May 29, 2024

Relieving the gridlock of construction payment disputes

News Article

Substantial investments and a long supply chain can take payment disputes from a minor sticking point to a major source of friction for those in the construction sector.

When payments are late, underpaid or withheld, it can cause significant delays in projects and sour the relationship between all parties involved.

If a solution to the issue is not swiftly reached, you may need to escalate the dispute and seek a legal avenue to resolve the problem.

What has caused the dispute?

Before diving into legal actions, it’s crucial to understand the source of the dispute. As we’ve said, the nature of construction projects often means there is more scope for payment disputes than in other sectors, with disputes arising from issues, such as:

  • Incomplete work
  • Insufficient standard of work
  • Safety concerns
  • Extension of Time requirements
  • Unreasonable delays
  • Breach of contract

This clarity will help in choosing the best approach to resolve the issue.

Payment disputes in construction often arise from misunderstandings or disagreements. It is often best to take a non-contentious approach in the first instance.

Improve communication

The first step in resolving any payment dispute should be direct communication.

Reach out to the other party and discuss the issue openly and professionally. This can often resolve minor misunderstandings without needing to escalate the situation. When preparing for discussions:

  • Review the contract – Be clear on what the contract states about payment terms, project deliverables, and timelines.
  • Prepare your case – Gather all relevant documentation such as signed agreements, correspondence, and records of work completed.
  • Propose solutions – Be ready with practical solutions that address the concerns of both parties.

Negotiation is about finding a win-win situation. If payment delays are due to financial issues on the other side, consider flexible arrangements like a payment plan.

Mediation as a tool

If negotiations stall, mediation is an excellent next step.

This process involves a neutral third party who helps both sides reach an agreement. They do not decide matters but simply facilitate a settlement.

It keeps relationships intact, a vital consideration in an industry where future contracts depend on good partnerships.

Considering, adjudication, arbitration or litigation

Sometimes disputes can’t be resolved through negotiation or mediation because of relationship breakdown or the complexity of the matter. In such cases, adjudication, arbitration or litigation might be necessary:

  • Adjudication – Every party to a construction contract has the right to refer a dispute to adjudication. This is very effective in payment disputes because it is a quick process lasting typically 28 days, is dealt with purely in writing and is decided by a neutral adjudicator. This process is particularly effective whereby the correct notices have not been provided and whilst legal costs are not recoverable, is often much cheaper than both arbitration and litigation – for more details see Palmers Fixed Fee Adjudication Scheme.
  • Arbitration – A neutral arbitrator hears both sides and decides. This process is usually faster than going to court and can be kept private. However, unlike adjudication and litigation, arbitration is only permissible if the contract provides so or the parties agree to arbitrate.
  • Litigation – As a last resort, litigation involves taking the dispute to court. This can be a lengthy and expensive process, so it’s generally best reserved for more significant disputes or when other avenues have failed.

If you need to turn to litigation to relieve payment gridlock, then you should seek early and ongoing legal advice to ensure that you are acting within the terms of your contracts.

Protecting yourself against gridlock

The best way to resolve payment disputes is to avoid them in the first instance. While this isn’t always possible, there are steps that you can take to achieve it:

  • Clear contracts – Ensure all contracts are clear and comprehensive, covering payment terms, scope of work, and dispute resolution procedures.
  • Documentation – Keep detailed records of all agreements, changes, communications, and approvals.

As construction law experts, we can advise you on a range of options to get payments flowing again and avoid future disputes.

Contact our team today to find out more.