Is A Dispute With A Subcontractor Delaying Your Project?

Construction disputes are common.  A dispute with a subcontractor is usually around contracts, payments disallowed costs and the timing and/or quality of the work done.

A dispute with a subcontractor can delay your project and cause major problems for both the contractor and the employer.  Projects delays can lead to significant financial penalties for you as the main contractor and you will want to avoid them at all costs.  This is especially true of disagreements with subcontractors which could either have been avoided or at dealt with quickly before they become disputes.

The main causes behind a construction dispute with a subcontractor are:

·     Contractual Problems– a dispute with a subcontractor can often relate to disagreements over the agreed contractual terms, the interpretation of these terms and any ambiguities or inconsistencies. 

·     Poor project management- simple co-ordination errors between you and your various subcontractors can lead to a dispute with a subcontractor and significant delays for your project.

·     Different Contractor and Sub-Contractor Goals and Commitments– your subcontractor probably has different goals to you and certainly has a different commitment level.  Everyone works at their own speed and if they work slower than you expect, then this can cause delays.

·     Cultural Differences- cultural differences can lead to communication problems and expectation issues.

Most of these problems can be prevented as we will discuss.  However, if they do arise they should be dealt with promptly.

There are six ways to deal with a construction dispute.  These are:

1.     Negotiation between the two parties.  This is most effective for simple disagreements and misunderstandings that have yet to escalate.

2.     Expert determination- this is where a third-party expert is requested to make a decision on your dispute.  This resolution approach is usually used in relation to costs.

3.     Mediation- this is negotiation with the support of a neutral third party- usually an experienced solicitor.  This is quick and inexpensive and is the preferred method for dealing with disputes.

4.     Adjudication- this is where an independent, mutually agreeable adjudicator makes a decision.  It is most often used for resolving disputes when both parties are still involved in the delivery of the project covered by your contract.

5.     Arbitration is an alternative to litigation.  It is undertaken by an independent third party arbitrator who is agreeable to both sides.  The arbitrator takes on the role of the judge and makes a decision based on the facts of the case.

6.     Litigation- this is still a common way to resolve disputes but is becoming less so as it takes time and can be costly for both parties.

If you would like help in drafting an appropriate construction contract or need to quickly resolve a dispute   then we recommend that you contact Andrew Hickman, Partner and Head of Construction at Else Solicitors.  Andrew has many years of experience in supporting the construction industry and helping them resolve disputes having been a partner at Gateley PLC for 15 years. 

You can call Andrew directly on 0121 393 1724 or e-mail him at andrew.hickman@elselaw.co.uk

In this article in our construction series, we will cover:

·     Key Takeaway Points

·     How to Avoid Construction Disputes with Subcontractors

·     Your Options to Resolve Subcontractor Construction Disputes

·     Why Else

Key Takeaway Points

1.     It is important to take time at the start of the project to minimise the chances of a dispute arising.  This can be done by drafting a clear contract which includes items such as events entitling additional time or money, disallowed costs (costs that the contractor or subcontractor are precluded from claiming) and the procedure for resolving disputes before they get to the point of litigation.  It should also contain a schedule of the work and the timetable should be checked and agree with all parties.

2.     Ensure that everyone involved understands the contract and the agreed timetable. It is important that your subcontractors understand your project’s phases and deadlines and their obligations and rights in relation to these.  You should also take time to explain the communication and coordination channels as problems in this area often trigger disputes.  A key factor in controlling and monitoring your project is notices.  Your contract needs to be clear on who raises them, when and how they are communicated.  

3.     When a disagreement comes to light, try and deal with it before it becomes a dispute.  Most minor disagreements can be dealt with by negotiation between you and the involved sub-contractor(s).  Your contract should contain escalation procedures which are designed to resolve disputes quickly and cheaply, whilst maintaining relationships between both of you.

4.     Serve notices correctly in a timely manner and keep proper records.  Record keeping is key to both minimising the risk of disputes occurring and to dealing with disputes if they do occur.  If a dispute arises, records are essential to show what was said or not said; done or not done

5.     Know your options, if a dispute does escalate.  We recommend that you seek professional advice early on to help ensure that any disputes are rapidly resolved before they create more unnecessary delays.   

