Dispute Resolution in the Construction Industry
Posted by Pooi Jing (PJ) , Graduate Recruitment Consultant on Friday, January 6, 2023
Things do not always go according to plan on a construction project. The client may request additional work to be done by the contractor because something unforeseen is discovered on site, or there could be a range of other problems that are encountered. These eventualities will probably result in an increase cost to the project which, in turn, will generally result in a longer time working on the project with other potential knock-on effects.
Unresolved disputes can take up to valuable time, incur significant costs and be a drain on business resources. Most parties want to avoid disputes wherever possible and resolve them efficiently when they arise to avoid their reputation being at risk.
If disputes cannot be resolved through discussion by both parties, it will often lead to a claim or other form of dispute. Unresolved claims can be resolved in a number of ways including mediation, adjudication and arbitration as I will explain below.
Types of claims that frequently occur in construction projects include:
- Claims made against contractors by the employers for delays to a project or for poor workmanship (i.e. defective works).
- Claims made against a professional consultant by the employer on design flaws or unprofessional work supervision.
- Claims made against employers by contractors on work delayed or a change to the scope of works.
- Claims made against employers by professional consultants for payments not received.
Claims can be settled immediately when a dispute occurs. However, when immediate settlement (claims) are not possible, a dispute can begin and will need to be resolved in the most time and cost-effective manner.
Ways of resolving disputes
When a dispute is developing, what choices are available to parties to resolve their differences?
Resolution of disputes traditionally occurred through the courts. This is a formal process that typically involve ongoing pleadings, full document disclosure, witness statements, and expert reports, followed by the hearing itself. However, there has been enormous growth in Alternative Dispute Resolution (ADR) witnessed since the 1990’s including Mediation, Litigation, Adjudication, and Arbitration.
There are several reasons that ADR techniques are attractive compared to traditional court proceedings:
It can take a minimum of 2 years to get a matter before a judge due to extremely long court lists so ADR offers a faster resolution
- Lower costs
The process of litigation can be very expensive
Litigation is in the public domain, meaning there is a risk of exposing the matter to the public. Whereas ADR, on the other hand, is a private process and therefore it is confidential.
This mainly applies on mediations. Whereas litigations, adjudications and arbitrations are based on rights and obligations, a mediated settlement focuses on the parties’ interest and needs with the mediator encouraging the parties to search for a commercial solution which meets with both parties’ needs.
So, what are the difference between mediation, adjudication, and arbitration compared to litigation?
In mediation, the parties work with the assistance of an independent third party to determine the problems in dispute and to investigate potential solutions for resolution to come to an agreement. The fact that the parties themselves ultimately decide the outcome rather than the mediator is an important factor.
The fact that a mediation typically lasts one to two days is one of the major benefits. Having said that, parties might not be able to reach a resolution early in the dispute process due to a lack of background information, which means there is often uncertainty about the validity of a claim in the early stages. As a result, it can take months for the parties to be able to mediate successfully.
The Housing Grants, Construction and Regeneration Act of 1996 added adjudication as a statutory right to construction contracts in the UK. It provides a decision that is temporarily binding and must be followed unless it is overturned or amended by a court or arbitration.
The goal of adjudication is to quickly settle disputes that arise during a contract so that money continues to flow, and work may continue without or with very little delay. Within 28 days, an adjudicator is required to decide matters referred to them. There are situations where both parties agree on extending the adjudication, therefor an extra 14 days will be extended.
A party that had not been paid had to pursue its claim through prolonged arbitration or court litigations prior to judgement. This required paying hefty legal fees to get that money back. Due to their inability to afford this expensive and lengthy process, many subcontractors and small construction firms were unable to enforce payment or contractual entitlements.
Adjudication is not only appropriate for recovering unpaid fees, but also for resolving delay and disruption claims, extensions of time (EOT) and final account disputes.
Formal disputes are determined by a private tribunal of the parties’ choosing from an arbitration process. If a contract includes an arbitration clause, then a dispute arising under the contract must be referred to arbitration as opposed to litigation through the courts. The outcome of an arbitration (the reward) is final and binding on the parties. While less formal than litigation, the arbitrator focuses on the issues raised by the parties. Arbitrations usually involve on or more hearings before the tribunal, where the parties’ lawyers put forward arguments and questions over the party’s witnesses and experts. Hearings can last from half a day to many weeks and even months or years depending on the issues at stake. The process includes pleadings, document disclosure, witness statements, expert reports and a hearing. Arbitration is seen to provide the following advantages over litigation:
- The flexibility to appoint an arbitrator who is appropriate for the dispute, as opposed to a Judge who is appointed by the Court and may not have the necessary technical knowledge.
- Compared to litigation, the process is often quicker.
- Costs may be lower.
- The award is private and is therefore confidential.
- Due to international rules on the recognition and enforcement of foreign arbitral awards, arbitration awards are typically more easily enforced than court judgments in other countries.
The team at Maxim Recruitment are experienced in the recruitment of specialist construction dispute employees who are ready to join specialist dispute job roles with construction industry companies. If you are already working in the construction claims and dispute sector or you’re interested in doing so, please do not hesitate to get in touch. In addition, we are also interested to recruit for employers within the construction claims and disputes sector who need to recruit new specialised employees.