5 methods for resolving construction disputes

Posted: Monday, 1 March 2010 @ 14:42

There are 5 basic methods of resolving construction disputes, the most usual of which arise between a contractor and the employer, or between a sub-contractor and main-contractor. This article details the basic characteristics of each method, from the cheapest upwards and point out their main pros and cons.


Contract Administrator

The first method of resolving the dispute is generally to ask the Contract Administrator to make a decision. The Contract Administrator is usually named in the contract and, while typically the Architect, could also be the Employer or a Surveyor. The contract will also set out the extent of their powers and whether their decisions are binding – they can usually be overturned in later proceedings unless the contract states that a particular certificate is conclusive.

Pros: quick and cheap.
Cons: may not be binding.

Negotiation

Negotiation could take place in a variety of ways: over the telephone, by correspondence, at a meeting or through mediation. Negotiations are usually expressed to be ‘without prejudice’ which means that any admissions, or offers and counter-offers, made in them cannot be mentioned in later proceedings. How effective it will be in a construction context largely depends on the relative bargaining power of the parties. It is not uncommon for, say, a sub-contractor to be in a far worse position financially to the main contractor and therefore not have much room for manoeuvre.

Pros: quick, cheap and parties in control of outcome.
Cons: unless parties have equal power, it may not be effective.

Adjudication

All parties to a construction contract have a statutory right to adjudication, whether set out in the contract or not. This is quick method of resolving disputes which leads to a binding and immediately enforceable decision, although it is subject to any later decision made in court or adjudication proceedings.

Adjudication can be commenced at any time, even while the project is still proceeding, and usually requires the adjudicator to make a decision within 28 days. The adjudicator must act impartially but does not usually go into nearly as much detail as an arbitrator or court would do. The object here is to get a quick decision which can often mean a contractor or subcontractor can continue with the project (and indeed survive!) whereas lack of payment could have brought things to an end otherwise.

Pros: quick, relatively cheap and immediately enforceable.
Cons: rough and ready decision, and can be overturned in later proceedings.

Arbitration

Arbitration is much more like court proceedings than adjudication. It is available where there is a genuine dispute between the parties of the type that a court would entertain and a binding agreement to submit the dispute to arbitration (either in the contract or later agreed between the parties – even after the dispute has arisen).

The adjudicator must act fairly but can only deal with the issues specifically referred to him to decide upon. Traditionally, this has been the main litigation method used in construction disputes but more and more cases are now being dealt with by the courts.

Pros: a thorough procedure although quicker than court, convenience, privacy, a binding decision, and parties can opt to choose an arbitrator with technical expertise in the issue to be decided.
Cons: expensive.

Litigation

This is where a dispute is referred to the courts for a decision. The courts have extensive powers to compel the disclosure of documents, witnesses to give evidence and to enforce its decisions. Which court deals with the dispute will depend largely on its complexity and the value of the dispute. Most disputes of any significant size are dealt with by the specialist Technology and Construction Court.

Pros: a more thorough procedure, a binding decision, multiple parties can be joined in, best if there is a point of law to be decided, and often more decisive.
Cons: can be slower than other resolution methods, expensive.

No two business disputes are the same and the decision as to what method should be adopted in a particular case should be decided in consultation with a solicitor who can advise what is best in your particular case.   Gary Cousins of Cousins Business Law will advise on the best method to use.  Contact Gary here.

Blog by Gary Cousins
Gary has been providing legal advice to shareholders, directors and business owners for over 25 years. Specialising in dispute resolution Gary is based in Birmingham with clients throughout the UK and overseas. View profile
Call Gary on +44 (0)121 778 3212 or by email
This blog is not intended to constitute legal advice, nor is it intended to be a complete and authoritative statement of the law, and what we say might be out of date by the time you read it. You should always seek legal advice to confirm whether or how any information in this article applies to your particular situation. We offer a free telephone consultation to discuss your particular circumstances.

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