Construction Disputes Resolution – An Overview Of The Options Available

04/08/2015

Few things are as costly, in both time and money (and sometimes personal health) than a complex construction dispute.  Fortunately, there are now multiple avenues available which allow parties to resolve construction disputes quickly and inexpensively. 

This introductory blog briefly outlines the four main types of dispute resolution procedures; adjudication, mediation, arbitration and litigation available for construction disputes in the UK. 

Setting Out Dispute Resolution Procedures in the Construction Contract

The first port of call for most construction disputes is the construction contract itself.  A good construction contract will outline an agreed disputes resolution procedure between the parties.

In addition, many contracts for large and complex projects now provide for:

• Tiered dispute resolution procedures with obligations to negotiate in good faith          
• Dispute Boards         
• Steering Committees         
• Partnering Meetings

If the construction contract fails to set out adequate dispute resolution procedures, players in the  construction sector are subject to statutory schemes which impose adjudication procedures in the absence of contractual agreement (such as the Housing Grants, Construction and Regeneration Act 1996 and the Local Democracy, Economic Development and Construction Act 2009).

Types of Dispute Resolutions Available to the Construction Industry

Adjudication offers a fast, cost-effective way of settling disagreements, using an unbiased individual (the Adjudicator), who will make an interim binding decision based on the information provided to him or her by the parties to the adjudication.

• Speed – in most cases decisions must be made within 28 days          
• Low cost          
• The ability for the parties to select their Adjudicator themselves          
• The Adjudicator may provide a written reason for his or her decision

• The decision is only binding in the interim, if either party disagrees with it, the dispute will need to go to arbitration or litigation to be resolved          
• The responding party has very little time to prepare a defence against the claim brought against them          
• Costs are not usually awarded to the successful party

Unlike an Adjudicator, a Mediator does not impose their decision after listening to each party’s submissions. Instead, they facilitate conversation and steer parties towards a mutually satisfying agreement that they come to themselves.  As with adjudication, the mediation process is usually very quick and enjoys a high success rate.

• Due to the informality of mediation, preparation is usually low-key          
• Mediation is private          
• The Mediator is usually well-versed in construction issues          
• The procedure for mediation is decided by the parties

• The decision is not technically enforceable; however, parties can attempt to make the agreement enforceable by stating in the mediation agreement that the decision should be binding          
• The process is unsuitable in situations where an immediate form of relief, such as an injunction, is required

Arbitration

Arbitration involves an independent third party (the Arbitrator) settling a dispute between parties.  Like adjudication, the process is usually quicker and less expensive than litigation if each party chooses to cooperate with the other when a dispute arises.  However, unlike adjudication, an Arbitrator’s decision is binding.

Governed by the Arbitration Act 1996, arbitration is now a less popular form of dispute resolution in the construction industry.  This is due to:

• the increased use of adjudication          
• the expertise of the Technology and Construction Court          
• increasing costs

Arbitration is still widely used as a form of dispute resolution in international construction contract disagreements.

Litigation is seen as a last resort, and in the interests of cost, time and stress, should only be entered into if other alternative dispute resolution options have clearly failed.

The advantages of litigation are that the decision is binding and decided by learned judges who rely on precedents to come to their decision.

The disadvantages of litigation are well-known; it is expensive, time-consuming, and stressful and can put the brakes on a potentially lucrative construction project for months, (if not years).

To utilise the best option to resolve a construction dispute, good quality legal advice is imperative.  If you are dealing with a dispute, do not hesitate to call our London office on 0207 993 6960 to talk to one of our solicitors.