Tips on how to avoid construction and engineering disputes

Tom Hawkins is a director in the UK construction solutions practice at FTI Consulting

Everyone in the UK construction and engineering industry will remember the serious consequences of the 2008 financial crisis. With multiple projects being cancelled and many companies going out of business, those who survived had to fight hard to stay afloat. These factors combined led to many disputes.

According to The Bank of England, the UK will soon face its longest recession since records began. This has the potential to act as a catalyst for pencils to be sharpened and disputes to arise. This can be costly – not only in the financial sense but also in terms of the time and effort expended and relationship damage that can result. Anyone who has been in a dispute, no matter their thoughts on the outcome, will be able to attest to this fact.

Common causes of disputes

Recent experiences and research show that common causes of disputes in the UK construction industry can be attributed to:

  • parties failing to comply with agreed contractual obligations;
  • failures in administering the contract; and/or
  • errors/omissions in contract documents.

Contract obligations and documentation are a consistent theme. Looking beneath the surface, both are open to personal influence as they are drafted and administered.

“If negative actions flow throughout a project supply chain, conflicts can escalate into formal disputes”

Leadership and corporate culture play a critical role in shaping the attitudes and behaviours that can mitigate the common causes of conflicts and disputes. There are many leaders out there who are trying to better shape the construction industry through collaborative initiatives, such as the Conflict Avoidance Pledge, initiated by the Conflict Avoidance Coalition Steering Group. However, there remain examples of persistent bad habits.

If negative actions flow throughout a project supply chain, conflicts can escalate into formal disputes. Effective leadership is required to manage the inter-relationships between contracts and people, and there are several techniques and processes that parties can implement.

Negotiations

Those representing parties should always consider their approach when entering any negotiation – before, during or post-contract. Any negotiation has the potential to become a conflict that subsequently turns into a dispute. However, a negotiation entered in good faith and conducted in the correct manner can bring people, time and cost savings. Negotiators may wish to consider the following techniques:

  • identifying agreed obligations;
  • listening to opposing views;
  • engaging in early discussions;
  • trying to remove emotion and history;
  • a reasonable willingness to compromise; and
  • fully recording any agreed resolutions.

This approach should be used to establish any ‘true’ difference and to prevent and avoid conflicts, rather than attempting to resolve them once they become disputes.

Risk management

Allocating risk to the party best placed to manage it, rather than simply passing it down the supply chain through the contractual agreement, requires a change in culture. A collaborative approach and identifying solutions will decrease the impact on project time/costs.

During the procurement and tendering stages, all parties may wish to involve key supply chain members at the earliest suitable stage to benefit from their experience in managing project risks.

Administration of the contract requires knowledge of the contractual obligations and suitable personal skills to successfully manage conflicting interests. It will also assist if those drafting contracts ensure that obligations are not unnecessarily complex.

Records, records, records! Conflicts can arise when contemporaneous records are unavailable. Implementing the production, collation and maintenance of relevant records, stored in a logical format, can avoid conflicts that may arise from unsubstantiated claims.

Dispute avoidance processes

In some cases, the intervention of a third party may help to avoid a conflict becoming a formal dispute. In these instances, parties could consider options such as:

  • expert determination;
  • avoidance panels;
  • dispute adjudication boards; and
  • mediation (facilitative or evaluative are the most common in the industry).

While these processes differ in their adopted approach, they all seek to encourage collaborative behaviours between parties and save time, money and relationships by avoiding disputes.

The UK construction industry has fared well in practising collaborative behaviours during the COVID-19 pandemic era, but with another recession looming, high inflation levels, material price increases and a shortage of labour and skills, there is potential for a perfect storm. The hope is that the industry will be better placed to survive, thanks to leaders implementing collaborative approaches and techniques. Moreover, it should also be possible to take early action to avoid the effects of common dispute causes.

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