The news last month that the value of UK construction disputes has fallen by 12 per cent in a year is positive for everyone in the industry.
A report by consultancy Arcadis that appeared in Construction News examined the issue of formal disputes, where third parties are asked to resolve an issue of entitlement under a contract, such as adjudication, litigation or arbitration.
The report showed that two key contributing factors in the decline in disputes were the willingness of parties to compromise and judicial pressure to limit costs.
The evidence showed that mediation and party-to-party negotiations are fast becoming the preferred methods of dispute resolution, and this is very much in keeping with the trends we have seen in our work.
Our clients are becoming increasingly disillusioned with the ‘lottery’ of adjudication in the UK.
Avoiding formal dispute resolution and opting to negotiate a settlement gives companies a greater degree of control and certainty, as well as the opportunity to maintain important business relationships long into the future.
Our experience of working on all manner of claims has shown that disputes have a number of negative effects on businesses, including:
- Reduction in the availability of key staff;
- High costs, including expert and legal fees;
- Distraction from core business functions;
- Souring of relationships with clients;
- Lowering of staff morale and increased uncertainty;
- Negative impact on cashflow;
- Distracting the team’s focus on delivering the project.
Rather than seeing alternative dispute resolution as the answer to these problems, we strive to attack the root causes of disputes.
The Arcadis report showed that the two main causes of disputes worldwide are the failure to administer contracts correctly, and poorly drafted and substantiated claims.
For clients to minimise the risk of a formal dispute and put themselves in a better position to negotiate a settlement and avoid formal disputes, these two issues need to be addressed above all others.
By employing effective contract management teams, clients give themselves the opportunity to avoid issues arising during delivery and, if issues do arise, the contract management team can ensure the correct and proper documentation is kept. This ensures claims made further down the line can be well prepared, coherent and robust.
How to succeed
When a claimant does not understand the relative strengths and weaknesses of a claim, the parties involved often become entrenched and the prospect of a negotiated settlement fades.
Poorly pleaded claims can be avoided, but it requires the claimant to be proactive rather than waiting until issues arise and then acting retrospectively.
“The key to success in dispute avoidance is an unswerving commitment to recording, documenting and presenting the facts about a contract”
By investing upfront in contract management, claimants can give themselves the best possible chance to negotiate a settlement or at least achieve a favourable result in mediation.
The key to success in dispute avoidance is an unswerving commitment to recording, documenting and presenting the facts about a contract.
A failure to record the facts about an issue that has arisen in a contract leaves the claimant with little choice but to use conjecture.
Claims that rely on subjective information very rarely end in negotiated agreements, and that can bring the expensive, time-consuming threat of formal dispute resolution looming back into view.
Joseph Bond is managing director of Kenzie Group