Sector - Finance & Legislation
Navigating Delay and Disruption
Against a backdrop of continued uncertainty due to the ongoing impact of the coronavirus pandemic, and as the UK continues its journey as the first ever nation to exit the European Union, collaboration will continue to be key as the construction industry prepares itself for months of delay and disruption – with an expected rise in disputes being the most imminent threat, according to construction law specialists at Womble Bond Dickinson (WBD).
Simon Rowland, partner and head of Construction at WBD, says there are huge opportunities for construction in 2021, but that mitigating the effects of considerable delay and disruption has to be top of the agenda.
He says a positive outcome is possible if construction firms follow best-practice advice, and are prepared to adopt a more collaborative way of working.
“The Government is going to be heavily relying on construction to revive the economy, which means there will be huge opportunities for our sector. But to make the most of those opportunities, we have to make sure the sector is geared up to mitigate delay and disruption as much as possible,” he said.
“We’ve never used the words delay and disruption as much as we have in the past year, and we’re far from out of the woods yet. There are significant threats to the stability of the sector on the horizon.
“Despite that, we see 2021 as an opportunity to reset and rebuild – with the right guidance, and by taking the right action now, UK construction can prosper.”
The warning comes as WBD launches its re:build Britain campaign aimed at helping the UK construction industry to thrive over the next 12 months by avoiding common pitfalls and making the most of growth opportunities.
One of the most prominent imminent pitfalls, says Simon Lewis, construction and engineering partner at WBD, is for the potential for disputes to arise off the back of the turbulence of 2020.
This, he says, could be ‘imminently disruptive’, with a ‘groundswell of disputes’ on the horizon.
He said: “If the brewing storms aren’t ironed out smoothly and efficiently, companies risk reverting to the ‘bad old days’ of the early 80s and the entire sector could stagnate.
“We are already seeing a rise in contractual disagreements based on a number of factors, and we would urge all parties involved in disputes to be as well-prepared as possible to reduce the impact on the industry.
“Almost all disputes boil down to time and/or money, and both of these have been at a premium in the past 12 months. Employers want their job on time and to pay the price they agreed. So, the pressure really builds when there are delays and projects not finished on time, that’s when we start to see disputes unfolding.
“Meanwhile, contractors have been operating under immense strain in terms of their profit margins, some of them running on 2 and 3 per cent, or less. So, it doesn’t take much for a project to go wrong and for them to start losing money. For example, a delay lasting a few weeks or a cost increase results in the job becoming a loss.
“We really can’t afford to see another top-tier contractor go down because the gene pool is getting smaller and smaller and there are only a certain number of contractors that can carry out the really big projects, because they have the supply chain to do it. It would be to everyone’s detriment if one did.”
What should construction companies be doing?
Lewis said: “There are actions that businesses on both sides can take to prepare and protect themselves. My advice is to be pristine about your contract administration. It needs to be squeaky clean and watertight. Financials and timesheets should all be in order
“While disputes might not be avoidable because the construction industry is particularly at risk of financial problems this year, they can be processed and dealt with far more efficiently if the paperwork is present and correct.
“Most construction projects have long lifespans and therefore it is possible that problems surface at the end of a project causing unintended consequences as companies finalise their accounting. That’s when we will see the disputes arising, but if all the paperwork is in order, companies might consider mitigation instead.
“It’s important to remember that smaller contractors and suppliers are much more sensitive to the costs of formal litigation, particularly at a time when cashflow is ever more paramount.
“Ultimately, it’s vital for the construction sector to reset, rebuild and adopt a more collaborative way of working.”
Ranking in the UK’s top 20 law firms, WBD provides legal expertise across a range of sectors including real estate, financial institutions, insurance, public & government services, energy & natural resources, healthcare, manufacturing, retail & consumer, transport, logistics & infrastructure, private client, pharmaceuticals, biotechnology & life sciences and technology.
WBD’s construction and engineering team advises public and private sector clients across a wide range of projects from inception to completion, through to the operational lifecycle of an asset, including front-end contract strategy, project documentation, procurement, regulatory matters and risk management. The team is highly ranked in UK legal directories, with many of the firm’s partners ranked as leading lawyers and clients praising WBD for its technical knowledge and commercial acumen.
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