Construction contract disputes

Calls to remain ‘fair and reasonable’ in the administration of construction contracts has been issued by The Construction Leadership Council to all businesses in the sector.

The CLC expects the legal landscape to become fraught in 2021 and fears the consequences.

In a recent briefing note on claims and disputes it says: “There remains a real concern that in 2021, as we reach the completion of projects entered into pre-pandemic and the end of financial/tax years, businesses will become embroiled in costly and long running disputes over the effects of Covid-19 on projects”.

It added:”Indications were that 2021 may bring the perfect storm of: a negative economic environment, EU exit, reduced construction market activity, the end of government business support schemes, the introduction of reverse charge VAT, and a significant increase in the number of claims across the supply chain”.

The contractual practices working group of the CLC business models workstream has been monitoring the scene. It found: “It is inevitable that there has been an increased number of notifications/claims. It is likely that the number of disputes will increase in 2021”.

It has also noticed an increase in the number of claims under construction contracts being rejected because of Covid-19.

“Initial indications found that whilst parties may be inclined to settle an entitlement to additional time for completion, there is a reluctance to agree financial losses, cost and expenses (which is the greater source of contention). It is too early to know what will happen with those rejected claims”.

It appears that lower value disputes, that are easier to settle, are being settled, but bigger, more complex ones are stacking up.

“It is expected that there will be a rise in the number of claims that turn into more formal disputes during 2021. Data shows that this a natural progression but dependent on numerous factors. The key triggers for which are reaching final account, tightening cash-flow within industry, financial reporting requirements, project/client type and reduced good will”.

The note concludes: “As society and industry continue to grapple with the pandemic, the CLC business models workstream would remind the sector that without proper fair and reasonable administration of construction contracts. Covid-19 could have a significant and detrimental effect on the industry. An industry which is expected to play a central role in helping the economy recover from the effects of Covid-19.

“The CLC asks that the industry works together to support the long term health of our sector by constructively resolving all contractual disputes arising from the pandemic”,