‘The construction industry is often regarded as claims oriented and a fertile ground for conflict and dispute’ (RICS, 2012). Considering the cost and distraction to a business in the event of a dispute and also the probable breakdown of business relationships; avoiding a dispute should be fundamental.

However, Sir Michael Latham, a former Member of the UK Parliament and an advocate for the construction industry argued that disputes were sometimes inevitable. In 1994, he produced the combined government and construction industry report; ‘Constructing the team’. Latham utilised the report to emphasise the opposing attitudes in the UK construction industry and so accepted that disputes were sometimes unavoidable. Hibberd and Newman (1999) would agree with this assertion as they debated that ‘profit for the contractor and for the promoter of the building is earned in different ways. It is often assumed this means that when the profit position of either party is threatened, conflict will merge’ (Hibberd & Newman, 1999: 1).

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FIG 1 – Depicts the three most popular methods of Alternative Dispute Resolution in construction in the United Kingdom (Global Construction Disputes Report, 2013)

DEFINING DISPUTE RESOLUTION

Dispute resolution ‘is about recognising when a dispute has arisen and appreciating its escalation’ (Gould, 2013:10). There are three main dispute resolution methods:

  • NEGOTIATION – parties work together to resolve the issues
  • MEDIATION or CONCILIATION – an impartial third party intervenes to offer assistance
  • AN ADJUDICATIVE PROCESS – the dispute is resolved by an impartial third party. This includes construction adjudication, litigation and arbitration, all of which lead to binding decisions following an evaluation of the arguments and an application of the relevant legislation.

Litigation & Arbitration

Litigation is the process of taking legal action through the court system. Arbitration is a private sector substitute to litigation, whereby a neutral third party resolves a dispute with a binding decision. However, in 1998, Sir John Donaldson (a member of the House of Lords) contended that ‘Arbitration is usually no more and no less than litigation in the private sector’ (Hibberd & Newman, 1999: 17).

Traditionally, litigation had a reputation as long-winded and costly, as demonstrated by the fact that ‘a substantial majority (70%) suggested the whole system takes too long whilst almost 40% suggested that the costs of litigation are far too high’ (Hibberd & Newman, 1999: 17). Yet, Lord Woolf enforced a technique which became known as Civil Procedure Rules (CPR) to improve the resolution efficiency of construction disputes. It aimed to deal with disputes ‘expeditiously, fairly and at a cost proportionate to the size and nature of the case’ (Gaitskell, 2011: 29). However, research conducted by EC Harris suggests that construction disputes nowadays are more expensive and take longer to resolve. The average value of UK construction disputes in 2011 was £6.5m, representing a £1.7m increase since 2010. Furthermore, the average resolution time was 8.7months in 2011; compared to 6.75 months in 2010.

Arbitration, unlike litigation, is consensual; both parties must agree to resolve the dispute through arbitration, as opposed to depending on the court. Technical disputes can be efficiently resolved through arbitration as a tribunal with the required technical expertise can be chosen. Thus, highlighting why it has traditionally been the ‘preferred method of dispute resolution in most, if not all, of the standard forms of construction contract’ (Cobb, 2013).

Adjudication

Sir Michael Latham wrote, in 1994, the combined government and construction industry report; ‘Constructing the team’ which highlighted the need for specific payment provisions within a building contract and the importance of utilising another method of dispute resolution; which ultimately lead to an increase in the popularity of Adjudication.

Adjudication is where an unbiased individual settles the case submitted by the parties to a dispute. They investigate the facts of the argument and apply legislation to the scenario. The adjudicator’s decision is binding until the subject is ultimately determined by legal proceedings such as litigation, arbitration or a negotiated agreement. In accordance with the Housing Grants, Construction and Regeneration Act 1996, there is a 28 day time constraint from the adjudication referral notice, within which there must a submission of a response and the adjudicator’s decision. This can be extended by a further 14 days and any amount of time beyond that permitted that the adjudicator and both parties agree to the time extension, but only after the dispute has been referred. However, Hibberd & Newman stated that ‘some observers believe this is too long and does not fulfil the level of speed wanted by many disputants’ (Hibberd & Newman, 1999: 158).

