CONSTRUCTION DISPUTES: HOW TO RESOLVE THEM?

Construction disputes arise as a result of disagreements between the parties involved in

a contract. These disputes themselves are not a breach of contract, but they may lead
to a breach of contract, termination, or even claims threatening the contractor’s surety
bonds if unmitigated. Parties in a contract, therefore, need to take the necessary steps
to reduce the possibility of disputes arising for parties in a contract.

TABLE OF CONTENTS
 How do construction disputes transpire?
 Common types of construction disputes
 How to resolve a dispute
 Preventing disputes

When a construction dispute arises, the parties to the contract may find themselves at
loggerheads, not knowing what course of action to follow.
Construction disputes arise as a result of disagreements between the parties involved in
a contract. These disputes themselves are not a breach of contract, but they may lead
to a breach of contract, termination, or even claims threatening the contractor’s surety
bonds if unmitigated. Parties in a contract, therefore, need to take the necessary steps
to reduce the possibility of disputes arising for parties in a contract.

HOW DO CONSTRUCTION DISPUTES TRANSPIRE?

Before we delve into ways to resolve construction disputes, it is essential to closely
assess what causes construction disputes. Construction disputes stem as a result of
disagreements between the parties involved in a contract. The violation may be a
perceived or confirmed violation of the contractual obligations by either party. The three
primary factors that lead to construction disputes are issues with contracts, behavior,
and contractual problems.

ISSUES WITH CONTRACTS

Typical forms of contracts pre-describe the obligations and risks each party is willing to
bear. Due to the rigid nature of such agreements, they become unsustainable over
extended periods, and it forces the parties involved in the contract to operate under
uncertain terms. When conditions of uncertainty arise in a contract, they lead to a shift
in the risks and obligations among the parties involved. Consequently, disputes may
occur due to the perceived change in risk allocation in the contract.
BEHAVIOR
Since contracts do not cover every eventuality, problems may arise in areas where the
contract remains silent. When such disputes arise, parties may want to gain as much as
possible from each other. Equally, the parties may have different perceptions of the
facts surrounding the contract. One party may have unrealistic expectations, thus
affecting the ability to reach amicable agreements. Also, a party may refuse to perform
their contractual duties in a bid to avoid liability.

PROJECT UNCERTAINTY
Project uncertainty is the difference in the amount of information needed to start a
project and the available information. The information required depends on the
complexity of the performance requirements, project scope, time, and budget. The
information available is dependent on planning effectiveness, collection, and
interpretation of the information at hand.
When there is a high level of uncertainty, the stakeholders cannot plan for every project
detail before work commences. With such a high level of uncertainty, project details and
specifications may change, leading to disputes.

COMMON TYPES OF CONSTRUCTION DISPUTES

Due to the nature of construction projects, there are various ways in which construction
disputes can arise. Below are some of the common types of construction disputes we
have.
CHANGE OF FINISH DATE
All of us are familiar with the adage that “time is money.” In modern construction
projects, this adage is also true. A change in the finish date may lead to increased
project costs. Contractors may incur additional fees from idle labor or equipment. Rental
charges of equipment may accrue even though the equipment is lying idle. Supervisors
and workers may also be idle, leading to unrecoverable costs. Therefore, these
changes in finishing dates put a lot of pressure on contractors and may even affect their
other projects. This will result in a considerable loss in profit.

DELAYS
When delays occur, the party responsible should issue a notice in writing, letter, or
electronic mail. The written notices clarify and pass on complete information to all the
involved project stakeholders. Delays bring about disputes as to who should bear the
responsibility for them. Most construction contracts deal with delays by extending the
time of completion. The owner can keep the rights to recover the damages from the
delays from the contractor. FIDIC conditions of contracts state that a contractor is
supposed to give notices on circumstances that may lead to delays beforehand, or else
they may lose the rights for time extension or compensation.

DESIGN
Mistakes in design can also lead to additional costs, which become the cause of delays.
There is no planning sequence followed for the release of design information, which
impacts construction. Design teams may also abrogate their responsibility leaving the
contractor in harm’s way to solve design problems independently. In so doing, the
contractor unknowingly assumes the risks of impending design failures.

GOALS
Subcontracted firms engaged in large construction contracts may employ a lot of
personnel. Each of these firms may have its own goals and commitments that are not
compatible with the goals of other key players in the project. As expected, this may lead
to disputes.

