Cost Management – Dispute Avoidance and Resolution
Post 5 of the Built Environment Series | For Quantity Surveyors, Project Managers, Construction Professionals & Students
Construction is one of the most dispute-prone industries in the world. The reasons are structural: projects involve multiple parties with divergent interests, working under time pressure, with incomplete information, on contracts that allocate risk in ways that are not always well understood until something goes wrong. The sums of money are large, the relationships are complex, and the consequences of getting things wrong — financially, legally, and reputationally — can be severe.
Yet disputes are not inevitable. The construction industry has developed a mature toolkit of mechanisms — contractual, procedural, and behavioural — for preventing disputes from arising and resolving them quickly when they do. Understanding this toolkit is an essential competence for any QS, project manager, or construction professional.
Why Disputes Arise
Before considering how to resolve disputes, it is worth understanding how they arise. The most common causes in construction are well established.
Poorly drafted contracts. Ambiguous contract terms, undefined scope, and unclear risk allocation are fertile ground for disagreement. If the contract does not clearly state who is responsible for a particular risk, both parties will claim the other should bear it.
Incomplete or late design information. Contractors who cannot build because drawings are not issued on time suffer real costs. If the contract does not provide a clear mechanism for recovering those costs, a dispute is almost inevitable.
Scope changes without agreed valuations. When variations are instructed without agreed prices, and the gap between the parties’ assessments is allowed to widen over months, what starts as a commercial disagreement can calcify into an entrenched dispute.
Unrealistic programmes and budgets. A contract entered into on the basis of an unrealistic programme or an inadequate budget is a dispute waiting to happen. The contractor will be under pressure to recover their costs; the employer will resist paying more than the contract sum. The result is claims, counterclaims, and eventually formal proceedings.
Communication breakdown. Many disputes that end in adjudication or arbitration could have been resolved at site level if the project team had been communicating effectively. When relationships break down — often under the pressure of programme and cost problems — grievances accumulate and positions harden.
Failure to follow contract procedures. Notices, time bars, and prescribed procedures exist for a reason. A contractor who fails to give a required notice within the specified time may lose their entitlement to additional payment, regardless of the merits of their claim. Conversely, an employer who fails to issue a Pay Less Notice in time may be obliged to pay the sum applied for in full. Procedural failures are one of the most avoidable causes of commercial loss.
Dispute Avoidance: Prevention Is Better Than Cure
The most cost-effective approach to dispute management is to prevent disputes from arising. This requires deliberate effort at every stage of the project.
Clear and Balanced Contracts
A contract that allocates risk fairly — to the party best placed to manage it — reduces the commercial pressure that drives disputes. A contract that attempts to pass all risk to the contractor, regardless of whether the contractor can manage or price that risk, creates a situation where the contractor is under-pricing at tender and seeking to recover their costs through claims during the works.
Similarly, contracts should be drafted with sufficient clarity that the parties know what they have agreed. Bespoke amendments to standard forms should be reviewed carefully by experienced legal and commercial advisers — poorly drafted amendments are a common source of ambiguity.
Early Warning Systems
Under NEC4, the Early Warning mechanism is a contractual obligation: any party who becomes aware of a matter that could affect cost, time, quality, or the employer’s objectives must notify the other party as soon as they become aware of it. Failure to give an early warning that a reasonable contractor would have given can result in a reduction of the contractor’s entitlement to additional time or money.
Even under JCT contracts, which do not have a formal early warning mechanism, best practice is to surface problems as soon as they are identified — through design team meetings, site progress meetings, or direct communication between the commercial teams. An issue identified and discussed early, when both parties are still relatively cooperative, is infinitely easier to resolve than one that has been allowed to fester.
Regular Commercial Meetings
A regular commercial meeting between the employer’s QS and the contractor’s quantity surveyor — separate from the site progress meeting — creates a forum for discussing financial issues before they become disputes. Agreement on variation values, interim valuation assessments, and extension of time entitlements can often be reached informally in this setting, without the need for formal correspondence or legal involvement.
Contemporaneous Records
Good record-keeping does not prevent disputes, but it dramatically changes the dynamics when one arises. A contractor who can produce daily site diaries, labour allocation records, plant logs, and photographic evidence is in a fundamentally stronger position than one who is trying to reconstruct events from memory months or years later. The same applies to the employer’s team — the CA’s records of instructions given, drawings issued, and approvals granted are essential evidence in any dispute about what was agreed.
