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Arbitrating Construction and Engineering Disputes

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by Martin Burns RICS, Head of ADR Research and Development

 

The 1st of May 1998 marked the low point in the UK construction and engineering arbitration sector. It was the day the Housing Grants, Construction
and Regeneration Act 1996 came into force, and adjudication started on its inexorable rise to become the pre-eminent method to determining contract disputes.

In the years that followed, the number of arbitrations fell off a cliff while adjudication flourished. In 1995, RICS appointed around 400 construction arbitrators; in 1998, only about 40 arbitrators were appointed, compared to 23 adjudicators. Last year, 10 arbitrators were appointed by RICS compared to nearly 900 adjudicators.

The decline in the popularity of arbitration actually began long before adjudication came on the scene. Even in the 1980s the process of arbitrating disputes had become inordinately slow and immensely expensive. Parties, particularly those that were involved in low-value disputes about relatively unsophisticated issues, had become disenfranchised from arbitration.

Sir Michael Latham’s 1994 report ‘Constructing the Team’, described the construction and engineering sectors as so rife with disputes, and so lacking in effective methods to resolve them, that any new process would have been welcome.

Along came adjudication and also, significant improvements in litigation procedures developed through the Technology and Construction Court (TCC). By early 2000s relatively straight-forward disputes could be dealt with in a matter of weeks through adjudication, and more complicated and high-value disputes, which require a greater examination of facts and law, were being dealt with by a highly effective court and specialist judges who were conversant with construction and engineering matters.

But ever changing demands by users have seen an emerging appetite for arbitration once again. The costs of going to court have increased phenomenally in recent times and the Jackson Reforms have given rise to a desire for less onerous cost regimes. Adjudication is not seen as an alternative to the TCC because it is so quick and timetable dependent to the extent that complex and intricate disputes have no proper or thorough investigation. It seems that there is space
between adjudication and the TCC that could once again be filled by arbitration.

It would be fatuous to suggest that the arbitration process, which had become loathed in the 1990s, would once again be acceptable to the industry without undergoing some sort of innovation and re-engineering.

It’s fair to say that a new approach to arbitration in the UK is long overdue. Growing criticism of the use for adjudication for large and complex disputes by parties who naturally wish to avoid the increased costs and formalities of litigation certainly justifies looking at a different approach to arbitration. What is needed
is not just an arbitration system that is better, but one that is entirely different. In other words, the reintroduction of arbitration is not just a matter of doing old
tried and untrusted things better, but actually doing things materially differently, by creating an arbitration procedure and a panel of quality arbitrators that
genuinely breaks new ground.

The results of an online survey of lawyers and claims consultants conducted by RICS, and discussions held with a number of legal advisors to parties in disputes,
suggests that while costs and the length of time it takes to get resolution remain key issues for parties when deciding on a method to get their disputes resolved,
there is nevertheless a growing demand for more comprehensive deliberation of issues.

The highly technical nature of construction and engineering disputes, and the demands for commercially- focused outcomes, means parties are increasingly keen to refer to decision-makers who have genuine technical expertise and subject-matter knowledge obtained over many years. There is little doubt that arbitration is making a comeback in construction and engineering and that the market wants construction and engineering professionals to resolve their disputes.

Parties want arbitration services which not only give access to high quality arbitrators drawn from the surveying, engineering and legal professions, but they also demand high-quality customer service standards which target parties’ expectations in terms of quality, standards and overall client experience. A modern arbitration service needs to be structured to address the concerns of previous years. Arbitrators should be supervised to ensure they use the powers given to them under the Arbitration Act 1996 to robustly manage costs.

The arbitral process should be (and be seen to be) faster and cheaper than the courts, and at the same time arbitration must be better than adjudication by allowing a detailed examination of the issues. Arbitration should routinely result in decisions that are commercially sensible and better value than judgments by the courts.

Underpinning a new arbitration regime for construction and engineering sectors, should be a panel of high quality arbitrators representing a variety of professions, all of who should be independently trained and assessed to ensured they are up-to-date with relevant law and practice and able to discharge the role of arbitrator sensibly and without delay.

Martin Burns - December 2015