QUALITY OF MATERIALS
Sometimes disputes may come up as a result of the quality of materials used.
Specifications may be vague on the conflicts, and each party may have different views
on whether the quality is in accordance to contract specifications. The parties may have
different opinions as to whether the quality and craft are sufficient. This can lead to
additional contract costs that may lead to many costly disputes if left unresolved.

DIFFICULT PROJECTS
The project stakeholders may need to carry out proper risk management before a
project commences, and more often than not, this is not done. Projects take longer than
planned if there is insufficient accounting of possible risks associated with a project’s
complexity. The delays and claims remove the owner’s rights to claim for delays or
damages.

HOW TO RESOLVE A DISPUTE

It is unlikely for a project to run from start to finish without a dispute arising.
Unfortunately, most dispute resolution procedures are an afterthought by contractors
who focus on scope and price. However, it takes just one bad experience for one to
handle dispute resolution more seriously. There are primarily four main methods in
resolving contractual construction disputes, as discussed below.

NEGOTIATION
Usually, negotiation is the first part of dispute resolution. Negotiation is when the parties
in dispute try to reach amicable conclusions between themselves before moving further
to other means of dispute resolution. It is the easiest, least expensive, and could yield
the most immediate productive results. If it does not deliver results, it at least maps out
the actual points of disagreement so that the parties know where they stand.
MEDIATION
Mediation is when the parties in dispute involve a neutral third party to help in resolving
the dispute. Mediation is not a legally binding method of conflict resolution but is one of
the most effective ways to get out of a situation before it worsens. The parties attempt to
reach a just resolution outside the court before moving to other means.

ARBITRATION
Arbitration is the method contractors and lawyers prefer when it comes to dispute
resolution. Most contractors list it as the way to address disputes in contractual terms. If
the parties opt for arbitration, they must choose a neutral third party with the relevant
experience to bring them to an amicable solution. Unlike in mediation, the arbitrator
gives the final verdict to the conflict, whereas in mediation, the mediator only assists the
parties to conclude. The costs of arbitration are significantly higher, and the decisions
are legally binding in some jurisdictions.

LITIGATION
Litigation involves trials that are enforceable and legally binding. It is the most thorough,
complex, and costly dispute resolution process. It is also very slow, so most parties opt
for other dispute resolution processes instead.

PREVENTING DISPUTES
Disputes in construction are prevalent, and preventing a conflict is better than solving
one in the first place. Sometimes parties end up aborting entire projects if they cannot
make successfully deliberate on disputes. Below are some of the best ways of
preventing conflicts.

CLEAR PAYMENT TERMS

Most construction projects work based on interim payment cycles. A contract should
have agreed on dates where payment applications should be made, related payment
notices issued, and the actual payment release. This system of predetermined payment
dates and terms reduces the likelihood of disputes.

COMMUNICATION
Disputes also arise when the parties fail to maintain communication. Most developers
and contractors communicate when the project commences and expect everything to
run smoothly according to plan. This is often not the case, and parties should share at
every stage of the project to address any challenges that pop up during the construction
process.

KEEP RECORDS
Having a normal gentleman’s agreement is the worst mistake you can make in
construction. Always ensure that you put everything in writing. Records should include
notices, letters, emails, photos, and diaries. Construction is an expensive affair, and you
risk losing a lot of money if you do not put everything in writing. Record keeping
removes any doubts about agreements made by the parties.

FOLLOW THE CONTRACT

The involved parties should ensure that they understand the contract in place with all
the clauses, terms, and amendments. Most projects adopt a standard building contract
and make changes to transfer the risks. These changes need to be negotiated and
understood. Once both parties understand the contract, they should follow all the
contract provisions uninterruptedly throughout the project’s lifecycle.
SUMMARY
A project’s success depends on how fast you can identify critical problems and
communicate to the appropriate parties to resolve them. Implementation of construction
contracts helps achieve success and prevents the never-ending disputes likely to drown
your project’s success.

Reference: Protest | Construction / Tips / Construction Disputes: How to resolve

them? | August 19, 2021 | https://proest.com/construction/tips/resolving-disputes/?
fbclid=IwAR01G6s8wDVyESx1_-OlBBscu4eT3OlhsHK96Z1UmC2GB-
H3F0Dnw3D78Qg

Construction Dispute Resolution: A Brief Guide

Construction projects can involve numerous parties, complex contracts, and a variety of
technical issues. With so many moving parts, it's no surprise that disputes can arise.
When they do, an effective and timely resolution is critical to avoid costly delays,
damaged relationships, and potential litigation. Two primary methods of resolving
construction disputes are arbitration and litigation. While each has its advantages and
disadvantages, deciding which is best for a specific dispute can be challenging.
In this blog post, we'll explore the pros and cons of each method for construction
dispute resolution, and provide guidance on factors to consider when deciding between
them.

