With ongoing geopolitical uncertainty setting off abrupt changes to prices, supply chains, and other facets of construction, the infrastructure industry is bracing itself for a potential wave of disputes over how to readjust building plans. According to experts, however, many of these conflicts will be resolved outside of courts, given the industry’s growing preference for alternative dispute resolution and tools designed to discourage disputes from occurring in the first place.
Gerry Ranking, a partner and litigator at Fasken, says the trending approach to disputes in the infrastructure industry is twofold: avoiding litigation in favour of arbitration and trying to identify and resolve disputes as early as possible.
“In certain situations, a client may have no option but to get the lawyers involved,” Ranking says. “But while clients will still seek legal advice, early dispute resolution – and ideally resolving potential disputes before they arise – is more important and becoming the norm. You’re going to see more and more of it.”
“Disputes are proceeding overwhelmingly through arbitration based on arbitration clauses,” McCarthy Tétrault partner Moya Graham says, adding that she expects this trend to continue.
“Most of the disputes I’m dealing with in [infrastructure] are being conducted by way of private
arbitration as opposed to through the court system, which is not to say some cases aren’t managed in court,” Graham says. “But the big project cases, like the big P3 projects and similar, are all subject to arbitration clauses and are being dealt with privately.”
In recent months, demand for construction projects has not decreased due to fast-changing tariff developments or the uncertainty and financial turmoil they’ve introduced. Graham says that, to the contrary, “the industry is hungry right now for projects.”
However, that doesn’t mean the industry is entirely at ease. “There has been considerable concern about tariffs and how they will affect projects underway in Canada,” says Sharon Vogel, co-managing partner at Singleton Urquhart Reynolds Vogel LLP. “Project participants on all sides are very concerned about the projects, the increase in prices, and the impacts in terms of supply chain issues.”
Vogel describes the industry’s outlook as “reminiscent of the early days of COVID, where it was unclear what kinds of claims would be made on construction projects, and what litigation and also alternative dispute resolution mechanisms might be utilized to address those claims.”
Rising costs are one potential source of conflict since they could drive vendors to review construction contracts and look for provisions allowing them to readjust their prices to the market, Vogel says. Graham anticipates that many parties will take this route as prices shift. “If you budgeted based on a certain price of steel, for example, and you’ve locked in a fixed price [in your construction contract], and then there's a change to the price of steel in the market, different contracts will have different risk allocation for managing that,” she says.
“I think everybody's going to be – or should be – going into their contracts to look at how that’s treated on the terms of their particular bargain.”
The uncertainty introduced by tariffs is not the only thing driving claims. In Graham’s experience, most disputes in recent years have stemmed from one of two scenarios, particularly when it comes to large-scale projects. The first involves design that isn’t fully fleshed out before construction begins; disputes often erupt when these immature plans result in delays or parties seeking significant changes to a project’s scope. Graham says she’s observed many parties trying to renegotiate scope by using the change management provisions in project contracts, but those provisions are typically not designed for major scope changes. “It becomes unwieldy pretty quickly,” she says.
The second scenario involves contract administration that fails to follow the letter of the contract, which leads to uncertainty and disagreements. In this scenario, parties typically start working together in good faith but often neglect strict contract compliance. “A lot of individuals and organizations are used to doing things a certain way, and so they proceed business as usual,” Graham says. When disagreements break out, however, a party might look back to their contract and realize they have not been administering it according to their rights.
Both scenarios have become common as the demand for construction increases. “Everybody’s really excited to get building, so there’s a desire to… get these contracts signed and start construction,” Graham says, adding she expects these issues to persist soon.
However, they won’t necessarily be litigated in court. Graham says she’s handled most of these disputes via arbitration, but Vogel argues that the infrastructure industry is also increasingly turning to other alternative dispute resolution tools.
One of these tools is dispute boards, which parties form at the outset of a project to resolve issues arising during construction. The members, whom the parties select, periodically receive project updates, conduct site visits, and meet with the parties; if disputes occur, some construction contracts empower dispute boards to adjudicate and issue advisory opinions, interim binding decisions, or binding decisions.
Vogel says she’s noticed a significant increase in projects’ use of dispute boards over the last few years and expects the trend will continue “because parties are looking for more effective and more efficient dispute resolution mechanisms so that construction projects do not get bogged down in litigation.” In her experience, dispute boards have effectively reduced the potential for litigation.
A preventative approach has also taken hold in the procurement space, where parties increasingly turn to collaborative project models to stave off disputes by allowing parties to work together before construction begins. Where fixed-price construction models – in which project owners largely determine the scope of their project before choosing vendors to execute their vision – were once the norm in the procurement space, other options like the progressive model, the alliance model, and the integrated project delivery model have gained traction in recent years.
In contrast to fixed-price models, these latter models allow parties to collaborate on things like design and cost estimates or allocate risks and rewards to encourage collaborative relationships rather than adversarial ones. Fewer disputes during a project mean fewer delays, which allows projects to be completed faster.
“Once the project is done and the parties have left the scene – the hospital’s built, the bridge has got cars going across it – then we can deal with all the fallout litigation,” Ranking says. However, disputes, especially complex ones, are “not good when you’re dealing with a living entity and the parties still have to communicate and work together to complete the project.”
For Graham, though, dispute avoidance can only go so far. “Disputes are sort of unavoidable in the construction and infrastructure industry, and it’s really more about managing them than it is about avoiding them,” she says.
She says this involves following contracts, documenting issues carefully as they arise, and engaging with experts early. “I think that really helps put parties – whether you're on the owner side or the contractor side – in the best position to manage disputes.”