CONSTRUCTION DISPUTES LANDSCAPE FOR 2024: THE HERE AND NOW AND WHAT TO EXPECT NEXT IN 2025

January 2025

Ian Masser, Kayleigh Rhodes and Anna Benz

Introduction

The construction industry remains under pressure. Insolvencies continue to threaten project stability, whilst a third wave of fire safety claims looms on the horizon. Standard industry contracts and guidance seek to address evolving contractual, regulatory and market demands, while the Government’s Remediation Acceleration Plan intensifies cladding remediation deadlines and sanctions. Appropriate contract terms (including clear liability caps) and environmental, social, and governance (ESG) issues remain core risk areas, alongside growing concerns around the use of artificial intelligence (AI), cybersecurity, and payment transparency under new measures for 2025. This article builds upon our third instalment published in November 2024 which can be accessed here.

MARKET TRENDS AND CONTRACT TERMS

Rising insolvencies and the threat to construction projects

Construction companies accounted for 4,208 or roughly 17% of all registered cases of insolvencies (with the specific industry type captured in data) in the year up to October 2024. This is reported by the Building Cost Information Service to be a 2.7% decrease on the insolvencies recorded in the year to October 2023, but over a 30% increase on the position recorded in 2019. In November 2024 itself, registered company insolvencies for all company types in England and Wales stood at 1,966 – 13% higher than October 2024, but 12% lower than November 2023 (2,243). The Insolvency Service reported that general company insolvencies remained higher than those witnessed during the COVID-19 pandemic and between 2014-2019.^[1]

Contractor insolvencies continue to cause project delays, potential contractual and payment disputes, suspensions and terminations, which in turn increase the likelihood for conflict. Such situations also highlight the importance of businesses undertaking thorough due diligence on projects, establishing clear contractual terms/protections, applying effective risk management, and preparing contingency or continuity plans to reduce disruption and protect cash flow. Without a clear end to global conflicts and economic pressures in sight, the sector is likely to encounter another challenging year in 2025. We may also observe a continued rise in adjudications as parties seek to recover swift payments to maintain liquidity.

Adjudication in focus – key trends

The Adjudication Society and King’s College London released their third and final report, ‘2024 Construction Adjudication in the United Kingdom: Tracing trends and guiding reform’.[2] Based on surveys conducted in May 2024, the report contains valuable insights on current adjudication trends from the perspective of its main stakeholders and users. Key findings include a record of 2,264 adjudication referrals to adjudication nominating bodies between May 2023 and April 2024 (an increase of 9% on the previous year), with low-value claims (below £125,000) or fast-track equivalent claims comprising nearly 20%. “Smash and grab” adjudications dominated, accounting for 63% of cases, while inadequate contract administration (50%) and lack of contract participant competence (42%) emerged as the leading causes of disputes in construction adjudications.[3]

The report confirms adjudication’s popularity and effectiveness, and the high levels of compliance with adjudicators’ decisions – the Technology and Construction Court (TCC) has issued only 219 enforcement judgments since October 2011, 77% of which fully enforced the adjudicator’s decisions. Out of these reported judgments, jurisdictional objections successfully defeated 15% of decisions, followed by natural justice at 10%, and other grounds (i.e. fraud) at 7%, demonstrating that the TCC will generally seek to enforce adjudication decisions with limited exceptions.

A recent landmark decision, BDW Trading Limited v Ardmore Construction Limited [2024] EWHC 3235, also highlights the evolving role of adjudications in addressing fire safety disputes under the Defective Premises Act 1972 (DPA).[4] This case confirms that adjudicators have jurisdiction to decide DPA claims where the contract provides for disputes “arising under the contract,” effectively aligning adjudication provisions with the broad interpretation established in Fiona Trust. The court’s decision underscores adjudication as a fast and effective forum for resolving such disputes, particularly those arising under the extended limitation periods introduced by the Building Safety Act 2022 (BSA). This ruling is expected to lead to a rise in fire safety disputes being referred to adjudication.

Industry standard contracts – what else you need to know

Our previous updates covered the JCT 2024 Edition of contracts and updates to modernise, address legal developments, and introduce a good faith obligation on parties to collaborate and negotiate disputes. The full suite, including the new family of JCT Target Cost contracts, will be available in 2025.

