Why UK construction disputes are resolved quickest

The UK leads the world in resolving construction legal disputes, but there is plenty of room for improvement, Says Gary Kitt.

The UK continues to be the jurisdiction with the quickest
average resolution time for construction disputes – and it also has the lowest
average value.

The Arcadis Global Construction Disputes Report 2020, based
on research among legal professionals last year, showed a similar volume of
construction disputes as during 2018, with the average value remaining
consistent at £14.1m ($17.8m). The global average was £24.4m ($30.7m). For the
same period, UK survey respondents recorded a 23% drop in the average time
taken to resolve disputes to 9.8 months, from 12.8 months in 2018.

Dispute causes

During 2019, a failure to make interim awards on extensions
of time and compensation became the top ranked common cause of disputes in the
UK.

While this replaces a failure to properly administer the
contract, the top cause in the previous five years, it continues a trend of the
top dispute cause relating to those administering contracts. Repeating 2018’s
findings, over 75% of respondents reported that conduct of the project manager
or engineer was always or very often at the heart of how the dispute
crystallised – most commonly a lack of understanding of the procedural aspects
of the contract.

It is therefore unsurprising that over 60% of respondents
stated that proper contract administration would have the single largest impact
in avoiding disputes in which they were involved.

The second ranked common dispute cause is again the
contractor or subcontractor failing to understand or comply with its
contractual obligation.

This suggests that contract obligations drafted in plain English, such as the NEC forms, are not as easily understood by practitioners as the lawyers drafting them.

Perhaps it is time for greater representation of true
practitioners on the contract-drafting bodies to ensure those administering
contracts understand the consequences of their actions or inactions. Greater
use of more collaborative standard forms of contracts, such as PPC 2000, might
provide more confidence in project delivery. However, little appetite has been
shown for these types of contracts, bearing in mind it is now almost 20 years
since the PPC forms were introduced.

Resolution techniques

The UK saw a return of adjudication, contract or ad hoc, as
the most common dispute resolution method, replacing party-to-party negotiation
which dropped to second place in 2019.

Arbitration replaced mediation as the third most common
resolution method in the United Kingdom. The recent introduction of some low
value or low cost arbitration schemes, such as the Chartered Institute of
Arbitrators’ Business Arbitration Scheme, could explain this trend.

While the industry should welcome further forms of lower
cost dispute resolution, it is concerning that no early resolution methods
appear in the top three.

In recent years there has been a concentrated effort to
promote the benefits and use of mediation, such as the Construction Industry
Council’s Model Mediation Agreement and Procedure, because of its typical lower
time and cost benefits. Unfortunately, this is not reflected in this year’s
results.

Mitigation of disputes or early resolution chiefly depends
on a willingness to compromise by the owner or contractor. This was ranked as
the most important factor by respondents, ahead of contract-mandated early resolution
forms, such as the avoidance processes implemented by Network Rail and
Transport for London.

Positively, over half of respondents regarded the cost of
resolution – compared to value of outcome – as the most important factor when
considering whether a dispute was successful or not. We hope this may signal a
shift in dispute resolution methods deployed and that we will see an increase
in party-to-party negotiation, mediation, and other forms of early dispute
resolution.

Solutions looking forward

The impacts of covid-19 will certainly change the industry
and present new challenges. However, one source of positivity has been the
collaboration of numerous stakeholders to produce the NHS Nightingale Hospitals
to deal with the pandemic. These projects are fantastic examples of using
collective efforts to produce project excellence. The industry should learn
from these projects, with confidence and trust in the benefits of closer
working.

If, as seems likely, the industry enters another recession,
we hope that clients, contractors and other stakeholders will draw upon lessons
of the previous global financial crisis in 2008, improving collaboration. It
would be naïve to think that parties in a commercial world will always approach
a project from the same viewpoint, however an increase in the early engagement
of the supply chain and conjoined approaches could assist in reducing the
impacts of any financial downturn.

Further collaboration is needed between parties drafting
clauses and obligations in contracts, with a focus on those who will
be delivering the works. A change in mentalities is required from all
industry stake-holders as the contractual clauses cannot achieve project
excellence on their own. We encourage parties to make administration of contracts
easier.

Additionally, increased use of BIM and other collaborative
risk management tools can help all parties understand project needs and goals.

We encourage stakeholders to deploy more efforts in the
early resolution of disputes, especially those with known time and cost
benefits, to minimise the potential impacts arising from differences. 2020 will
pose a challenging period for the industry, but through collaborative efforts
we can seek to change for the better. There has never been a better opportunity
for positive change.

Gary Kitt is head of UK contract solutions at Arcadis and co-author of the Global Construction Disputes Report 2020