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Trends and predictions for government technology disputes and arbitration

Out-Law Analysis | 05 Oct 2015 | 5:05 pm | 5 min. read

FOCUS: UK government policy has increased the likelihood of government technology disputes being resolved via arbitration than through the courts but a judgment by the High Court in February could prompt more challenges to decisions taken in arbitration.

However, getting courts to overturn decisions made in arbitration will remain a difficult task for those that pursue such arguments.

Dispute resolution clauses in government technology contracts 

In March 2014 the Crown Commercial Services, part of the UK government’s Cabinet Office, issued a ‘substantially revised set of model terms and conditions for major services contracts’. The new Model Services Contract is intended for procurements of IT and outsourcing services with a likely total contract value of £10 million or more. It is used as the baseline for the majority of such government procurements in the UK.

The dispute resolution procedure in the Model Services Contract gives the government department the power to dictate the forum for final resolution of a dispute.

If the supplier wishes to commence either court proceedings or arbitration it must serve written notice on the departments of its intentions. The authority can opt to require the dispute to be referred to arbitration under the rules of the London Court of International Arbitration. Alternatively, it may decide to require the dispute to be subject to the jurisdiction of the courts of England and Wales. In short, the UK government preserves the right of election. No equivalent right exists for the supplier.

Why might the UK government prefer to arbitrate?

There are many reasons why a UK government department could choose to opt for arbitration over the court process. The potential for faster and lower cost resolution of disputes will be a major factor in favour of arbitration. Equally, factors such as the expertise of adjudicators and ability to resolve disputes confidentially will also be relevant to decision making.

However, there is also, given the costs typically involved, a political angle with government technology projects. Technology disputes are rarely black and white. The shade of grey will differ depending on the facts, but generally neither party will be blameless for the problems that have arisen in a programme which undoubtedly includes multiple obligations on both parties.

The confidential nature of arbitration allows a government department to avoid adverse press coverage and other scrutiny. This may particularly be so in situations where senior civil servants are required to give evidence. That said, there has been some criticism that disputes concerning government contracts, and thereby involving public monies, should not be heard in private, but should be heard in court and be subject to public scrutiny.

NEC3 contracts, technology projects and dispute resolution

Another trend we have seen is the increased use of the NEC3 suite of contracts in construction and engineering projects. NEC3 is considered to be a more collaborative and co-operative contractual structure than other standard form contracts. It uses concepts of partnering.

The NEC3 contract suite contains not only the most common Engineering and Construction Contract, but also a Term Service Contract, a Framework Contract and a Professional Services Contract. NEC3 has been used on high profile projects such as Crossrail, Heathrow Terminal 2, the London 2012 Olympics in the UK, as well as energy, waste and civil projects in, among other jurisdictions, Hong Kong, New Zealand, South Africa and the Middle East.

Although none of these are primarily technology projects, most contain large technology aspects, for example, IT, telecoms or system integration functions. Further, because NEC3 has been endorsed by the UK government and is recommended for use on public sector projects, it is highly likely that its public sector use will continue to increase.

The NEC3 suite of contracts is predicated on a two-tier approach to dispute resolution. In the first instance, a dispute is referred to and decided by an adjudicator. The decision of that adjudicator is final and binding unless and until either party notifies the other that it is dissatisfied and intends to refer the matter to a tribunal. If notice is given, the dispute is referred to a tribunal. The tribunal may reconsider the decision of the adjudicator but is not limited only to the information, evidence or arguments put to the adjudicator.

Whether the tribunal is arbitral rather than the courts should be specified in the contract. If the parties want a dispute to be resolved by arbitration then the contract should state this. We expect that arbitration will commonly be included in such contracts.

The e-Borders case: what will it mean for arbitration decisions and London's reputation?

One of the more interesting developments in the international arbitration arena in the past year or so was the judgment in the dispute related to the e-Borders IT system between Raytheon and the UK Home Office. Pinsent Masons, the law firm behind Out-Law.com, acted for the Home Office.

The case was notable because it represents a rare successful challenge to an award under section 68(2)(d) of the Arbitration Act 1996 and because it involved a dispute with a government department, and the use of a standard form contract.

Under the section 68(2)(d) provisions, a court can, upon application to it by a party involved in arbitration proceedings, set aside a decision made in arbitration, require an arbitration tribunal to reconsider a case or declare a tribunal's decision to have no effect where there has been "serious irregularity affecting the tribunal, the proceedings or the award".

'Serious irregularity' can include where a tribunal in arbitration has failed to deal with all the issues put to it in a way that "has caused or will cause substantial injustice to the applicant".

In the e-Borders case, the Technology and Construction Court (TCC) division of the High Court ruled to set aside an arbitration tribunal's decision to require the Home Office to pay Raytheon £224m in respect of the cancellation of its e-Borders contract. The TCC ordered the case to be re-determined by a fresh tribunal. A settlement has subsequently been reached in the case.

For a section 68 challenge to succeed under the Arbitration Act, the English court must be persuaded to intervene in an award made by a properly appointed tribunal in a consensual arbitration. The threshold for establishing grounds of challenge is rightly very high.

Since the decision of the TCC, there has been commentary as to whether the court's decision would lead to an increase in challenges being brought in the English courts, and whether London should be perceived as a suitable forum for international arbitration.

Our view is that the judgment may lead to some increase in challenge applications, but the courts will likely seek to ensure that the threshold of proof remains very high. The courts will not wish to dilute the high hurdle of establishing that it should intervene, and each matter will be considered very carefully on its particular facts.

As for London, in our view, if anything, it should improve the perception of London as a sensible seat for international arbitration. The case illustrates the importance of ensuring international arbitration is a robust and considered process, and that if something does go awry with the procedures or the decision making process of award, the English court will be prepared to step in, albeit in exceptional circumstances, to ensure that justice is achieved.

The e-Borders judgment may have a bearing on the speed and cost of arbitration. In his ruling, Mr Justice Akenhead essentially found that, on the facts, ‘there could be no easy short-cut’ when considering technical matters. As such, an arbitration should not allow the tribunal to truncate the consideration process for dealing with the complex issues between the parties.

David McIlwaine and Stuart Davey are experts in IT contracts dispute resolution at Pinsent Masons, the law firm behind Out-Law.com. A version of this article was first published by Lexis Nexis.