How much does it cost to resolve a dispute, and what are the hidden costs of construction disputes?

The truth is, there’s no one answer for this question; the cost of a dispute depends on a multitude of factors, including the type of dispute, the dispute resolution approach, the complexity and scale of the issues at hand, and the amount of time required to resolve them.

However, what we can say with certainty is that disputes are expensive. A recent King’s College London report found that the median total fees for a claim in the UK for adjudication were in the range of £12,000 to £14,000 in 2023, with some stating up to £30,000.

And this cost isn’t even factoring in the bigger hidden costs, such as project delays, idling teams, management distraction and the ripple effects that run through the supply chain.

The hidden costs of construction disputes don’t just relate to money, either, as disputes can also damage relationships, erode trust, undermine reputation, and delay current or future project opportunities.

In this article, we’ll explore the true hidden costs of construction disputes, including why they arise, how they escalate and what practical steps you can take to minimise their financial and operational impact.

When we say hidden costs, we aren’t talking about deceptive finances or business scams, but rather costs that are often underestimated or overlooked when a dispute first emerges.

There are several direct costs that you associate with a construction dispute, for example:

• Professional fees: such as legal advisors, adjudicators, contract specialists or expert witnesses.

• Variation claims: these can be costs arising from disputed or late-agreed variations, including valuation disagreements and additional administrative time.

• Time and cost extensions: for example, increased preliminaries, extended site overheads and resource reallocation due to prolonged programme durations.

• Settlement or award amounts: e.g. payments resulting from adjudication, mediation or arbitration outcomes, including interest, compensation and associated compliance costs.

The direct costs can be expensive, but at least most construction business owners will be aware of them before a dispute arises, so that they can plan for them.

However, what may not be as obvious are the indirect or hidden costs, which can be just as impactful on your finances. In fact, the average dispute value in the UK reached £27.7 million in 2020. Alongside the financial costs, there are other impacts.

Here are some of the indirect or hidden costs you may experience during a construction dispute:

1. Project delays and associated overheads

When a dispute slows or stops progress on-site, costs continue to accumulate regardless. Additional site staff may be required for longer than planned, preliminaries extend beyond the original budget, and plant hire or equipment often remains on standby without adding value.

2. Lost productivity and lower morale

Project delays and disputes can have a knock-on effect on construction teams. Teams may become less proactive, teamwork suffers, and progress slows down. This reduced momentum directly affects productivity and morale, with long-lasting effects.

3. Opportunity cost

Disputes take up a lot of time for management and leaders because they need to attend meetings, gather evidence and discuss negotiations. This diversion of resources means less time available to oversee live projects or bid for new work, which may result in the business losing revenue due to missed opportunities.

4. Reputational damage

A high-profile dispute or a pattern of recurring conflicts can affect how clients, contractors and consultants view your business. Even if the claim is justified, prolonged disagreement may cast doubt on reliability or project performance. This can reduce future tender success rates and lead to higher risk premiums being applied by supply chain partners.

5. Supply chain disruption

Disputes often hit smaller subcontractors and suppliers the hardest, especially in disputes under £50,000, where cash flow is already tight. Payment delays, withheld retention, or uncertainty about scope can quickly erode their ability to deliver efficiently, with a ripple effect in the broader supply chain.

Construction disputes rarely emerge overnight; they are often growing and gaining momentum in the background, and are usually caused by small points of uncertainty, miscommunication or misalignment.

As a construction company, the best thing you can do is learn about disputes, including understanding why they escalate and identifying potential triggers. Here are some common reasons why disputes escalate:

• Poor contract setup or ambiguous documentation: unclear definitions, missing details, vague clauses, or weak variation and notice procedures all create the potential for a disagreement.

• Change orders, variations and scope creep: changes in design or sequencing are among the most common causes of delay and dispute, especially when not documented or agreed properly.

• Failure to deal with issues early: early warning mechanisms and escalation processes exist for a reason, but they’re often underused, allowing a minor problem to grow into a major conflict.

• Payment disputes and retention: withheld payments, unapproved variations and late valuations create pressure across the supply chain and frequently trigger formal disputes.

• An adversarial mindset or poor project culture: when parties default to fight mode rather than collaborate to solve issues, disputes accelerate, and costs increase.
  

Why escalation is so costly

Once a dispute escalates, the financial risk increases rapidly. Time itself becomes a major cost driver; the longer a dispute continues, the more overheads accumulate across staffing, project management and site operations.

As the dispute intensifies, you might also need to consult with legal teams, expert witnesses and specialist consultants, all of whom come with their own fee structures and time requirements.

Additionally, project progress can slow down or even stop, which doesn’t just delay isolated tasks; it disrupts entire delivery programmes, pushes back key milestones and strains commercial relationships. The tensions of which can deteriorate reputation and trust.

