Industry professionals identify the key cause of disputes and top steps to stop them
Construction professionals expect more disputes in the next two years, Russell McVeagh has found.
The law firm surveyed members of the construction industry to examine the risks that are driving construction disputes in the country. A majority of the respondents (61%) to the “Getting it right from the ground up” study said that disputes in the sector have generally increased in the last two years.
The outlook was even bleaker, with 71% saying that they expect disputes to increase in the next two years. There was also a difference between contractors and principals in terms of outlook, with 63% of principals saying disputes had been and will be on the rise, compared to 75% of contractors saying disputes increased in the last two years and 92% saying disputes are likely to increase in the next two years.
"The expected increase in disputes from industry participants comes in a sector already dealing with high-profile contractor insolvencies,” said Polly Pope, a partner in Russell McVeagh’s litigation group. "While some causes of a rise in disputes appear to be structural to the industry, for example, skill shortages – others, particularly around relationships, risk allocation and contractual terms are within the parties' control and would repay a focus at the outset of any project."
Principals and contractors said that a lack of understanding of contract obligations is a major cause of disputes. Ed Crook, a partner in the firm’s property and construction practice, said that the results of the survey are consistent with what the firm is observing in the market.
"Both principals and contractors are placing similar emphasis on the lack of understanding of the contract obligations as a key cause of disputes. Contractors have also identified matters arising from principal-supplied information, and poor contract administration as significantly contributing to disputes, whereas principals identified delays by subcontractors and suppliers as a key source of disputes,” he said.
He said that all industry participants favoured negotiation between the parties over more formal dispute resolution to end disputes.
“Our findings offer some tips for all construction industry participants to decrease the risk of disputes, and fall into two broad categories: improving the construction contract documentation (including the parties' understanding of it) and in the longer term, improving industry conditions,” he said. “The current challenges in the industry indicate that there needs to be a rethink on risk allocation, pricing and resourcing across the industry.”
To avoid disputes, respondents said that clarity of contract document was most important. It was followed by quality of design documentation, personal relationships between parties, high-quality and prompt information by contractor, the project manager, the engineer to the contract, contractual dispute resolution processes, and the dispute board.
Polly Pope and Ed Crook