Dispute Avoidance - Communication, Contracts & BIM

The construction industry involves long-term transactions with a high degree of complexity. As a result, there are frequent disputes, claims and court proceedings. According to a report* by Arcadis in 2016 the cost of claims in the UK alone was $26m.

With uncertainty reigning in markets around the world and construction projects more complicated than ever before, construction disputes are a major risk and can have far reaching consequences. According to the Arcadis’ report, the most common cause of dispute is failure to properly administer the contract.

The report states that professionals continue to underestimate the importance of payment terms within construction contracts and the financial consequences of failing to abide by them.

The case of Grove Developments Ltd vs Balfour Beatty [2016] EWHC 168 (TCC) highlights what happens when there’s no provision in the contract for procedures in payment schedules if the project overruns.

This was an appeal by Balfour Beatty, against an earlier Technology and Construction Court (TCC) decision which ruled that it had no entitlement to interim payments after the contractual date for practical completion. Grove was a property developer which had employed Balfour Beatty to design and build a hotel and serviced apartments at Greenwich Peninsular in South East London. The contract was the JCT standard form Design and Build Contract, 2011 edition, with a series of amendments.

The schedule provided for 23 interim payments up to the contractually agreed date for practical completion. Interim payments were made in accordance with the timetable in the schedule up to July 2015. However, by May 2015 it was apparent that the project was going to overrun substantially and the parties were unable to agree upon a mechanism for interim payments after July 2015.  Balfour Beatty continued to issue interim applications and in August 2015 issued Interim Application 24 (“IA 24”), claiming £23,166,425.92. Consequently the employer, Grove issued proceedings in the TCC seeking a declaration that Balfour Beatty had no entitlement to interim payments after July 2015. The judge agreed with Grove’s argument and Balfour Beatty appealed.

For the majority of small to medium sized businesses, with more limited cash reserves, losing the right to interim payments would be disastrous.  Part of Vitruvius’ role as project and construction manager of a project is to prepare the JCT contract for the works, negotiate the contract sum with the contractor and provide monthly valuations and payment recommendations to the client to ensure a situation such as Balfour Beatty vs Grove doesn’t happen.

According to 68% of the 981 clients, contractors and consultants that took part in The 2015 National Construction Contracts and Law Survey, employer variation is the most common factor of delay with disputes most frequently occurring between the client and the main contractor. The value of disputes highlighted in this survey too is far from trivial. More than half of the disputes had a value greater than a quarter of a million pounds.

Well-formed contracts have to be the first port of call for avoiding a dispute. The introduction of Building Information Modelling (BIM) is the second.  In 2016 it became mandatory for BIM Level 2 to be used on all public sector projects, providing a powerful incentive to firms to invest in BIM capability if they wanted to remain eligible to compete for future government contracts. This has already resulted in 20% savings in government construction costs and the UK is now a world leader in BIM technology.  The government has now developed the next digital standard, BIM 3, to save owners of built assets billions of pounds a year in unnecessary costs.

The use of BIM brings together data from several places and logs it in the same place. The data may come from Architects, Engineers, Surveyors and Planners, but it will all have been coordinated, checked, organised and integrated before being included in the model itself. The subsequent ‘architectural’ plans, ‘engineering’ layouts, schematics, elevations, schedules and room data sheets will all be extracted from the model, but crucially use the same base data. It follows that the absence of conflict in the information given to the Contractors means there should be no problems to resolve during construction.

“It’s all about communication,” says Mark Price, MD of Vitruvius Management Services.  Vitruvius is a project and construction management company for a wide range of public and private projects.  “The development of sound contracts and the use of BIM on any project ensures everyone is kept informed and understands the parameters they are working to.  Of course, it’s not utopia, but creating an environment where the right information is available at the right time can make a huge difference in preventing disputes.”

Hear how Vitruvius has helped one client with contract management.

 

Information for this blog has been taken from:

* Arcadis’ ‘Global Construction Disputes Report 2016: Don’t Get Left Behind’,

https://www.thenbs.com/knowledge/national-construction-contracts-and-law-survey-2015

http://www.wfw.com/wp-content/uploads/2016/10/WFW-Briefing-Balfour-Beatty-v-Grove-October-2016.pdf