dialogue instead of conflict

The most recent Construction Adjudication in the United Kingdom report, published by King's College London and the Adjudication Society in 2024, found that there has been a steady increase in the number of disputes referred to adjudication.

The report noted there had been a 9% increase in referrals compared to the previous year, with almost 20% of referrals adjudicated using a low-value or fast-track adjudication procedure.

These processes are compliant with the Housing Grants, Construction and Regeneration Act 1996 (HGCRA), but the adjudicators' fees are capped, thereby providing a more cost-effective alternative compared to traditional adjudication.

Given the tight margins of the sector, it is natural that there would be a growing demand for lower-cost and quicker adjudication methods.

In light of this trend, this article explores the alternative dispute resolution processes that have been successfully integrated into the NEC4 suite of contracts. 

They must make a temporarily binding decision within a strict 28-day timescale, extendable by 14 days – or longer if agreed between the parties – aimed primarily at protecting project cash flow.

Before the HGCRA came into force, adjudication was included in construction contracts on a limited basis, with the industry often seeking to rely on more traditional dispute resolution methods such as arbitration or litigation.

The ethos of the NEC4 contract places great emphasis on regular, timely and detailed communication between the parties. The intention is to ensure that most differences are resolved before they have a chance to escalate into disputes.

However, despite the prevalence of adjudication, with its relatively high cost and need for parties to seek legal representation, it may not be suitable for all projects.

With this in mind, the NEC4 contract does provide alternative dispute resolution process under Option W, which is split into three sub-options.

• Option W1, for use on projects that are not subject to the HGCRA.
• Option W2, the only mandatory option. It applies to UK projects that are subject to the HGCRA.
• Option W3, which enables the establishment of a Dispute Avoidance Board (DAB) and is for projects that are not subject to the HGCRA.

In the first instance the disagreement is notified to the senior representatives, who are named in the contract, who then have one week to submit statements of case, limited to ten sides of A4.

The senior representatives then have up to three weeks to provide recommendations aimed at resolving the dispute.

These recommendations are delivered to the parties to aid in the settlement of the dispute and are then implemented by agreement of both parties. If the parties do not agree with the recommendations, the dispute is then referred to adjudication.

This step takes place prior to any formal adjudication proceedings and is mandatory under Option W1 – if the HGCRA does not apply to the contracted works – but must be agreed between the parties under Option W2 when the HGCRA does apply.

A dispute reference table is provided in Option W1.1 – but not under Option W2 – showing which types of disputes under the contract, and by which party, may be referred to the senior representatives for recommendations.

An example would be that a compensation event quotation dispute can only be referred to the senior representatives by the employer.

Although this is not an HGCRA-compliant adjudication mechanism, it does share many similarities with the statutory instrument, including time bars, a timetable for the award and the binding nature of the award. 

If disputes are not remedied by this initial step, the aggrieved party may issue a notice of adjudication to the offending party up to two weeks after receipt of the recommendations.

The parties can then submit any additional information to the adjudicator within four weeks of submitting the notice of adjudication.

The adjudicator's award is then issued to the parties up to four weeks from receipt of any additional information.

If either party is not content with the adjudicator's award, they may issue a notice of dissatisfaction within four weeks of receipt, to refer the dispute either to arbitration or litigation depending on what has been agreed in the contract.

These two-tiered dispute resolution processes place greater emphasis on the use of simplified negotiation by a small number of professionals, after traditional negotiation steps have been exhausted.

By nominating individuals to negotiate with authority and moving away from reliance on – potentially slower – company bureaucracy, the NEC clause focuses on speed and cost efficiency in this initial step.

In March 2025, the NEC published NEC4 Engineering and Construction Contract (ECC) Conflict Avoidance Clauses, enabling Options W1 and W2 to incorporate a Conflict Avoidance Panel (CAP) in the dispute resolution process via Option Z.

The purpose of the CAP to 'provide a [non-binding] recommendation to resolve the disagreement' as and when a disagreement between the parties arises.

There is a strict timeframe to be followed under Options W1 and W2, with the eight-week process broken down in the following steps.

• A party may notify a disagreement to another party within two weeks of the disagreement occurring.
• Within one week of the notification of disagreement, the parties must decide (under Option W1) or by agreement (under Option W2), the nature of the disagreement to be referred to the members of the CAP.
• Up to one week after CAP selection, all parties must meet to establish and agree the process for the CAP to resolve the dispute.
  
• Up to one week after this meeting, the referring party submits the particulars of the dispute to the CAP.
• Up to one week after the other party receives the referral form, the responding party submits a response.
• Up to two weeks after receiving the referral, the CAP provides a recommendation for resolving the dispute.

If the recommendation is accepted by the parties, then it becomes binding once implemented.

If the CAP's recommendation is rejected by one of the parties, the dispute is then escalated to the senior representatives to begin the previously described dispute process.

The intention of this additional tiered dispute resolution process is to ensure that only matters that really need to be decided by adjudicator go to adjudication.

The rights of parties to refer disputes to adjudication, the timeframes – which are substantively the same as in the HGCRA – and not being able to adjudicate on materially similar disputes on the same project, are all embedded into the wording of Option W2.  

Option W2 does attempt to funnel disputes to the negotiation and mediation routes in the first instance by focusing on parties' prior agreement to a dispute resolution process.

However, given the overarching rights afforded by the HGCRA, parties may simply ignore this interim mediation step and refer the dispute straight to adjudication.

The DAB is formed of one or three people, who are named in the contract and will remain in place for the lifetime of the project. 

Although this is an upfront, sustained cost to the project, the role of a DAB as a preventative measure, and the ability of a DAB to step in and determine disputes early and quickly before legal spend escalates, can make it cost-effective.

Unlike other standardised DAB rules, the NEC4 encourages board members to undertake regular site visits, ensuring the DAB is familiar with the project throughout the construction phase.

Option W3.3(1) introduced a mandatory DAB step that parties have to take before they can refer the dispute to tribunal.

The dispute is notified and referred to the DAB by the aggrieved party two to four weeks after a notification of dispute has been given to the other party, without a timeframe for recommendations.

If a party is displeased with the DAB's recommendation, they can issue a notice of dissatisfaction to the other party under Option W3.3(2), stating their intention to refer the dispute to the tribunal. 

However, this has to be done within four weeks of the DAB's recommendations being published.

The cost of having a standing DAB may not be suitable for all projects, especially on lower-value projects where the cost of establishing and maintaining a DAB may be higher than the disputed amount.

However, by developing this framework, NEC has shown a marked shift away from short-term, cost-saving attitudes to longer-term, infrastructure or legacy project productivity savings.

With the CAP and senior representative steps included in these options, and the parties ability to serve notices of dissatisfaction, parties can pursue dispute resolution outcomes collaboratively rather than having, if enforced, an adjudicator's decision imposed on them.    

The two- or three-tiered process now included in Options W1, W2 and W3 shows a shift in the domestic and international markets to encourage parties to collaboratively resolve their disputes before reaching more formal dispute resolution.

This shift has also been driven by the UK government and industry through publications such as The Construction Playbook that encourage parties to sign up to the Conflict Avoidance Pledge and engage in measures such as DABs and CAPs before escalating disputes.