Justice built for all

The housing grant and construction regeneration act 1996 dramatically reduced the amount of work for construction lawyers.

Alison Clarke examines the foundations of their practice

Although there is no shortage of work at the moment for construction lawyers, it can hardly be described as a bullish market.

Ten or 15 years ago, new players were still breaking into this practice area, but not any more.

There are several reasons to explain the shift, but the most recent one has been the introduction of adjudication under the Housing Grant and Construction Regeneration Act 1996, which became effective in 1998.

While adjudication has been around a long time as a way of resolving construction disputes, it had a limited jurisdiction before the Act came into force.

Now it has become a huge growth area.

Philip Jolly, assistant solicitor of Bristol firm TLT, explains: 'Now that the role of the adjudicator has widened, he can decide on just about any issue arising out of what can be defined as a construction contract.

And the definition under the Act is very wide.'

John Rushton, the senior partner of the construction and engineering group at City firm Rowe & Maw, says the reason for the emphasis on adjudication was simple.

'Everyone thought that arbitration and litigation were too expensive and took too long to resolve disputes.'

The effect of the change on the work of construction lawyers cannot be overstated.

Robert Fenwick Elliott, senior partner at the construction firm Fenwick Elliott, based in central London, says his litigation work has dropped by two-thirds in the past two years.

For every one case that goes to court, he now has eight that are resolved by adjudication.

And there have also been huge reductions in cost.

Take the figures compiled by Mr Fenwick Elliott.

'For big cases - those where more than 2.5 million is in dispute - the costs are half of one per cent of that sum.

For smaller cases where between 500,000 and 2.5 million is in dispute, the costs tend to be 3% to 4%.

Those numbers represent about a tenth of what those same cases would cost in litigation.'

Mark Roe, a partner in the construction group at Masons in London, argues that access to justice has been increased by this reduction in costs.

He explains: 'Now smaller disputes - 500,000 or less - are being adjudicated whereas before they would just fester for years, or the injured party didn't bother at all because it would all take too long.

Now they are going to adjudication which means much greater access to justice for everyone, which is a good thing.'

But the knock-on effect has been a huge drop in claims issued in the renamed Technology and Construction Court, and therefore much less work for barristers.

Figures released by the Lord Chancellor's Department showed that in 1997 the total number of actions was 756 compared with 483 in 1999.

But things have changed for solicitors as well.

Mr Fenwick Elliott says: 'Gone are the days when you had teams of people engaged in discovery battles.

In adjudication, there is much more work for the chiefs and less for the foot soldiers, so it is less easy to have a pyramid structure.'

Although adjudication was supposed to provide a temporary - albeit binding - fix until the case wound its way to court or arbitration, more often than not, it has turned out to be the final arbiter.

Mr Jolly explains: 'Although you might expect the loser to go and get a decision overturned, in reality that is not happening.'

The Woolf reforms, and the introduction of a pre-action construction and engineering protocol in October, have additionally compounded the move away from litigation.

The protocol requires each side to write to the other setting out their arguments and the evidence to back them up, followed by a meeting - designed to settle matters - before proceedings can even be issued.

But although adjudication has had a big effect on the industry, Mr Roe cautions: 'Things are different in boom time with a shortage of labour and lots of work available, when the parties are aggressive about getting their money back.

We should wait and see what happens when there is a shortage of work and a risk of insolvency.'

Not surprisingly, just as the building trade is affected by the state of the economy, so is the work of construction lawyers.

Martin Soloman, a partner in Newcastle firm Hay & Kilner, says there is now much less work generated by insolvencies.

'In the recession, it was commonplace for major sub-contractors to go insolvent during the course of a construction contract, which gave rise to all sorts of issues about entitlement to payment, entitlement to continue to work and so forth.'

There are also fewer disputes - at least in the north-east - about defects.

Mr Soloman explains: ' In this part of the north-east, there was probably more development work here in the 70s and 80s than in the last ten years, and although there can be a long lead-in time with defects, we are now seeing fewer defect-related disputes.'

Geographical location may also affect the client base of the construction lawyer and the type of work available.

Mr Soloman says: 'If we assume that there is more new development work in the south-east and more sizeable companies there, that tends to make a difference.

There are fewer headquarters based in the north-east than other parts of the country and we tend, therefore, to work substantially for sub-contractors rather than contractors.'

But whatever the geographical location of the firm, Mr Fenwick Elliott says that the issues facing construction lawyers tend to go in cycles.

'A few years ago, we had a problem with cheap office blocks.

More recently, we have had problems with power stations which are taking longer to build than people thought.'

And things have also changed on the non-contentious side for construction lawyers, again driven largely by the need to avoid litigation and arbitration.

Ralph Wrighton, head of construction and engineering at Eversheds in the north-east, says his non-contentious caseload is buoyant.

'Our non-contentious work has grown dramatically over the last five years or so, from a modest amount to something like 50% or more of our work.' The drive to avoid litigation has also led to the concept of 'partnering' in construction contracts.

Mr Jolly explains: 'The idea is for organisations to get together in a joint venture type of operation, with everyone sharing risks as opposed to blaming each other, to reduce or eliminate conflict.

These developments mean that the blind use of traditional contracts has been reduced.'

Lawyers are also using non-standard contracts as a result of their increased involvement in private finance initiative (PFI) deals.

Lawyers need to know what their clients want to get out of the contract, and have to try to ensure that the risk is placed with the parties best able to manage it.

Thus, the job of the construction lawyer has become much more professional and sophisticated.

Alison Clarke is a freelance journalist