In an ideal world, a client would hire a contractor for a building project, who would complete the work satisfactorily, on time and to budget, adhering to all their contractual requirements along the way.
Unfortunately, we don’t live in an ideal world and disputes do happen – it’s almost inevitable in an industry where profit margins are tight, supply chains are stretched and a lot of money is flying around!
Whilst construction disputes can’t be entirely eliminated, steps can be taken to try to avoid them – saving time, money and stress in the process.
The most common types of construction disputes
According to the 12th annual Global Construction Disputes Report from design, engineering and consultancy firm Arcadis (which analyses the period between 2020 and 2021), the number of construction disputes has increased significantly worldwide.
The company mainly attributes this growth to difficult economic and trade conditions over the past few years, including significant global supply chain disruption and the ongoing impacts of the Covid-19 pandemic. The survey also reveals the most common causes of disputes in the UK during 2020 and 2021, which were:
- Poorly drafted or incomplete and unsubstantiated claims
Disputes are more likely to arise where one party makes a claim against the other without providing sufficient evidence to justify the amount they have claimed for.
- Owner-directed changes
This happens when the client requests changes to the project after it has begun. This can lead to disputes if the contractor believes the requests will take the project beyond the scope of the existing contract (i.e., they believe the client should pay more or extend the deadline).
- Parties failing to understand and/or comply with contractual obligations
When the client, contractor or subcontractor either doesn’t properly read the contract, or does not understand the language of the contract, this opens the door to misunderstandings and disputes as they are more likely to fail to meet their contractual obligations.
Avoiding and mitigating construction disputes
- Build flexibility into construction contracts
As we know from the past few years, disruption and delays can come out of the blue and there’s often nothing anybody can do about it. The more flexibility and allowance given for unforeseen disruptions, the less likely it is that one of the parties will breach the contract terms.
- Be willing to compromise
In addition to building flexibility into the contract, it’s important that all parties involved in a potential dispute approach the issue in the spirit of compromise. If another party breaches the contract, doing everything you can to minimise the impact of the breach and being open to negotiation can save time, money and stress for all concerned.
- Keep an audit trail
Use businesslike language in any correspondence between the parties about the project and don’t delete any emails or other communication. That way, you have an accurate record of everything that was said, which could help to nip a dispute in the bud.
- Make sure you understand the contract!
This one seems fairly obvious, but as we have seen from the Arcadis report, this is a common cause of construction disputes. Going through the contract with a solicitor and ensuring that all parties understand all the terms and their own obligations can help avoid breaches and disputes before they’ve even begun.
- Understand the risks
If all parties are aware of the risks involved in a project, they can act to mitigate them. For example, your risk assessment might highlight risks and potential issues relating to weather, labour, procurement, design etc. that you can anticipate and therefore mitigate.
- Manage changes effectively
Where changes have to be made to a project that have a knock-on impact on time, cost or quality, they need to be fully documented and any associated risks identified. There should be a structured approach to change management that involves all the parties and ensures that everyone is on the same page.
- Take out insurance that includes legal expenses for contract disputes
As we’ve said, the risk of disputes can be reduced, but never completely eliminated – there are just too many factors involved, especially when it comes to largescale projects where many different parties and a lot of money are involved.
That’s why it makes sense to ensure that your insurance policy includes cover for legal expenses and contract disputes – so that if a dispute does end up going to court, there is a financial safety net in place to protect your business.
Many of Focus’s comprehensive construction products include legal expenses cover, so please take a look at our full range here.