If you or your company would like some legal support with a construction dispute then we invite you to contact Andrew Hickman, Partner and Head of Construction at Else Solicitors on 0121 393 1724 or e-mail him at andrew.hickman@elselaw.co.uk.

How to Avoid Construction Disputes with Subcontractors

Drafting the Contract

Most construction contracts are based on either JCT (Joint Contracts Tribunal) or NEC (New Engineering Contract) standard contracts.  If the main work is being done under a JCT contract, then you will usually sign a JCT Standard Building Subcontract (SBCS Sub/A and SBCS Sub/C) or an intermediate or short version of this. 

If the main work is being done under a JCT contract, then you will usually have your sub-contractor sign a JCT Standard Building Subcontract (SBCS Sub/A and SBCS Sub/C) or an intermediate or short version of this.

Clear and careful contract drafting is important to ensure that it captures the commercial terms agreed between you and your subcontractor as well as your shared rights and obligations.

It must be clear on:

·     The employer’s requirements;

·     The contractor’s proposals;

·     Disallowed costs;

·     Liquidated damages- these set the pre-determined damages if work is not delivered on time;

·     Limitation of liability;

·     Schedules of Work

The schedules of work outline everything that needs to be done and it is important that they are understood and agreed by all parties. 

Time spent on getting this right can significantly reduce the chances of disputes arising. Drafting the schedules of work is an exercise that requires both commercial and legal input.

Understanding the Contract

Once the contract is finalised it is vital that everyone understands what has been agreed and complies with its terms. It is also important to know who will be administering the contract and that there are sufficient resources to do so. 

Some contracts require considerable administration due to the volume of instructions, notices and other documents to be issued.  Inadequate resourcing for contract administration can lead to problems and disputes.

The Agreed Timetable

The timetable of work should be discussed, agreed and form part of your contract.  It is important that both sides are clear on what they need to do, by when and how everything will slot together. 

There will be dependencies and co-ordination points and you should both understand how things will interact and what happens if someone is behind schedule which has a knock-on effect.

Variation and Extension of Time Provisions

It is important that you have provisions in the contract for varying and extending the time for work to be completed.  Things often go awry and you need to build in provisions to take case of such problems.

Progress of your project must be monitored and the causes of delays should be identified and dealt with at the earliest opportunity

Notice Requirements

Notice provisions are frequently used in construction contracts.  They ensure that all parties are clear as to what issues need to be communicated, the procedure to be used and the appropriate timescales.

Notices are important as they aid communication between the parties and ensure issues are raised and dealt with promptly.  They can help minimise disputes and ensure that problems are picked up early on.

Record Keeping

Record keeping is probably the most important tool you have in avoiding, managing and resolving disputes.  In many cases, the strength of your claim and negotiating position is determined by your records.

Records include:

·     Notices

·     Formal Letters

·     E-mails

·     Minutes of meetings (preferably signed)

·     Handwritten notes in diaries

·     Handwritten schedules on whiteboards

·     Photographs etc.

It is important that you have a policy for collecting, storing and organising records including how long they should be kept for.

Payment Timings

Payment timings often give rise to disputes with sub-contractors.  It is important that both sides understand the payment timings and what might cause the contractor or employer to withhold or delay payment.

Contractual Dispute Mechanisms

Your contract should contain escalation procedures which are designed to resolve disputes cheaply and quickly while maintaining the relationship between you and your subcontractor.

Your Options to Resolve Subcontractor Construction Disputes

You have 6 main options in resolving subcontract disputes.  These are:

1.     Negotiation

This is the simplest and quickest route and is cost free.  You get together with your subcontractor and come to a mutually agreeable decision.  This is most effective for minor disagreements and misunderstandings that are caught and dealt with early on.

 

2.     Expert Determination

Expert determination is an informal dispute resolution system and is often used when there is a valuation dispute. If an expert is to be used to determine the dispute, then both parties need to agree this by written contract and that they will be bound by the decision.

