In a world of collaborative working arrangements, one could question why the construction industry is currently spending millions on resolving disputes. Especially considering various recommendations followed on from the Latham and Egan report, of which the industry as a whole welcomed. What changed and where do we find ourselves now?
If we take one form of contract the NEC which is widely used and indeed it’s desire to prevent claims from ever arising was at the heart of Latham’s report. The NEC clearly states the various option clauses are designed so that they only add to the core clauses rather than alter or delete them. However, as an industry we more often than not find ourselves with a heavily amended contract. Such amendments often result in core clauses being deleted in part or in their entirety or amended to suit the party who has written the contract. At times the amendments are not written in the language or context of the NEC and are often of legal speech, or the speech of whoever has compiled them. The difficulty with this is the NEC was designed to not be complex in language, yet as an industry we find ourselves reading a contract that in part is relatively easy to follow and in other parts is difficult to legally follow due to the dialogue used or an absolute minefield as it has been written neither in legal or non-complex dialogue but by the person who has written the amendment. We find ourselves trying to enter somebody else’s headspace just to understand what it is we have or are about to sign up to. This in itself can often cause ambiguity or tensions as the contract is unfolding all of which lead to one thing, a potential dispute.
Collaborative working and disputes, how do they go hand in hand? The aforementioned contract is meant to encourage collaborative working and has a dispute resolution mechanism within it to deal with any potential dispute as timely, amicably and as fairly as possible. In most instances the mechanism is adjudication. However, we are finding as an industry this in itself is causing issues. How do we find ourselves in adjudication if we are working so collaboratively? When one party refers to the adjudication clause it is received with such distaste and underlying threats of loss, expense, reputation and future work, that the option is mostly dismissed out of fear before it is ever really explored. In this instance collaborative working arrangements seem to have been dismissed almost as much as the clause options. However, that leads to another question, were we ever working collaboratively in the first place? Take a contract that has a client, a main contractor and a sub-contractor. How often do those three parties ever get together to resolve issues or even value engineer a project? Most of the time the supply chain never has contact with the ultimate client. How can this client ever understand or appreciate the issue that the supply chain faces in relation to disputes and more importantly cashflow?
Cashflow, everyone will have at one point heard or stated cash is king. Yet at present the industry is facing an absolute epidemic of either late or under certified payments, or in most cases the most devastating of all, both. The timescales with the NEC and supposed to give certainty, not cause delay and resolve issues immediately when they arise. However, due to contract amendments we now find that the timescales are lengthy and more often than not there is a feeling that the party who writes the contract uses this to their advantage. Already distaste is bubbling, such distaste will only ever overflow with the reality of lengthened timescales, excessive payment terms and the constant request for substantiation. Substantiation, which is also not in line with the ethos of the NEC, as it was only ever meant to be a forecast or a split as per clause xxxx. In reality before we know it the supply chain finds itself in a dwindling cashflow position. Before you know it, the parties are on the road to a break down of relationships and dispute.
So here we are a supply chain that has cashflow issues and numerous unagreed and unpaid compensation events. Where do we go from here? The answer could be adjudication. However, we have already stated that the mere mention of this is unpalatable. In such circumstances the parties will often come to an arrangement. Are we now firmly on the road to collaborative working? You may think so but the problem we face is the arrangement is not as per the mechanisms of the NEC. It is feared that the supply chain faces a no-win situation, of accounts being talked down regardless of the main client making or losing money. The industry at present faces a situation of never making any real money from Compensation Events, at best they will get cost and only if they can truly prove it. Which means months of retrieving records and trying to convince the client of the true extent of the cost, which is money already spent. Wouldn’t this time be better spent collaboratively working together and value engineering a job for the benefit of the supply chain and everybody’s bottom line.
The supply chain is at present lost in a minefield of poorly written contracts and a further minefield of dispute resolution clause and options of which they potentially don’t understand in their entirety. More often than not the supply chain does not have the resources or time to fully understand their options and propose a solution that is swift and ultimately alleviates cashflow. So, what exactly are the options?
About the author
Lisa Molloy MRICS, MCICES is Commercial Director at Molloy Construction Services. with experience of working for the Client, Contractor and Sub-Contractor, with joint venture experience in Civil Engineering, Rail, Renewable Energy, Energy and Power and Oil and Gas sector. She is competent in Contract Administration and Management, Cost Control, and Delay Analysis.
For more details contact Lisa lisa.molloy@live.co.uk or through LinkedIn https://www.linkedin.com/in/lisa-molloy-mrics-mcinstces-0074501a/