The Different Types of Dispute Resolution in Construction

The Different Types of Dispute Resolution in Construction

Disputes cost the construction industry time and money, with the average dispute lasting around 11.8 months in the UK and an average of £29.7 million. That’s one of the reasons why it’s in a construction firm’s interest to resolve these as quickly and feasibly as possible. It’s also why many choose proactive and preventative measures to avoid disputes. As well as causing delays and tensions, it can also significantly diminish relationships between contractors and subcontractors. In turn, this puts an even greater onus on project managers to ensure communication is clear and any missing information or discrepancies in the contract are submitted through an RFI in plenty of time.

Firms that follow every procedure correctly and try to mitigate the risks often look for automated solutions that minimise the possibility of disputes. Essentially, software assists project managers in controlling the variables. Sophisticated software should ensure clear audit trails, enable risk management and monitor disallowed costs. Utilising billing software or analytics can also significantly reduce the number of disputes a company faces, especially as a clear trail of payments is documented.

Construction is an industry renowned for its disputes. In 2020, the industry saw its highest average dispute cost of more than £30.3 million, over double the average cost from 2019. Around 75% claimed that disputes in 2020 were attributed to COVID-19, which spiked to 90% in 2021. It’s safe to assume that the pandemic was a huge cause of disputes during that year and subsequent years. As of 2021, the average figure fell slightly to £29.7 million, despite the pandemic still going on.

What Can Cause a Dispute in Construction?

Whilst issues related to the pandemic might not have been avoidable, inefficient management systems and record-keeping can easily land construction firms in hot water. As an industry that relies on variable management due to its complex network, ensuring data is actively collected, reviewed and stored effectively could reduce the need for a dispute. Alternatively, if a firm must raise a dispute, a solid digital trail can only work in a business’ favour.

What’s the primary cause of most disputes in the industry over the last few years? 

Contractual deviations and errors. In 2021, it was reported that the average value of disputes cost the UK construction industry around £29.7 million with the most expensive valued in excess of £236 million. Since 2020, new common causes for disputes have come to light within the industry. In fact, the highest reported common cause in that year was due to incomplete or unsubstantiated claims. Additionally, errors and omissions in contracts also seemed to cause disputes in 2021. Unfortunately for construction firms, contractual issues can require costly resolution procedures, such as litigation.

Different Types of Dispute Resolution in Construction

All parties will want to avoid dispute resolution, especially if they are defending their actions. As a result, construction companies must invest in more ways to successfully manage the variables to ensure every basis is covered. Whilst this works to reduce disputes, firms might not always be able to avoid them. That’s why simple tasks, such as ensuring payments are submitted, invoices are completed and goods received notes are filled, are some of the most crucial stages for companies. With disparate systems in place, it could be an easy reason for someone to start a dispute. Using construction project management software as a tool ensures these stages are completed whilst also guaranteeing an auditable trail is left behind.

1. Adjudication

Adjudication enables disputes, based on a construction contract, to be resolved quickly, efficiently and cost-effectively on an interim basis. This resolution is ideal if you need to address claims that are about delays, disruption and payments. For businesses looking to prevent this process altogether, implementing construction project management software mitigates the risks of delayed payment for contractors and enables firms to maintain a clear paper trail.

Pros of Adjudication

  • It’s designed to protect cash flow within construction projects whilst a dispute is ongoing.
  • The process avoids expensive court hearings and additional expenses for solicitors if done correctly.
  • It’s a speedy process, making it more attractive to firms seeking to resolve a claim.
  • Adjudication can be kept between the relevant parties without the need for information to be pushed directly into the public eye.

Cons of Adjudication

  • Adjudication is a quick process, which can sometimes work against construction firms, especially if there’s a lack of evidence when the resolution takes place.
  • It can be challenging to raise a counterclaim, particularly if you believe an adjudicator’s decision is unfair or unjustified.
  • Entering into adjudication without appropriate evidence or a paper trail to hand immediately penalises the defendants.
  • Dealing with issues in-house and via an adjudicator could lead to bias, even if it is unconscious.

2. Expert Determination

This resolution process involves an independent expert who reviews the claim, and supporting evidence, and makes a decision based on the technical factors rather than the legal ones. For those who want to avoid expensive costs, it can be an ideal solution.

Pros of Expert Determination

  • This process is effective as it finds a resolution without the costs of court or formal proceedings.
  • Expert determination is ideal for settling disputes centred around valuation or technical factors.

