10/02/2016
Regardless of the effort and preparation you and your legal team put into drafting and negotiating a clear, concise construction contract; disputes will sometimes occur. As we mentioned in the first part of this series, not only can the clauses in a construction contract prevent disputes from arising in the first place, if they do materialise, the terms of the agreement can help resolve the issues quickly and cost-effectively.
The four main avenues for resolving construction disputes are:
Also, many contracts for large and complex projects now provide for:
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).
Mediation
Mediation has been proven to be effective in resolving construction disputes. Studies show that over 80 percent of disputes voluntarily submitted to mediation are resolved.
A Mediator does not impose their decision. Instead they facilitate conversation and steer parties towards a mutually satisfying agreement that they come to themselves. It is a private, quick, cost-effective way to resolve construction disputes; however, it is only successful if both parties agree to the process and the decision reached between them, as any agreement is not technically enforceable by the Courts.
Adjudication
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.
By setting out the process for any future adjudication in the construction contract, the parties can save time and cost by pre-selecting an Adjudicator and agreeing in advance certain procedures to follow.
If the construction contract does not provide for adjudication procedures, there is a statutory right to the process under the Housing Grants, Construction & Regeneration Act 1996.
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 (although this is now changing, hence the processes decline in popularity), if each party chooses to cooperate with the other when a dispute arises. However, unlike adjudication, an Arbitrator’s decision is binding.
Due to the wide-spread use of adjudication to resolve construction disputes, and the expertise of the Technology and Construction Court, Arbitration is now mainly used for international construction contract disputes.
Litigation
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 are clearly not going to succeed.
Although the Court’s decision is binding, allowing for certainty between the parties, costs can be exorbitant, and the process can take years if appeals are made.
Dispute Boards, Steering Committees and Construction Partnering
As alternatives to the four main dispute resolution procedures, dispute boards, steering committees and construction partnering can be explored, and depending on the size and nature of the dispute, may provide an alternative way to resolve certain issues.
Dispute Boards
A dispute board (also known as dispute review board or dispute resolution board (DRB) and dispute adjudication board (DAB)) involves a panel, normally consisting of three independent and well-established individuals, who are appointed at the commencement of a large construction project and considers project issues and recommends resolutions if disputes arise. Normally the employer and contractor each appoints one member, and the third member is chosen by the first two. The recommendations made are normally non-binding.
Steering Committee
A steering committee is a committee set up to organise resources pertaining to a large project. The primary purpose of the project steering committee is to lead the way through one or more projects - to deliberate, make decisions, provide strategic direction, and to be an “advocate” for the initiatives involved. A steering committee is generally made up of high-level stakeholders and experts.
Construction Partnering (Partnering Meetings)
Construction Partnering is a commitment between a project’s owner, the consulting engineers and/or architects, the contractor(s), and other key project stakeholders to create a cooperative project environment with a team committed to understanding one another. When undertaking the project in this way, the team works together to develop and follow processes and procedures which will optimise the successful completion of the project.
Teams in a partnering environment will improve communications and avoid disputes by developing mutual Project and Partnership Success Goals and by monitoring the achievement of these goals for the duration of the project.
This type of collaboration is especially effective for large, multi-jurisdictional projects involving many stakeholders and contractors.
Conclusion
No stakeholder or contractor wants a dispute to disrupt a construction project. Becoming familiar with the various ways construction disputes can be resolved and drafting certain provisions into your contract to reflect each party’s preferences, will lead to swifter, more cost-effective resolutions, should a dispute arise.
In Part Three of this series, we will discuss the remedies available to parties involved in construction disputes.
Fisher Scoggins Waters are a London based law firm who are experts in construction, manufacturing and engineering matters. We act for both employers and contractors and are regarded as one of the best construction dispute resolution firms in the UK. If you would like to discuss any points raised in this article, please phone us on 0207 993 6960.