In Providence Building Services Ltd v Hexagon Housing Association Ltd, the Court of Appeal had confirmed that under the standard JCT termination provisions included in the 2016 Edition, a Contractor may terminate for repeated “specified defaults,” even if earlier defaults were remedied within the relevant cure period.^[5] For more information, please see our earlier update and case report. Permission to appeal this decision to the Supreme Court was granted in late 2024.

During 2024 there were also calls from the industry, including via the Construction Leadership Council, to limit any bespoke amendments to approved standard contracts to those which are strictly necessary[6].

Navigating the Principal Designer role – RIBA’s latest guidance

In November 2024, RIBA published a Practice Note offering practical guidance on the role of the Principal Designer under the CDM Regulations 2015 and BSA.[7] The Practice Note follows RIBA’s Principal Designer Guide and Principal Designer Professional Services Contract 2024, which we commented upon above and in our previous articles here and here.[8] While both roles share the same title, their legal responsibilities differ: the CDM Principal Designer mainly focuses on health and safety, while the BSA Principal Designer role ensures compliance with Building Regulations.

The Practice Note highlights the importance of planning, managing, and monitoring design compliance on projects and provides best practice guidance. Principal Designers must collaborate with clients, design teams, and contractors, proactively challenge non-compliance, and demonstrate competence through skills, knowledge, and experience. Although non-compulsory, the Practice Note should help consultants to understand and manage risk and meet new regulatory requirements in circumstances where industry guidance regarding the new building safety regime is still evolving.

FIDIC’s collaborative contract – promoting cooperation in construction

Collaborative contracting is gaining momentum globally as the construction industry shifts from traditionally adversarial to cooperative approaches, for example to meet increasing demands amidst limited resources and workforce shortages. The International Federation of Consulting Engineers (FIDIC) has also responded by developing a Collaborative Contract aimed at the international market.[9] Task Group 17 is reportedly examining global collaborative models to establish a framework promoting aligned objectives, risk-sharing, early supply chain involvement, and good faith cooperation. The final contract will seek to address growing calls for partnering procurement solutions, supported by multilateral development banks and global clients relying on FIDIC standards.

At a European International Contractors (EIC) conference on Collaborative Delivery Models in 2024, industry leaders discussed the importance of collaboration in complex projects.[10] Tools from FIDIC and NEC contracts were showcased as effective means of embedding collaborative principles into contracts. As collaboration becomes important for delivering projects efficiently and sustainably, these developments may mark a pivotal shift for the industry. It will be vital to understand how parties plan to use collaborative models or principles and risk allocation in practice, and how these will impact disputes given the ‘no blame/no claim’ culture typically promoted in pure collaborative arrangements.

Liability caps and set-offs – the importance of clear contractual language

TCC cases in 2024 have highlighted the need for precision when drafting liability caps, set-off, and termination clauses to avoid costly disputes and unintended consequences. For instance, the Court of Appeal’s decision in Topalsson GmbH v Rolls-Royce Motor Cars Ltd [2024] considered the application of an agreed liability cap in the context of set-off.[11] Whilst fact-specific, and seemingly contradictory to an earlier TCC decision in SABIC UK Petrochemicals v Punj Lloyd Ltd[12], the decision indicates the importance of clear contractual drafting, not least as courts will typically seek to enforce the ordinary meaning of the language used in business-to-business contracts, even where this may be seen to produce commercially harsh or unexpected results to a party.

To mitigate disputes, parties must test risk allocation and liability cap mechanisms during drafting, clarify their application to gross or net claims, and ensure contracts are unambiguous and complete.

BUILDING AND FIRE SAFETY

Grenfell Tower Inquiry’s Phase 2 Report update

The Report highlighted critical lessons for the construction industry, particularly the dangers of unclear contracts and casual project management practices. The Report also underscores the importance of using clearly defined scopes of services to prevent gaps or confusion over roles and responsibilities. Our earlier commentaries summarise the Report’s core findings and recommendations relevant to the sector and its potential impact on future contracts or claims.[13] To help manage risk, parties must ensure all contracts/schedules are clear, compliant with the changing legal and regulatory landscape, and effectively implemented from the outset of the project.

