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25 JAN 2022

Adjudication of construction disputes in a post- pandemic world

COVID-19 has changed construction. The industry we had known for many decades, along with the entire world we were living in less than three years ago, has melted away and, indeed, much of it may be gone forever. The impact on economies has been immense and no more so that in the construction industry.

Right from the very beginning, during the first UK lockdown in March 2020, many sites quickly closed. Employees were absent or laid off. Cash flow, a perennial problem, rapidly became a more pressing concern than ever before. Measures taken by the UK Government to keep money flowing to industry employers and workers were forthright and necessary.

It is over a year since the end of the UK lockdown, and while there was initially some encouraging signs that things were beginning to improve in construction, the industry has had to face a raft of post Covid issues such as shortages in materials and labour, increasing costs of materials and fuel and a general malaise in the wider economy. It seems the legacy of COVID on the construction industry will probably be with us for many months, even years, ahead.

The most popular method for resolving construction contract disputes in the UK is adjudication. Over the past three years, the crisis has put a spotlight on adjudication as a barometer of the state of the industry. The experience of RICS, which has appointed over 20,000 adjudicators since 1998, is that, just before the UK economy goes into a decline, there will usually be a sudden and short-lived upturn in numbers of adjudications followed by an equally dramatic fall in numbers as the economic downturn kicks in properly.

The Covid effect has led to a slightly different experience. Adjudication appointments made by RICS rose to over 120 per month at the beginning of the first lockdown, which represented a monthly increase of around 50%. This continued from the end of March 2020 until late summer. By November numbers had started to fall off, but not spectacularly as would have been expected in the lead up to an economic decline. The decrease in numbers of adjudications was oddly slow, and by early 2021 numbers fell back to just below pre-Covid levels. Since the beginning of October 2021, the number of applications to RICS for appointments of adjudicators has been, on average, around 100 per month. This could suggest that the UK economy is in a new post-pandemic period where disputes about money will continue to escalate, and adjudication numbers will increase. What are the reasons for this?

Previously unforeseen problems have intensified in UK Construction, and beyond these shores. It is apparent that the post pandemic world is different, and it is not going to go back to pre-Covid times. A shortage of manpower has been attributed by some in the UK to Brexit, though the impact is seemingly global, which suggests it’s a post-pandemic symptom. There has been record demand for construction products as the sector strives to recover from the pandemic. Increasing demand has resulted in increasing prices and it has become immensely difficult to accurately value contracts. Add to this the breakdown in logistics that get materials from one country to another, and the extraordinary increases in fuel costs, and it is little wonder that there is talk of the construction industry facing a potential tidal wave of disputes in the coming months and years.  

Going forward, adjudication and adjudicators may need to quickly adapt to a completely new environment. The Covid crisis has kicked started a revolution in telecoms and e-business. People no longer need to (or often wish to) travel to meetings. The residual fear of “catching” Covid as winter looms large will no doubt result in more parties wanting to resolve their disputes in “safe environments”. The nature and types of disputes have already started to change, and adjudicators are increasingly being called on to take on board issues that have rarely been at the heart of adjudications in the pre-Covid past. 

Martin Burns

Head of ADR Research and Development, RICS

Updated October 2022

 

Interested in being an adjudicator? Explore RICS’ Diploma in Adjudication in the Construction Industry which starts in June 2022: https://www.rics.org/adjudication.

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