Severe worldwide “economic hardship” is contributing to a sharp rise in construction disputes — and new trends in conflict resolution are changing the way key players handle problems.
While a good portion of these issues are popping up in countries like Singapore and South Africa, contractors in the United States are not immune to issues caused by economic turbulence.
Pisent Masons’ report cites an uptick in force majeure claims and termination possibly due to inflation, war, and other global crises.
Neal Morris, Pinsent Masons’ Head of Construction Advisory & Disputes, breaks down the specifics of these foreign dilemmas, stating that “the rise in prices of materials, labor and energy costs for construction projects” is the main concern right now.
Morris reports the construction industries in China, Singapore, Japan, South Africa, and the United Kingdom are experiencing the most hardship right now, noting that “the global outlook for construction provides the conditions that will lead to a rise in disputes.”
While many of these issues are emerging elsewhere, the United States is also vulnerable to issues caused by economic turbulence. It, too, is experiencing disasters like inflation-related material price spikes and weather tragedies which have had devastating effects on America’s construction market.
Problems like the United States’ dwindling concrete supply and crisis-level diesel shortage have led to project delays and customer dissatisfaction, and the massive effects of Hurricane Ian have taken their toll on the southeast’s already unsteady insurance market.
The worldwide construction industry’s uptick in disputes has led to new and alternative resolution methods
The seven common methods of construction dispute resolution have typically consisted of traditional mediation, negotiation, arbitration, adjudication, small claims courts, litigation, and expert determination, according to Levelset’s Tom Scalisi.
“Each project is unique,” Scalisi says, “and the circumstances leading up to potential disputes are usually one-of-a-kind. But, when those situations boil down, they generally come down to a few common root causes.”
In their recent report, Pinsent Masons broke down some of the other conflict resolution methods that are being utilized more and more in the midst of today’s economic challenges.
“Across our global network of 18 offices, we are increasingly seeing construction disputes being resolved through a variety of ‘fast track’ alternative dispute resolution (ADR) procedures,” the company noted.
“We are also seeing a big increase in dispute resolution boards (DBRs) to try to resolve disputes early.”
Additionally, the report states that “[the] use of expedited proceedings and conservatory/interim measures is becoming much more common — such as for example ‘emergency arbitrators’ in relation to performance bonds.”
Alternative dispute resolution procedures have been increasingly popular due to the COVID-19 pandemic, as they can be moved online if necessary.
The term refers to any method of dispute resolution that happens non-traditionally (not in court). A dispute resolution board, according to Pinsent Masons, is “a contractual form of dispute resolution procedure” consisting of “one or three members, whose powers to resolve disputes are set out in the contract or relevant dispute board rules.”
Learn more: What is a Dispute Resolution Board (DRB)?
Keeping up with evolving resolution methods could benefit industry professionals
As the global construction industry faces new struggles and financial difficulties, contractors should have an understanding of the variety of processes used in problem-solving.
For example, Neal Morris expects the economy to feel the heat from “practical decarbonization steps,” potentially “creating additional pressures on delivery in an already challenging environment” and causing disputes.
Construction disputes can be costly, and navigating legal trouble is tricky. It may be beneficial for contractors to be prepared to tackle conflict in alternative and advanced ways, as imminent “global economic turbulence” makes its impact.