Professional Documents
Culture Documents
Construction Disputes
Construction Disputes
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.
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.
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.
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.
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.
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.
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