Latham identified that construction was struggling with the drawn out and expensive nature of court and arbitral procedures. He encouraged the industry to exploit the speedy, yet clearly defined nature of adjudication, with a view to hindering one party from withholding payment from another; thus preventing cash flow issues. Subsequently, Latham contended that adjudication “must become the key to settling disputes in the construction industry” (Latham Report, 1994: Chapter 9.4). Coulson would argue that the current approach to dispute resolution does not place adjudication as the most suitable form of ADR. This is because ‘by the middle of 2006, it had become apparent that the number of cases concerning adjudication was at last decreasing’ (Coulson, 2007: vii).

The Construction Act 2009 has ensured that payment will not be reliant on contractual commitments of other contracts, therefore subcontractors are more likely to be promptly paid. Simultaneously, main contractors will want more time before the payment period; to maximise the cash flow of their business.

Similarly, Hibberd & Newman’s claimed that ‘every specialist contractor is aware; cashflow is the lifeblood of the industry’ (Hibberd & Newman, 1999: 88). Consequently, this indicates that the legislation aims to offer subcontractors more financial support.

Amendments in Legislation & its effects on Adjudication:

The latest form of legislation; the Local Democracy, Economic Development and Construction (LDEDC) Act of 2009 have replaced section 107 of the Construction act 1996. The change is emphasised by section 139 of the 2009 Act which states that contracts do not have to be in writing, so oral agreements between parties can lead to adjudication referrals. Yet, as a precautionary measure, it would be wise to record all agreements in a written format; even if it may be within the minute’s schedule of a meeting. This legislative alteration is a positive stride for subservient ‘less contractually aware’ contractors (Entwistle, 2010); however, critics such as Sinden et al. (2012) perceive this as catalyst for defective practice. Moreover, Dancaster (2010) underlines a prominent development in dispute complexity because of this change. This legislative alteration was previously seen as impractical in the court case of RJT Consulting Engineers Ltd V DM Engineering (2002) owing to a potential rise in jurisdictional contests against the adjudicator (Atherton, 2010). Kirby-Turner (2011) claims that such modifications will weaken the statutes ‘quick-fix’ feature and therefore augment the existence of ‘no contract agreements’.

LDEDC Act reveals another amendment under section 140, typified in subsection 3A, in which the adjudicator can correct his decision through the ‘slip rule’ (Kirby-Turner, 2011) if it includes a clerical or typographical error arising by accident or omission. Bloor Construction (UK) Ltd v Bowmer & Kirkland (London) Ltd (2000) case highlights the importance of this legislative rule. The adjudicator ordered Bowmer & Kirkland to pay Bloor £122,000. Bowmer & Kirkland informed the adjudicator that he had not reimbursed them for various sums, which the adjudicator admitted and corrected. But, Bloor sought to enforce the first decision. The Judge held that the adjudicator had the right to correct the error. Therefore, if the above amendment was included in the 1996 Act, it is highly probable that Bloor would not have challenged the decision of the adjudicator.

A criticism of the 2009 Act is that it has not identified a time period during which clerical or typographical corrections must be performed. In this instance, the ruling of the revised Scheme of Construction Contracts applies; hence any rectifications must be made within 5 days after the publication of the adjudicator’s decision.

Mediation

Mediation is a procedure performed by an independent third party ‘where the objective is to facilitate the parties resolving their dispute’ (Gaitskell, 2011: 97). The mediator’s role is not to make the final decision; but to assist the parties who alone are responsible for the resolution of the dispute. It is a form of alternative dispute resolution which helps the parties attain a decision more swiftly and ‘it has a high settlement rate, 80% on average (Gregory, 2010). The mediator is typically accredited by a suitable professional body such as the Centre for Effective Dispute Resolution (CEDR), through which formal mediation agreements can be acquired.

When a constant business relationship exists between the parties, mediation is a suitable form of dispute resolution, as the senior management of each party can ‘hear the strengths and, perhaps more importantly, the weaknesses of the parties’ cases’ (Gaitskell, 2011: 98). This is significant as they would usually only be informed by their own employees or advisors, whose views may be biased.

In accordance with JCT SBC clause 9.1, ‘the parties may by agreement seek to resolve any dispute or difference arising under this contract through mediation’ (Griffiths, 2005: 164). It is considered by ‘many to be a better method of resolving commercial disputes than litigation, arbitration or adjudication’ (Griffiths, 2005: 164). This could be because mediation allows ‘parties to fully air their grievances and work towards a mutually agreeable settlement which helps maintain existing relationships’ (Gregory, 2010). This in turn enhances the probability of future construction projects between the relevant parties.

