Cool heads needed amid inflation, disruption and war

Just under a year ago, I spoke to GCR about the construction industry’s response to the global pandemic in terms of its approach to dispute resolution.

Who could have predicted then that, all these months later, not only would Covid be lingering but we’d also be dealing with skyrocketing rates of inflation and witnessing the outbreak of the first war on European soil for decades. Clearly, uncertainty in the market is going to persist for some time yet, and that will inevitably have long-term impacts on projects and how we navigate any disputes that may arise as a result.

Unpredictability brings claims

While the jury is still out on exactly what sort of increase we’re going to see in major claims being initiated by the pandemic, Gleeds’ UK Advisory Service is already reporting an uptick in activity compared to this time last year.

Ongoing supply chain and labour problems have been exacerbated, driving project delays, and now we are experiencing an escalation of inflation rates higher than the vast majority of us can remember. 

A side-effect of this is that there aren’t many professionals operating who have the first-hand experience of how to deal with such a fluctuating and unpredictable situation. Core costs like fuel and labour are affected by uncertainty in the market and this has an impact on expected outcomes for projects. Whatever happens post-pandemic and Ukraine, we’re also going to be battling against a tidal wave of these longer-term issues disrupting the balance of the industry.

Collaboration will be key

That said, I do believe there has been some positive change over the past 12 months as clients consider all options before calling in the lawyers.

You’ll now find a plethora of industry experts promoting fairer risk allocation in contracts. Of course, it will take a while yet for contract suites to adjust and address issues in a more balanced way and certainly, where market responses tend to be culture-driven, that change can take generations.

However, people are waking up to the fact that there is no point in driving contractors and sub-contractors into the ground by making them shoulder the burden imposed by these unforeseen events.

It has become clear that we absolutely must develop collaborative ways of dealing with the disruptive forces at play. I have long advocated for both owners and contractors to ‘put the project first’, bearing in mind that both have the same objective: completion of the project on time and on budget.

Clearly, that cannot happen if contractors are expected to bear the brunt of dramatically increased costs, resulting in huge losses. The Financial Times reported that insolvencies are expected to rise in the UK in 2022 as firms find themselves unable to meet such unreasonable demands, and I imagine that trend will be replicated in other countries.

I remain of the view that all parties would be better off finding fair and sensible solutions, rather than using highly disruptive global events as a pretext to further their interests. I certainly don’t envisage the pressure easing up going forward, so we might as well consider all options if we are to enable the industry to push on, whatever the world throws at us next …

• Chris Soffe will be joining a panel to discuss fluctuations clauses in contracts and equitable price adjustment mechanisms in a webinar on 28^th March.

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