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Viewpoint: Avoiding the dispute explosion

Amanda Henton on how swallowing pride can save money on expensive disputes

It is well known that the costs of a dispute can be blown out of all proportion. The words Wembley and Multiplex are enough to remind us of that fact, and this is just the tip of the iceberg…

So why does this happen? It is largely due to escalation of disputes once litigation is commenced, along with pride by each party who both feel that they are morally right, and cannot bring themselves to compromise and come to a sensible agreement.

Of course, in litigation, an outright win should result in some costs being reimbursed. However, an outright win is rare, and it is not uncommon for those who think they have the most watertight case to be mistaken and end up bearing the considerable costs of litigation. Think in hundreds of thousands for a relatively simple case, which can be factored up significantly for complex cases.

How to avoid expense? Firstly, know your contract.

The construction industry of course has the much used alternative of adjudication − the quick and (temporarily) binding decision by an appropriately skilled industry expert.

However, beware that adjudication may be relatively quick, but is not necessarily inexpensive, costing at least tens of thousands for a simple adjudication, again factored up significantly for more complex ones.

In addition, adjudication does not necessarily guarantee the avoidance of litigation should the losing party choose to go to court later on.

Secondly, practice good project governance to avoid delays and cost increases in the first instance.

Probably most importantly, unless your contract stipulates otherwise, or you agree with the party you are in dispute with once the adjudication commences, then each party bears their own costs of adjudication.

So, even if you win, you may end up spending more on achieving that win than you gain from it, and the adjudicator can do nothing to help you.

The solution to avoiding such expensive and time consuming processes is of course to avoid disputes. Easy to say but perhaps not so easy to do. However, there is a lot that can be done.

Firstly, know your contract. Understand your obligations and those of your employer (or employee), understand the mechanisms for extension of time and claims (and particularly any time limitations on notification of claims and the process involved), and understand the mechanism for dispute should it arise (ensure you are within any time limitations for raising your issue as a dispute, otherwise you may have inadvertently agreed to it).

Thirdly, nurture good relationships and communicate, dealing with issues as they arise, avoiding minor disagreements.

Secondly, practice good project governance. It is essential that you execute and administrate the project properly to avoid delays and cost increases in the first instance, and to enable you to prove your right to extension of time and money where they are justified.

Thirdly, nurture good relationships and communicate. This is probably the most effective way of dealing with issues as they arise and avoiding minor disagreements and difficulties escalating into massive disputes.

Finally, do the sensible thing. No matter how good you think your case is, how incomprehensible it is that the other party will not bow to your demands, and how unreasonable they are, consider the costs of escalating the dispute further.

If your claim is less than £25k, it probably doesn’t make sense to adjudicate, and if it is less that £250k, it may not be tenable to litigate. If it isn’t worth it, consider swallowing your pride, and making the right business decision to let it go. Otherwise ask yourself, who benefits?

● Amanda Henton is a senior consultant at Trett Consulting

Readers' comments (1)

  • It is a truism that the success of any contract is directly proportional to the willingness of the parties to make it work. This implies a good sense of give and take and a degree of reasonableness and professionalism on everyone's part. There is far too much of the adversarial system in contract law, particularly in Britain and the legal profession has turned contract disputes into an industry.

    The consequence is that Contractors build in a risk element, the size of which is directly related to the reputation of the Client and the consulting engineer. They are then also reluctant to acknowledge and accept that they should pay when these risks arise. The consultants, on the other hand, believe that they have a sole duty to keep payments to the Contractor as low as possible to the benefit of the Client. The outcome is obvious.

    NEC has not been the saviour of the profession and the industry as clearly illustrated by Ms Henton. Common sense, good communication and a realisation of the importance of cash flow to both the contractor and the client should be in the forefront of contract administration. Once it becomes necessary to read the fine print the cause of a successful contract is lost.

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