CONSTRUCTION DISPUTES

Construction Disputes
 Arise from environmental and behavioral facts.
 There are many different causes of disputes in the construction
industry.
 Disputes waste money, therefore drain profits and destroy the
relationship and it takes energy away from projects.
 Construction delays, variations, efficiency issues and exceeding
cost can be some causes for the dispute to arise in the project.
 Typically construction disputes occur between the owner and the
main contractor, subcontractors, sub-subcontractors and design
professionals.
 The main source of this problem is the lack of precision in
the contract description between involving parties.
 The construction industry has tried a different way to avoid
the disputes.
 Currently, construction industry uses building information
modeling (3BM) or 3D modeling and it has significantly
minimized these kinds of disputes.
 The reason for construction disputes are being a part of
construction life fall into four categories. Contract Finance
Culture External factors
Definition of dispute (pagtatalo)
 Is a misunderstanding between two parties, either contractual or non-
contractual.
 Is unable to eliminate because the nature of the construction is full risk
 Definition of the dispute may be circumscribed it may inevitably involve
resolution of the matters which may not specifically have been raised into
separate or discrete disputes.
 The judicial development of the definition of dispute required to give an
adjudicator threshold jurisdiction has been instrumental in encouraging the
parties to exchange views and facts which support their case, but it can be a
rather blunt instrument for reducing dispute and far hurt of a preadjudication
protocol.
 A dispute will not exist until a claim is asserted by one party which is
disputed by the other party.
FACTORS AFFECTING CONSTRUCTION
DISPUTES

1. Terms of the Contract

2. Technological Issues
3. Project Conditions
4. Parties Involved
5. Magnitude
6. Site Conditions
7. Degree of Bias
8. Third Party
9. Organizational Behavior
10.Culture
Common Cause of Disputes

 Failure to properly administer the contract

 Poorly drafted or incomplete/unsubstantiated claims
 Employer/contractor/subcontractor failing to
understand and/or comply with its contractual
obligation
 Errors and/or omissions in the contract document
 Incomplete design information or employer
requirements.
CAUSES OF CONSTRUCTION
DISPUTE BY CLIENTS

1. Deficient management supervision

2. Lowest price mentality in engagement of
contractor
3. Poor communication
4. Discrepancies in contract documents
5. Failure to appoint project manager
6. Failure to respond in time
CAUSES OF CONSTRUCTION DISPUTES
BY CONTRACTORS

1. Delay suspension of work

2. Lack of understanding and agreement in contract
procurement
3. Inadequate CPM scheduling and update requirement
4. Failure to plan and execute the changes of works
5. Reluctance to seek clarification
6. Failure to understand and correctly bid or price the
works
CAUSES OF CONSTRUCTION DISPUTE BY
THE CONSULTANTS

1. Failure to understand its responsibilities under the design

team contract
2. Over design and understanding, the costs involved
3. Incompleteness of drawing and specification
4. Design and specification oversight and errors or omission
from specialists
5. Variations due to design errors
6. To request for information late information delivery and
cumbersome approach
Alternative dispute resolution (ADR)

 Alternative dispute resolution is a combination of techniques

implemented for resolving disputes in a construction project,
without seeking any rectification from the courts
 This is more prominently found in countries like India and
Germany where a set of resolution processes called the alternative
dispute resolution techniques act as the main means and mode
between the dispute creating parties (disagreeing parties) to end up
with a solution through a written contract or agreement.
 Alternative dispute resolution is a collective means of sorting and
settling disputes happening with or within different parties in an
organization.
Processes of Alternative Dispute Resolution Techniques
 The ADR processes and techniques will come under any one of the
two main categories.
 They are:
 Adjudicative ADR
 Non-Adjudicative ADR

Adjudicative Alternative Dispute Resolution Techniques

 The adjudicative ADR comprise an individual who is a third party,
who deals with the decision on dispute merits.
 The Non adjudicative will assist the parties involved in the dispute to
negotiate with each other to end up with a settlement. The above
mentioned initial technique of arbitration and dispute boards comes
under the category of adjudicative ADR. Another example is a
combination of Mediation / arbitration technique.
Non Adjudicative Alternative Dispute Resolution
Techniques
Unlike adjudicative ADR, the non-adjudicative ADR have many
numbers of alternatives of which some are mentioned below. These
processes help to bring some flexibility in the use of an alternative. Some
of them are:
Conciliation (pagkakasundo)
This method involves the entry of conciliator who is supposed to lead the
negotiations to be carried out in a smoother way and to facilitate their
negotiations. They don’t involve in dealing or hearing the issues between the
parties.

