10 April 2006
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As Multiplex prepares to do battle in the High Court with Cleveland Bridge over Cleveland's departure from the Wembley Stadium project, the public's eye will be drawn to yet another high-profile construction dispute.
Over the years, the UK construction industry has produced its fair share of problem projects and high-profile litigation. The cast list is long and includes the British Library, the Channel Tunnel, the Jubilee Line extension, the Royal Brompton Hospital, Portcullis House, the Great Eastern Hotel and countless other projects. The law reports are littered with construction cases and a whole satellite claims industry has evolved and matured.
The next six years will be a testing time for the UK construction industry as it tackles the once-in-a-lifetime opportunity of building for the London 2012 Olympic Games.
The Games will generate a huge amount of construction work and will stretch further the industry's capacity at a time when it is already under strain from a buoyant commercial market. It will be a huge challenge to procure and deliver the Olympic-related projects on time and to budget, particularly given the complex planning and land acquisition issues that need to be negotiated before construction can begin.
Unfortunately, the surge in construction work will also mean more construction disputes for the industry to deal with. Notwithstanding the healthy trend towards proactive dispute avoidance, the practices and structure of the industry make disputes almost inevitable, and the challenge for those involved in the claims industry will be to facilitate speedy and cost-effective dispute resolution to the benefit of the industry.
The UK construction industry is undoubtedly a competitive and commercially harsh environment. Compared with other industries, the risks of traditional contracting are high and the margins are low. The use of competitive tendering by public sector employer clients has led to a culture of 'lowest price equals best value'. On the other hand, contractors often take on increasing amounts of risk to win work and chase short-term turnover. When projects go wrong, thin margins disappear and, without sufficient capital assets, contractors are in difficulties.
There have been a number of well-publicised casualties. Laing, one of the UK's oldest and best-known contractors, sold its construction business to O'Rourke for £1 following a number of difficult contracts, including its design-and-build contract for the Millennium Stadium in Cardiff. Given Laing's experience, it was perhaps no surprise that no UK contractor had the appetite to take on the risks of Wembley Stadium.
The recent sale of construction giant Mowlem to Carillion again illustrates how unforgiving the industry is. Despite diversifying its interests into the more profitable PFI market, Mowlem is reported to have experienced a series of difficult contracts, including the high-profile Bath Spa project, and suffered poor financial results. It is in this context that many major players in the market have been positioning themselves and diversifying into the services sector to seek bigger rewards and spread their risks.
Over the years, the industry has looked hard at itself with a view to reform. Sir Michael Latham's landmark report 'Constructing the Team' (followed by Sir John Eagan's 'Rethinking Construction') championed 'partnering' and tackled subcontract payment abuse by paving the way for the procedures set out in Part 2 of the Housing Grants, Construction and Regeneration Act 1996, which outlawed pay-when-paid clauses and introduced statutory adjudication.
Following a slow start, strong judicial support has ensured that statutory adjudication now dominates dispute resolution in construction. There are reported to have been some 15,000 adjudications to date and anecdotal evidence suggests that, on the whole, the parties seem happy to accept the 'rough and ready' justice of adjudication, even if they are not 100 per cent happy with the decisions. There does, however, remain a debate over whether adjudication is a suitable means of deciding more complex post-completion disputes, where many millions of pounds are at stake with the use of expert evidence and cross-examination. Disappointingly, this is not one of the issues that the Department of Trade and Industry is considering as part of its review of the Construction Act.
Technology and Construction Court
The popularity of adjudication, together with the effect of the Woolf Reforms (embodied in the 1998 Civil Procedure Rules) and the rise of mediation, appear to have led to a significant drop-off in the number of construction cases going to court. The Technology and Construction Court (TCC) has seen new proceedings decline from 1,778 in 1995 to 390 in 2004.
That said, the high-profile, big-ticket disputes still go to trial at the TCC. If anything, the expectation is that the TCC's work will grow at the expense of domestic arbitration.
There is already a feeling in the industry that, under the leadership of Mr Justice Jackson, the presiding judge at the TCC, the court is set for a bit of a renaissance. He has established a reformist agenda to improve the service offered by the court, including bringing in the highly regarded Mr Justice Ramsey as a further High Court judge with a renowned expertise in construction work.
Whether the construction industry can rise to the challenge of delivering a world-class Olympic Games without a plethora of disputes and commercial casualties is uncertain. Much will depend on the industry's ability to ensure that risk on the main Olympic venues and related infrastructure projects is shared properly and that all participants are rewarded fairly.
It will also be key that the right teams and appropriate procurement and contract structures are selected. In this respect, the Olympic Delivery Authority, which is charged with ensuring delivering the Olympic venues and infrastructure, has a crucial role to play. Past experiences suggest that, on such significant and time-critical one-off projects, contractors need to be involved at an early stage with the employer and its team to ensure that there is a thorough understanding of the client's requirements and a realistic assessment of risk, price and programme.
The sting can also be taken out of potential disputes by the adoption of dispute escalation procedures and the use of dispute resolution boards, which aim to snuff out disputes before they crystallise and become a real problem. In the event that disputes do arise, the industry should be well equipped to resolve them in real time whether by mediation or adjudication or some other form of alternative dispute resolution; and failing that, the new and improved TCC is waiting in the wings.