This is a cheaper and quicker way of resolving valuation disputes than legal proceedings.  However, it is difficult to challenge the expert’s decision.  Also, their decision cannot be enforced without litigation or arbitration proceedings. 

3.     Mediation

Mediation is where an independent and experienced mediator facilitates the discussions and negotiations between you and your subcontractors.  Mediators, like those at Else Solicitors, are highly experienced in dispute resolution.

This approach helps maintain your business relationship and is relatively quick- usually taking 1-2 days.  It costs considerably less than litigation and everything that occurs remains confidential. 

A mediator will guide you through the process and encourage you both to find a solution which suits both your needs. The only drawback is if you do not come to an agreement, the dispute will remain unresolved and the cost of mediation will have been wasted.  The cost of the mediator is usually shared by both parties.

The outcome of a successful mediation is a written and binding agreement signed by both parties.

Mediation is the preferred way to deal with construction disputes as it is quick and inexpensive.

4.     Adjudication

Adjudication is a process in which a mutually agreeable arbitrator (or one appointed by the Adjudicator Nominating Body when you cannot agree) will give a decision on your dispute. This is often referred to as a “pay now, argue later” way to resolve disputes when you are both in an on-going contract.

Adjudication is a relatively quick process (usually taking 28 days) which is considerably less expensive than litigation.  It is most appropriate for resolving claims related to:

·     Interim payments.

·     Delay and disruption of works.

·     Extensions of time for completion of the works.

·     The final account

It can also relate to breach and termination of a contract and professional negligence.

The cost of the adjudicator is split between the two parties as determined by their agreement when entering adjudication.  The process is triggered by one party serving Notice of Adjudication.

An adjudicator’s powers are limited and their decision can be arbitrated or litigated if not accepted.

5.     Arbitration

Arbitration is similar to litigation in that an arbitrator resolves your dispute in the same way a judge would, i.e. on the basis of material facts, documents and relevant principles of law.

Arbitration is often cheaper and quicker than litigation.  You and the other party agree on an impartial arbitrator and split the costs.  This route is much more flexible than court proceedings.  However, both parties must agree to arbitration.

An arbitrator has limited powers of compulsion if one party fails to comply with the directions set and there are only limited grounds to appeal their decision. An arbitrator has the power to order costs and the details of your case remain confidential.

6.     Litigation

Litigation usually takes place in the County Court.  Claims which are over the value of £250,000 are heard in The Technology and Construction Court (TCC); a specialist court which deals with technology and construction disputes.

The main advantages of litigation are that the claim process is managed by a judge throughout and the decision is binding and enforceable.

However, it is often a slow process and is the most expensive way to resolve a dispute.  In addition, the proceedings will be public and you may want to avoid this.

Else Solicitors can help you to choose the most appropriate option and achieve the best result.  Our dispute resolution department has an established mediation team with a well-earned reputation for quickly resolving disputes. Chris Else was one of the first people in the UK to gain accreditation as an online mediator. 

The team also contains several experienced and expert litigators who are very familiar with the construction industry.

We can also help you with arbitration and adjudication and find an expert for expert determination, if required. 

Why Else?

Else is a modern, dynamic and forward thinking legal practice who offer the expertise you expect from a large, traditional law firm. 

You will discover that we are different to other legal firms.  We will help you sort out your dispute quickly and then look at other ways that we can add value to your company.  This could include introducing you to new customers or suppliers in our extensive network or offering you some new insight into your market or your business.

Else Solicitors has an enviable reputation for always going the extra mile and offering a personal, jargon free service.  Your business is not only in trusted legal hands but will also benefit from our extensive business knowledge, experience and contacts. 

If you or your company would like some legal support in either drafting a solid contract or with a construction dispute with a subcontractor , then we invite you to contact Andrew Hickman, Partner and Head of Construction at Else Solicitors on 0121 393 1724 or e-mail him at andrew.hickman@elselaw.co.uk.

Experience the Else difference today!

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