How to Use Third-Party Funding to RESOLVE Construction Disputes?

Delays are most common in the construction industry. These construction delays lead to disputes and claims that are time-consuming and costly. It is a well-known fact that construction disputes involving infrastructure projects are long, expensive, and complex. They need a significant volume of evidence, experts, and witnesses, which adds to the cost. One of the main concerns of all the parties involved in the dispute is, how can the claim be resolved most cost-effectively and beneficially? This is where Third-Party Funding (TPF) comes in. In litigation and arbitration, TPF or also called litigation finance can alleviate the financial burden on the parties involved in the dispute.

Using Third-Party Funding (TPF) in Construction Claims

TPF allows parties involved in the construction dispute to file claims, which was otherwise impossible due to a lack of resources. In such cases, the person providing TPF becomes involved in the legal dispute by providing part of or full legal costs to any one of the parties. It is done in return for an agreed percentage of the winning amount or a lump-sum amount that is paid after the success of the claim.

An Overview on TPF

Third-Party funding involves a person or a firm that is not directly related to the dispute, funding one party’s legal costs, and claim expenses. In return, the funding party settles on a percentage of the total amount recovered by the claimant in the dispute. According to the International Council for Commercial Arbitration, the market for TPF has grown over US$10 billion globally.

For example, in arbitration, a third party funder agrees on covering the costs incurred on lawyers, delay experts, which are essential for any claim. The funder can agree to cover partial costs or full coverage depending on the case. In return, the claimant agrees to give the funder a percentage of proceeds of the claim obtained through settlement.

The International Chamber of Commerce (ICC) in its report on the management of arbitration in the construction industry quote,

Third Party Funding offers a third viable option for parties which would otherwise be faced with the alternatives of either writing off their losses or negotiating unfavorable settlements.

A Clear View on the Validity of the Construction Claim

According to the International Arbitration Survey: International Construction Disputes, TPF is still “in its early stages.” However, the construction industry is one of the most attractive sectors for the Third Party funders. One reason behind this is that construction claims are on a large scale and yield high returns.

However, due to high complexity and large scales, these claims are quite challenging and involve higher risk. Therefore, the applicant of funding must hire construction claims consulting firms for the preparation of facts and documents to display the validity of the case.

The funder will decide based on the evidence provided, whether the dispute should be awarded full or partial funding depending on the profit share. Make sure to get professional help; otherwise, your application for funding might be rejected.

Pursuing Claims under Tight Project Budgets

Even if you are dealing with a large construction dispute case, the chances are that you might not have enough money to start a claim. In such cases, you would either settle for unfavorable negotiation or write off your losses in a worst-case scenario. In case of a tight budget and no resources to proceed with litigation and arbitration, TPF provides a golden opportunity to contractors.

Third-Party funding allows claimants to make claims which were otherwise impossible due to not enough funding. With a third party funder covering the costs of lawyers and experts, you can initiate litigation and arbitration. Similarly, early-stage funding is essential for the claimant as it helps in gathering necessary evidence and expert witnesses to assist in the development of the claim.

Leverage in Dispute Negotiations

Most of the time, construction disputes are settled eventually between the parties involved. In these scenarios, Third-Party Funding (TPF) may prove beneficial because the involvement of a TPF in a case demonstrates its worth. The reason behind this is that the funder chooses a case after extensive scrutiny, which shows that the case is worth investing in.

If your construction dispute case manages to secure TPF, it means that the funder invested in your claim because of a high return benchmark. TPF is highly beneficial in construction infrastructure disputes because of the high cost of arbitration. Therefore, make sure to consult a quantum and delay expert when presenting your case to a potential funder to ensure full coverage.

Third-Party Funding – A Game Changer for the Construction Industry!

Multiple aspects revolve around the topic of Third Party Funding (TPF) beyond these advantages and concerns mentioned above. TPF certainly proves to be advantageous for parties involved in the construction claim; however, various policy concerns make it uncertain.

Therefore, you must consult a construction claims expert regarding the funding of your claims to alleviate the financial burden on the claimant and successfully defend your claim. TPF is a game-changer and a golden opportunity for claimants to finally get what they are owed.