Nicola Webster, a commercial dispute resolution specialist with particular experience in resolving disputes in the construction sector, looks at the best ways to manage construction disputes as well as at how to keep disputes from happening in the first place.
What types of construction disputes often arise?
The nature of construction projects often with multiple parties, complex works, and various extraneous circumstances beyond the control of the parties, make them fertile ground for disputes. Disputes in construction projects arise for a number of reasons, but most often are due to delays, defects, non-payment and variations.
A vast number of construction disputes are resolved swiftly on site but when they are not, the effects can be devastating for one or more of the parties involved and can result in termination of the contract and/or a protracted and expensive legal dispute.
Why try to avoid going to Court?
There are several good reasons why you should try and avoid Court proceedings if possible, including:
- Time – Court proceedings can deprive managers and employees of valuable time that could otherwise be spent on other, more lucrative, projects.
- Cost – Court proceedings can be expensive and there is the risk that if you are unsuccessful at trial, you may also be responsible for the other parties costs as well as your own.
- Damage to business relationships – Court proceedings are likely to damage the possibility of any ongoing business relationship with the other party.
- Damage to reputation – Court proceedings are public and can cause irreparable damage to a business’s reputation.
- Uncertainty – Court proceedings are risky as there can be no guarantees as to the outcome.
A five step plan to avoiding disputes
It makes sense, given the time and costs that can be incurred when disputes go unresolved, to try and avoid them if possible. So, here are some simple and practical ways that you can seek to reduce the risk of disputes arising or escalating.
1. Clear contractual documentation
Even if you have a good and long standing relationship with the other party you intend to do business with, make sure you have clear contractual documentation in place that sets out the details of the project, the scope of the works, obligations of the parties and deals with the main areas of risk.
The most common areas of risk in construction projects are delays/extensions of time, defects, non-payment, and variations, so it is wise to ensure that the contract has adequate mechanisms in place to deal with each of these main areas. However, this is by no means an exhaustive list and careful consideration should be given to identify the risks specific to any given project.
Make sure you understand the contractual documentation and if you are in any doubt or would like the contractual documentation reviewed, seek legal advice.
2. Clear Payment Provisions
Good cash flow is essential in construction projects and delayed payments can cause animosity between the parties quickly so it is important the payment provisions in the contract are clear. Ensuring payments are made when due and valuations are carried out promptly can avoid hostility between the parties. If you are ever in any doubt as to whether you should be making a payment under a contract, because the provisions are unclear or because there is some dispute about the work, seek legal advice.
3. Keep a record
Many disputes can be resolved quickly by looking at retrospective records. This means keeping an accurate and written record throughout the course of the project can be valuable when a problem starts to arise.
For example, keep written records of minutes of meetings, when you take delivery of materials, labour undertaken on the project, and materials used. As particular areas of risk are delay and variations, it is important to keep accurate records of any changes and the impact those changes have in terms of time, resource allocation, and cost.
Other records such as, invoices, receipts, timesheets, progress reports, photographs, etc. are also valuable records when seeking to resolving problems at the earliest opportunity and before they escalate.
4. Regular monitoring
Regular monitoring of progress, costs, and quality can help to identify problems as they arise. This means that they are often much easier to resolve and can help stop disputes escalating. It may also help if any actions taken to resolve problems throughout the course of the project are recorded.
Regular site meetings and maintaining good communication between the parties are often important factors in ensuring a construction projects run smoothly as it means any problems can be identified and resolved early.
What if a dispute cannot be avoided?
Taking the simple steps above may help to reduce the risk of a dispute occurring during the course of a construction project, however, disputes are not always avoidable.
With large construction projects in particular, there can be a large number of parties involved and a number of extraneous circumstances outside of the parties control that may mean avoiding conflict is not always possible.
However, that does not always mean that Court proceedings are inevitable and there are a number of other ways disputes may be resolved without having to commence formal legal proceedings.
Some construction contracts may have their own dispute resolution process so it is always worth checking the contractual documentation in the first instance but failing that, it may be possible to agree to another method of dispute resolution between the parties. Other forms of dispute resolution that may be appropriate include:
1. Negotiation involves the parties seeking to reach agreement to settle the dispute without the assistance of a third party. Often these are done on a “without prejudice” basis meaning that if the dispute does not settle, the without prejudice negotiations cannot be referred to in later Court proceedings when deciding liability. Negotiation is an informal process meaning it can be flexible and save time and costs.
2. Mediation is a process whereby the parties seek to settle their dispute with assistance of a neutral third party known as a mediator. Most commonly UK mediators will simply try to reach an agreement between the parties rather than look into the legal strengths and weaknesses of any party’s case. Mediation seeks to get the parties to reach a consensual settlement so the parties remain in control as to whether they settle and on what terms. The disadvantage of the parties remaining in control of whether they settle is that there is no guarantee a settlement will be achieved even though the parties agreed to mediate and the costs of the exercise would therefore be wasted.
3. Adjudication has been a popular method of alternative dispute resolution (often referred to as “ADR”) in the construction sector for a number of years. Adjudicators can decide disputes during the course of a construction project and it requires the parties to follow that decision unless they agree otherwise or the dispute is referred to arbitration or court. Adjudication can be a quick method of resolving disputes which can be important in the context of construction projects when a dispute is holding up further works.
4. Dispute Review Boards have been used for very large scale construction projects and involve the appointment of three neutral people appointed by the parties at the commencement of a project. The panel then visits the site of the project throughout the construction phase and will deal with any disputes arising between the parties. Similarly to adjudication, decisions made by a Dispute Review Board are binding (meaning the parties must abide by the decisions) unless they are referred to Arbitration or the Courts.
5. Arbitration is similar to litigation in that an arbitrator will make an award to determine the dispute between the parties. The award made by the arbitrator is binding on the parties meaning that the parties must abide by it. However, unlike Court, arbitration is a private forum and the parties can chose a tribunal that has expertise best suited to their dispute.
If you are involved in a construction contract dispute it is important to act quickly. Nicola has a reputation for her strong commercial approach which achieves swift and favourable outcomes for her clients. Contact Nicola for further advice.