Dispute Avoidance Boards
On large infrastructure projects, it is increasingly common to establish a Dispute Avoidance Board (DAB) — a panel of experienced, independent professionals who are appointed at the outset of the project and remain engaged throughout its duration. The DAB visits the project regularly, hears from both parties, and issues recommendations (or decisions, depending on the contract) when disagreements arise. Because the DAB members are familiar with the project from the outset, they can resolve issues quickly and informally — before positions harden into formal disputes.
DABs are a standard feature of FIDIC contracts and are increasingly used on major NEC and bespoke contracts in the UK. The evidence suggests they are highly effective: the vast majority of issues referred to a DAB are resolved without escalation to formal proceedings.
Dispute Resolution Mechanisms
When dispute avoidance fails and a formal resolution process is required, the construction industry has a tiered system of mechanisms, ranging from informal negotiation through to litigation in the courts.
Negotiation
The first step in any dispute resolution process — and the one that resolves the majority of commercial disagreements — is direct negotiation between the parties. Senior management on both sides meet, without lawyers, to discuss the issues and explore a commercial settlement. Negotiation is fast, cheap, confidential, and preserves relationships. It should always be the first resort.
The key to successful negotiation is preparation: a clear understanding of the legal and contractual position, a realistic assessment of the merits of the case, and a willingness to find a mutually acceptable solution rather than to “win” at all costs.
Mediation
Where direct negotiation has failed, or where the parties’ positions are so entrenched that they need a neutral facilitator to bridge the gap, mediation is the next step. A mediator is an independent, neutral third party who helps the parties explore their respective positions and interests, identify common ground, and reach a voluntary settlement.
Mediation is entirely without prejudice — nothing said in mediation can be used in subsequent proceedings. It is confidential, non-binding (the mediator cannot impose a decision), and preserves the parties’ right to pursue formal proceedings if no agreement is reached. Settlement rates in construction mediation are high — typically 70–80% of cases that go to mediation settle on the day or shortly afterwards.
Many modern construction contracts — and the Pre-Action Protocol for Construction and Engineering Disputes — require the parties to consider mediation before commencing formal proceedings.
Adjudication
Adjudication is the defining dispute resolution mechanism of the UK construction industry. Introduced by the Housing Grants, Construction and Regeneration Act 1996, it gives any party to a construction contract the right to refer a dispute to an independent adjudicator at any time, and to receive a decision within 28 days (extendable to 42 days with the referring party’s consent).
The adjudicator’s decision is temporarily binding — meaning it must be complied with immediately, even if the losing party intends to challenge it in arbitration or litigation. The phrase “pay now, argue later” captures the essential character of adjudication. The courts enforce adjudicators’ decisions robustly and will only decline to enforce a decision in very limited circumstances (primarily where there has been a serious breach of natural justice or the adjudicator clearly had no jurisdiction).
Adjudication is fast and relatively inexpensive compared to arbitration or litigation, and it has transformed the resolution of payment disputes in the UK construction industry. The right to adjudicate cannot be contracted out of (for contracts that fall within the Act) and does not depend on the other party’s consent — either party can refer a dispute unilaterally.
From a practical standpoint, the 28-day timetable is extremely demanding. Both parties must be able to present their case — with full supporting evidence — within days of the referral. This places a premium on good contemporaneous records and on having a well-organised claim or response ready to deploy at short notice.
Expert Determination
Expert determination is a process in which a technical or professional expert is appointed to decide a specific disputed matter — typically a technical or valuation question rather than a legal one. Unlike an adjudicator, the expert is appointed for their substantive expertise in the subject matter of the dispute, and their decision is usually final and binding.
Expert determination is used most commonly for disputes about the valuation of specific items — for example, the quantum of a prolongation claim, the value of a disputed variation, or the assessment of delay. It is faster and less formal than arbitration, and the expert’s decision can often be reached within weeks rather than months.
Arbitration
Arbitration is a private, binding dispute resolution process in which an independent arbitrator (or panel of arbitrators) hears the parties’ cases and issues a final, enforceable award. It is governed in the UK by the Arbitration Act 1996 and is the process specified in many construction contracts — particularly JCT — as the final tier of dispute resolution.
Arbitration has several advantages over litigation in the courts: it is private and confidential (unlike court proceedings, which are public); the arbitrator can be chosen for their technical expertise in construction and engineering; awards are internationally enforceable under the New York Convention; and the parties have more control over the procedure and timetable.
