Managing contractual conflict in construction and engineering projects 

Construction and engineering projects involve multiple parties, significant sums of money, layered supply chains and timescales that are under constant pressure. Disagreements over programme, payment, scope and standards of work are a routine part of that environment. The contract is there to provide a framework for managing those disagreements commercially, and most standard form contracts do this well. The difficulty is that the contractual mechanisms only work if they are actually used, and used properly, throughout the life of the project. When they are not, the options available to resolve matters commercially narrow, and the cost of resolving them increases. 

Here, we explore how disputes develop on complex projects, where contractual protections are most commonly lost, and what businesses can do in practice to reduce the risk of costly conflict. 

Where conflict starts 

Anyone who has worked on a live construction or engineering project will recognise how quickly a manageable problem can become a serious disagreement. A programme delay on one package of work creates pressure further down the supply chain, and the financial consequences of that delay often fall unevenly across the parties involved. Where the cause of the delay is itself disputed, or where responsibility sits across more than one contract, the commercial tension increases significantly. That tension is compounded when variations to the original scope have been agreed informally on site but never confirmed in writing, because the question of what was instructed, by whom, and on what terms becomes genuinely difficult to resolve once the relationship between the parties is under strain.  

Payment disputes add a further layer of complexity, particularly on projects where interim valuations have been contested over several months or where retentions have been withheld in circumstances the paying party considers justified, but the receiving party does not. And where the quality of completed work is called into question, the disagreement can affect not only the financial position of both parties but the practical ability to continue working together on the same project. 

Increasingly, disruption caused by factors entirely outside the parties’ control is also a significant driver of conflict. Material shortages, regulatory changes, geopolitical instability affecting international supply routes, and constraints on labour availability have all become more prominent in recent years. The contractual and commercial consequences can be serious, from disputed liability for delay costs and lost productivity, through to contested claims for additional payment, strained or collapsed working relationships between project parties, and in some cases, suspension or termination of the works themselves. 

Each of these pressures, taken in isolation, is usually manageable. What turns a problem into a dispute is almost always one of two things. Either the contractual mechanisms designed to deal with it are not followed, or communication breaks down and allows positions to harden before anyone has properly assessed the situation. 

The contract is a tool, not a safety net 

One of the recurring themes in construction disputes is that the contract contained provisions that could have resolved or contained the issue, but those provisions were not used, or were not used properly. Standard form contracts, whether JCT, NEC or FIDIC, are designed with dispute avoidance in mind. They include mechanisms for notifying delays, valuing variations, managing extensions of time and escalating disagreements through structured processes before they reach formal proceedings. 

The difficulty is that on a live project, particularly one under commercial pressure, these mechanisms are often treated as administrative burdens rather than protections. Project teams are understandably focused on solving problems and keeping work moving, and the contractual formalities can feel secondary when there is an urgent issue on site. A variation gets carried out on the strength of a conversation because the work cannot wait, and there is an assumption that the written confirmation will follow. A notice requirement gets missed because the team’s energy is directed at managing the practical impact of a delay rather than documenting it for contractual purposes. Over time, a pattern develops where the contract is running in the background rather than being actively used, and the gap between what has happened on the project and what has been formally recorded grows wider. These are understandable decisions in the moment, but they carry real consequences if the matter later becomes disputed. 

By the time a dispute crystallises and lawyers are instructed, the problem is usually not the issue itself. It is what was not done in the weeks and months after the issue first arose. Consider a contractor who carried out additional work in good faith, responding to what was clearly a client instruction, but who cannot now point to a formal variation order or written confirmation. The work was done, the cost was incurred, but the contractual basis for recovering payment is significantly weakened. Or consider a developer who had legitimate grounds to withhold payment but did not issue the required pay less notice within the timeframe the contract prescribed. The substance of the position may have been sound, but the procedural failure undermines it. These are not unusual situations. They arise regularly in adjudication and litigation, and the outcome frequently turns on procedural compliance rather than the underlying merits of the case. That is a difficult message to deliver to a client whose commercial position is strong, but whose contractual compliance is not. 

On a live project, the contract should be treated as part of the delivery process, not a document that sits in the background. If it requires notice, give it. If it requires written confirmation, issue it. If it sets a timeframe, meet it. In disputes, these are not treated as technicalities. They are often the deciding factors. 

