Contracts need risk management

The headline news from the most recent Arcadis survey of global disputes is that the sums involved in disputes have more than doubled but the number of disputes has stayed about the same. Disputes are being resolved faster at an average of 13 months compared to 15 last year, and the UK is maintaining its lead in speedy dispute resolution, taking only 10 months on average.

The average sum under dispute has more than doubled however, rising by 117% in the UK. Arcadis suggests this is probably due to the size of projects having increased in recent years.

Worryingly, some 60% of survey respondents expect the number of disputes to rise this year.

Covid is having an ongoing impact, unsurprisingly, and it appears that projects that showed signs of stress before Covid impacted on working practices and materials supplies have suffered more than those that were going well before. So the main impact of Covid might not have been to introduce major problems to projects, but exacerbate what problems there already were.

Accelerating programmes will be difficult as long as Covid restrictions are applied to work on site, so playing catch up when programmes slip might not be the option that it used to be for the foreseeable future. More than ever, a watchful eye will have to be kept on programmes; just as over-optimistic schedules will risk big problems somewhere along the critical path.

Anecdotally at least, it seems that the idea of remote legal proceedings forced on disputes by the courts being closed might have made parties more inclined to negotiate settlements, and this could at least partly account for the reduction seen in the length of time disputes take to settle. Also, there may have been a positive response from parties to government pleas for a more collaborative attitude to working through issues caused by Covid restrictions.

The more things change the more they stay the same though, and all sides in disputes seem to still be neglecting basic contract management disciplines, such as reading and understanding the contract. This has been highlighted by Arcadis as the main cause of disputes last year, having only been the third main cause previously. Failure to make interim awards on extensions of time and compensation, which was the previous top ranked cause of disputes, dropped to third place, while errors or omissions in the contract documentation was the second biggest cause.

More than a few contractors we have spoken to over the years have prided themselves for leaving contracts ‘unused’ and ‘in a drawer’. Unfortunately, this can easily lead to falling foul of provisions that they never took the trouble to learn about. It is poor risk management, unsuited to the increasingly sophisticated commercial world that contractors have to inhabit.

For the future, Arcadis recognises that incorporating collaborative dispute avoidance protocols in contracts is a way forward, with adjudication increasingly being regarded as expensive and time consuming, despite having been the main way of resolving disputes last year. There is growing recognition in the UK of the need for industry reform and increased collaboration would lie at the heart of that, so more dispute avoidance protocols in contracts could help; always assuming of course that parties take the trouble to understand them, and use contracts as the management tools they should be designed to serve as.

Nick Barrett