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Contract disputes; more can be done

Contract disputes; the fall in disputes is positive but more can be done:

The news that the value of UK construction contract disputes has fallen by 12 per cent in a year is positive for everyone in the industry.

A report by consultancy Arcadis that appeared in Construction News examined the issue of formal contract disputes, where third parties are asked to resolve an issue of entitlement under a contract, such as adjudication, litigation or arbitration.

The report showed that two key contributing factors in the decline in contract disputes were: the willingness of parties to compromise, and judicial pressure to limit costs.

The evidence showed that mediation and party-to-party negotiations are fast becoming the preferred methods of dispute resolution, and this is very much in keeping with the trends we have identified in our own work. Our clients are becoming increasing disillusioned with the “lottery” of adjudication in the UK.

Avoiding formal contract dispute resolution and opting to negotiate a settlement gives our clients a greater degree of control and certainty, as well as the opportunity maintain key business relationships long into the future.

Our clients are well aware of the impact disputes have on their business and we strive to avoid them wherever possible. Our long experience of working on all manner of claims has shown us that disputes have a number of negative effects on businesses, including:

• Reduction of the availability of key staff.
• High costs, including expert and legal fees.
• Distraction from core business functions.
• Souring of relationships with clients.
• Lowering of staff morale and an increase in uncertainty.
• Negative impact on cash flow.
• Distraction from the focus of the project team to deliver the project.

Rather than seeing alternative dispute resolution as the answer to these problems, we strive to attack the root causes of disputes.

The Arcadis report showed that the two main causes of disputes worldwide are: the failure to administer contracts correctly, and poorly drafted and substantiated claims. For clients to minimise the risk of a formal dispute and put themselves in a better position to negotiate a settlement and avoid formal disputes, these two issues need to be addressed above all others.

By employing effective contract management teams, clients give themselves the opportunity to avoid issues arising during delivery and, if issues do arise, the contract management team can ensure that the correct and proper documentation is kept. This ensures that claims made further down the line can be well prepared, coherent and robust.

When a claimant does not understand the relative strengths and weaknesses of a claim, it is our experience that the parties involved often become entrenched and the prospect of a negotiated settlement gets diluted.

Poorly pleaded claims can be avoided but it requires the claimant to be proactive, rather than waiting until issues arise and then acting retrospectively. By investing upfront in contract management, claimants can give themselves the best possible chance to negotiate a settlement or at least achieve a favourable result in mediation, avoiding the prospect of entering into a protracted and costly formal dispute

They key to success in dispute avoidance is an unswerving commitment to recording, documenting and presenting the facts about a contract. If the facts are presented in a clear way to demonstrate your entitlement, then the claim itself is naturally more objective and the chances of reaching an agreement increase.

A failure to record the facts about an issue that has arisen in a contract leaves the claimant with little choice but to use conjecture. In our experience, claims that rely on subjective information very rarely end in negotiated agreements, and that can bring the expensive, time-consuming threat of formal dispute resolution looming back into view all too quickly.

This article, written by Kenzie Group MD Joseph Bond, was published online in Construction News last year.

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