We await the Government’s response to the Report in 2025. In the meantime, you can find further detail on other aspects of the Report via our “Digesting the Grenfell Report” Hub.[14]

Remediation Acceleration Plan – faster cladding fixes and tougher penalties

In early December 2024, the Government announced its Remediation Acceleration Plan (RAP) to speed up the identification and remediation of unsafe cladding on buildings across England following concerns raised by the Grenfell Tower fire.[15] Key objectives of the RAP include completing remediation of buildings 18 metres or taller under Government-funded schemes by the end of 2029, and remediating unsafe cladding on buildings 11 metres or taller (or the setting of completion dates) within similar strict timescales. New legal duties will be imposed on landlords to ensure compliance, with financial penalties and potential criminal liability for non-compliances. The RAP also targets identification gaps, proposing a new register for residential buildings between 11-18 metres, and committing to supporting residents with cost protections, Waking Watch replacement funding, and insurance reforms. Additionally, developers must assess buildings by July 2025 and commence or complete works on 80% of properties by July 2026.

Public attention and enforcement action against delaying parties will likely intensify, with the effect of sanctions currently uncertain. However, this approach signals tighter regulations, increasing disputes around responsibility or funding (or on the quality of remediation works), and necessitates vigilance across the construction sector. For more information on the RAP, please see our update article here.[16]

Fire safety claims – a third wave on the horizon?

Since the Grenfell Tower fire tragedy, the construction industry has faced increased fire and building safety related disputes or claims, primarily focused on the design and/or construction of External Wall Systems and fire compartmentation measures to mitigate the internal spread of fire and smoke in buildings over 18 metres in height. Over time, these claims expanded to include structural defects uncovered during remediation works, marking what many considered a ‘second wave’ of claims.

We now appear to be witnessing a potential third wave of claims, whereby allegations involving water ingress in high-rise buildings, caused by alleged defects to the External Wall Systems, are being pursued alongside the typical allegations regarding non-compliance with Part B of the applicable Building Regulations. These ‘new’ allegations raise fresh issues, particularly around whether inadequate maintenance (rather than alleged defects in the original design and construction) is the root cause. This shift may complicate disputes and liability assessments, since it blurs the distinction between alleged construction defects and post-completion maintenance. Further complexities arise from the widespread fire safety exclusions in insurance policies which pose coverage challenges. As this potential ‘third wave’ gains momentum, consultants, contractors, and their insurers will need to remain alert and adapt to evolving liability trends.

Developers, duties, and defects – Supreme Court to clarify liability and limitation

The Supreme Court heard the appeal in URS Corporation Ltd v BDW Trading Ltd in early December 2024 – a case with significant implications for developers, consultants, and their insurers.[17] At its core, the appeal examines liability and the recovery of costs where a developer undertook remedial works to a building it no longer owned. The key issues for the Supreme Court include:

Whether BDW’s costs constitute actionable damage within URS’s duty of care.
If the BSA 2022’s extended limitation periods apply (i) in the above circumstances and (ii) to claims brought prior to Section 135 coming into force, and the subject of pending proceedings.
Whether the DPA applies to commercial developers or only property purchasers.
Whether BDW can claim for contribution under the Civil Liability (Contribution) Act 1978 without any third-party claim or settlement.

The case also challenges established precedent, including the legal position Pirelli v Oscar Faber (1983), and addresses crucial questions about developer liability and limitation. The ruling is expected to provide more clarity for the construction sector in the context of the new building safety landscape.

PAYMENT AND FUNDING

Private Finance Initiatives (PFI) – future risks and opportunities

PFI projects involve long-term contracts between public bodies and private parties, where the private sector designs, builds, finances, and maintains public assets such as hospitals, schools, and waste facilities. With 669 active PFI projects as of March 2023[18], and £143 billion in payments remaining, many are now approaching the critical handover stage, heightening the risk of disputes. The Infrastructure and Projects Authority has emphasised the importance of thorough handover review processes, ideally seven years before contract expiry, to mitigate disputes, particularly over asset conditions or rectification works.[19] The National Audit Office reported in 2020 that 33% of authorities anticipated disputes, with 86% related to the scope of required handover work.[20] Our last quarterly update considered some of the potential risks and disputes associated with PFI handback.

Looking ahead, there is growing speculation around such financing, including “PFI 3.0”, potentially part of Labour’s plans to revitalise public infrastructure via private financing models. This new iteration will need to overcome earlier criticisms of poor value for money by aligning private sector incentives with public goals, incorporating transparency, sustainability, and social value. While PFI 3.0 potentially offers opportunities to those working within the sector, stricter performance and contractual requirements may create fertile ground for disputes, requiring clear contract terms, proactive risk management, robust communication, and effective dispute resolution mechanisms.

