Will Construction Disputes Start to Fall Again – Both Domestically and Worldwide?

Nick Gray
With the recession slowly dissipating, the UK economy growing by 0.8% last quarter and the construction sector growing by 4%, will there be a corresponding fall in the number of disputes?

In a recession, workloads typically fall, increasing the pressure on tender margins. Contractors are prone to squeeze margins, so leading to an increase in the number of construction disputes.

According to research by Sweet & Maxwell the number of construction disputes that went to arbitration rose by 31% during 2009. Last year there were 1,018 construction related applications made to dispute resolvers, marking a sharp rise from 2007 when 779 applications were made. The housing slump and dwindling demand for commercial space were some of the factors leading to the rise in disputes as developers came under pressure to reduce costs, according to the research.

Beyond the UK, international markets have responded in a similar fashion with disputes on the rise due to the pressure of squeezing margins and costs.

What does vary from country to country though are the individual legislative frameworks, where many countries don’t have as robust legislation or resolution frameworks as the UK. For instance, Dubai disputes have traditionally been settled through commercial negotiation, goodwill or influence. In this situation contractors may find themselves at a disadvantage, anxious to protect their reputation and maintain a working relationship with their clients – especially as the largest clients are often government linked.

Most Dubai construction contracts are based on the FIDIC form, which promotes an amicable settlement of claims in the first instance, followed by a referral to arbitration if required. Unlike the UK, where adjudication, alongside negotiation, is generally the first external dispute resolution process adopted, Dubai has no statutory adjudication provisions. Similarly, mediation, neutral evaluation, expert determination and conciliation are not commonly encountered.

Whereas in the United States, in just 20 years the use of mediation in domestic construction disputes has grown from a good idea to a prevalent practice. Mediation there has proved a very reliable way to resolve construction disputes of all types, from the simple to the extremely complex.

The use of mediation is also popular here in the UK and in other common law jurisdictions and those whose legal systems are largely based on the British model. Recently mediation has gained substantial support in the European Union. However, despite the growth of mediation, it is not reported to have made similar progress in the resolution of international construction disputes where there are substantial linguistic and cultural differences that result in scepticism about mediation.

 


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