New Zealand Law Society - Construction industry disputes rising, says Russell McVeagh

Construction industry disputes rising, says Russell McVeagh

This article is over 3 years old. More recent information on this subject may exist.

A report from Russell McVeagh states that over 70% of respondents to a survey of construction industry members predicted an increase in the number of disputes over the next two years.

The report, Getting it right from the ground up: A survey on construction disputes and how to avoid them, says the number one factor identified as contributing to disputes is a lack of understanding of contract obligations within the industry (over 60% of respondents), with bespoke contract amendments reportedly not always read and understood by all parties.

Both principals and contractors identified principal/employer variation as the leading cause of delays. However, the report says, they didn't agree on what the other leading causes were. Principals blamed the slow pace of construction and the consent process, while contractors blamed the quality of design.

The survey was carried out earlier in 2018 and there were 56 respondents. The report says they included principals, engineers, contractors and project managers, ranging from substantial to medium-sized entities. Most respondents were engaged in projects with values of over $10 million.

Russell McVeagh partner Polly Pope says the expected increase in disputes from industry participants comes in a sector already dealing with high profile contractor insolvencies.

"While some causes of a rise in disputes appear to be structural to the industry, for example, skill shortages – others, particularly around relationships, risk allocation and contractual terms are within the parties' control and would repay a focus at the outset of any project," she says.

Another partner, Ed Crook, says the report's results are consistent with what the firm is seeing in the market.

"Both principals and contractors are placing similar emphasis on the lack of understanding of the contract obligations as a key cause of disputes. Contractors have also identified matters arising from principal supplied information, and poor contract administration as significantly contributing to disputes, whereas principals identified delays by subcontractors and suppliers as a key source of disputes."

Over 80% of respondents said they based their contracts on NZS 3910 (Conditions of contract for building and civil engineering construction). Around 20% of respondents said they often based their contracts on other forms, and 25% "often" used bespoke contract forms.