Retention reporting regulations – a new era for payment transparency

From 1 March 2025, large construction companies will be required to comply with new reporting obligations under the Reporting on Payment Practices and Performance (Amendment) (No. 2) Regulations 2024.[21] Applicable to financial years starting on or after 1 April 2025, the Regulations aim to tackle late payments and transparency to retention practices. In summary, qualifying companies must disclose information stipulated under the Regulations, as summarised in our update here. Given the real reputational, financial, and legal risks associated with non-compliance, companies should be aware of the main requirements and start readying themselves now. Boards may wish to understand/review retention practices, implement robust reporting systems, and ensure directors understand their obligations when approving such reports for example. With growing focus on accountability and fair payment more broadly in the UK, this also provides an opportunity to strengthen compliance and sustain supply chain relationships.

ESG AND SUSTAINABILITY IN CONSTRUCTION AND ENGINEERING PROJECTS

The industry continues to grapple with the increased focus on ESG considerations and reporting requirements. In addition to the items covered in our earlier updates, the High Court’s judgment in Friends of the Earth Limited & Others (1) and South Lakeland Action on Climate Change – Towards Transition (2) v Secretary of State for Levelling Up, Housing and Communities, West Cumbria Mining Limited & Cumbria County Council [2024] EWHC 2349 (Admin) in mid-September 2024 is another example of successful environmental challenge and activism. Our summary of the decision, which addressed a legal challenge to a planning-related decision to permit a new underground coal mine in Cumbria on climate change grounds, can be found here. The project was the UK’s first potential deep coal mine in over 30 years and attracted attention from community groups. The decision is significant for developers and investors, as well as consultant advisers involved with similar projects currently undergoing planning reviews. It also clearly emphasises the need to address environmental impacts.

As ESG priorities and requirements continue to gain traction and evolve during 2025, construction professionals must anticipate stricter legal or contractual frameworks, mitigate risks, and embrace sustainable practices (which can sometimes be seen to directly conflict with other requirements, such as health and safety or quality). We may see additional ESG targets or requirements being expressly incorporated into contracts as parties become familiar with ESG-related objectives or standards. Each clause, and any consequences for breach, should be carefully considered on a case-by-case basis.

AI, CYBERSECURITY, AND CONSTRUCTION – NAVIGATING NEW RISKS

The use of AI and technology in construction offers a range of opportunities and risks. The construction sector (and complex projects) is however susceptible to data risks and cyber-attacks, which can affect finances, relationships, and reputations. System failures, such as the earlier July 2024 CrowdStrike outage, stress the need for appropriate governance and training programmes, cyber insurance, and clear contract terms to address legal and commercial risks.

In 2025, further advancements in technology and innovation are expected, with the increased use of AI presenting both opportunities and challenges for the construction and insurance industries, and their associated risk management measures.

CONCLUDING THOUGHTS

Our quarterly updates provided a range of information around some of the key themes, trends and disputes observed in 2024, together with predictions on how they may evolve this coming year. We will continue to provide similar quarterly updates as we progress through 2025.

Should you have any questions on the items covered in this final wrap-up for 2024, or require support on your contracts or projects as a result of recent legal developments, please contact Ian Masser or your usual Beale & Co contact. Please watch out for future commentary on many of the topics covered in our articles, including via our dedicated articles page on our website.

[1] Company insolvencies, November 2024 | GOV.UK / Construction insolvencies and profit warnings | BCIS

[2] KCL 2024 Construction Adjudication in the UK: Tracing trends and guiding reform | King’s College London

[3] King’s publishes third construction adjudication report focusing on key trends | King’s College London

[4] Adjudication and Fire Safety Claims: Expanding the Boundaries of Jurisdiction Under the Defective Premises Act 1972 | Beale & Co

[5] Providence Building Services Limited v Hexagon Housing Association Limited [2024] EWCA Civ 962

[6] Statement on standard terms | CLC

[7] Principal Designer Practice Note | RIBA

[8] RIBA Principal Designer’s Guide | Beale & Co; RIBA publishes 2024 Building Regulations Principal Designer Professional Services Contract | Beale & Co

[9] Work to deliver new FIDIC Collaborative Contract gets underway | FIDIC

[10] Collaborative Contracting Conference | EIC

[11] Topalsson GmbH v Rolls-Royce Motor Cars Ltd [2023] EWHC 1765 (TCC) (12 July 2023)

[12] Sabic UK Petrochemicals Ltd v Punj Lloyd Ltd [2013] EWHC 3202 (TCC) (10 October 2013)