UK: Constructing The Olympics – Procurement And Avoiding Disputes

Last Updated: 5 April 2007
Article by Nicholas Gould

This article focuses on the construction aspects of property issues relating to the 2012 Games. In particular, consideration is given to the procurement of the facilities, the contractual approach of the Olympic Delivery Authority ("ODA") and dispute resolution.

The ODA is the single body that has been created to ensure the delivery of the venues and infrastructure for the Olympics and beyond. In particular, the ODA is responsible for the planning, designing and building of the venues, facilities and accommodation and developing of the infrastructure to support these. The ODA is also required to look at issues of regeneration and sustainability, and to ensure that the permanent structures created for the 2012 Games are utilised beyond these.

The ODA is responsible for the procurement of the contracts for the infrastructure, construction and transport with the services being let by the London 2012 Organising Committee.

The ODA released its draft Procurement Policy for consultation on 11 July 2006. This policy outlines the ODA’s requirement that the 2012 Games are delivered on time and budget, in a way that benefits the community and environment, in keeping with the spirit of London’s Olympic Bid.

The ODA has developed "procurement principles" which are; the delivery of the Venues and Infrastructure and the achievement of the legacy. It is recognised that there must be sustainable development, as the 2012 Games will leave a significant footprint on London and the surrounding area.

When examining the issue of the procurement processes it is necessary to note that the ODA are required to comply with the Public Contracting Regulations which are the EU’s Public Procurement Directives and the UK legislation. One of the primary objectives of the procurement policy is to ensure that there is no discrimination in the appointment of companies for the construction works. The ODA’s challenge is to ensure that the procurement process is open to all companies, regardless of their location or size. For example, the ODA proposes using electronic procurement as a cost effective means of advertising opportunities, and also for undertaking negotiations. However, it must be aware and take into consideration those companies who do not have the resources or ability to utilise this service.

In order to ensure that there is consistency, quality and fairness in all contracts, so far as is possible, the ODA proposes using the New Engineering Contract Version 3 ("NEC") in its various forms where appropriate. The NEC3 reflects a partnering based approach to the resolution of issues. Co-operation within the parties at an early stage of any issue identified by the Contractor or Project Manager provides an opportunity for the parties to discuss and resolve the matter in the most efficient manner.

The NEC is in essence based on three core principles, flexibility, simplicity and clarity, and a stimulus for good management. The NEC3 contains six options, each with varying risk allocation and reflecting modern procurement practice. These are: Option A (priced contract with activity schedule); Option B (priced contract with bill of quantities) which provide that the contractor will be paid at tender prices. Basically, a lump sum contract approach in Option C (target contract with activity schedule); Option D (target contract with bill of quantities) provides that the financial risks are shared between the contractor and the employer in agreed proportions; Option E (cost reimbursable contract); and Option F (management contract) which is also a cost reimbursable contract, where the risk is largely taken by the employer. The contractor is paid for his properly incurred expended costs together with a margin.

The NEC3 contains several clauses dealing with the operation of the contract and dispute resolution. In addition there are then a series of additional conditions of contract known as Z clauses. These provide the parties or with the opportunity to insert bespoke terms or amendments to the Contract. It is anticipated that the Z clauses will be used to accommodate terms such as sustainability and other social requirements.

It is recognised that the ease of resolving any disputes that arise will be a key factor in determining whether the contracts are executed on time and on budget. The ODA therefore must ensure there is an adequate dispute resolution procedure in place to deal promptly and fairly with any issues that arise. The ODA are currently in the process of establishing a Dispute Board. The collective term Dispute Board covers the concept of Dispute Review Boards and Dispute Adjudication Boards. Dispute Review Boards comprise three independent people who evaluate disputes during the course of the project and make settlement recommendations to the parties. The recommendations are not binding.

Each party selects a board member and the parties may then agree on the third, or if they cannot agree the two board members will select the third board member. The Dispute Review Board then periodically visits the site to gain familiarity with the project and the individuals working on the project. This means that if a dispute arises the board members understand the project and have already built some rapport with the individuals working on the project. They can then deal with disputes by hearing presentations from the parties and suggesting solutions.

There is also the term Dispute Adjudication Board, a concept which has been included in the 1999 international FIDIC suite of standard form contracts. The key distinction between a Dispute Review Board and a Dispute Adjudication Board is that a Dispute Adjudication Board considers submissions from the parties and then issues a written binding decision. The parties are obliged to comply with the decision, and unless they issue a notice of dissatisfaction within 28 days of the giving of the decision, the decision becomes final and binding.

In summary, the role of the ODA is to ensure that the 2012 Games are delivered on time, on budget and with sustainability as a leading consideration, especially in relation to the legacy and footprint that these games will leave. The current approach is one of co-operation, openness and transparency in the procurement and operation of the contracts for the construction of the venues and infrastructure. It is hoped that the use of the NEC3, a progressive partnering based contract, may lead to the diffusing of potential disputes before they escalate, and should this not be possible that the Dispute Boards will be able to promptly and swiftly deal with issues, enabling parties to move forward and the 2012 Games to be delivered on time and budget.

Nicholas Gould is a partner at Fenwick Elliott LLP, Senior Visiting Lecturer at King’s College, London and Chairman of the Society of Construction Law. To view further articles by Nicholas, please visit www.fenwickelliott.co.uk.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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