Disputes are on the rise, according to NBS survey

The number of disputes in the construction industry has risen over the past two years, according to evidence from the National Construction Contracts and Law Survey 2015, conducted by RIBA Enterprises’ National Building Specification (NBS).

Almost half of the 981 respondents (44%) said they had been involved in a contract that went into dispute during the past 12 months, a significant increase from 2012 – when the last survey was carried out – when only 30% of respondents had experienced a contract dispute.

The survey found that 24% of respondents had experienced one dispute in the past 12 months, 10% two disputes, 4% three disputes, 1% four disputes, and 5% had experienced five or more disputes.

Although the increase in the industry’s output in 2012-15 would account for some of the increase, this pick-up is unlikely to fully account for the rise in disputes, Adrian Malleson, head of research, analysis and forecasting at the NBS told Construction Manager.

Thinking about the disputes you were involved in, approximately how many of these went into dispute during the past 12 months?

He said: “The survey supports the fact that there are more disputes happening now than last time we conducted the survey. “Although it has risen, output hasn’t risen greatly since 2012 so the increase in the number of respondents saying they experience disputes can’t be solely due to increases in levels of construction output.

“When we did the first survey in 2012 we were in the recession and the feeling was that the high number of disputes was due to companies taking on marginal contracts and then using disputes to try to increase their margins. This turns out not to be the case, it seems that it is more to do with the nature of the industry.”

Adjudicator and contracts expert Peter Gracia FCIOB, director of Gracia Consult, said that the survey tallied with his experiences. “From my perspective, and the perspective of my fellow adjudicators and arbitrators, everyone’s getting very busy.

Thinking about the construction sector generally, during the past 12 months, would you say that disputes in the sector have…

“When things were quiet [in the industry], there were not a lot of disputes going through our books or the courts, but now people are opening up contracts and chasing money owed. They’re busy with other jobs so now they can afford to spend the money on legal fees.”

Asked whether the frequency of disputes in the sector generally was increasing, decreasing or about the same, 41% of respondents to the NBS survey believe that disputes have increased in the past 12 months. Although this is actually less than the 48% who believed disputes were increasing in the 2012 survey, Malleson says that the large number who believe that disputes are rising does support the overall finding.

“The results of the attitudinal question are broadly consistent with people’s personal experiences, suggesting an increase in disputes. It’s consistent, but dispiriting. We certainly haven’t seen any decline in disputes since the last survey,” he continued.

Time and money are, predictably, the primary causes of dispute, as in 2012, with extension of time being the most common issue among those who had been in disputes, followed by valuations of the final account, and valuation of variations.

The survey reveals that there has been an increase in the use of “collaborative techniques” on projects started over the past 12 months, with 18% of respondents using “collaborative techniques” on all projects and 44% on some projects.

What were the main issues in dispute in the past 12 months?

This compares favourably to 2012 when only 10% were using “collaborative techniques” on all projects and 41% on some projects.

However, it seems this increase in collaboration has not led to the expected decrease in disputes, contrary to expectation at NBS. “We had some expectation that the number of disputes may have fallen as there has been an increase in collaborative projects and the respondents themselves tell us that collaboration reduces disputes,” Malleson added.

The report also revealed the damaging effects that disputes can have on projects. Where a dispute was in progress, almost one in five (19%) were either stopped or suspended due to the dispute.

“This paints a picture of disputes being a high risk for projects. It can be easy to think of disputes as something that happens between lawyers with someone who wins and loses and it not having a real impact on the construction process,” concluded Malleson.

Gracia speculated that this relatively high number could be linked to increased usage of the “right to suspend” under the Construction Act. “People have always had that right, but once they introduced changes to the Act [in 2011] they became happier to do it.”