Construction disputes are incredibly common and immensely costly. Why is the industry seemingly reluctant to stop them from happening?

Construction disputes are incredibly common and immensely costly. Why is the industry seemingly reluctant to stop them from happening?

First, I should perhaps begin my answer to this question with a declaration of interest.

I have worked for the RICS Dispute Resolution Service for more than three decades. I am regularly involved in designing and implementing dispute resolution services for government and industry bodies in the UK and globally. For many years I have been involved in recruitment, training and assessment programmes for construction adjudicators and arbitrators. RICS has appointed many thousands of adjudicators, etc to decide construction disputes. Many more RICS members I work with make a good living out of advising and representing parties who are involved in disputes. The prevalence of disputes in the global construction industry, and the fact the industry has such a poor record in avoiding conflict has thus given me a long and most agreeable career.

Secondly, some context. It is not an exaggeration to describe the construction industry’s “disputes track record” as eye-wateringly awful.

Its awfulness has actually been measured. HKA’s CRUX Report (CRUX Reports - HKA) for 2022 reveals that disputes on major capital projects worldwide continuously damage the industry to an enormous extent. On around 1600 projects analysed in the report, the value of claims and disputes amounted to over $80 billion dollars and caused delays to project delivery measured at a cumulative 840 years. And, let’s face it, 1600 is a mere fraction of the total number of projects that are in progress around the world.

The construction industry appears to be hell bent on wasting time, money, and resources on only facing up to dealing with conflicts and disputes long after the causes have arisen, and positions have become entrenched. Contracting parties will often spend silly amounts of money on arbitration and litigation to the extent that their legal and professional costs at the end of the day regularly outweigh the amount that has initially been in dispute. Both sides to construction disputes frequently end up fighting just to ensure it’s the other side that has to pay both shares of mounting legal costs. In the meantime, project expenditure escalates, and delivery dates get pushed further into the future. When a dispute is finally resolved after possibly years in arbitration or litigation, commercial relationships have been broken and brand reputations have been trashed. Many of the people initially involved in the original disagreement will have moved on, and only a few can remember how the dispute ever arose in the first place.

Thirdly, it seems it is no longer true to say that the industry is reluctant to do anything to stop disputes from happening.

Over the past few years, a growing number of professional and commercial bodies have joined forces to build the Conflict Avoidance Coalition. The coalition has a genuinely worthy ambition, which is to stop disputes from happening and improve the way all people in the industry relate and transact with each other, forever.

It’s a huge ambition and many might say it is unrealistic. But, as one member of the coalition has said, “what’s the point in having an easy to achieve ambition”?

The coalition is comprised of influencers and decision-makers drawn from organisations which include the ICE, CIArb, ICES, DRBF, RIBA, RICS, along with senior leaders from businesses such as Network Rail, Houses of Parliament Renewals and Restoration, Skanska, Balfour Beatty and others. The work of the coalition is also endorsed by the UK government. Over the past few years, these bodies, working together, have made great strides to promote the value of conflict avoidance and early intervention, and encourage the use of these techniques in construction and engineering contracts. They are also closing in on making conflict avoidance and early intervention on disputes normal procedure.

A genuinely worthwhile initiative initiated by the coalition has been the creation and promulgation of the Conflict Avoidance Pledge (www.rics.org/capledge). Signing the Pledge signals the commitment of businesses and organisations to proactively avoid contractual disputes and use  measures to deal with emerging conflicts at an early stage.

To date, nearly 400 businesses and organisations have signed the Pledge, and many of them have demonstrated through their actions that they are keenly working to stop disputes from happening. The Pledge has been endorsed by the UK government and Cabinet Office i.e. the Construction Playbook. This is government guidance to parties involved in delivering public works programmes, and requires such parties to sign up to the Pledge on a comply or explain basis- (See page 54).

The Pledge is the focal point of the coalition’s campaign to reduce the financial and other costs associated with construction disputes. This involves promoting cooperation between contracting parties; and helping people and organisations to understand and use conflict management measures to reduce numbers of disputes and ensure infrastructure and property development projects are delivered on time and on budget.

The coalition has also prepared a Conflict Avoidance Toolkit. This provides information about measures which contracting parties can employ to avoid disputes arising and, when differences do arise, techniques to deal with issues early, quickly and cost effectively. The purpose of the toolkit is to educate people working across the industry, at every level, about the lifecycle of conflict avoidance and early intervention to prevent disputes. The objective is to help reduce the damage disputes cause to commercial and personal relationships, finances, project delivery and brand reputations.

The number of people and businesses in the construction industry who are embracing conflict avoidance and early intervention is increasing, and there is a sense that momentum is building towards a massive sea change in the way contracting parties deal with disputes.  

This is just the beginning, but for now, here are some pointers, which draw on the Conflict Avoidance Toolkit, and are intended to get people in the industry thinking about how they can help to stop disputes from happening:   

Make sure your contract is fit for purpose: The contract should be written in plain, simple language, avoiding legal terms and jargon. Your objective should be to ensure that everything in the contract is relevant and everyone who uses the contract understands it. The contract should be suitable for the type of works and location it is intended to cover. It should avoid unnecessary clauses copied from forms which do not apply to the project.

Adopt a forward-looking approach to risk management and conflict avoidance: Too often, contracting parties begin to think about how to manage a disagreement only after  a dispute have arisen. By the time they get to grapple with trying to resolve it, project delivery will have slowed or even halted. One or both parties will hand the problem over to lawyers and costs will spiral upwards. The Toolkit explains the benefits of co-operating during contract negotiations to identify potential risks connected to a project, and incorporating procedures which will mitigate against emerging problems becoming full blown disputes.

Use early intervention measures to prevent minor issues flourishing into big issues. It is inevitable that people will not always be able to agree on the answer to a problem. When differences begin to arise, contracting parties should engage a process that intervenes early and is geared to helping both sides achieve an agreed outcome.  Early intervention techniques have been used on several large projects in the UK with immense success. A real bonus is that these techniques make sure commercial directors/managers on both sides retain involvement in matters and it is they who decide outcomes, not an arbitrator or judge.  

When parties disagree on something, they shouldn’t go straight into adversarial mode: It is natural that people will not always be able to agree. In cases where parties can neither avoid a dispute, nor resolve it early and quickly, non-adversarial procedures such as mediation, early neutral evaluation or conflict avoidance procedures such as CAP and dispute review boards can enable parties to achieve settlement without going “eyeball to eyeball” in a confrontational arena such as arbitration or court action. These procedures are usually private and confidential. They don’t impose outcomes on contracting parties. They involve the appointment of neutral subject matter experts who help both sides to negotiate their own way to an agreed settlement. 

When agreement cannot be achieved use cost effective and speedy dispute resolution: A dispute resolution procedure in a contract should be designed to allow proper investigation of the issues and a speedy and binding decision. Too many contracts have escalated dispute resolution clauses which are unnecessarily complex and have timetables which are inordinately lengthy. A dispute resolution procedure should be straightforward, and decisions should be made within weeks, not many months or even years.

Procedures, such as adjudication and independent expert determination are often structured and timetabled to be considerably quicker, and cheaper, than litigation. Decisions by adjudicators and independent experts are usually binding, either in the interim or with immediate and permanent effect. 

Litigation should be the last resort: Let’s face it, litigation is slow. Cases take years to reach final outcomes, Litigation costs lots of money, often more than the amount a party might be claiming. The outcome is always uncertain, even if you are convinced you have a strong case. Litigation takes away a party’s control over decision-making (and costs).  In fact, the same can be said for arbitration which, in construction, is all too often a mirror image of inordinately slow, complex and costly litigation.