The principal disadvantages are cost and time. A full-blown arbitration on a major construction dispute can take years and cost millions of pounds in legal and expert fees. For this reason, arbitration is typically reserved for the largest and most complex disputes, where the quantum justifies the investment and where the parties genuinely cannot reach a negotiated or mediated settlement.
Litigation
Where a contract does not specify arbitration as the final dispute resolution tier, the parties’ ultimate recourse is to the Technology and Construction Court (TCC) — a specialist division of the High Court in England and Wales, staffed by judges with expertise in construction and engineering disputes. The TCC has developed a reputation for high-quality, technically sophisticated judgments and is well regarded internationally.
Litigation shares many of the characteristics of arbitration — it is adversarial, expensive, and slow. However, it has one significant advantage: court judgments establish precedent. Where a dispute raises a novel point of law or contractual interpretation that will affect the industry more broadly, litigation in the TCC may be the appropriate forum.
Claims: Types and Principles
A claim in construction is a formal assertion of entitlement to additional money or time under the contract. Claims are a normal and legitimate part of construction commerce — they arise wherever the contract provides that additional payment or time may be due in specified circumstances.
The principal categories of claim are as follows.
Variation claims arise where additional or changed work has been instructed and the value has not been agreed. The contractor asserts entitlement to a specific sum for the varied work, supported by measured quantities and pricing.
Extension of time (EoT) claims arise where the contractor asserts that the Completion Date should be extended due to employer risk events (relevant events under JCT; compensation events under NEC). The contractor must demonstrate a causal link between the employer risk event and the delay to the programme.
Loss and expense claims (under JCT) / prolongation claims arise where the contractor has incurred additional costs as a result of employer risk events — most commonly, the costs of remaining on site longer than planned (prolongation) or of having their works disrupted and delayed without their programme being extended (disruption). These are among the most complex and contentious claims in construction, because establishing causation and quantum requires detailed programme analysis and cost evidence.
Quantum meruit claims arise where a contractor seeks payment for work done on a reasonable value basis, rather than under contract rates — typically where there is no valid contract in place, or where the scope of work is so different from the contracted scope that the contract rates are no longer applicable.
Regardless of the type of claim, the fundamental requirements are the same: a clear contractual basis for the entitlement; timely notice in accordance with the contract; and a well-evidenced quantification of the amount claimed. Claims that lack any of these three elements are vulnerable to rejection or reduction.
The Role of the QS in Dispute Resolution
The QS plays a central role in construction dispute resolution — both as a commercial advocate for their client and, in some circumstances, as an independent expert witness.
In the commercial advocate role, the QS prepares and presents the quantum case — the financial quantification of the claim or defence. This involves marshalling the documentary evidence, applying the relevant contractual and legal principles to the facts, and presenting the case in a form that is clear, logical, and persuasive.
As an expert witness, the QS is appointed to provide an independent, objective opinion on a specific technical or quantification matter — typically the value of a claim. The expert witness owes their duty to the tribunal (adjudicator, arbitrator, or court), not to the party who appointed them. This is a fundamental distinction from the advocate role, and expert witnesses who forget it — by becoming advocates for their appointing party — undermine their own credibility and the value of their evidence.
Summary
Disputes are costly, time-consuming, and damaging to relationships and reputations. The best strategy is to prevent them — through clear contracts, good communication, rigorous record-keeping, and a willingness to address problems early. When prevention fails, the UK construction industry offers a well-developed set of resolution mechanisms, from the speed and accessibility of adjudication through to the finality and enforceability of arbitration and litigation.
The key principles to carry forward:
- Most disputes arise from avoidable causes — unclear contracts, poor communication, and failure to follow contractual procedures
- Prevention is almost always cheaper than resolution — invest in good records, early warning systems, and regular commercial dialogue
- Adjudication is the construction industry’s primary dispute resolution mechanism — it is fast, accessible, and enforceable, and every construction professional must understand how it works
- Claims are a normal part of construction commerce — the key is to notify promptly, quantify clearly, and support with contemporaneous evidence
- The QS’s role in dispute resolution — as commercial advocate and expert witness — is a distinct and specialised skill that requires both technical expertise and professional integrity
In the next post in this series, we turn to risk management — the systematic identification, assessment, and mitigation of project risk, and how a well-managed risk register contributes to better commercial outcomes throughout the project lifecycle.
This series is written for quantity surveyors, project managers, construction professionals, and students in the built environment. Feedback and questions are welcome.