Early Neutral Evaluation

This is a non-binding process. To provide an evaluation, based on the merits of
the case, any or both the disputing parties will own a credible neutral party. The
method must be implemented at an earlier stage to avoid the possibility of
major cost, which reflects the name “early” neutral evaluation.
The neutral party only has a role in guiding the parties through the issue and
have no role in binding. After which, they can have negotiations alone
thereafter.
This method turns out to be “non-binding arbitration” when this approach has to
face a formal hearing. This may be closely related to arbitration.
Mini Trial

This is one alternative which has the greatest use as a dispute

resolution. This involves complex questing based on laws and facts.

Each part will present the case in an abbreviated form. For these,
they seek lawyers or experts. The case is placed on the senior
management of the parties for hearing. After hearing a negotiation
is carried out by the respective management system.

This method will help the disputing parties to see the problem and
after effects of the problem from outside perspective, to make them
understand the severity and potential impact so that an easy
settlement can be made.
If necessary, a neutral party may be employed so that
action will be facilitated and evaluated based on the
needs of the parties.

Good understanding of the issues by the two parties is

necessary for this method of mini trial to be effective and
appropriate.

It’s not possible to conclude that a single form of

litigation or alternative dispute resolution method is a
perfect choice of dispute resolution for all situations. The
construction industry has resulted in bringing up a wide
variety of ADR processes that are worth.
Silent Features of Alternative Dispute Resolution
Techniques (ADR) in Construction Projects

The alternative dispute resolution techniques in

construction involves certain construction contracts that are
granted for disputes that must be dealt with a set of agreed
dispute resolution procedures.

The most common and famous alternative dispute

resolution processes used in construction disputes other are
mentioned below.
 Adjudication
 Expert Determination
 Litigation
 Mediation
 Arbitration
Individual techniques or a combination of the three can
be implemented. The above four techniques are major
ones. These can have sub categories that can provide a
variety of choices of procedure for specific disputes.

Some of the examples are the joint contracts tribunal

(JCT) 16 Standard form of Building contract, the FIDIC
(International Federation of Consulting Engineers)
Conditions of contract, the New Engineering Contract
(NEC) Engineering and the construction contract.
ADJUDICATION (PAGHATOL)

It is a process in which a neutral third party will give a decision on a

dispute. Construction and Regeneration Act 1996 states that parties to
a construction contract may refer their disputes to an adjudicator.
Adjudication has become known as ‘pay first, argue later’ way for
parties to resolve their disputes. A successful party to adjudication can
apply to the Technology and Construction Court to enforce and
adjudicator’s decision. The decision of the adjudicator will be binding,
unless or until it is revised in arbitration or litigation.

Legal process of resolving a dispute or deciding a case.

ADJUDICATION (PAGHATOL)
The main objective of adjudication is to protect cash-flow during construction
projects by resolving disputes without resorting to lengthy and expensive court
proceedings.
It is therefore best to use adjudication for resolving claims relating to:
1. Interims of payment
2. Delay and disruption of the works
3. Extensions of time for completion of the works
4. Defects I the works and
5. Final account

In addition adjudication may be considered for disputes relating to breach of

contract, termination of a contract and professional negligence.
Adjudication is an impartial process used for resolving disputes. Two parties
approach an independent third party and present their issues before an
adjudicator (usually a judge, jury, or arbitrator). After adjudication hearings,
the adjudicator announces a conclusion or judgment.
The claimant serves notice of adjudication to the court. This document states
the following information in the prescribed format:
•Date of serving the notice.
•Description of the dispute.
•Details of the parties involved—including name and address.
•Place, date, and time of the dispute.
•Nature of remedy redressed.
Usually, such cases are settled within a short timeframe—to offer quick relief
to the aggrieved parties (individuals, private entities, or public corporations).
According to Great Britain’s Construction Act, a fixed timescale of 28 days is
allocated to settle a dispute. Compared to other litigation procedures,
adjudication costs less. The adjudicator charges a small fee from the parties.
Adjudication
As explained below adjudication involves the incorporation of a third
party to give a decision on the dispute. Now the method is known as
“pay first, argue later “, a method of dispute resolution. For this, the
party must apply to the technology and the construction court so that
the adjudicator’s decision can be enforced. The adjudicator’s decision
will be binding until it is not revised by litigation or arbitration.
These have certain benefits and demerits.

DISADVANTAGES OF ADJUDICATION
 The dispute needs to have been aired between the parties before adjudication can
be commenced.
 The adjudicator’s powers are limited.
 Court proceedings are still required to enforce the adjudicator’s decision if the
losing party does not pay.
BENEFITS OF ADJUDICATION

 The adjudicator is a neutral person who is not involved in

the day to day running of the construction contract.
 Adjudication is a quick process, which is designed to
ensure that cash flow is maintained during the construction
process.
 Although it is still possible to go to the Court, in most
cases the decision of the adjudicator decides the dispute.
 Adjudication is less expensive than court proceedings.
Benefits of Adjudication in Alternative Dispute
Resolution
 Adjudicator won’t be involved in day to day running of construction
contract
 An adjudicator is a neutral person
 Adjudication is a quick process
 The cash flow is maintained throughout construction process
 It is less expensive than court methods

