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Disputes are getting costlier

28 May 12 The value of UK construction disputes is getting higher, a report finds.

The average value of disputes in the British construction industry rose to £6.5m in 2011, up from £4.8m in 2010, according to this year’s ‘Global Construction Disputes´ report from quantity surveying firm EC Harris.  

While the average value of disputes fell around the world, the UK, Europe and Middle East bucked the trend.  Disputes in the Middle East increased the most, more than doubling in value to £72m, compared to £35m in 2010.

EC Harris found that construction disputes in the UK lasted, on average, 8.7 months in 2011, compared to 6.75 months in 2010.  Despite this increase, disputes in the UK were still resolved more quickly, on average, than any other region in the world.  Disputes in the US took the longest to resolve at 14.4 months, with the global average being 10.6 months.

Dispute values fell in Asia and the US, with the US seeing the most dramatic fall from £40.3m in 2010 down to £6.6m in 2011, which was largely due to the generally depressed construction market in the US as well as the increasing emphasis by both the public and private sector owners to avoid and mitigate disputes through risk management and early, field level, resolution of disputes. The highest value dispute handled by EC Harris during 2011 was for £220m on a project in the Middle East.

EC Harris head of contract solutions Gary Kitt said: “The length of time for resolution of disputes in the UK has increased due to parties’ reluctance to refer disputes to adjudication quite as readily as in past years.  This would appear to be as a result of the inconsistent results obtained in adjudication proceedings.  In addition, once matters are referred to adjudication these proceedings regularly exceed the statutory period of 28 days for a decision.”

The research, which was conducted by EC Harris’s Contract Solutions team, found that a failure to properly administer the contract was the most common cause of a construction dispute in the UK.  The top five causes of disputes in British construction projects during 2011 were:

1.         A failure to properly administer the contract

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2.         Conflicting party interests

3.         Unrealistic risk transfer from employers to contractors

4.         Employer imposed change

5.         Ambiguities in the contract document

The performance of the project manager or engineer was also looked at in the report, with their conduct often being at the heart of how the dispute crystallised.  The most likely problem with the project manager or engineer was a lack of understanding of the procedural aspects of the contract followed by them being too partial to the employer’s interests. 

When it came to dispute resolution, party-to-party negotiation was the most common method used in the UK, followed by adjudication and then mediation.

Mr Kitt added: “The results of the survey support the view that parties are becoming increasingly frustrated by the adjudication process resulting in increased attempts at negotiation prior to seeking third party resolution.  Mediation is still a popular option and although not featuring specifically within the survey we are seeing an increased willingness for parties to resort to resolution of disputes by litigation.”

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MPU

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