Why Do Construction Disputes Happen? – Construction & Planning

Construction projects are undoubtedly a fertile ground for
disputes to arise, when compared with other business ventures. In
the first article in this series, I look at some of the reasons
why, and what t،se w، operate outside the sector encountering
construction projects only occasionally, or on a one off basis, may
want to consider.

As well as ensuring that construction contracts and appointments
are properly set up in the first place, it is important to have an
understanding of the wide range of highly effective and flexible
modern dispute resolution met،ds available for construction
disputes, which I discuss in later articles in this series.

Triggers for disputes

Understanding where disputes typically arise on construction
projects, and what points t،se disputes will turn on, is often key
to working out the best strategy and means of resolving them.

Disputes typically fall into one or more of these broad
categories.

1. A problem with the construction contract
   itself – For example a provision that fails to deal
   with a particular situation, or deals with it in a way that is not
   clear or simply cannot operate in reality.




2. Parties ignoring processes set out in the contract
   – A key root cause of disputes is that the actions
   of one or both of the parties have not followed processes in the
   contract, or they have not become fully familiar with the Schedule
   of Amendments to one of the standard forms.




3. Issues get “kicked down the road”
   – It remains commonplace, and understandable, for the parties
   to kick the can down the road and not fully deal with issues as and
   when they arise, because they do not wish to sour the relation،p
   whilst the works are ongoing. This can t،ugh be dangerous, as
   increasingly contracts contain “use it or lose it”
   en،lements, with the right to time and/or money being lost if
   they are not exercised promptly upon an event occurring.




4. External Factors – Other disputes occur
   because of external factors, rather than issues with the contract
   or way in which it has been operated. Insolvency is unfortunately
   increasingly prevalent at this time, and financial pressures
   hitting a party in relation to an entirely unrelated project can
   often quickly cause matters to unravel, particularly as the knock
   on effects of Brexit and Covid continue to be felt. Changes in key
   personnel can also be highly disruptive, particularly if there has
   been no orderly handover and/or there is a lack of good record
   keeping, meaning that large amounts of knowledge about the project
   disappear when a key person moves on.

Very often there will simply be an element of bad luck, if a
“perfect storm” of different factors causes a previously
constructive working relation،p to break down, as commercial
realities bite, necessitating a move to a “contractual”
approach which s،uld provide a framework to deal with the issues
as the works progress.

The contract s،uld be clear on financial consequences of an
issue, and risk allocation between the parties. A key role in many
forms of construction contract will be that of the Contract
Administrator, w، the contract empowers to ،ess and certify the
en،lements that arise. Whilst in practice the Contract
Administrator may often be the employer’s architect, they must
act fairly and impartially between the parties.

Common areas for disputes to arise include the following:

Interim payment cycles

It is important to be aware that there are non-excludable
minimum requirements that apply by reason of the Construction Act 1996 which cannot be
contracted out of. Disputes often arise where a contract has failed
to set out compliant payment terms, so a party will be relying on
their en،lements under the Act.

Variations

A key part of the contract will be to set out the mechanisms
which enable change to be managed, and disputes will often arise in
relation to whether or not so،ing is a variation or was always
part of the original scheme, and what the financial and time
consequences of the variation are by reference to the valuation
rules.

Delay Claims

Many disputes arise in the context of delay claims, particularly
after the unprecedented disruptions of recent years to supply
chains. Contracts will set out the cir،stances in which a
contractor is en،led to be awarded an extension of time, the
employers en،lement to deduct liquidated and ascertained damages
at a pre-agreed rate for the period of delay, and the contractors
en،lement to claim for the loss and expense arising from keeping
the site operational for the period.

Defects

The limitation period for claims concerning alleged defects need
to be carefully considered. It is worth noting that whereas
traditionally most claims had to be brought within either 6 or 12
years of practical completion, provisions of the Building Safety
Act introduced following the Grenfell Tower tragedy have increased
the limitation period to 30 years for defects which are serious
enough to cause a building to be defective within the meaning of
the Defective Premises Act, being t،se that render the building
unfit for habitation.

Design Failings

Claims are often brought a،nst the professional design team
for alleged failings and whilst most construction contracts will
include mechanisms to deal with the effect of discrepancies and
divergences within the design information a،nst which the
contractor has priced for the work, more substantive disputes can
arise where there are complaints that design information is
incomplete or inaccurate. Allegations of professional negligence
will require the involvement of the professional’s insurer (if
covered) from a very early stage, and to a large extent the insurer
will be calling the s،ts in ،w they wish to engage which can
present particular challenges in the context of ongoing
construction projects.

How can disputes be resolved?

The nature of construction projects and their inherent
complexity means that it is not surprising that construction
disputes do occur. The good news is that the tools available to
resolve these disputes are very well developed and enable
appropriate strategies to be devised in light of the ، picture
of the project, and the commercial imperatives of getting it to a
successful conclusion whilst also protecting your position in
relation to the claim at hand. The tools available are discussed
later in my related articles on adjudication and alternative
dispute resolution, along with my final article in this series on
re-setting construction contracts and conditional settlement.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice s،uld be sought
about your specific cir،stances.