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Rise in construction contract disputes indicates ‘business as usual’

01 Feb 2022

After the initial paralysis that gripped us all at its beginning, it’s fair to say that the pandemic has had less of a damaging impact on the construction sector than it has on many other industries.

Once they made the necessary adaptations to their ways of working, construction companies were, in general, able to get on with the projects that had been on their books before any of us had heard of Covid-19.

Official data showed that construction outputs had almost returned to their pre-coronavirus levels in October 2021, with anecdotal evidence suggesting that only supply chain issues and subsequent price increases for raw materials such as steel, concrete, timber and glass were preventing activity levels from being even higher.

An additional factor that we noticed during the pandemic was a far greater degree of tolerance for situations which might previously have led to disputes between different parties involved in construction projects.

Such disputes are, of course, a standard part of proceedings in the industry, with most being thrashed out without the need to resort to the law, but what we saw was much more patience being exhibited by those involved where issues might previously have become much more of a problem much more quickly.

Companies and their owners were concentrating more on just negotiating the unpredictable situation in which they all found themselves, with getting through each day/week/month more important than the minutiae of projects which might previously have caught their attention.

The spirit of “we’re all in this together” seems to have very much been in place in the construction industry during much of the pandemic – but if recent trends are anything to go by, that spirit is now beginning to run out.

Over the last six months, we’ve seen the number of construction disputes steadily rising and heading back to normal levels, with more and more companies looking to resort to legal means of trying to resolve them.

A number of common factors are contributing to this increase.  First of all, companies now have more resources and staff available to put towards resolving problems, particularly since the end of the furlough scheme, while increasing activities levels means that there’s plenty of work out there for sub-contractors and skilled traders.

Once upon a time, they might have felt they had little choice but to put up with behaviours by bigger firms that were causing them problems, such as delayed payments, but with lots of industry demand out there, they have more of a chance to find alternative projects to keep them busy.

Disputes that had previously been put on ice due to the pandemic might now be coming back to the fore, with aggrieved parties deciding to try to get them resolved through the courts, arbitration or adjudication before any statute of limitations kicks in.

All these factors have the potential to cause undesirable delays and disruptions for main contractors and their clients, especially if they’re left in the lurch and can’t easily find replacement service providers to step into the breach in what is clearly a sellers’ market.

This points towards the need for main contractors to take a bit more care of the people and businesses that they’re employing, to listen properly to any issues that they’re presented with and to keep their side of the bargain in terms of the contractual obligations to which they sign up at the beginning of proceeding.

The same obligations apply on both sides of the relationship, of course, but it’s often the bigger fish that gets stuck in the middle of disputes in the current environment

The best way to avoid getting involved in contractual wrangles that could cost everyone time, money and aggravation is to keep channels of communication clear and open at all times, listen to each other’s situations and look to find mutually satisfactory ways forward wherever possible.

Part of this should also be getting your professional advisors involved at an early stage in proceedings, so they can add value by identifying the most likely solutions to each individual situation.

Not only can they fight your corner if problems do require legal means of resolution, their early involvement can also stop issues escalating further and more quickly than is really necessary and can help return important working relationships to a more harmonious state.

Even if there are many positives to hold onto, there will doubtless be many challenges ahead for the construction sector during 2022, and taking a carefully considered approach to the ways in which they operate will be essential if businesses want to minimise the chances of potentially damaging contractual disputes arising.

For further information on managing construction industry dispute resolution, please contact Jan Rzedzian on 0191 232 8345 or via jan.rzedzian@hay-kilner.co.uk