What are construction disputes and why it happens?

Construction disputes are disagreements or conflicts between stakeholders of a
construction project. The dispute can be between any two or more stakeholders like
owners, contractors, subcontractors, and suppliers.
The reasons for the disputes can be many. Generally, misunderstandings, violations
of construction contracts, project delays, changes in work scope, design changes or
faulty design, and payment issues are the reasons for the disputes. Furthermore,
breach of contract is another major reason for construction disputes.
When disputes remain unresolved for long, they may lead to cost overruns in the form
of delayed projects, year-long legal proceedings, and higher compensation.
Some common types of construction disputes
Payment disputes
This is, by far, one of the most common disputes in the construction industry.
Contractors, subcontractors, suppliers, and project owners may often disagree with
each other regarding the terms of payment.
Payment disputes may arise due to the value of work completed or over the quality of
the work. Even the timing of payment is often a cause for disputes among the parties
involved in the project.
Scope disputes
This dispute arises when the owner and general contractor disagree over the scope of
the work to be done. Project owners often demand changes in the scope of the project
during its construction phase. This leads to disputes as the new changes might not be
mentioned in the contract. Having different interpretations of the project's scope may
also cause disputes to arise between the contactor and the project owner.
Schedule disputes
This dispute arises when the construction schedule suffers delays or disruptions. This
might happen for a multitude of reasons, including weather, unforeseen site conditions,
or labor shortages. Schedule disputes can result in cost overruns and ultimately the
project may witness delayed commissioning.
Design disputes
When the project owner and contractor disagree over the project's design or
specifications. This might happen due to unclear design, erroneous design, or if
something is missing from the design.
Quality disputes
As the name suggests, this dispute arises when the project owners and contractors
don’t agree on the overall quality of the work completed. Incomplete work, defective
work, or inability to meet the required construction regulations and standards can
contribute to quality disputes among the stakeholders of the project.
Safety disputes
Safety disputes occur when there are disagreements over safety issues on the
construction site. This can happen if the contractor does not follow the required safety
standards or if there are unsafe conditions on the site. Safety disputes can lead to
injuries, legal action, and a damaged reputation for the parties involved.
Different Construction Dispute Resolution Methods
NEGOTIATION
Negotiation is one of the most common dispute resolution methods. Here, the parties or
their representatives attempt to reach an agreement without the participation of any
third party. The meetings are private and often confidential.
This is often the first step for resolving disputes among the stakeholders in a
construction project. Negotiation avoids a rigid attitude and focuses on finding solutions
to both parties’ satisfaction. The success of any negotiation hinges on the quality of the
parties' communications with one another.

Pros
 The mutual agreement benefits both parties
 Can time-consuming and expensive methods like arbitration and litigation
 Parties can control the outcome of the dispute
 Business relationships remain intact between parties

Cons
 Cannot happen without the willingness of both or all parties involved
 Ineffective if no mutually acceptable agreement is reached
 Multiple rounds of negotiation can delay the resolution process

MEDIATION
Mediation is facilitated by a mediator to settle disputes. The mediator is a neutral third
party assisting the conflicting parties to reach an agreement or understanding.
Mediation is also known as "brokered negotiation" or ‘assisted discussion. Unlike
arbitration or litigation, the mediator just facilitates communication between the parties
involved in the conflict. It does not provide any verdict or does not make any decision for
the parties.
It depends solely on the parties to decide the terms of the agreement. There is no legal
right or wrong involved in the process.

Pros
 Helps to maintain a healthy business relationship
 The quickest dispute resolution method
  Completely confidential
 Huch cheaper than litigation and other dispute resolution options
 Seeks to find a resolution that leaves both parties happy

Cons
 If an agreement cannot be reached, further action will be required and the cost of
mediation has essentially been wasted
 Risk of sharing sensitive information that might weaken the participant’s position

CONCILIATION
In many references, conciliation is similar to mediation. However, unlike mediation
where the mediator meets the involved parties privately, here the neutral third party
facilitates settlement in the presence of both parties.

Shuttle diplomacy is involved in conciliation where the independent third-party listens to

the disputants of both parties. Based on the proceedings, the conciliator proposes a
resolution in writing. Thereafter, it depends upon the parties to either accept the
proposed resolution or reject it. In no way, the parties are obliged to obey the outcome.
In case, the dispute moves to arbitration, the conciliator cannot be appointed as an
arbitrator unless both parties agree in writing.

