34.2.1 As going through the courts may not be appropriate for the disputes that can arise under a PF2 contract, an alternative formal dispute resolution procedure may offer a more efficient and cost-effective method of resolving disputes.
34.2.2 A common form of dispute resolution involves a three stage process as follows:
• the Authority and Contractor consult with each other for a fixed time period (possibly involving different levels of internal consultation) in an attempt to come to a mutually satisfactory agreement;
• if consultation fails, the parties may then (except in the case of certain types of dispute) put their case before an expert to decide. The expert is appointed from a panel (e.g. of construction or operation experts) whose appointment is regulated by the Contract. It may be appropriate in certain circumstances to substitute other forms of Alternative Dispute Resolution ("ADR")1 for this type of expert determination. Disputes relating to the mechanics of price variations may go to a financial expert agreed between the parties at the time,2 and
• if either party is dissatisfied with the expert's decision, it may refer the matter either to arbitration (itself a form of ADR) or to the courts for a final and binding decision. The method of appointing the arbitrator should be set out in the Contract.
34.2.3 It is often proposed that a fast-track dispute resolution process is included in the contract to deal with certain pressing issues. The drafting included below reflects the procedure set out in the Housing Grants, Construction and Regeneration Act 1996, so is, by nature, fast track and construction related.3
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1 Other forms of ADR which may be considered include mediation, conciliation and neutral evaluation. These may not be appropriate where there are Project Documents which are subject to the Housing Grants, Construction and Regeneration Act 1996 - see footnote 8 below.
2 To enable the financial expert to reach an appropriate resolution (particularly where the dispute concerns the pricing of a change in accordance with Section 11 (Flexibility and Change) which may result in the Contractor implementing a change at a price it considers too low) suitable terms of reference should be agreed in advance and provided to the expert in accordance with the relevant approach taken to such changes in the Contract (see Section 15.2.3 (Calculation of Compensation)). As Section 15.2.3 (Calculation of Compensation) makes clear, the agreed approach will depend on the risk profile of the Project, and the pricing approach adopted in the Contracts and Sub-Contracts. See also footnote 10 below.
3 The specifics of defence projects may require particular treatment in defining a suitable dispute resolution procedure. See footnote 1 above and see the MOD standard form PFI/PF2 Contract.