Dr Stuart Kings of Sypro discusses the processes, mechanisms, and tools needed for construction adjudications for project delivery to business investments
As the number of administrations in the construction sector continues to rise, so does the number of adjudications, as the latest statistics from King’s College London (KCL) and The Adjudication Society have unveiled. The data clearly shows there is a need to improve how construction contracts are managed.
Over recent years, King’s College London and The Adjudication Society have collaborated to publish annual reports on construction adjudications, taking a deeper dive into the latest stats and trends across construction. The third of these reports – 2024 Construction Adjudication in the United Kingdom: Tracing trends and guiding reform – has allowed us to see a clearer picture of the disputes that have taken place last year, with input from those involved with such projects.
The biggest thing coming through the data? Contract management needs improving across the industry and will go a long way to not only hopefully reduce the number of disputes and construction adjudications but also protect businesses as the sector continues to face a more turbulent time than many.
Considering the report details that the number of adjudication referrals was the highest recorded thus far, with 2,264 reported – up nine per cent on the year prior – there’s no time to waste.
So, what is the state of play?
It can be easy to assume that ‘the bigger the project, the higher the chance of dispute’. However, KCL’s data shows that this isn’t the case. Disputes can arise for any size, type, or value project, making protective processes and tools essential, no matter what the scheme is.
42% of referral claims reported in KCL’s report were between £125k and £500k, with a further 28% between £500k and £1m. While these two value bands were the peak, the data shows that referral claims did happen at either end of the scale, from small projects through to multi-million-pound ones – including 16% sitting between £2m and £5m. With contracts of all scales and sizes continuing to be referred to adjudication, it’s clear that there are still gaps to plug in contract management processes across the sector.
Construction is often operating on tight margins, while also still feeling the impacts of the pandemic and ongoing global politics. For some organisations, one dispute could be the final blow, and so to protect themselves and the money being invested, effective contract management must be in place.
What causes dispute – and what can we do about it?
50% of respondents flagged ‘inadequate contract management’ as a key reason for dispute, putting it at the top of a fairly long list. However, a large portion of the reasons recorded by respondents are areas that should be alleviated and addressed by a thorough approach to contract management overall.
For example, 17% of respondents cited ‘poor communication’ as a notable cause of dispute, while 19% cited ‘inadequate contract documentation’. In construction, secure documentation, collaboration, and communication are all crucial for keeping a range of stakeholders informed and aligned. A centralised system creates a single source of truth that keeps projects on track – meaning that the latest versions of any documents are all in one place, and no one is working from old versions.
Equally, roles and responsibilities across stakeholders also need to be completely understood to make sure no actions are missed due to a lack of ownership clarity. The contract lays out these responsibilities, but they must be delivered on – and people need to know what their specific actions are and when they need to be carried out.
The right software tools can bring this all together, with a centralised platform with real-time monitoring to allow for ongoing tracking. This allows users to log communication, changes, or modifications in-platform to create a clear and time-stamped audit trail of actions – while making sure people are not working across multiple communication channels. In some cases, a contract may state that communications are only valid through a system or platform named in the scope. So, centralising communications and documentation is an easy way to ensure compliance with such a contract term – and complete transparency on progress in real-time.
Setting up for success
The 19% ‘inadequate contract documentation’ figure also demonstrates the importance of getting contracts set up correctly. The contract being solid from day one not only sets the foundation for the project’s progress but also provides the clarity required throughout the duration of the project to ensure effective management.
The set-up of a contract is a key step in avoiding disputes escalating. The right processes – such as a clear checklist for your contract type – make sure that everything is covered when laying out terms and specific amendments to suit individual schemes. However, without that all-important clarity, it can create problems later – and with 17% of people citing ‘unclear risk allocation’ and 8% highlighting ‘unfair risk allocation’, it’s easy to see these examples coming through the data.
The second most cited cause of disputes the KCL report recorded was a ‘lack of competence from project partners’, which was noted by 42% of respondents. This is a significant portion of people surveyed across the sector clearly feeling that there needs to be an improved understanding of effective contract management across project partners.
However, the figure is down from 48% of respondents who cited the same reason the previous year. This gives hope that the reduction in this statistic reflects that understanding of how to effectively manage contracts is growing across the sector – or there is better adoption of technology and construction contract management systems that guide people easily yet compliantly.
A recipe for compliance
Following the contract is the easiest route to success, and staying on top of key dates and activities is essential to remaining compliant with your contract terms. On the surface, this seems an obvious comment to pass, but without the right tools and processes, it can be a surprisingly complex task.
Much like following the steps of a recipe, software systems can give guidance on what needs to be done at every stage, as well as who is responsible. With multiple ‘cooks’ involved; this approach makes sure that no ‘ingredients’ – i.e. steps – are accidentally missed across those involved with moving the project along.
Centralised systems can make sure that certain actions are completed before being able to proceed to the next step by removing the room for human error. To keep the cooking analogy moving, it means there’s no danger of baking the bread without a crucial element like yeast – and all of this to keep complete compliance with the contract terms.
Escalation of any dispute is stressful for all involved, so it is positive to see this summary – and it is important to know that processes are holding up for the cases that do go to adjudication. The KCL report has provided useful insights into trends across the sector and – by extension – where the greatest levels of risk may continue to lie. The data released across the past three years has showcased where trends have appeared or changed, along with where improvements can be made across practices to reduce risk.
The ultimate goal is for contract management processes to be solid and effective enough to protect projects and teams – minimising escalation of unnecessary risks – and as part of this, wholly compliant software is a key weapon in battling against poor contract management – adding a crucial layer of protection to any project.
