Dispute avoidance measures taken by Network Rail have saved the company more than $1 billion.
Michael Strickland, Network Rail’s head of claims and contract compliance, said at a Civil Engineering Contractors Association (CECA) webinar last week that the company has seen a “dramatic decline” in claims after taking initiatives to avoid conflict and disputes have.
Strickland explained that Network Rail saved 2.5 per cent of its £48 billion in gross revenue after joining the Royal Institution of Chartered Surveyors’ (RICS) Conflict Avoidance Process (CAP) and launching its own Dispute Avoidance Process. (DAP) implemented. .
Adoption of the rules has meant the company has seen a lower number of outstanding disputes, “well below” the national average, with Strickland saying claims have all but “evaporated”.
The Construction Leadership Council (CLC) warned last year that contract disputes related to COVID-19 are likely to increase.
Speaking to delegates, Strickland said Network Rail used a “four point” dispute avoidance procedure to reduce a claim by £4million.
He said: “Overall, with our collaborative approach and with the commitment behind us – and our conflict avoidance and our DAP – we are seeing a dramatic decrease in the number of claims and the number of outstanding disputes.
“We are now well below average [for] disputes [at a national level] – we are well below that. We really only need to resolve genuine disputes that cannot be resolved because of an outside third party [party] output if you wish.
“Our gross claim to our gross sales is less than 2 percent. And in monetary terms, that’s a 2.5 per cent saving for us of £48bn. That money goes towards more work, more efficiency and actually a better running railroad.”
Strickland said disputes are “wasted public money” – and that it is beneficial for both the taxpayer and the company to work together on solutions rather than having to deal with claims.
Network Rail’s dispute avoidance process, conducted by a third party, includes a review of the contract, program viability and commercial agreement, in addition to a ‘conduct assessment’. A report is then generated to see how disputes can be resolved.
CECA announced during the meeting that the CAP had received more than 300 signatories involving both Network Rail and Transport for London (TfL).
The CAP acts as a framework that contractors can use to ensure conflicts with employers do not escalate into disputes or claims. Signatories pledge to work proactively to avoid conflict and facilitate the “early resolution of potential disputes.”
They also agree to recognize the importance of embedding “conflict prevention mechanisms” in projects to prevent adversarial dispute settlement procedures.
The CAP was developed from a coalition of 11 organizations including the Institution of Civil Engineers (ICE) and the Chartered Suit of Arbitrators (CIArb).
Dispute settlement payments are big business in the construction industry, with companies often paying out tens of millions of pounds due to disagreements over contractual obligations. In February, construction news reported that Costain had settled his contract dispute with National Grid with a £43.4m payment.
A link to the RICS Conflict Prevention Promise can be found here.