Pros
 Faster resolution of disputes than litigation or arbitration
 Less expensive than other methods of dispute resolution
 All communications and proceedings are open and transparent
 The outcome is tailored to suit the needs of both parties

Cons
 The outcome of conciliation is not legally binding
 The conciliator has no judicial power to enforce the resolution

ARBITRATION
In arbitration, the conflicting parties agree to submit the dispute to one or more
independent arbitrators. It is often called privatized litigation since the proceedings and
verdict are outside the domain of the legally binding and enforceable judicial jurisdiction.
Yet parties involved in the conflict are bound to obey the outcome of the arbitration
procedure since they mutually choose the arbitrator.
It may be important to observe that arbitration, like litigation, focuses on the parties‟
legal rights and an arbitral proceeding is sometimes not much different from a court
proceeding. However, unlike litigation where everything is made public, arbitration
maintains the privacy and secrecy of the matter. Entities who are not involved in the
proceedings are not allowed.

Pros
 Arbitrators hold stronger powers than adjudicators
 Completely confidential process
 Both parties can decide on the arbitrator
 Arbitration is cheaper than litigation
 Offers more flexibility to court proceedings

Cons
 Limited appeal rights for the losing party
 Parties must bear the costs of the arbitrator and the venue
 Limited power is available if the parties fail to here to the arbitration

ADJUDICATION
Adjudication is a process similar to arbitration except for the fact that it is legally
binding. Unlike arbitration which is private process of resolving disputes, adjudication is
a public process and decisions are taken by a judge or a panel of judges who acts as
the adjudicator. Adjudication being governed by a country's formal rules and acts, it
requires more formal evidence and rule-based procedures.

Pros
 Adjudicator is completely independent of both parties
 Helps to maintain a company's cash flow
 Inexpensive compared to court proceedings

Cons
  The adjudicator's powers are limited
 Further action may be required if the losing party fails to adhere to the outcome
reached

LITIGATION
Litigation is a confrontational way of resolving disputes that focuses on legal rights. This
is due to the adversarial nature of the litigation process, where one party confronts the
other party/parties using the formal rules and laws of the jurisdictional area.
However, litigation as the final means of dispute resolution has decreased in recent
years due to the extended time it takes to settle disputes or reach to a verdict. Instead,
it's being used to supervise and support other dispute resolution mechanisms or to
enforce their results. This helps to efficiently implement alternative dispute resolution
methods.

Pros
 It requires the involvement of a judicial entity like a judge or jury
 Applicable for complex disputes for construction projects worth millions
 The final decision is binding and enforceable to all parties involved in the
proceeding

Cons
 Undoubtedly, it is the slowest yet most expensive process among all the dispute
resolution methods
 The whole proceeding is public and nothing can be kept confidential

Which Method is Best for Construction Disputes?

The circumstances and context of every construction dispute can be different. Hence,
the best method for construction dispute resolution depends on the specific
circumstances of the dispute. Some disputes may be more complex than others and
may require a more formal and lengthy process.
Other disputes may be less complex and could be resolved more quickly and cost-
effectively through dispute resolution methods such as negotiation, mediation, or
arbitration. When it comes to more formal dispute resolution methods, arbitration and
litigation are the most popular, especially for binding and enforceable decisions.
Litigation can be a time-consuming and expensive process, and the parties have less
control over the outcome, as the decision is in the hands of a judge or jury. In contrast,
arbitration can be quicker, and less expensive, and the parties have more control over
the process and the outcome.

Reference: Blackridge | Construction Dispute Resolution: A Brief Guide | May 02,

2023 | https://www.blackridgeresearch.com/blog/construction-project-dispute-
conflict-resolution-settlement-methods?
fbclid=IwAR2J1H9LPVnEfM6hXiMX892MeFOVmymzfUSw-
hNFBDB4gh8dwY5vAhdPot0#:~:text=Construction%20disputes%20are
%20disagreements%20or,the%20disputes%20can%20be%20many

