May 19, 2013 3:03 pm

Construction industry disputes taking longer to resolve

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The protracted downturn in the construction industry is fuelling conflict between builders with legal disputes taking more than a year to be resolved, according to new research.

UK construction disputes are taking on average 12.9 months to be settled compared with 8.7 months the previous year – an increase of 48 per cent – a study by EC Harris, the building consultancy, has found.

Gary Kitt, head of contract solutions at EC Harris, said this was a result of economic conditions as well as the growing complexity of projects.

“Construction projects are increasing in complexity, which is resulting in many disputes spanning a year or more. It is also a result of the tough economic climate, which is putting pressure on builders nationwide,” he said.

Construction was a key industry driving growth during the boom years up to 2007, along with financial services.

But while banks and other City companies have started to recover, construction groups have continued to shed jobs and report low levels of business activity.

Companies such as Balfour Beatty have been forced to issue profit warnings and shrink their UK businesses while many smaller companies have gone bust.

According to ONS figures, employment in construction has fallen 473,000 since the peak between July and September 2008.

Activity in construction fell 8 per cent last year and is 19 per cent lower than just five years earlier.

Rudi Klein, chief executive of the Specialist Engineering Contractors’ Group, said the increase in disputes was being driven by the harsh economic climate.

“Given the tight market, it’s not surprising that there are more disputes, particularly over payment. Companies are scrutinising the work and the contract and any excuse not to pay is being found.”

One of the highest-profile disputes in the UK during 2012 involved the construction of the Shard in London.

The dispute between steelwork companies Cleveland Bridge UK and Severfield-Rowen Structures first came to light in early 2010 but was only resolved in January 2013 following a lengthy dispute that ended up in the High Court.

Cleveland Bridge was ultimately ordered to pay £824,478 in damages to Severfield-Rowen for delays and defects that were estimated to cause a delay of 42 days on the Shard’s construction.

Dispute values in the UK rose from £6.6m in 2011 to £17.7m in 2012.

The Middle East continued to experience the highest value disputes at £41.8m while disputes in the US had the lowest value at £5.8m.

Adjudication was found to be the most common method of resolution in the UK, followed by arbitration and party-to-party negotiation.

Mr Klein said many cases were not making it to court because of the high costs involved.

“Many people end up just taking it on the chin if they can’t get paid, even though they can’t really afford it,” he said.

The research also found that disputes were more frequent among joint venture arrangements.

This article was amended on May 20 to correct the percentage increase in the length of construction disputes

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