Why the Construction Industry Should Seek to Avoid the ‘L’ Word

23/12/20 General

Despite having many other pressures at the present time, litigation is one of the major concerns within the UK’s construction sector, with contractors and sub-contractors battling this issue on two fronts – contractual and employee related.

Such is the concern about the ‘L’ word (litigation) that the Construction Leadership Council (CLC) issued a 19-page best practice guidance document in May 2020 (1), to encourage construction companies to adopt the spirit of conciliation and to try to avoid a wave of protracted legal cases. Almost the moment sites reopened, it seems that the blame game began with regard to whether closures were necessary, whether work should have resumed sooner and whether consultancy advice had been appropriate.

Contractual disputes are also likely to revolve around the lack of materials in the supply chain, shortages of labour, reduced productivity due to coronavirus social distancing and the ongoing impacts caused by staff still being furloughed. ‘Disruption’ claims (2) could enable a contractor to recover additional costs or losses brought about through a situation such as a loss of productivity. Stakeholders could launch their own legal actions, if they believe unnecessary delays have impacted on the share price and anticipated financial gain from projects in which they invested. (3)

The Royal Institute of Chartered Surveyors (RICS) has also warned that litigation could lead to the demise of smaller firms and has urged that contracting parties make use of its own 15-day fast-tracked adjudication process or the Construction Industry Council’s Low-Value Adjudication Procedure. Both put a cap on adjudication fees and that could be the difference between survival and liquidation for a construction business involved in litigation. (4)

Furthermore, in April 2020, bodies such as the Institute of Civil Engineers, Network Rail and Transport for London, signed up to the Conflict Avoidance Package, to try to encourage the sector to avoid disputes and work together. (5)

During the health crisis, there has been an increase in cases heard by the Technology and Construction Court (TCC), which has been using video conferencing for proceedings, lifting many of the burdens and costs associated with litigation. (6)

Against this backdrop, there is also that of legal cases surrounding employment disputes. Nearly 10% of the total paid out through the furlough scheme was claimed by construction companies. (7) Any redundancies after the furlough scheme winds down need to be handled with care.

Other litigation could emerge from decisions taken by whoever acted in a principal designer role. If staff were forced back to what are deemed to have been ‘unsafe’ workplaces and suffered health impacts, or if staff refused to return and were then disciplined or illegally made redundant, compensation cases and tribunals could emerge. With a general backlog of such cases, it is too soon to predict how many might result.

Treading carefully and trying to come to conciliatory agreements is very much the preferred mode of proceeding from this point but it will not be the way for all and the stresses and strains on the sector could be increased when Britain finally severs all ties with the EU.

A wide range of insurance options are available to the construction sector, covering one-off projects, ongoing work all year round and contractual arrangements.

Bespoke insurance protection can be built by an experienced construction sector broker. Other insurance options such as required liability protections can be included in the insurance safety net, along with Trade Credit insurance, which can help overcome long-standing issues relating to late payment within the construction sector. (8)

During this trying period, the construction sector should seek to pull together, focusing on some of the positives such as the new boom in the housing market. Adopting this stance, with the right cover in place, would probably be best practice and best advice, at the present time.

(1) https://www.constructionleadershipcouncil.co.uk/wp-content/uploads/2020/06/Construction-Leadership-Council-Covid-19-Contractual-Best-Practice-Guidance-7-May-2020.pdf

(2) https://www.pinsentmasons.com/out-law/guides/coronavirus-disruption-claims-in-construction

(3) https://kennedyslaw.com/thought-leadership/article/covid-19-potential-claims-against-construction-professionals-and-its-impact-on-ongoing-and-future-disputes/

(4) https://www.rics.org/uk/news-insight/latest-news/news-opinion/avoiding-and-resolving-construction-disputes-in-the-covid-19-crisis/

(5) https://www.pbctoday.co.uk/news/planning-construction-news/rics-conflict-avoidance-pledge/75590/

(6) https://www.pbctoday.co.uk/news/construction-technology-news/cheaper-construction-disputes/80062/

(7) https://www.constructionenquirer.com/2020/06/11/furlough-claims-for-construction-staff-reach-1-8bn/

(8) https://www.designingbuildings.co.uk/wiki/Fair_payment_practices_for_construction