A new report by Arcadis has revealed the Covid-19 pandemic was a major factor in the UK’s average construction dispute value increasing to a record high of £27.7m in 2020, a huge increase of 117% from 2019.
However, while the value of disputes rose during 2020, the UK continues to be the global leader in resolving disputes in a timely manner. The average length of time to resolve disputes remained constant with the previous year at less than 10 months.
The data, featured in Arcadis’ 11th annual Global Construction Disputes Report 2021: The road to early resolution, illustrates industry-wide ripple effects of the Covid-19 pandemic.
While trends in the average value and length of disputes varied from region to region, all regions surveyed saw an increase in “mega disputes” related to bigger capital programs and private projects which may go some way to explaining the increase in dispute value seen during 2020. Notably, more than 75% of survey respondents in the UK encountered project impacts due to Covid-19.
Owners, contractors, or subcontractors failing to understand and/or comply with their contractual obligations became the number one cause of construction disputes in 2020, followed by errors and/or omissions in the contract document and failure to make interim awards on extensions of time and compensation as the second and third-leading causes, respectively.
Highlights from the report include:
- Proper administration of the contract was a theme across the globe for the successful and early resolution of disputes;
- Most disputes were settled through adjudication (contract or ad hoc) in the UK;
- Among regions surveyed, the buildings (education, healthcare, retail/commercial, government) sector saw the most disputes.
UK respondents reported a positive trend towards dispute mitigation in 2020. Over 65% stated that the most common form of early resolution resulted from settlements reached prior to proceedings.
To improve occurrences of mitigation/ early resolution of disputes, the survey results recorded equal efforts would be well spent in accurate and timely schedule reviews by project staff and third parties and owner/contractor willingness to compromise.
Gary Kitt, head of UK contract solutions at Arcadis, said: “Against the backdrop of 2020, it is not surprising that the average value of disputes in the UK increased significantly, and that nearly three quarters of respondents had encountered disputes or claims specific to Covid-19. However, it is promising that the UK continues to be the global leader in resolving disputes in a timely manner.
“The most common cause of disputes in the UK was the parties failing to understand or comply with their contractual obligations. This underlines how good contract administration and project management can be pivotal in either avoiding disputes in the first place or assisting with mitigating their impacts.
“While some commentators predict the UK construction market will not return to pre-Covid-19 output levels until 2022, early 2021 UK government gross domestic product figures suggests construction is leading the region’s post-pandemic economic recovery. This should create an excellent opportunity for the industry to continue to implement collaborative dispute avoidance measures which allows time and energy to be best spent in delivering projects.”
The research presented in the report was conducted by the Arcadis Contract Solutions team. It is based on survey responses our global construction disputes team handled in 2020 as well as contributions from industry experts.