Some good news for UK construction comes out of the latest Arcadis survey of disputes worldwide, the fifth in an annual series. The survey finds that parties to UK construction contracts are proving to be more willing to negotiate settlements to disputes before they reach court and the courts are managing to control the costs of those actions that go ahead.
The survey – Global Construction Disputes: The Higher the Stakes the Bigger the Risk – found that construction disputes globally grew to an average value of US$51 million (£32.5 million) in 2014 against only £20 million in 2013. Sums involved in UK disputes however fell slightly to an average value of £17.2 million last year compared to £17.8 million in 2013.
Most disputes arose in the transportation sector and the average time taken to resolve disputes rose to 13 months. The highest value disputes were in Asia where the average sum at stake was £54.5 million, with the Middle East averaging £48.8 million. UK dispute values had risen significantly over the past few years, from only £4.7 million on average as recently as 2010, and were expected by Arcadis to increase in number in 2015 as the fallout from the low bidding of the recession continues to be felt. Contractors on fixed price contracts secured during the recession could be especially vulnerable, warns Arcadis.
Not such good news for the UK was that disputes there took longer to resolve in 2014 compared to the year before, but still less than the world average. Globally, disputes took 13.2 months to resolve but in the UK resolution took 10 months. UK resolution took only 7.9 months in 2013, but 2014 was still better than 2012 when disputes took 12.9 months.
Much of this should provide some comfort to the UK government’s procurement professionals as they look ahead to the massive infrastructure investment programmes that lie ahead. A worry though is that in the Middle East the sums in dispute doubled on average, with the most likely reason simply that the size of projects is getting bigger. Europe also saw a significant rise in the average dispute value. Projects are getting bigger in the UK as well so is the Middle East experience going to be repeated here?
The key however is to avoid disputes, not just to keep their average size down. The main reason according to Arcadis for the cause of disputes was the same wherever you looked – failure to properly administer the contract. Other important causes were failure to make interim awards on extensions of time, poorly drafted or inadequately drafted claims, and bias on the part of construction professionals involved.
None of this represents anything inherently flawed in construction itself. Properly administering the contract however must be entirely in the hands of the parties to the contracts themselves. Clients are probably best placed to insist on more foolproof contract administration procedures from the start of projects. It might have an up front cost, but that would be dwarfed by the legal and other costs of disputes.
Nick Barrett
Editor