Drawn-out lawsuits are “robbing” the construction industry of contractual value and risking countless business collapses in the process, industry leaders have warned.
Leading members of the Conflict Avoidance Coalition called for clients and main contractors to work directly with the supply chain to iron out issues early rather than leave the door open to litigation.
They warned at the first-ever Conflict Avoidance Conference that pushing risk down the supply chain and taking on low-value, fixed-price contracts had created a very litigious industry that would continue unless contracting and procurement habits changed for good.
Tim Tapper, director for contract services at construction consultancy Turner & Townsend, said uncertainty around pricing and issues around inflation meant the age of fixed-price contracts was over.
“We’re in a volatile and challenging market, and really what that says to me is you can’t just keep doing the same thing again – you can’t just keep turning the wheel,” he said.
“[With] the traditional approach, you’ll generally find that everyone blames each other – that’s no real way to go forward. It’s not sustainable.”
Speakers at the event in Portcullis House in Westminster last week argued that turning to litigation to solve issues on site – and even to try to make more money than they were due – was hitting collaboration in the industry. They added that the approach was also pushing projects overtime and leading to distrust between different parts of the supply chain.
The conference discussed having conflict avoidance processes (CAPs) written into contracts, which involve creating dialogue within the supply chain as issues around cost or timing arise in order to stop conflict before it begins.
These are different to arbitrations – private solutions to disputes that involve outside specialists and so cost money – which are seen as cheaper alternatives to full-on court cases.
Most legal cases involving the construction sector are heard in the Technology and Construction Court (TCC), which listed 88 trials in the year to September 2023, according to the TCC’s most recent annual report. Most of those reached out-of-court settlements before they actually got to the court date, meaning only 13 trials were held during the year.
It also recorded 467 new claims during the year, a steady descent from the peak of 521 in the year to September 2021, during the Covid pandemic. The number of claims is now at pre-Covid level.
Sir John Armitt, chair of the National Infrastructure Commission, told the conference it was clear that “you cannot value time, cost and quality on an equal basis” in all projects – an aim that can lead to disputes ending up in court.
He called for more clients to offer incentives to the supply chain like those he encouraged on the London Olympic Games to meet the 2012 deadline.
Armitt said: “We said to the contractors: ‘We will take 97 per cent of the overrun in costs if you give us half of the savings we get’.”
The conference also heard from Stephen Blakey, Network Rail’s strategic commercial director, who said clients “fundamentally want predictability and […] to create value” when they are allocating work to contractors.
“[All] the investments [clients] make with time, intelligence, experience, money and materials, are designed to create value,” he said. “We know that claims and [legal] disputes rob you of that predictability,” he said, adding that having a lump sum contract did not equate to predictability, due to the problems around inflation, for instance.
“This is not about putting fires out, we should be the equivalent of fire engineers,” he said.
Construction News this year examined how the sector had taken on conflict avoidance agreements, and whether it had made a real difference for all parts of the supply chain.
Esh chief executive Andy Radcliffe also advocated for prompt payment of the supply chain in a separate interview, noting that prompt payment “creates a virtuous circle of loyalty and best pricing”.