Finally, if the dispute progresses to formal proceedings, the financial impact can grow significantly. Mediation, adjudication, arbitration and litigation all carry substantial costs which can easily outweigh the value of the original claim.

Ultimately, the further a dispute progresses, the harder it is to control cost, time and risk.

While disputes can’t always be avoided, you can control the overall impact. The most effective strategies fall into two categories: prevention and early-stage mitigation.

Prevention (pre-dispute)

Prevention is better than a cure. This phrase might refer more to health, but the same can be said about construction disputes. The best way to minimise the financial impact of a dispute is to prevent it from arising altogether.

Here are some preventative strategies to help you minimise the impact of a dispute:

1. Contract clarity and proper documentation

A clear, well-structured contract is one of the most effective ways to prevent disputes. Selecting the appropriate contract form and tailoring it to the project ensures that roles, responsibilities, and expectations are unambiguous.

When notice requirements, variation procedures, payment terms and retention rules are fully documented and understood by all parties, the likelihood of disagreements once work begins is significantly reduced.

2. Stakeholder engagement and communication

Engaging stakeholders early, for example through Early Contractor Involvement (ECI), helps identify risks, design concerns and interface issues before they escalate.

Regular progress meetings, transparent reporting and the prompt use of escalation pathways maintain alignment and prevent minor issues from developing into disputes.

3. Robust risk management and record-keeping

Effective risk management and record-keeping further support dispute avoidance. You should be actively identifying potential sources of dispute, such as scope changes or design omissions. Monitoring potential triggers ensures you can control them and manage risks.

Maintaining accurate records, including site diaries, correspondence, meeting minutes, and variation requests, reduces the risk of conflict and provides a clear evidential base if disputes do arise, enabling faster, more cost-efficient resolution.

4. Proactive monitoring of third parties and supply chain

Monitoring suppliers and subcontractors is also critical because smaller subcontractors often face tighter margins, and minor issues such as late payments, unclear instructions, or unapproved variations can escalate quickly.

Proactively tracking performance, keeping communication channels open and addressing concerns early helps prevent small frictions from spreading across the project.

5. Embedding a culture of collaboration rather than an adversarial mindset

You should also foster a collaborative, solution-focused culture in your projects, as this reduces the risk of disputes. Encouraging teams to raise issues early, discuss them constructively and resolve them collectively discourages adversarial behaviour.

When transparency, accountability and problem-solving are consistently reinforced, relationships are protected, disputes are reduced, and projects achieve better commercial outcomes.

To learn more about how structured dispute-avoidance processes can prevent issues from arising in the first place, explore our Dispute Avoidance services at Novus Resolve.

Even with strong preventative measures in place, some disputes are unavoidable. However, the best thing to do is to act early. Effective early-stage mitigation helps maintain project momentum while protecting relationships and commercial outcomes.

Here are some early-stage/mitigation strategies to help you minimise the impact of a dispute:

1. Recognise early warning signs

Minor conflicts over variations, payment delays or quality concerns can escalate quickly if left unaddressed. Identifying these early warning signs and responding promptly helps contain the problem before it disrupts progress or strains relationships.

2. Use alternative dispute resolution (ADR) where possible

Using ADR methods, such as mediation, adjudication or dispute boards, can significantly reduce cost and time compared to formal litigation. These approaches encourage quicker, more collaborative resolutions, helping keep the project on track while limiting the financial and operational impact of the dispute.

3. Cost control and budgeting for potential exposure

Even when the outcome appears favourable, you should budget for legal fees, time overheads and the operational disruption that accompanies any dispute. Early financial planning reduces uncertainty and allows project teams to remain focused on delivery rather than firefighting.

4. Engage specialist advisers early

Engaging specialist advisors at the right moment further supports efficient resolution. Claims consultants, delay analysts, and forensic experts can clarify complex issues early, strengthen a party’s position and prevent the dispute from escalating unnecessarily.

5. Focus on minimising disruption to project execution

Throughout the process, it is crucial to keep the project moving wherever possible. Interim measures, such as temporary agreements or partial scope adjustments, help maintain momentum and prevent knock-on delays across the supply chain.

6. Post-dispute lessons learned

Once the dispute is resolved, capturing lessons learned ensures that systemic issues are addressed and future projects benefit from improved processes and clearer expectations.

Construction disputes rarely begin as major problems, but without proactive management, they can rapidly grow into significant financial, operational and reputational liabilities.

The hidden costs often far exceed the claim value itself. That’s why you need to prevent or minimise the impact of a dispute, which you can do with the right contract setup, strong communication, robust processes and early engagement.

At Novus Resolve, we help clients identify and manage potential disputes before they escalate, monitor minor disputes to prevent them from escalating, maintain project momentum, and prevent disputes from happening altogether.

Contact us today to learn how we can help you reduce the financial impact of disputes and protect the value, performance and relationships that underpin your construction projects.