Fears grow over Covid contract disputes as attitudes harden

Aaron Morby 11 months ago
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Construction leaders fear the industry could be heading for a big rise in contract disputes as signs emerge of hardening attitudes against claims for financial loss.

The Construction Leadership Council said that while the industry had worked together last year to get sites up and working, a survey has revealed the mood is changing.

Now there was real concern that as impacted projects begin to complete businesses will become embroiled in costly and long-running disputes over the effects of Covid-19 on projects.

It also warned that the indications were that 2021 may bring the ‘perfect storm’ of Brexit; reduced construction activity; the end of government business support schemes; introduction of reverse charge VAT and a significant increase in the number of claims across the supply chain.

The CLC surveyed was carried out among a range of leading industry professionals in the field of construction claims and disputes.

This revealed there had been an increase in the number of Covid-19 related construction claims being rejected.

Initial indications found that while parties were inclined to settle an entitlement to additional time for completion, there was reluctance to agree financial losses, costs and expenses.

Those responding said that high rise projects and finishing and commissioning trades would face the greatest contractual difficulties.

The survey uncovered anecdotal evidence of commercial behaviour hardening throughout the supply chain, including greater emphasis on management of existing contracts, increased tender lists and sub-economic pricing, increasing insolvencies and robust protective discussions on risk allocation in new contracts.

The CLC warned that without proper fair and reasonable administration of construction contracts, Covid-19 could have a significant and detrimental effect on the industry.

“The CLC asks that industry works together to support the long-term health of our sector by constructively resolving all contractual disputes arising from the pandemic,” said a spokesman.

Legal experts at Fenwick Elliott confirmed clients and contractors were taking a harder line on claims.

Senior Partner Simon Tolson said: “Many of those projects are now at or nearing practical completion.

“Numerous contractors and subbies are telling me there are now even harder chins out there. I strongly believe this reflects employers and main contractors protecting their margins amid fears of how 2021 may pan out.

“Brexit is in that mix too, so all that pent up caution breeds disputes as cashflow is not going in the right direction.

“I suspect that because the industry is seen as doing well picking itself off the floor since last April many feel the claims made are exaggerated.

“But with 15 to 20% drops in productivity, it’s a bit like the reality of ‘excess deaths’. Its very real, and claims are seen as only way out.

“I have seen from last spring to the end of 2020 many Covid Extension of Time and Loss & Expenses claims ‘parked’ until final account. A few have settled on a haggle but not many.

“Suicide bidding is also back in fashion as I am seeing bad contracts taken up that should have been declined so more blood on the carpet is likely.

“I think the CLC and Build UK have done a great job to encourage dialogue to avoid disputes but jaw jaw sometimes only goes so far.”

 

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