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Construction disputes continue to soar

The London Technology and Construction Courts received a bumper 512 new claims last year, according to the court’s latest annual report.

The figure was only slightly higher than 2009-2010, at 502, but this was significantly up from than the five-year average of 460.

There were also 51 contested trials at the London TCC, a number of which were “substantial”. The report also noted an increasing tendency for cases to be settled out of court.

The report highlighted the “substantial number of cases settled shortly, sometimes very shortly, before trial” in the TCC’s overall caseload.

It also noted that “a significant number of cases” overall now have an overseas party or relate to a project overseas.

“The TCC judges have the necessary expertise and experience to deal with international work, having practised internationally before coming to the bench,” it added.

“It is understood that a number of overseas contracts now have jurisdiction clauses which expressly refer disputes to the TCC in the High Court in London. This is to be welcomed.”

Taylor Wessing construction and engineering group senior associate Aine McCartney said the increase was probably not as large as many were expecting, with both employers and contractors turning instead to adjudication.

“You’d expect there to be more disputes”, she said, “but contractors don’t have the appetite for it, and sub-contractors need to be paid - they can’t afford not to get paid.”

“Cases don’t always go to litigation, although it may be threatened. Litigation is perceived in the market to be expensive and time-consuming, contractors are much less likely to want to go down that route.”

“Adjudication doesn’t always end up being as cheap as it was designed to be, but if you’ve got a cash flow issue and you need to sort out an issue on site, adjudication is normally the quickest route.”

The court in Birmingham saw 82 new cases, with 26 in Bristol, 19 in Cardiff, 4 in Exeter, 33 in Leeds, 20 in Liverpool, 105 in Manchester and 14 in Newcastle.

Of the regional TCC courts that provided information for cases last year, 40 per cent related to construction, 18 per cent were adjudications and 6 per cent were categorised as professional negligence.

But Pinsent Masons construction advisory and disputes partner Colin Fraser explained that the increase in total disputes was more about reduced headcounts than companies scrabbling for fees.

“It might be counterintuitive but, particularly in construction and engineering, you might see dispute numbers in a recession going down,” he said.

“A dispute is an investment – you’re investing people, you’re investing time – the board will ask ‘okay, should we be making the investment?’

“Before, they could afford to soak up a bad project; now they’re thinking long term, they’re thinking supply chain management.

“They’re thinking they must not fall out with this subcontractor or main contractor, as they depend on them for future success.”

Mr Fraser said the increase in disputes could also be explained by firms cutting headcounts. “Recession-hit companies have had to go through multiple rounds of redundancies, in some cases they’re trying to resource the same amount of work but with lower overheads and headcounts – that’s when mistakes can be made,” he said.

“If there are short-cuts at the procurement stage, that can hard-wire uncertainty and risk into the contract. And a thinner delivery resource can cut the speed of the service and the quality of the output.

“In recession, it’s a buyer’s market, so the supply chain is under pressure to accept contract conditions that otherwise it might judge too risky.

“If you have to tender very low, then recovering an acceptable margin, or even cost, might mean that a formal dispute is unavoidable.”

To minimise the risk, he suggested that firms need to focus on certainty and communication.

“So far as certainty is concerned, it’s about understanding precisely what is the scope of work and making sure that a contract is in place before work starts,” he said.

“And as far as possible, it’s about making sure that contract allocates risk between the parties clearly and with predictable outcomes.

“Internal and external communication is also key, so that everybody understands what is to be expected from the others.”

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