Report reveals industry unprepared for growing pressures

Some interesting insights on the state of the industry and its contractual relationships emerge from the RIBA Construction Contracts and Law report (see News), the first since 2018. The value of the RIBA survey might be thought to be reduced by the fact that only 5% of the respondents are classified as being Tier 1 contractors; but they are a small part of the construction universe in terms of how many of them there are.

Clients comprised another 5%, mostly those involved with large scale projects, and they are also few in number anyway. RIBA accepts nevertheless that such small numbers of respondents hamper any efforts that might have been desired to reliably ‘drill down’ into the findings. Some 86% of respondents described themselves as ‘consultants’, held to include the design team, surveyors and specialist consultants.

What do the results of the survey tell us then? For a start, it confirms that for an industry supposedly striving to move towards a more collaborative future, there is clearly a lot to be done. Over 25% of respondents said they had been involved in at least one dispute in the previous year. This was a smaller number than the 2018 survey, but almost half felt that disputes had risen in the past year.

Claims for extensions of time was the most common cause of disputes, reported by 50% of respondents. Allegedly defective work was behind over 40% of disputes, with ‘loss and expense’ the cause of 31%. Clients seem to have been little more inclined to agree the valuation of variations than to grant extensions, as this responsible for over a quarter of disputes. Valuation of the final account gave rise to almost a third of disputes.

Why did respondents have the feeling that the number of disputes was rising? Some felt that contractors were simply trying to protect or increase their margins without justification. Late payments were a common cause. Despite all the industry chatter about the need for a more collaborative approach, an adversarial approach was often seen. Contracts were being used that were held to inappropriately allocate risk, which was probably being obscured within the preponderance of complex procurement and contracting processes.

Covid, Brexit, supply chain and labour issues and construction product price inflation, were all mentioned as contributing to disputes, and pressures were intensified by the continuing difficulties in finding affordable professional indemnity insurance.

Regrettably, construction work came to a halt or was suspended in 27% of the projects affected by disputes, which never helps ongoing relationships or the cost of the affected projects. Overall the report is further evidence of an industry in danger of imploding under growing pressures, and not doing a lot to help itself – mediation was only used by 10% of respondents, with 42% of disputes going to adjudication and 20% finding their way to court; the only sometimes marginally cheaper arbitration route was taken by 17%.

One of the few positive notes is struck by the fact that some 34% of disputes were settled by negotiation at senior management levels. The picture the report paints is not a pretty one however, and the industry will have to do better if it is to weather the coming inflation and recession storms.

Nick Barrett