An expert guide to handling construction disputes

In his recent article, our colleague and construction disputes expert Ryan McCuaig explored how you can protect your business and avoid construction disputes. Ryan laid out steps contractors and others can take to reduce the risk of disputes, such as drafting a clear and robust contract, maintaining extensive records and engaging early to resolve issues before they escalate.

However, even with the right precautions in place, disputes can still arise.  This can be because the other party is being unreasonable, but it can also simply be because something has gone awry on the project and both parties reasonably have to fight their corner and protect their own interests.  When disputes do arise, it is important to know what to expect, and take the necessary steps to protect your position.

When can construction disputes arise?

Construction disputes may arise at the end of a project, e.g. at the final account stage, or upon discovery of defects after completion.

However, disputes can also occur during the course of projects, e.g. where parties are in disagreement about interim payment applications.

When a dispute arises during a live project, one of the biggest risks is reacting too quickly. For example, a contractor may be tempted to immediately down tools until the issue is resolved. In some circumstances, there may be a contractual right to suspend performance or terminate the contract. However, those rights depend on the specific contract terms and the circumstances of the dispute, and the contract often dictates specific procedures which have to be followed for the suspension or termination to be valid.

If a party suspends or terminates without a legal right to do so, they can find themselves in breach of contract and exposed to a claim for damages. The safer approach is often to keep the project moving where possible.  If you are considering suspending performance or terminating the contract, it is sensible to take legal advice first.

Can your dispute be resolved commercially?

In most disputes, the ideal outcome is to reach an “amicable” resolution, where parties can shake hands on a compromise, preserve their relationship, and go on to work together on future projects. Of course, in some situations that simply isn’t possible. However, it is always sensible to consider whether a “commercial” resolution is available – i.e. a compromise as an acceptable alternative to becoming embroiled in costly legal proceedings.

There are different ways to approach settlement, including direct business-to-business discussions, and negotiations conducted through parties’ solicitors.  Another option is mediation.  This involves parties agreeing to appoint a neutral mediator, whose job is not to decide the dispute, but to facilitate confidential negotiations.  Parties attend a mediation – a meeting at which the mediator will seek to promote discussion between the parties, with a view to resolving the dispute.

Formal dispute resolution options

Where you cannot reach a commercial resolution, the dispute may need to move to a formal process. Here, you will normally require expert legal advice and guidance.

The main dispute resolution procedures available in the construction industry are adjudication, arbitration and litigation (i.e. court).

Adjudication

Adjudication is a dispute resolution process specifically for the construction industry.  The right to take disputes to adjudication (full breakdown) may be included in your contract, and for Construction Contracts as defined in the 1996 Act, there is a statutory entitlement to adjudicate.

Some key features of adjudication are:

• A legal or construction industry expert is appointed as an adjudicator, to decide the dispute
• Quick resolution time (a decision within 28 or 42 days)
• Each party bears their own costs (but the adjudicator can decide who should pay their fees – normally the losing party)
• The adjudicator’s decision must be complied with initially (which enables cash flow). However, the losing party can go to court for arbitration to re-argue the matter

Arbitration

Arbitration is another common dispute resolution route which may be available in construction disputes. Its availability depends on the contract (or other agreement between the parties).

Arbitration is generally confidential. This can be attractive if you aim to avoid airing a commercial dispute publicly.

In arbitration, there is normally significant flexibility to tailor the procedure to try to resolve the dispute efficiently. Nonetheless, depending on the complexity of the case, arbitration can still take several months to conclude.

Key features of arbitration include:

• A neutral arbitrator is appointed to decide the dispute
• The process is usually confidential
• The decision is normally binding
• The arbitrator can make an awards of expenses

Litigation

The other key dispute resolution procedure is litigation – i.e. court.  Depending on the value of the claim, Scottish claims may be raised in the Sheriff Court or the Court of Session.  The main features of Scottish litigation are:

• The dispute is decided by a sheriff or judge
• Unlike arbitration, proceedings are not confidential
• Depending on the case, proceedings can often take 12-18 months
• The court can make awards of expenses, usually finding the loser liable for expenses

Key considerations when conducting a dispute

Seek advice early

Getting expert legal advice early can significantly reduce your risk. An experienced solicitor can help you clarify your rights and position whilst allowing you to avoid steps that could make the dispute worse.

Clarity is key

Whether communicating with the other party directly or through solicitors, it’s important to clearly understand your issue, your contract, your evidence and your desired outcome.

Use independent expert evidence

A supportive report from an independent expert can be a useful piece of evidence to bolster your case, particularly in complex cases, e.g. disputes about delays or defects.  It is important to ensure the expert is independent and instructed appropriately, so that their evidence is admissible and carries as much weight as possible with the decision-maker.

Consider dispute resolution

Even where formal proceedings are underway, it is always open to parties to negotiate a compromise settlement in order to offset the cost and risk of having the matter decided by an adjudicator/arbitrator/judge.

How we can help

Our Construction Dispute team advises contractors, employers, developers, consultants and other construction industry clients on the full range of construction disputes.

Whether you are trying to avoid escalation or need to take decisive action, we can provide clear, practical advice focused on protecting your position and achieving a commercially sensible outcome.

For further advice, contact Michael Collins or a member of our Construction Dispute team.