A Quick Guide to Dispute Resolution in Construction Contracts

A Quick Guide to Dispute Resolution in Construction Contracts

Whether you are embarking on a residential or commercial construction project, sometimes things go wrong and a disagreement arises.

The options for resolving a disagreement are typically:

• Adjudication (quick decision: ‘pay now – argue later’)
• Litigation (public action in Court)
• Arbitration (private procedure outside Court)
• Expert Determination (industry expert decides)
• Alternative Dispute Resolution (private meetings and negotiation)

However, the most important question is – what does the contract state?

If the agreement between the parties is a standard form of contract, for example one of the JCT or NEC suite of contracts, then the method(s) of dispute resolution will be stipulated.  However, you should pay specific attention to any amendments that have been made to the dispute resolution clauses.

Below are descriptions of the dispute resolution options that are available:

Adjudication

Adjudication applies to all construction contracts, except contracts with a residential occupier (unless an industry standard form of contract is in place).

Adjudication is a 28-day procedure. The parties set out their respective cases and an adjudicator provides a decision which has interim binding effect; this means it can be altered by a subsequent arbitration or litigation.

Adjudication is known as the ‘pay now – argue later’ mechanism and is ideal for non-complex disputes.

Litigation

This, subject to an Arbitration clause, applies to all construction contracts and is the process of taking legal action in the Court.  A Judge will make a Judgment which is binding on the parties.

There is a specialist Technology and Construction Court which can deal with complex disputes. 

Before issuing proceedings, parties are expected to follow the Pre-Action Protocol for Construction and Engineering disputes; which encourages the early exchange of information to enable the parties to avoid litigation by agreeing an early settlement.

Arbitration

There needs to be a contractual agreement between the parties for this form of dispute resolution.

The parties set out their respective cases and an independent arbitrator will make an award of its decision. The award is binding on the parties. 

If arbitration is stipulated in the contract, and a party chooses litigation instead, the Court can halt that litigation and direct the parties back to arbitration.

Expert Determination

When a disagreement is wholly technical, an expert can be appointed to evaluate an issue and its decision can be contractually binding on the parties. 

Alternative Dispute Resolution (ADR) – Mediation

A common form of ADR is mediation.  This is where the parties, with the assistance of an independent third party, explore the issues and try to narrow those in attempt to reach a resolution.  Mediation is a flexible, voluntary, private and can be a binding option.

Finally, construction disputes can be expensive and time consuming on any individual or business, so it is best to get professional legal advice early on so that you know your options and the best way to resolve your disagreement.

For further advice please contact Michelle Dixon, an associate solicitor in the Humphries Kirk construction department, at the Humphries Kirk Poole office on 01202 725400.