Jonathan Waters describes how labour shortages can result in problems such as substandard work, delays or defects – and claims that can escalate quickly.

Labour shortages are generating a wave of legal disputes in a way I’ve not seen before.

What’s happening is that projects are being contracted on assumptions that no longer hold and, when things go wrong, there is often no clear framework to resolve who bears the cost.

I’m seeing it in different ways. For instance, I’m working on a dispute where it was agreed the labour would be paid at £320 per shift, but the employer is now trying to claim it was £300 per shift, resulting in a claim for £445,000.

I’m also working on a dispute where my client supplied £1.7m of labour, but the project’s client is only willing to pay £1m. Our client was the third company on the job and believes the employer’s tactic is to agree to the market price, but avoid paying it by claiming the workers were not supplied or were overbooked.

We shouldn’t be surprised. Construction disputes are usually about price, time and quality, and labour shortages affect all three.

Contractors who took on projects before the full scale of the labour shortage became apparent now find themselves caught between contractual obligations they struggle to meet and resources they can’t procure at any reasonable price.

The problem for contractors is that, where delays arise from resourcing constraints rather than client-side risk events, they have limited grounds to claim an extension of time or additional cost recovery.

The contract doesn’t care why the delay happened, only that it did. Unless there is a specific relief mechanism that applies, the financial exposure is real, and it falls on the contractor.

The gnarly problem of defects

Labour shortages alter who is available to work. When experienced tradespeople are in short supply, contractors have to fall back on less experienced or less specialised workers.

The result can be substandard workmanship that leads to defect claims further down the line.

Defect disputes are among the most contested areas of construction law.

Establishing whether a defect arose from poor workmanship, inadequate supervision, unsuitable materials, or design failure is rarely straightforward, and the process of investigation, expert evidence and negotiation is costly for everyone.

Where the root cause is a workforce that lacked the requisite skill, contractors and their insurers face difficult questions about whether they had the capacity to take on the work in the first place.

We’re now seeing defect claims where the core issue is not a technical failure but a resourcing one, such as when a contractor uses inexperienced workers because nobody else is available.

A very special strain

The strain is acute in the subcontractor supply chain.

Specialist subcontractors, who carry out much of the detailed work on complex projects, are operating at capacity in many sectors, including mechanical and electrical, groundworks and structural steelwork.

When a main contractor can’t secure a reliable specialist, it faces a choice between programme slippage and accepting a subcontractor whose performance record may be less established.

Where subcontractor performance falls short, disputes around interim payment, retention, termination and back-charges are almost inevitable.

The contractual frameworks governing these relationships are often poorly drafted or poorly understood, which compounds the difficulty. A subcontract negotiated at speed to keep a programme moving may contain gaps or ambiguities that become highly significant when things go wrong.

When there’s no one to blame

The labour shortage is exposing weaknesses in how contracts allocate workforce-related risk.

Most standard contracts were not designed with a systemic, industrywide skills shortage in mind.

Force majeure and frustration provisions are rarely applicable in practice, and the absence of clear contractual mechanisms for addressing prolonged resourcing difficulties means that parties are left to argue over clauses drafted with different circumstances in mind.

Clients with fixed budgets don’t want to absorb contractor cost overruns that arise from market conditions outside their control. Contractors, facing the same market conditions, argue that the risk is not theirs to bear.

Without clear contractual language to resolve that disagreement, disputes escalate.

What to do

In a pressured market, the temptation is to get paperwork signed quickly so work can start. But don’t rush. Scrutinise your contract for workforce-related risk provisions.

Record resourcing challenges formally as they arise, because verbal conversations may not protect you if a delay claim is later contested.

Don’t wait for a dispute to crystallise before taking specialist advice, as early input can preserve your legal position and identify solutions before the relationship breaks down.

Jonathan Waters is a senior partner at Helix Law.