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Wed February 28 2024

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A third of JVs end in dispute

27 May 14 British contractors are getting worse at joint ventures, new research suggests.

A third of construction joint ventures now end in dispute, with erstwhile partners setting their lawyers onto each other.

This is according to research by construction consultant EC Harris. The same annual survey three years ago found that one in four joint ventures ended sourly.

However, the proportion of JV relationship failures is slightly below the global average.

The analysis found that disputes relating to major UK construction reached an all-time high last year of £16.5m. The good news is that the disputes took less time to resolve with the average resolution time coming down to 7.9 months from 12.9 months in 2012.

Globally, EC Harris parent company Arcadis witnessed the emergence of the ‘mega-dispute’ in 2013, with its teams working on three separate disputes worth over a billion US dollars (£600m). These included the Panama Canal Expansion project.

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The report, called Global Construction Disputes: Getting the Basics Right, says a recent upturn in market conditions and claims by employers for alleged defective works are two of the key drivers causing disputes in the UK. The more buoyant market means that contractors are more prepared to take action to recover losses that they may have suffered by entering into contracts over the last five years when there was a sharp downward pressure on tender prices.

The authors say: “In a large number of instances contractors’ claims are often met with counterclaims for delay and/or defective works. The latter claims also tend to end up with one of the design team facing claims for professional negligence thereby creating rounds of satellite litigation generally originating out of a contractor’s claim for loss and expense. As in previous years, a significant cause of claims is the parties’ own lack of understanding of their respective obligations under the contract, despite which many contractors and clients still remain unwilling to invest any money in pre-contract advice.”

The research found that the top five causes of construction disputes in the UK in 2013 were:

  1. Errors and/or omissions in the contract document
  2. Failure to make interim awards on extensions of time and compensation
  3. Differing site conditions
  4. Incomplete design information or employer requirements (for D&B/D&C)
  5. A failure to properly administer the contract.

Gary Kitt, UK head of contract solutions at EC Harris, said: “The UK’s unique adjudication process has enabled it to set itself apart from its global peers, resulting in a reduction of time for resolution of disputes. Adjudication is preferred over costly litigation, which requires a period of at least three months to go through the pre-action stages and even longer to resolve. As the market improves, more companies are looking to go through the shorter and less in-depth adjudication route, leading to temporarily binding decisions that are only rarely challenged in the courts.”

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