When external disruption changes the picture 

Not all construction disputes arise from the conduct of the parties. Some are triggered by events that neither side could have prevented, and the past few years have brought this category of disruption into sharp focus. Severe weather, supply chain failure, conflict affecting international shipping routes, sanctions regimes, energy price volatility, and pandemic-related restrictions have all affected live projects, and the legal and commercial consequences have been significant. 

Most standard form contracts address these risks through what are known as force majeure provisions, clauses that allow a party to seek relief where the project has been affected by exceptional events beyond its control, such as natural disasters, armed conflict, or government-imposed restrictions. Depending on the contract type, similar protections may appear under different terminology, such as compensation events under NEC contracts or relevant events under JCT. The critical point is that these provisions are not automatic. They do not suspend obligations simply because circumstances have become difficult. They require the affected party to demonstrate that the event falls within the contractual definition, that it has caused or is causing the delay or loss claimed, and that the prescribed notice and procedural requirements have been followed. 

Getting this wrong can be costly. A party that suspends work without contractual justification, or that treats a force majeure clause as a general right to walk away from its obligations, risks being found in breach of contract itself. Equally, a party that fails to notify promptly may lose entitlement to an extension of time or to recovery of additional costs, even where the disruption was genuine and severe. 

There is also a forward-looking dimension that businesses negotiating new contracts need to consider carefully. Events that may have been unforeseeable when a previous contract was signed may no longer qualify as such. If supply chain disruption linked to a particular region is already widely reported, or if material price volatility has become an established feature of the market, relying on standard force majeure wording drafted for more stable conditions carries real risk. The shift from “unforeseeable event” to “known risk” changes how those provisions are interpreted and applied, and it changes what a party needs to demonstrate in order to rely on them. Businesses entering new contracts in a volatile environment should be actively reviewing how risk is allocated, and ensuring that the specific drafting reflects the risks their project actually faces rather than relying on standard wording that may no longer provide the protection it once did. 

Protecting your position in practice 

The businesses that manage construction disputes most effectively are the ones that maintain discipline around the contract, keep clear records, communicate formally when the situation demands it, and seek advice early enough to act on it. 

Record-keeping is fundamental. Contemporaneous records, site diaries, written confirmations of instructions, photographs, delivery records and correspondence are the evidential backbone of any construction claim or defence. They are also far more persuasive than accounts reconstructed months or years after the event. When disputes reach adjudication or court, the quality of the available records often determines the outcome more than any other single factor. 

Communication is equally as important. On complex projects with multiple stakeholders, the temptation to resolve things informally is understandable. A conversation on site feels more efficient than a formal letter, and where relationships are good, the paperwork can feel unnecessary. But informal agreements that are not documented create ambiguity, and ambiguity is where disputes take root. A written confirmation of what was discussed and agreed, even a brief email sent the same day, can be the difference between a straightforward resolution and protracted litigation. 

Early legal input is not about escalating conflict. It is about understanding your position clearly enough to make informed commercial decisions. Knowing whether your contract entitles you to an extension of time, whether a payment notice was valid, or whether a termination right exists before you act on any of those things allows you to engage with the other party from a position of knowledge rather than assumption. In practice, the most cost-effective disputes advice is often the advice taken earliest, before positions have hardened, before proceedings have been issued, and before the commercial relationship has broken down beyond repair. 

A disputes perspective 

Coodes’ Commercial Disputes team works with businesses across the construction and engineering sector, from developers and main contractors to subcontractors and consultants. The work spans adjudication, mediation and litigation, but a significant part of what the team does is helping clients understand and protect their contractual position before formal proceedings become necessary. 

Whether the issue is a contested final account, a delay claim, a termination dispute or a disagreement about the quality of completed work, the starting point is the same. Clarity about the contractual position, the available evidence, and the commercial outcome the business is trying to achieve. The best outcome is often avoiding formal proceedings altogether, and the team’s role includes helping clients reach that outcome where the circumstances allow it. 

If you are involved in a construction or engineering project and want to understand your contractual position, whether a dispute is developing or you want to ensure one does not, Coodes’ Commercial Disputes team can help.