Construction Law and Arbitration in the United Kingdom

Construction Law and Arbitration in the United Kingdom

 

Construction law refers to a body of laws that cover building construction matters and

related fields including legal issues such as contract law, bonds and bonding and

guarantees and sureties. Construction law extends general legal principles and

methodologies including environmental and building regulations, subcontract issues

and insurance security, and has developed into a distinct practice discipline.

Construction industry participants including architects, engineers, builders, construction

workers and financial institutions are impacted by construction law. Since 1983, a

Society of Construction Law has been active in the United Kingdom.[1]

 

Arbitration refers to a legal proceeding of out of court resolution of disputes, where the

parties to a dispute refer it to a third party which reviews the case and makes a decision

that is legally binding for both parties. Arbitration can be either voluntary or mandatory

or binding or non-binding on the part of parties in dispute, and is commonly used for the

resolution of commercial disputes and consumer and employment matters. The

advantages of arbitration over judicial proceedings include the appointment of an expert

arbitrator when the dispute is highly technical and its being faster, cheaper and more

flexible for businesses than litigation in court. The disadvantages include the possibility

of its becoming highly complex and its possible subjection to pressure from law firms

representing the stronger party.[2]

 

Data have shown that construction industry growth in the UK has declined sharply to

 53.3 in April 2011 from 56.4 in March in the Purchasing Managers’ Index (PMI) due to

housing activity contraction. The construction sector has shrunk by 4.7%, with

confidence levels at a historically low level, as a result of tighter government budgets,

rising fuel and materials input prices and poor cash flows in some instances.[3]

 

The UK construction industry is comprised of 2.1 million people who are employed by

 250,000 companies,  and is one of the strongest in the world in 2011. However, based

 on survey findings of the Confederation of Construction Specialists (CCS), the large

 main contractors are continuing the financial pressure on specialists, one in ten of

 which are claiming exclusion from approved lists and needing to provide more

 information to main contractors or lose valuable contracts. More than 30% also cite the

 payment asked for accreditation schemes for the advantage of dealing with main

 contractors in the future, with over 10% having already been excluded for non-

compliance. It would appear that an increasing number of main contractors want more

financial control on specialists, which cannot bode well for the construction industry.

The power and expertise of specialists is demonstrated by the fact that 87% of them

 produce their own designs and detailed layouts, which are crucial in construction

operations, but they continue to face challenges in the modern construction market.[4]

 

An arbitration clause in construction contracts is commonly included to save time and

money when disputes arise. The Arbitration Act 1996 provides for the legal binding of

an arbitration clause in England and Wales. A construction contract has the option of

incorporating the arbitration procedure with all major arbitration terms, which is not often

done due to the volume of detail involved. The terms can also be left to legislation,

because the Arbitration Act provides detailed terms that would apply to areas not

covered by the contract. The most common method is the inclusion of a reference to an

existing document from a third party which elaborates on the terms of the contract.

Arbitration clauses commonly refer to industry-specific arbitration terms and conditions

in a construction contract, and it is important that arbitration is mentioned in it if one

enters into a construction dispute. Construction cases can be complicated, but properly

handled arbitration can save on time and costs.[5]

 

However, It has been observed that arbitration in construction disputes in the UK is

unsatisfactory due to the constant possibility of appeal of the arbitrator’s decision to the

High Court, which has emasculated  the whole arbitration process.[6]

 

 

 

[1] “Construction Law”, Wikipedia, 4 February 2011, <http://en.wikipedia.org/wiki/Construction_law>

[accessed 24 May 2011]

[2] “Arbitration”, Wikipedia, 2 May 2011, <http://en.wikipedia.org/wiki/Arbitration>  [accessed 24 May 2011]

[3] “UK Construction Sees Slower Growth in April”, BBC news, 4 May 2011,

<http://www.bbc.co.uk/news/business-13280030>  [accessed 24 May 2011]

[4] “UK Construction Industry: Is Everyone Benefiting from it?”, Articlesbase, 23 May 2011

<http://www.articlesbase.com/economics-articles/uk-construction-industry-is-everyone-benefiting-from-it-4805419.html>  [accessed 24 May 2011]

[5] “Arbitration in Construction Disputes”, ContactLaw,

<http://www1.contactlaw.co.uk/arbitration-in-construction-disputes.html>  [accessed 24 May 2011]

[6] Vincent W. King, “UK/US Construction Comparison”, FindLaw, 2011,

<http://library.findlaw.com/1999/Nov/1/130337.html>  [accessed 24 May 2011]

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