Construction projects are susceptible to disputes. Margins are usually low and projects are increasingly complex, with many trades working together on site. In a buoyant market, there tends to be an increase in disputes and claims.
I am certainly seeing an upturn in claims for delay and defective works, largely as a result of employers wanting to get tenants into buildings as quickly as possible.
Adjudication remains the most popular of the formal dispute resolution procedures in the UK. Parties to construction contracts have a right to refer their disputes to adjudication at any time and parties cannot contract out of that right. It’s a quick and relatively cheap procedure that normally lasts 28 days, although the parties can extend that time. If a party does not comply with a decision of an adjudicator, the courts will, with only very limited exceptions, enforce the decision.
The speed of adjudication makes it particularly well suited to resolving payment disputes, but arguably less well suited to factually or technically complex disputes. There just isn’t the time, normally, for a detailed factual or technical analysis. Ultimately, if a party does not like the adjudicator’s decision, it can issue proceedings to have the matter finally determined by a court or arbitrator.
In England and Wales it is common for construction disputes to be resolved in the courts where there are specialist judges with a huge amount of experience in construction-related matters. Litigation is ideally suited to the resolution of complex disputes. A court can accommodate and control the detailed cross-examination of witnesses and experts, and judges have wide-ranging powers (for example, they can order disclosure of documents and grant injunctions preventing certain types of behaviour).
All of this comes at a price though. Litigation tends to be expensive and somewhat slow. It is also a public procedure, which may be a significant factor for clients.
One alternative to litigation in the courts is arbitration, but unlike litigation in the courts, a party cannot be forced to arbitrate, it must agree to it. Perhaps the main benefit of arbitration is its flexibility. The parties can choose an arbitral tribunal to suit their particular dispute and they can tailor the procedure to suit their needs (for example, by agreeing to limit expensive disclosure of documents or by agreeing to a short trial). The procedure also helps avoid publicity.
Nevertheless, arbitrations are less common domestically and faced with competition from the courts and from adjudication, I don’t expect to see that change in the near future. The position on international projects is different though and arbitration is still by far the most popular formal dispute resolution procedure internationally.
In my experience, poor project management and a lack of understanding of contractual procedures represent the biggest threats to the smooth completion of construction projects. If parties wish to avoid being dragged into time-consuming and costly proceedings, it is essential that they understand the scope of their obligations and contractual procedures. Parties ignore the contract terms at their peril.
Ben Worthington is a senior associate at Olswang