That's not what we agreed...
By VOLOCO LLP, Nov 29 2019 11:48AM
Construction projects are typically complicated, uncertain and involve numerous parties at all levels of the supply chain. The complication and uncertainty usually means that numerous details need to resolved after works commence and, as mentioned in a previous article, change is (almost) inevitable.
Therefore, it is hardly surprising that disputes arise in this scenario. How can the risk of disputes arising be minimised, and how can it be dealt with when it happens?
Obviously, the best way to deal with disputes is to avoid them altogether, but that is not always easy, so here are some methods of reducing the likelihood of disputes arising in the first place:
• Clear contract documentation – ambiguities in (sub)contract documentation can lead to disputes where 2 parties are relying on slightly different information, therefore it is important to try to clearly set out the specific details required for the (sub)contract and try to remove any ambiguity in the documents issued. Sending out all documents to make sure the other party has everything is a good way to introduce ambiguity so try not to do this.
• Good management – proactive planning and management of future work, properly assessing risks, early identification of potential issues and not burying your head in the sand when someone brings a possible issue to you are good ways of avoiding future conflicts;
• Partnering – building relationships with all parties involved in the project and try to encourage team working and problem solving at all levels;
• Client management – making sure you understand the client’s objectives and you communicate any potential risks or opportunities as early as possible will help to build a good relationship and reduce the likelihood of conflict arising;
• Good payment practices – make sure you always pay suppliers and subcontractors on time, and raise issues as early as possible so they can be discussed and don’t become disputes in future;
• Records, records, records – having good records of everything will enable more constructive discussions if disputes do arise so make sure you keep detailed records (please see our previous article, Records, records, records, for more information).
Dispute Resolution Options
Unfortunately, avoiding conflict is not always possible and it is important to understand the options available when it comes to resolving disputes. Generally, Construction Contracts include provisions for dispute resolution by alternative dispute resolution procedures before litigation (going to court). This is because taking a dispute to court is an expensive, complex and adversarial approach that will take a lot of time and will often destroy the relationship between the parties.
When a dispute arises the first step should always be a discussion between the parties involved. Sometimes it is too easy to get lost behind emails so sitting around a table can be a much needed step that helps both parties to understand the other’s position. This step is likely to be the fastest and least expensive option, whilst also reducing the likelihood of disruption to the project and keeping a good working relationship.
When this doesn’t work, it may be necessary to get the assistance of a third party to resolve the dispute.
Mediation involves the appointment of an independent mediator to facilitate discussions between to parties with a view to reaching a settlement. The process is led by the mediator, but the power to settle remains with the parties themselves. The benefit of this approach is that a mediator can help the parties see things from a different perspective improving the possibly of resolving the dispute.
The first of the third-party binding options is expert determination. The parties appoint an expert who will determine the issue and produce a binding decision. The main advantage to expert determination is that the decision is taken out of the hands of the parties so it is less likely to have a negative effect on their working relationship.
Construction contracts are also subject to a statutory scheme set out in section 108 of the Housing Grants, Construction and Regeneration Act 1996, known as adjudication. If the Act applies to the contract, either party may request the appointment of an adjudicator to be made within 7 days. The adjudicator then has 28 days from the date of referral to issue their decision. The decision made by the adjudicator is binding on the parties and can be enforced through the Technology and Construction Court (TCC).
Arbitration is a private, contractual form of dispute resolution meaning that it must be explicitly written into the contract, or a separate arbitration agreement drawn up for the dispute. It is governed by the Arbitration Act 1996 and provides for resolution by a third party arbitrator or arbitration tribunal. Where arbitration is allowed for in the contract, it is often a last resort following mediation and/or adjudication. As with adjudication the arbitrators award is binding on the parties and can be enforced through the TCC. The arbitrator has a duty to act fairly and impartially, and to avoid any unnecessary delay and expense in the course of the arbitration.
Construction is an industry known for being adversarial and disputes are extremely common, but by following a few simple steps it is possible to minimise the risk of disputes. If you do end up in dispute with someone there are several options available to you before resorting to taking the party to court. Some of those options may even enable you to continue working together and find a mutually agreeable outcome. Always seek the advise of an experienced dispute resolver before taking any drastic action that could damage your future relationships with people.