Construction disputes refer to disagreements or conflicts that arise during the

construction process between parties involved in a construction project, such as
owners, contractors, subcontractors, architects, engineers, and suppliers. These
disputes can lead to delays, additional costs, and legal actions. Here is some complete
information about construction disputes, including types and ways to resolve them:
1. Types of Construction Disputes:
a. Payment Disputes: These disputes arise when parties disagree about payment
terms or amounts owed. They can be related to change orders, extra work, delays, or
defects.
b. Scope of Work Disputes: These disputes arise when parties disagree about the
work to be performed or the quality of work. They can be related to design issues,
misunderstandings, or changes in scope.
c. Delay Disputes: These disputes arise when parties disagree about the cause or
responsibility for delays. They can be related to unforeseen conditions, design errors, or
changes in scope.
d. Defects Disputes: These disputes arise when parties disagree about the existence
or severity of defects in the work. They can be related to design errors, material defects
or workmanship issues.
e. Termination Disputes: These disputes arise when parties disagree about the
termination of a contract or the termination fee to be paid. They can be related to breach
of contract or insolvency.
 2. Ways to Resolve Construction Disputes:
a. Negotiation: This is the most common and preferred way to resolve construction
disputes. Parties can negotiate directly or through a third party to reach a mutually
beneficial solution. Negotiation can be formal or informal and can involve mediation or
arbitration.
b. Mediation: This is a voluntary and confidential process where a neutral third party
helps the parties to reach a mutually acceptable solution through discussion and
negotiation. Mediation can be binding or non-binding and can be conducted in person or
online.
c. Arbitration: This is a binding and confidential process where a neutral third party
hears the evidence and makes a decision based on the law and facts. Arbitration can be
conducted in person or online and can be governed by specific rules or procedures.
d. Litigation: This is a formal and public process where the parties present their case to
a court of law and a judge or jury makes a decision based on the law and facts.
Litigation can be expensive and time consuming and should be a last resort for
resolving construction disputes.

In conclusion, construction disputes can be complex and challenging to resolve.

It is essential to address them promptly and professionally to minimize their impact on
the project and the parties involved. Negotiation is the preferred way to resolve
construction disputes as it is less expensive and less time consuming than other
methods. However, mediation and arbitration can also be effective in resolving
construction disputes in a timely and cost-effective manner. Litigation should be a last
resort due to its high cost and long duration.

Construction disputes can arise from a variety of sources, including:

1. Contractual disagreements: Issues may arise due to differing interpretations of
contract terms or obligations, changes in project scope, delays, or payment
disputes.
2. Design errors or omissions: Problems arising from mistakes or oversights in
the project design, leading to construction issues or delays.
3. Poor workmanship: Disputes may occur when the quality of work performed by
contractors or subcontractors does not meet the agreed-upon standards.
4. Delays: Delays in project completion can lead to disputes between parties,
especially when it is unclear who is responsible for the delay.
5. Cost overruns: Budgetary issues, such as unexpected expenses or changes in
project scope, can lead to disagreements over additional costs.
 6. Safety issues: Disputes may arise if safety regulations are not followed on the
construction site, leading to accidents or injuries.
7. Environmental concerns: Disputes can also arise from environmental issues
related to construction activities, such as pollution or damage to natural habitats.
8. Regulatory compliance: Non-compliance with building codes, zoning
regulations, or other legal requirements can lead to disputes between parties
involved in the construction project.

Here are some steps to help resolve construction disputes:

1. Communication: Effective communication is key to resolving construction
disputes. All parties involved should communicate openly and honestly about the
issues at hand.
2. Identify the problem: Clearly identify the issue causing the dispute. This could
be a disagreement over project scope, quality of work, payment disputes, or
delays. Once the problem is identified, it becomes easier to find a solution.
3. Gather evidence: Collect all relevant documents, contracts, drawings, change
orders, invoices, and any other evidence related to the dispute. This will help in
presenting a strong case during negotiations or arbitration proceedings.
4. Negotiate: Try to resolve the dispute through negotiation between the parties
involved. This could involve mediation, where an impartial third party helps both
parties reach an agreement, or arbitration, where an arbitrator makes a binding
decision based on the evidence presented. Negotiations can be less expensive
than going to court. However, if negotiations fail, legal action may be necessary.
5. Legal action: If negotiations fail, legal action may be necessary. This could
involve filing a lawsuit or arbitration claim. It is essential to have a clear
understanding of the legal process and the potential costs involved.
6. Alternative dispute resolution (ADR): Consider alternative dispute resolution
methods, such as mediation, arbitration, or conciliation, which can be less
expensive and less time-consuming than traditional legal action.
7. Document everything: Document all communication, agreements, and
decisions related to the dispute. This will help in resolving any future disputes
and provide evidence in legal proceedings, if necessary.
8. Learn from the dispute: After the dispute is resolved, take the time to learn from
the experience. Identify the root cause of the dispute and take steps to prevent
similar issues from arising in future projects.
By following these steps, parties involved in construction disputes can work towards a
resolution that is fair, cost-effective, and timely.