Contractual disputes loom for 1 in 4
The latest Construction News survey has found that contractual disputes are likely to become widespread as the coronavirus crisis continues to blight the industry.
About a quarter (24 per cent) of respondents to the survey said the COVID-19 problem is likely to lead to a contractual dispute or has already done so.
Alarmingly, 1 in 25 respondents (4 per cent) said legal action or another dispute process has already begun.
As one respondent to the survey put it: “[We] need clarity around the contractual position otherwise lawyers are going to make millions prosecuting/defending claims on contracts.”
While these figures suggest that the industry will be affected by a very large number of disputes over the coming months, many in the sector may be surprised that the number is not considerably higher. Almost half of respondents (49 per cent) said they currently have no contractual concerns, suggesting that a relatively high proportion of firms are adopting an understanding and flexible approach to contractual commitments in the crisis.
On 7 May, the Cabinet Office issued guidance asking for that outcome, stating that all “parties to contracts should act responsibly and fairly, support the response to COVID-19 and protect jobs and the economy”. The government guidance continues: “Responsible and fair behaviour in contracts now – in particular in dealing with potential disputes – will result in better long-term outcomes for jobs and our economy. In complex contracting arrangements, this should apply throughout the contracting chain. It will in the long term protect businesses, supply chains and opportunities in the economy. Bad behaviour will be bad for jobs and will impair our economic recovery.” Whether anyone will heed this non-binding advice remains to be seen. Seamus O’Doherty, director of the construction practice and a specialist in contract and claim analysis at consultancy Berkeley Research Group, described the government statement as “essentially toothless” because “the document states the guidance does not override, broadly speaking, the existing contractual relationship”. As a result, O’Doherty said, “it does not change anything and parties will be left to decide what to do on a case-by-case basis, although it is possible that it may have some impact with public sector employers who may find it more persuasive than the private sector.” For many, the pursuit of compensation through a lawsuit or other dispute process may be less about indulging in so-called “bad behaviour” and more about simple survival. “The industry will be very cash poor [as we exit the crisis], leading to disputes, payment issues and the collapse of various contractors, subcontractors and suppliers,” one survey respondent predicted. “Our industry was poor before we went into this.”