Construction Disputes – All You Need To Know About Resolving Them
Construction Disputes: An increasing problem
Construction disputes plague many building projects across the UK because they are long-term and complex in nature. Large or small, the projects can be impacted by a variety of factors including humans, work conditions, logistics, machinery, Mother Nature, etc., etc.
A recent research report put out by EC Harris (a leading Build Asset consultancy that works with infrastructure professionals and barristers) estimates that the value of such disputes in UK increased to £6.5 million in 2011 (up from £4.6 million in 2010) and the average time required for resolving a single dispute increased to 8.7 months in 2011 (from 6.7 months in 2010).
Construction Dispute Resolution
With my personal experience of performing mediation and arbitration services in such cases, as well as those of a barrister I see that this is certainly very bad news for UK’s construction and engineering industry.
As such it is important to know what causes construction disputes and how they can be resolved before jumping in with both feet. Ultimately disputes are most often resolved through personal negotiation, which is the the easiest process of all.
However when this is unsuccessful action then escalates up to the involvement of qualified independent third parties such as arbitrators, mediators and specialist barristers.
Generally their services operate swiftly and offer relatively low fixed costs. Beyond this is litigation. Although in any particular case it may be the best course of action, litigation can be lengthy, time consuming, expensive and is public. Also bear in mind that the legally binding decision from a court may not go in your favour!
Causes of Construction Disputes
Construction contracts normally stretch over a long period of time and are therefore surrounded by a great deal of complexity and uncertainty. Situations that were not foreseen while drafting the contract arise at a later date and cause problems because the information contained in the contract does not address them. Sometimes even quite large contracts are operated without any detailed terms or conditions. This often leads to disaster. In other cases a building company will have its own terms or there will be a bespoke contract. The effectiveness of this will depend upon the extent to which the terms cover all eventualities. In the case of a substantial contract it is usually better to use one of the standard form contracts adapted for the circumstances, as these are designed to cater for the problems that may arise.
Business owners do work hard to avoid construction disputes but when uncertainty and ambiguity lead to monetary losses or draining cash outflows, then reconciliation tends to go out of the window.
Inefficient project management
Every project – complex or not – requires efficient coordination between different departments like the design, mechanical and electrical departments of different contractors working on the same project.
Minor coordination or communication gaps caused by ineffective management can set the project back by some weeks and that costs money. The work gets delayed, the client gets mad and then suddenly it’s time for all parties to hire a barrister.
UK is home to people from all over the world and construction projects are full of workers who have migrated from the Central and Eastern Europe. Now, when you have different cultures working across critical departments such as planning, designing, purchasing, constructing, managing, etc., then it leads to clashes or communication problems. These problems in turn could lead to delays and misunderstandings, all working to the detriment of the project.
Contractor and subcontractor goals
A contractor working on the supply side has different commitments and goals than a subcontractor working on site. Each contractor and subcontractor works at his own pace. In big projects, compatibility is key, and diverse goals could lead to construction disputes. Other factors that can lead to disputes are delays (for whatever reason), design flaws, site conditions, insufficient tender-scrutiny time, and other factors.
Whatever the reasons may be, it is every company’s responsibility to avoid disputes or resolve them in a professional and impersonal manner.
Resolving Construction Disputes
It is essential that you are fully aware of your legal position before you embark on any journey that is likely to have serious consequences. Traditionally individuals and small to medium size companies have sought the advice of solicitors. Although this is an established method, it can embroil you on a course of escalating and unknown costs.
In most types of business cases, especially construction disputes, an alternative approach is to engage the services of a specialist barrister directly. This considered approach of Direct Access has distinct advantages. Generally Barristers will operate for a pre-agreed fixed fee, removing the fear of not knowing your costs and unwittingly have them spiral beyond what you are wanting to pay. They can advise you or write letters on your behalf. Later, should litigation become necessary, it would be this same barrister who represents you in court.
Finally, solicitors will often refer through to a specialist barristers for appropriate advice. When this happens you pay for both the barrister and the solicitor increasing your costs accordingly. Using Direct Access to a Barrister avoids this.
An architect or surveyor can be named as the Contract Administrator. The Contract Administrator’s decisions can be reversed at a later date by the courts.
If there is a technical issue it is sometime best resolved by joint appointment of an expert who will make a decision about it.
Negotiations deal with disputes as soon as they arise. It is important to note that negotiations should be conducted “without prejudice,” meaning that any offers made during negotiations cannot be referred to in a court in case the negotiations break down. Negotiations can save all parties a lot of time, energy and money and can be embarked upon at any time, either during or after the contract period.
Companies can opt for ‘supported negotiations” by hiring chartered surveyors and barristers. Chartered surveyors are important too because they are experienced and level-headed negotiators. They also bring in an element of “non-adversity” into the dispute process.
Negotiations are cheap and all the involved parties can gain equal control of the process. On the flip side, there is a higher chance of negotiations breaking down due to irreconcilable differences or when a party does not get equal control of the process.
Mediation is a fast effective form of alternative dispute resolution (ADR). It is strongly encouraged by the courts. Mediations are conducted with the assistance of a neutral person at a time that suits both parties, and in private. The process is informal, however the skilled mediator will set the scene and conditions for a mutually beneficial outcome. He does not make a decision, but his task is to facilitate a binding agreement between the parties.
Mediation services operate on a manageable fixed fee basis and parties have the option of having legal representation present. A skilled Mediator will turn deadlock and acrimony into an amicably settled issue. It is fast, and flexible, low cost, saves the cost of litigation, and helps to preserve relationships so that everyone can move on.
Adjudication can help resolve construction disputes while the contract is still underway and is often used to prevent a dispute from causing work to come to a grinding halt. Where the provisions apply every party in a contract has a right to adjudication and the parties involved in a dispute present their case to the adjudicator, who reviews them and passes a quick decision that is binding on the parties. The decision of an adjudicator can be enforced by the courts although it may sometimes be overturned by the court at a later date.
Arbitration is an alternative to going to court. A nominated third party, the arbitrator, resolves the dispute in a private process that maintains confidentiality. Unlike a mediator, an arbitrator makes a decision that is formal, enforceable and binding. It can only be reviewed by the courts on a point of law. Arbitration is often provided for in the contract. It can work faster than litigation with construction disputes and often does not cost as much. The process is more flexible than litigation and the parties can choose their preferred arbitrator or if they cannot agree can have one appointed for them and the choice is made based on the arbitrator’s skill and expertise.
The court is the final deliverer of justice for parties embroiled in disputes. Parties go to courts when one or more processes listed above have failed. Once the matter enters the court, typically, documents have to be disclosed, witnesses have to be called, barristers have to argue, and experts have to be called for their opinion. If required, the case can be shifted to a specialist Construction Court. The process depends on the complexity of the construction dispute and its value. The process is so expensive that sometimes the cost of proceedings can exceed the amount at stake.
Litigation is an exacting process that delivers a binding decision. It works best when the dispute revolves around legal interpretation. Litigation is the most decisive dispute-resolution process but it is expensive and consumes a lot of valuable time. Disputes are common in any construction contract.
The information above has I hope shed light on construction disputes, their resolution process, and has helped prepare you for the next stage of resolving your issues. Check that you have covered all areas for personal negotiation then when that approach has been exhausted arrange to meet your barrister at the earliest opportunity.
Full descriptions of my services that relate to this can be found here: Building & Construction problems or Mediation and Arbitration Services
You can find more general information on civil law (common law) on the Wikipedia Civil Law page
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