The Week That Was - 17 December 2021

Welcome to The Week That Was, a round-up of key events in the construction sector over the last seven days.

The report tells how skills shortages, supply chain disruption, cost inflation, increased market volatility, and the climate crisis are impinging on projects and increasing the potential for conflict in the claims and disputes environment.  The report also provides a regional overview, looking at the biggest challenge in each region and the practical measures being utilised to overcome them.

Key statistics taken from the report include:

• 1,401 projects analysed
• $2 trillion – combined capital expenditure 
• $73 billion – total value of claims 
• $100 million – the average disputed costs per project
• 46.3% – the value of claims as a proportion of planned cost
• 17 months – the average time extension claimed
• 71.4% – the typical prolongation for programmes
• 750 years – the cumulative overruns faced by all projects

A copy of the report can be accessed here.   

Arcadis warns that rising energy costs will push up material costs

Current price increases are caused by raw material shortages and supply chain issues. Rising energy prices will start a second wave of construction material price increases. The energy intensive nature of bricks, glass and cement production will make them particularly vulnerable to price increases.

Certain sectors will be more susceptible to price rises than others. For instance, private residential or industrial warehousing will continue to boom, but more price sensitive markets, such as rental and affordable housing, could see a slowdown in the market as a result. 

Rising energy prices will also affect on-site operating costs. In April, the red diesel rebate will be removed, but there are measures contractors can take to mitigate rising energy costs. In the short term, cutting engine idle time and the stand-by time for equipment will reduce energy consumption, while simultaneously reducing carbon emissions. Switching to electrical and hydrogen equipment will also help assist to reduce energy consumption and emissions in the long-term.

Pressure on costs may start to ease in the latter part of 2022, but contract inflation will remain a defining feature of the market. 
For further information, please click here. 

Adjudicator's decision upheld as parties held to be parties under a construction contract

It is well-established that an adjudicator will lack jurisdiction if the parties are not parties to a construction contract, which clearly includes when there is no contract between them.

In Changing Climates Limited v Warmaway Limited, the parties and a third party (Dynamic Networks Ltd) had successfully bid as a consortium for the mechanical and engineering works on a project with Broadley Ltd.  No consortium or joint venture agreement was entered into. Instead, Broadley placed the sub-contract order with the defendant (which it executed as a deed) and the three "consortium" parties reached an agreement as to how payments would be distributed.

Near the end of the project, Broadley went into liquidation, leaving some £223,000 due from the defendant to the claimant.  This dispute was referred to adjudication and the adjudicator awarded the claimant the sum claimed. The defendant challenged the adjudicator's jurisdiction, arguing that there was no contract between them and maintained that challenge throughout, including in the enforcement proceedings that followed.

After a detailed review of the facts, the Judge (HHJ Sarah Watson) concluded that all the parties understood that Broadley had placed the order with the defendant and the contract was between them. Broadley and the defendant adopted a traditional payment process, entirely consistent with a contractor-sub-contractor relationship.  The parties also acted on that basis, with the claimant carrying out its work and the defendant making payment, as agreed.  There were no direct dealings between Broadley and the claimant.

The claimant's work was sub-contracted to the defendant.  The Judge rejected the defendant's argument that it had acted as an agent.  She also rejected the argument that there was an estoppel by convention that prevented the claimant relying on any contract between it and the defendant because a consortium had been formed.  Finally, she rejected the defendant's breach of natural justice challenge.  There was no evidence that the adjudicator misdirected himself as to where the burden of proof lay (with the claimant). 

A copy of the judgment can be found here.

The Law Society publishes response to government's call for evidence 

The Law Society recently published its response to the Ministry of Justice's (MoJ) Dispute resolution in England and Wales: call for evidence, which sought feedback on how disputes in the civil, family and administrative jurisdictions might best be settled away from the court room, and the Civil Justice Council's (CJC) report titled Compulsory ADR (June 2021), which concluded that compulsory alternative dispute resolution (ADR) was compatible with Article 6 of the European Convention on Human Rights, and was, therefore, lawful.

Key points to note include that the Law Society:

• Encourages the use of non-litigation dispute resolution in all cases unless the urgency or seriousness of the case makes it impractical.  ADR is considered appropriate, where it will promote access to justice and is in the interests of both parties and has an important role to play in helping parties seek resolution in a quick and affordable way.  However, there will be certain categories of cases or litigants for which ADR will be inappropriate.
• Urges caution in response to the CJC's conclusion that compulsory ADR is lawful as it has not seen any detailed analysis of the law to support the conclusion. 
• Considers that it is important that parties have the option of seeking resolution of a dispute through the courts, as a remedy of last resort.  The court system should be accessible, affordable and available in a timely manner. 
• Suggests that any proposed changes to ADR be underpinned by robust data analysis, including an official record of cases settled by solicitors pre-proceedings.  Anecdotal evidence from the Law Society's members suggested that "the majority of cases are concluded without proceedings being issued".
• Recommends that before implementing any form of compulsory ADR, the UK government should conduct a carefully considered pilot, with clear and measurable outcomes.  The position of litigants in person should also be thoroughly considered.

The Law Society's response can be accessed here.  

Huge Step Forward for Diversity 

The #makeitstick campaign announced this week that it will be joined by Mace Dragados, the first construction joint venture of the HS2 project.  Those involved will adorn their hard hats with a sticker to indicate they have been trained in Mental Health First Aid, Mental Health Awareness, Fairness, Inclusion & Respect or LGBTQ+ Allyship.

The groups COO stated the aim is to open conversations on sites and across the industry.  This simple initiative gives a clear visual indicator reminding staff of the importance of valuing and respecting each other, encourages discussion on historically difficult topics and, if anyone is in need of help, points them to colleagues who have been trained to listen and support.

For further information, please click here. 

Adjudicator's decision severed due to breach of rules of natural justice

In CC Construction Ltd V Minicione, Eyre J has severed an adjudicator's decision because of a material breach of the rules of natural justice. At first hearing, the adjudicator was found to have materially breached the rules of natural justice by failing to consider the defendant's liquidated damages defence. 

At the time, the judge suggested he could sever the decision and enforce the balance after deducting the LDs claim. During the hearing the judge did so resulting in a payment of £136,000, rather than £500,000 the adjudicator originally awarded. 

The judge relied on the approach to severance discussed in Downs Road Development v Laxmanbhai Construction. He rejected the argument that there is a distinction between single core and multiple core disputes made by the defendant, he acknowledged that there might be cases in which the issues intertwine making severance impossible. 

It was further suggested that the case law surrounding and including Cleveland Bridge v Whessoe-Volker and Quartzelec v Honeywell should be viewed 'in the light of the movement of authorities since the dates of those judgement' as severance is a fast-moving area of law. The costs of both hearing were dealt with on an omnibus basis. The claimant's costs were reduced by 30% to reflect the defendant's success in reducing the adjudicator's decision by the amount of the LDs claim.

A copy of the judgment can be found here. 

This is the last edition of The Week That Was for 2021. We hope you all have a very happy holiday and a peaceful and prosperous 2022.

Thank you to Charlie Underwood, Lowri Evans and Georgina Taylor for contributing to this weeks edition.