Disputes arise in many different areas of our business and personal lives, and construction projects are no exception, particularly due to the high number of parties involved in a project, the complex relationships between those parties, the technical and legal issues included in the contract, as well as the potentially high amounts of investment involved.
Prevention is better than cure so it’s important that as a developer, contractor, sub-contractor, investor, builder, home owner or employer you have an understanding of the contract you are entering into. If a dispute does arise during or after a project, you need to know where to turn, to ensure a swift and cost effective resolution to allow minimum disruption to your project, your commercial objectives, your ongoing relationships and your cashflow.
There are various ways a dispute can arise; from a breach in the contract, disagreement over the terms of a contract, the amount or non-payment of an invoice, quality of the works or undiscussed and unexpected delays. In any of these situations, poor communication can hinder any chance of reconciliation. If this is the case and the dispute escalates, there are a number of different ways that a resolution can be reached:
- Mediation
- Arbitration
- Negotiation
- Adjudication
- Litigation
How to avoid a construction dispute – the basic principles
Building contracts and building disputes are complicated and diverse by their nature. No two projects are the same and no two disputes are the same. There are nevertheless some basic principles that can be followed during the course of the contract or when you realise there is or may be a dispute.
Take care
It is imperative that you know who you are going into contract with and that you take care, especially if you are a home owner. If your builder states that they are a company, you can check this for free on the Companies’ House website. If your builder is not listed, do not enter a contract with them and seek further advice as to your next steps.
You can request to see examples of work that your builder has carried out before, or obtaining recommendations and reviews from previous clients will give you an insight into their previous work. We would always advise against paying large amounts of money upfront to your builder; in our experience this has led to little or very poor work being carried out.
Read the Contract
Knowing the contents of the contract is vital. This includes knowing exactly what the contract is. It may have been captured in a single document or many documents; it may have been agreed verbally or in writing.
You cannot know what your rights and obligations are and therefore how the risk is divided between you and the person(s) you’re in contract with unless you know what the contract says.
If you are uncertain about the meaning of any clauses within your contract, or whether the document constitutes a contract, do not hesitate to contact us prior to signing.
Records
It is absolutely vital to keep good records. This includes but is not limited to the following:
- The instructions that have been received and when
- Timesheets
- Invoices
- Photographs
- Emails
- Notes of verbal discussions
- Confirmations of verbal instruction.
Keeping good records is a precautionary and administrative measure that everyone can do. Many disputes can be avoided or quickly resolved by keeping good records in a chronological order. Not only must the information be kept but it must also be kept in a logical way that is easy to access and understand.
Take Action
Do not wait. If you think there is or is likely to be a dispute, take advice as quickly as possible. Many disputes can be avoided or quickly and easily resolved if they are dealt with when they arise. If you leave an issue until the end of the project there is likely to be a huge amount of additional work to do just as you are busy trying to complete the works.
Whether you are a home owner, business owner or developer, following these simple steps will save you significant amounts of time and money at a time when both of these are precious.
What is Part II of The Housing Grants Construction and Regeneration Act 1996 (as amended) and why is it important?
Part II of the Housing Grants Construction and Regeneration Act 1996 as amended by the Local Democracy, Economic Development and Construction Act 2009 (“the Act”) sets out important rights and obligations for all those involved in ‘construction operations’ and so forms the basis of several fundamental aspects of construction law.
Not all contracts fall within the scope of the Act. However, those that do are affected by two broad general set of rights and obligations in respect of:
Adjudication
This essentially gives a party to a construction contract the right to refer any dispute or difference arising out of or connected with the contract to a third party, the Adjudicator. The Adjudicator will then receive submissions from both sides of the dispute and make their decision. This is supposed to be within 28 days of the matter being referred to them but can be extended to up to 42 days by the referring party or longer still if the parties agree. The result is usually binding.
This process can be greatly advantageous as it is often quicker and cheaper than other forms of dispute resolution but please note it is a costs neutral regime so you will be liable for your own legal costs.
