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Beware – Construction Disputes Increase Are Predicted Due To UK Construction Growth

UK Construction Growth Forecasts Means Profit For Some But Disruption & Construction Disputes For others

Expectations For Commercial & Civil Construction & Engineering Projects Through To 2018

According to ConstructionProjects.org.uk growth in the construction industry is projected to be about 23% over the course of the next 3 years. By the end of 2018, the road construction industry alone will have risen by about 46%.

Dr. Noble Francis, Economics Director for the Association stated, “Commercial, the largest sector, is expected to benefit from a pickup in consumer spending and business investment and drive growth in each year up to 2018.  Output in the sector is forecast to reach £26.8 billion in 2018, but this remains 16.6% lower than the pre-recession peak in 2008.”

The expected growth as outlined by the Construction Products Association should be in the vicinity of these percentages:

  • Construction output will grow 4.8% in 2014 and 5.3% in 2015;
  • Private housing starts are expected to grow 18.0% in 2014 and 10.0% in 2015;
  • The private commercial sector is set to increase 3.7% in 2014 and 6.1% in 2015;
  • Roads construction will rise 46.1% by 2018
  • Energy infrastructure is anticipated to grow 118.2% by 2018.

This is very good news for an area that has seen some devastating losses in recent years, but it does not come without risks.

The first risk is that given the state of the global economy, growth is not a foregone conclusion.

Dr Francis continued post his prediction of the UK construction growth to elaborate on the prospects, saying” “Recovery is not a foregone conclusion however, and several important risks remain, primarily around the strength of the UK and Eurozone economies, the policy outcomes following the 2015 General Election and the impact of any supply constraints such as the scarcity of labour and materials. We forecast starts to rise 18.0% in 2014 and 10.0% in 2015.  In order for such projections to be met, however, increased capacity is necessary, particularly from SME house builders.  In addition, there remain serious questions about affordability and higher mortgage repayment costs, together with uncertainty around the future of housing policies. . . “

Insofar as the growth of the housing and construction industry, if the beginning of 2015 is anything to go on, the predictions appear to be realistic ones, but that doesn’t mean that all is well in the industry.

Why We Should Expect Some Measure of Disruption in the Construction Industry

The busier that any given business arena is, the more likely we are to see disputes and litigation arise from that arena. This is a given in that the greater the number of projects or the greater the scope of the project, the more opportunities arise for disagreement.

With the current rise in number and expansion in scope of UK construction projects that we’re seeing, it stands to reason that disagreements will take place.

The Risks of an Improved Construction Industry

As already said, just as in any other industry, there are risks involved with growth particularly on the complicated multi-faceted projects. Not least in this are those that we see in both large scale construction and engineering schemes. Legal action & litigation can become protracted.

With such vast growth in the UK construction industry and the number of active construction projects slated to continue growing, it seems inevitable that we’re going to see these disputes taking place. It is fully expected that we will see more of the capacity of the legal system taken up with increased litigation taking place between landowners and construction firms or property owners and sub-contractors.

This is born out by past experience. Everywhere that has seen a rise in the incidence of new construction has seen a corresponding rise in the litigation having to do with it.

In the United States, rising litigation in the construction industry was met by an effort to provide for improved alternative resolution processes. The UK, alternatively, met such incidents during the last construction boom with improving general contract conditions in an effort to preclude increased litigation. Both efforts met with some measure of success, but were not wholly successful in lowering litigation in construction.

The Cost of Construction Disputes in the UK

Research shows that the cost of disputes in construction reached a peak in the UK in 2013. The total value of construction litigation and disputes in 2013 in the UK was valued at about £16.5m.

Litigation in construction costs more than just money. Disputes take time and resources where our focus should be on the growth of our businesses and our country.

According to Laurence Cobb, the head of construction and engineering at the UK’s Taylor Wessing, the impact of this increase in litigation is vast. The driving forces behind the rise in construction litigation in the last construction boom were:

  • Larger projects that carried larger sums
  • A buyers market where contractors were forced to choose their prices very wisely.
  • A tighter borrowers market.

It’s acknowledged that the construction industry is going to react in response to the upturn in the economy. If the upturn continues it will likely bring with it the same climate that pervaded in the last construction upturn. Disputes will take place. They will slow the projects, slow the industry and slow the completion of the construction in dispute.

Is there a better route to dealing with Construction Disputes than that offered by litigation?

Given the amount of money that is involved in the disputes, to a certain extent, adjudication will continue to be a popular method because it is the more speedy resolution in many cases. The problem is that in some cases it is used for very complicated disputes and it is not well suited for that.

There are alternative methods to dispute resolution that can save time and money, inclusive of:

  • A Contract Administrator who may be well able to help you to resolve a small dispute before it becomes a large one.
  • Negotiations. Immediate negotiations can be entered into at the moment that any dispute arises which may well prevent litigation.
  • Mediation. Encouraged by the court system, mediation is a form of alternative dispute resolution that can be quick, effective and informal and may provide both parties with a beneficial and satisfactory outcome. Further, mediation may help to preserve the working relationship that is already in place.
  • Arbitration is a process that permits you to resolve the dispute without a long and drawn out court procedure. Arbitration is entered into by both parties. It is binding and it is enforceable by the court system. It is far less costly than litigation and is nearly as binding as a court order. Arbitration is one method of dealing with disputes to prevent litigation. While this is one of the most popular methods of dealing with international disputes, according to the legal community, arbitration in domestic disputes in the UK are rare and should be used more commonly to prevent lawsuits.

Litigation in the construction industry today should be the proverbial court of last resort. It should by no means be entered into lightly and prevented at all costs if possible. In a litigation, the resolution is always binding and may not always be beneficial to you.

Consider carefully if litigation is the right course of action in a construction dispute. If you believe that your only course of action is a lawsuit, we may be able to help you to explore more rapid resolution methods.

For more information regarding alternative dispute resolution in construction or to speak with a professional about your dispute, you may contact our offices at any time at 01962 690061.

 

Contact Stewart Patterson Barrister

You can also find more links and information for points covered in this article here: Construction Dispute Resolution Information & Guides

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Stewart Patterson
Barrister, Mediator & Arbitrator

Pump Court Chambers,
31 Southgate Street,
Winchester
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