After last month’s brief guide to valuations I thought it might be useful to outline the options open to you if a contract goes seriously wrong and you cannot get paid. 

Standard Building contracts have whole chapters devoted to Settlement of Disputes – probably a reflection of construction’s litigious nature. So litigious we have our own court – the Technology & Construction Court – although it is usually for disputes above £250,000.

The National Trust has just filed a writ for a £115million repair bill resulting from a fire during building works in the Grade 1 listed Clandon Park in Guildford, Surrey. It alleges the faulty construction of a lift shaft some years earlier by a different contractor caused the spread of the fire. Big numbers. Big dispute. Showing at the Technology & Construction court soon.

Mediation is a lot less expensive and is the first suggestion in JCT chapter 9 Settlement of Disputes.  It is part of the Alternative Dispute Resolution (ADR) ‘basket’ (or possibly in our case ‘hod’) of non-confrontational forms of resolving a contractual dispute.

Courts favour mediation and there have been several schemes to encourage litigants to try to resolve issues before dragging them to court.

In brief, mediation is a consensual process. An independent mediator, jointly appointed, facilitates a resolution of the dispute. This is usually accomplished in no more than a day. The process allows parties to continue to work together and it is relatively inexpensive, certainly compared with going to court. If parties still disagree after mediation, the mediator has no power to enforce any decision.

Other forms of ADR include Dispute Boards appointed by the contractor and client for the duration of construction. Similarly, Project Mediation is an impartial panel consisting of a lawyer and industry expert who are both trained mediators.

This method was used on the Jersey Airport taxiway. The project was worth £15million,  the Project Mediation panel cost £15,000 and the project finished ahead of schedule and £800,000 under budget. Much of the success was attributed to the mediation process.

If ADR doesn’t work, or is beyond the parties, then Adjudication is next. A shorter version of Arbitration, this is an option open for 28 days only, costs £400 to start (though beware adjudicators’ costs) paid for by the loser, and your own preparation costs, which should probably include a contractual expert.

I was recently involved in an adjudication (which we won). The expert cost £5,000 but was worth every penny as they not only submitted the application but managed the case all the way through. We had to carry out some support work with files and valuations, but thankfully the paperwork was in place to make this reasonably painless – visiting the dentist for a clean rather than having a tooth out. Having a tooth out is probably how the other party felt after copping the £2,000 adjudicator’s fee, interest on the amount owed (which paid for our expert) and the full value of the dispute.

The contractor saw the outcome as par for the course. Hence we are still working for them. If I’m honest, I think their case was no more than an aeroplane attempt at subbie bashing, which thankfully backfired.

Adjudication decisions are binding. They are usually dealt with by correspondence, with strict timetables. They can be contested but only by taking the dispute to the next level – Arbitration or the courts.

Arbitration can take 12-18 months and goes through a fairly long process of disclosure, evidence and then a hearing. Fees are upward of £10,000 for the arbitrator. Then there are your costs, which can spiral, depending on the complexity of the case. If the dispute is large enough this may be an option. It is less stressful than going to court and less formal, and the results can be contested through litigation only.

I guess if you get this far you have an unresolvable dispute or, like the National Trust, one so large and complex that only the courts can decide.

I hope you don’t need to refer to any of the above during your contracts, but if you do, my advice is to start small and try some mediation first.