Cons of Expert Determination

  • Expert determination shouldn’t be used where legal issues or disputes are taking place, such as delays, damage or defective work.
  • Any decisions made by independent experts, especially if they are deemed binding, are complex to overturn. This is even true if the independent expert has made a mistake.

3. Litigation

Litigation is the process of taking legal action over an unresolved dispute. For construction firms, it can prove incredibly costly but sometimes necessary, especially if no other means of dispute resolution are possible. In most cases, it can also ensure a fair trial for both parties with equal opportunities to put forward their argument. To be as prepared as possible for this stage, construction businesses will need a clear trail of information and supporting evidence, which can be achieved through construction project information management software.

Pros of Litigation

  • It enables both parties to completely and fairly share their arguments, presenting all necessary evidence before a court.
  • Courts keep public records of cases and arguments, meaning any decisions made can’t be disputed and the offending parties will need to comply with the terms of the agreement.
  • Litigation clearly presents the information in a way that can’t be misinterpreted or altered in any way. It gives construction firms a definitive answer.

Cons of Litigation

  • The cost is the biggest problem here, especially as court expenses and solicitors fees are not the only ways you’ll pay. It could result in delays to construction projects and, even worse, could damage a company’s reputation if they were deemed to be at fault.
  • Cases put forward into a court of law aren’t reviewed straightaway, meaning further disruption or delays. It can often take months for cases to be reviewed and, with the average dispute taking around 11.8 months in the UK, it can be a stressful process to enter into.
  • Once court proceedings start, it could be that even more time is spent trying to find a resolution. Due to the complexities and nuances of every case, it’s hard to resolve an issue in a day, let alone a few weeks.

4. Mediation

Mediation is one of the most relaxing forms of dispute resolution as it follows an informal and flexible process, allowing both parties to make a collective decision and resolution. It gives any claimants the authority to freely present their case whilst enabling defendants to also follow up with evidenced arguments.

Pros of Mediation

  • As a process, it is strictly confidential. Both parties are easily able to portray their arguments and claims without them being in the public eye.
  • Due to the nature of mediation, there is less pressure applied on both parties to settle and find an agreement.
  • During mediation, any decisions or comments made can’t negatively reflect on either party if they are entered into a judicial procedure at a later date.

Cons of Mediation

  • Although it is a more calm environment, it can take much longer for an agreement or settlement to be reached, especially if both sides have adequate supporting evidence. Mediation also won’t guarantee a resolution.
  • Mediation might be the first stage of the argument, leading to more expensive or time-consuming dispute resolutions, such as litigation.
  • Relationships are not guaranteed to be what they were pre-dispute, even if an agreement is reached early on. Whilst mediation aims to improve the relationship between two parties, it could still be damaged once the dispute is resolved.

5. Arbitration

This form of dispute resolution is designed to be private, just like mediation, but acts as a final solution when a claim arises. Arbitration is in the interest of a lot of firms, especially as more public resolutions, such as litigation, can damage brand reputation and be expensive.

Pros of Arbitration

  • Arbitration offers a less expensive option to dispute resolution than litigation, making it far more attractive as a method.
  • With fewer people involved than in litigation, arbitration can be much simpler and smoother.
  • As a private form of dispute resolution, arbitration can also be much more peaceful for both parties. It could even restore relationships between claimants and defendants.

Cons of Arbitration

  • Bias is possible in arbitration, even if it is unconscious. As it doesn’t follow the same rules as litigation, there could be instances where decisions are deemed unfair.
  • For parties that don’t believe their trial was fair, they won’t be able to appeal any decisions made in arbitration.
  • Arbitration does not follow a set process or have a standard for proceedings, meaning its approach can be inconsistent.

As software and technology are renowned for smoothing out processes and ensuring everything can be effectively audited, they can also be used as preventative measures within construction to reduce the number of disputes.

What is the Cost of Disputes in Construction?

The cost of disputes for construction firms will depend on the common causes reported in that year. For example, in 2020 the average dispute cost over £30.3 million, a stark increase when compared with 2019 when the total figure was around £13.9 million. Of course, it’s no surprise that the coronavirus pandemic featured in around 75% of disputes in 2020 and approximately 90% in 2021. Likewise, with Brexit happening in January 2020 as well, many businesses also experienced issues with supply chains and deliveries, causing delays to projects and, no doubt, creating lots of disputes in the industry.

Looking for an Enterprise Resource Planning System that Helps You Manage Project Variables? RedSky Can Help 

At RedSky, we know how important it is to ensure all variables are successfully and accurately managed. After all, it can be one way to prevent and reduce the number of disputes you face. Our construction project management software ensures you have every basis covered, whilst also supplying an accurate auditable trail.

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