Under the JCT form of contract, it is not viable to make the employment of mediation compulsory because this would diminish the requirements of the HGCRA 1996. This concept is made explicit through RG Carters Ltd V Edmund Nuttall Ltd 2000, where the court held that it did not have the power under HGCRA to remove an adjudicator or appoint another if there are reasonable doubts regarding his or her impartiality. It was held that legitimate reasons did not exist.

The Susan Dunnett V Railtrack Plc (2002) case highlighted a dispute regarding the recuperation of legal costs which was not accepted since the party declined to exercise ADR procedures before utilising court enforcement. As a result, Lord Justice Brook delivered the rather influential statement ‘a party whom dismisses the opportunity for mediation will suffer uncomfortable consequences….skilled mediators are now able to achieve results which are beyond the powers of lawyers and courts alike.’ This standpoint was echoed by the Lord Chancellor in 2003 who declared that a ‘complete ADR process must be considered and used in all cases’ (Brown, 2012).

Referencing

  1. ATHERTON, M., 2010. Adjudication at the Crossroads: The Construction Act – One Size Fits All? [Online], 2(1) (Spring). Available at: http:// www.nova.edu/ssss/QR/BackIssues/QR2-1/aronson.html [Accessed 9 November 2013].
  2. BROWN, C., 2012. A new regime in construction adjudication? The College of estate Management, [Online]. Available at: http://www.cem.ac.uk/media/7445/new_regime_op.pdf  [Accessed 11 November 2013].
  3. COBB, L., 2013. Construction Disputes: Arbitration, [Online] Available at: http://www.isurv.com/site/scripts/documents.aspx?categoryID=162 [Accessed 6 November 2013].
  4. DANCASTER, C., 2008. Construction Adjudication in the United Kingdom: Past, Present and Future. Journal of Professional Issues in Engineering Education Practice, 134(2), pp. 204-208.
  5. EC HARRIS, 2013. Global Construction Disputes: A Longer Resolution. Global Construction Disputes Report, [Online] Available at: http://www.echarris.com/pdf/EC%20Harris%20Construction%20Disputes%202013Final.pdf  [Accessed 5 November 2013].
  6. ENTWISTLE, M., 2010. The Local Democracy, Economic Development and Construction Act 2009, [Online]. Adjudication Society. Available at: http:// www.adjudication.org/local-democracy-economic-development-and -construction-act-2009 [Accessed 14 November 2013].
  7. GAITSKELL, R., 2011. Construction Dispute Resolution Handbook. 2nd Edition. London: ICE Publishing.
  8. GOULD, N., 2013. RICS Student Construction Journal. Planning ahead for resolution. London: The Royal Institute of Chartered Surveyors.
  9. GREGORY, J., 2010. Keeping an open mind. Dispute resolution: Mediation. Isurv, [Online] Available at:  http://www.isurv.com/site/scripts/documents_info.aspx?documentID=3528&categoryID=390 [Accessed 7 November 2013].
  10. Harris, P., 2011. The LDEDC act 2009: changes to adjudication and payment. Wright Hassall, [Online] Available at: http://www.wrighthassall.co.uk/articles/2011/03/06/local-democracy-economic-development-and-construct/ [Accessed 6 November 2013].
  11. Hibberd, P., and Newman, P., 1999. ADR and Adjudication in Construction Disputes. Oxford: Blackwell Science.
  12. Kirby-Turner, C., 2011. Adjudication Changes, [Online]. Thomson Snell & Passmore. Available at: http://www.ts-p.co.uk/knowledge/publications/articles/adjudication-changes [Accessed 6 November 2013].
  13. RICS, 2012. Dispute Resolution Toolkit. Dispute Resolution Service, [Online] Available at: http://www.rics.org/uk/join/member-accreditations-list/dispute-resolution-service/dispute-resolution-toolkit/  [Accessed 2 November 2013].
  14. SINDEN, F., MASON, J., PROVERBS, D., and BOOTH, C., 2012. The new Construction Act: views and perceptions of construction industry stakeholders. Structural Survey, 30(4), pp. 333-343.

The content of articles and other projects is for informational purposes only and does not constitute professional advice. 

Article by: Robert Cunningham