Contract administration failures to remain a dominant cause for construction disputes in 2024

While some risks in construction are difficult to foresee and manage – caused by unique and challenging projects and macro-economic factors – systematic contract administration is a risk that is more controllable. Organisations that administer contracts well will secure a competitive advantage: with enhanced communication, clarity and certainty – to protect the project and their business.

Forensic reports on trends in construction adjudication have pointed to “inadequate contract administration” as the most frequent cause of disputes in the infrastructure sector in the past three years.

A 2022 report produced jointly by King’s College and the Adjudication Society found that, in the period between May 2020 and April 2022, 49% of disputes referred to adjudication had, at least to some extent, been caused by contract administration failures.

That trend continued into 2023. The latest report published by the same organisations showed that, in the year to 30 April 2023, the top two causes of disputes referred to adjudication were “lack of competence of project participants” and “inadequate contract administration” – with the latter being one of the causes of 42% of all adjudications. While that is a marginal annual improvement of seven percentage points, it still creates material commercial risk.

The Annual Crux Insight Report by risk consultancy firm HKA has a data pool that is wider than just adjudication: it analyses disputes data more widely, to detect patterns territory-by-territory globally. Its UK findings include that “contract management and/or administration failure” drove 16% of disputes: materially better than the European figure of 29.9%. The difference between the adjudication-specific reports above and this wider one no doubt reflects that certain contract administration issues will tend to be well-suited to the rapid adjudication process.

There is one particular form of commercial exposure arising out of contract administration – a failure to serve payment/payment less notices – which is high likelihood, potentially high magnitude, and also controllable.  

High likelihood: our analysis of the adjudications in which we were involved in 2022/23 suggests that about one third centred on this issue.

High magnitude:  the King’s College and Adjudication Society study shows that – of all disputes referred to adjudication – 39% had a sum at issue of greater than £1 million.

Controllable: understanding and systematically operating the contractual payment process is the key to reducing this single risk.

Competitive advantage in 2024

In short, systematic administration of the mechanics of the payment process is an excellent way in which to reduce a controllable risk in 2024.

More generally, the dispute themes brought out in these reports reflect that contract administration is about clear and insightful understanding and communication of risk. Sound contract administration enhances clarity and certainty about project risks and the parties’ respective positions and outcomes. Businesses that are good at contract administration will facilitate better project-wide decision-making: protecting the project as well as their own positions. Over time, their reputation will be enhanced too.

Co-written by Anthony Bradley of Pinsent Masons.