Interim Payment
The parties to a construction contract, as defined by the Act, are entitled to payment by instalment, stage or periodic payments. This is satisfied where the contract provides an adequate mechanism for determining what payments become due and when, not necessarily what the contractor says should be paid. The contract should also provide a final date for payment of any sums that are due.
It is unlawful to make such payments conditional on performance of obligations under another contract or a person’s decision as to whether they have been performed. Connected with this important right is the right to various notices, namely Payment Notices and Pay Less Notices.
If the contract does not provide for these important obligations, and the Act applies, then they are implied in the terms of the Scheme for Construction Contracts (England & Wales) Regulations 1998 as amended by Scheme for Construction Contracts (England) Regulations 2011.
What are the common terms within construction law?
Variation
Making a variation to a construction contract essentially means making a change to the original contract, which can have a significant impact on the cost of the project. A variation to the contract will ordinarily request an addition, substitution or omission to the works, such as changes to:
- The quantity of work that will be produced
- The design which differs from the original plans
- The schedule that a project will run to
- The materials being used or the conditions the builders are working under.
A variation can usually only be made in writing and by a specific person within the project. While in some projects variations will be inevitable as they are dictated by external forces such as legislation or technological advances, they can lead to a dispute if one party does not agree to either the detail of the variation requested, whether it was properly instructed, or the anticipated change to the budget.
Extension of Time
One of the key clauses within a contract is to specify the start date and anticipated completion date. In the event that there is a delay which is not the contractor’s fault, such as prevention by the employer, adverse weather conditions or a strike, an Extension of Time (EoT) can be applied for. There is a proper procedure to follow in order to make a valid EoT request, which must usually be done in writing, including but not limited to the following details:
- Why the request is being made.
- The reasons that have led to the possibility of there being a delay.
- The impact this will have on the project and the individual activities from the schedule of works.
- Any actions that have been taken to avoid or minimise the delay.
- Referencing the relevant term within the contract that allows the request.
A dispute can arise from an EoT claim in the event there is disagreement over the terms of the claim or where no claim has been made, or not made within required time limits.
Where the delay is caused by the contractor, this is a breach of the contract which entitles you to recover damages. It is often important that these are specified in the contract ahead of time as this greatly increases your chances and amount of recovery.
Loss and Expense claim
A Loss and Expense claim allows the contractor to claim financially for any ‘direct’ loss that has been caused by the other parties, for example failure to provide the contractor with the necessary access to the site or equipment, or a delay in sending instructions.
A dispute can occur following a Loss and Expense claim for various reasons and ordinarily will be determined by the wording and clauses within your contract, including defining what would constitute as a ‘direct’ or ‘consequential’ loss. Keeping records to demonstrate the loss will be a vital part of making a claim, or settling a dispute, in this area.
Termination of contract
Terminating the contract is not something to be done lightly bearing in mind the financial and commercial consequences for all parties, so it is easy to see why this can cause a dispute between the parties involved. In the circumstance that termination is sought, as with all of the points discussed on this page, it is vital to receive legal advice to ensure that you do not find yourself in further complications, whether you are the party terminating or you are faced with termination of the contract.
Generally speaking, when terminating a contract the first step will be to ascertain whether you are entitled to terminate, which will be detailed in your contract. If you are, you will need to follow the guidance set out in the contract and you will need to understand the potential risks involved such as causing a repudiatory breach, which is where legal advice will be invaluable.
Andrew Cullyer advises on Construction Law, managing both contentious and non-contentious issues across a variety of sectors, industries and job roles, advising on disputes that arise at any stage of the procurement process, building, repair and maintenance of a building. His previous experience stretches across a diverse range of sectors including the building of factories, hospitality, retail and office buildings, meaning he has the commercial awareness, skills and expertise to analyse the underlying detail of your dispute and understand the most viable route to resolution for you.
To discuss your needs with Andrew regarding your construction contract, to have your contract reviewed or if you are in dispute with another party within your contract, you can contact Andrew for his expert advice on 023 8071 7482 or email andrewcullyer@warnergoodman.co.uk.
We also have an experienced and dedicated team dealing with commercial and property disputes.
For general Litigation or Dispute Resolution enquiries, contact the team on 023 8071 7412.