Demerits of Adjudication
 Before the commencement of adjudication, the dispute has to be
aired between the disputing parties
 The adjudicator has limited power
 If the part who loses does not pay, court proceedings are necessary to
enforce the decision of the adjudicator
Expert Determination
 A procedure in which a narrow and usually technical dispute between parties is
submitted to a jointly retained neutral expert, who, on the consent of the parties,
renders an opinion on the matter.
 The third party has expert knowledge of a particular construction issue or subject.
 It is often used when there is a valuation dispute.
 If an expert is to be used to determine the dispute, the parties will agree this by
contract and will agree that the expert determination will be binding.
 Less formal then arbitration.
 It is not governed by legislation or procedural rules
 Can be effective where parties disagree over technical or engineering issues, or have
different views on what the contract requires, particularly in a long-term contract
where there is considerable benefit to the parties to have a determination part-way
through the contract in order to facilitate future discussions on the same issue.
Benefits of Expert Determination
 Less economic way
 Less expensive, quick method and less formal
 Demerits of Expert Determination
 Expert decision less tied to legal processes
 Enforcement of expert report cannot be carried out without
court or arbitration

DISADVANTAGES OF EXPERT
DETERMINATION
 The use of experts is much less tied to legal processes and
therefore it is more difficult to challenge the decision of an
expert.
 An experts report cannot generally be enforced without
further court or arbitration proceedings.
LITIGATION (paglilitis)
 Which there are many methods of ADR, court proceedings are still one of the
most common forms of resolving disputes within the construction industry.
 The Technology and Construction Court (TCC) is a specialist court which
delays with technology and construction disputes and is governed not only by the
Civil Procedure Rules but also by the Technology and Construction Court Guide.
 A Specialist is TCC judge will deal with cases in the TCC.

This is a method of resolving conflicts that involves a legal proceeding in the

courts of law. It ensures that the law is enforced between the conflicting parties.
The process of litigation starts when a case is brought to the court. The appointed
judge then gives his verdict on the case. This is after due consideration of all the
facts, arguments and evidence presented. The decision of the court is definite.
However, if the parties are dissatisfied with the court’s decision, they can appeal
to a superior court of law.
Litigation in Alternative Dispute Resolution
Techniques
 Among different methods of ADR processes, the court proceedings are the
common method used to solve the construction industry disputes. The
Technology and the construction court (TCC) is a court that is specialized
in the same. They govern and deal not only civil procedure rules but also
TCC guide. The cases in TCC will be dealt with judges specialized in
TCC.
Advantages of Litigation in Alternative Dispute Resolution

 The final decision can be appealed and presented to a supreme court

 It is a fair process as none of the parties involved selects the judges
 It is a formal process and is recognizable by law
 Rules of evidence are allowed

Disadvantages of Litigation

 It is time-consuming
 It is not flexible as the process is controlled by procedural and statutory rules
 It is costly due to depositions of witnesses not to mention the pre-trial discovery
process
 Litigators require high-level of expertise of the law profession
 Parties can appeal to decisions made which can make the process time
consuming
MEDIATION (pamamagitan)

 Mediation is commonly used within the construction industry to resolve

disputes
 The TCC Guider provides guidance on the conduct of litigation within
the construction industry and states that the court should encourage parties
to use alternative dispute resolution (ADR), which in most cases will be
mediation.
 The Pre-Action Protocol for Construction and Engineering Disputes
requires parties in dispute to meet, at least once before litigation
commences, to discuss whether some Form of ADR, such ad mediation,
would be a more appropriate means to resolve the dispute.
- Is refers to a single neutral third party called a mediator, who is tasked to
assist the disputing parties arrive at a settlement. The Mediator does not
decide. He/she merely makes recommendations for the parties to
consider.
- Provides a legally binding decision.
Mediation in Alternative Dispute Resolution

The method of mediation as explained before is a common method used

to resolve disputes. The TCC court states that the parties with a disputed
issue must be encouraged to go for ADR methods for solution. In most
of the cases, the solution will be mediation

Mediation in Alternative Dispute Resolution Techniques

In this kind of alternative, a negotiated agreement is facilitated
by a neutral third party between the disputing parties. Now, this
third party has no power to make decisions.

The main purpose of mediation is to clear up

misunderstandings, determine underlying interests and concerns,
find areas of agreement, and incorporate those areas into solutions
devised by the parties themselves.
 The third party or the mediator notes down all the merits and
demerits of the dispute but does not bring up a decision or suggest one.
He might bring an indication on who have the strongest merit to win the
negotiation, which is considered by the court or the arbitral tribunal.

The main role of the mediator is to determine the area where both the
parties can compromise with each other. When the discussion goes well
and is ready to have a settlement, this forms the negotiation of an
agreement.
 The “mediation from mere negotiation” is the criteria carried out by the
mediator or the process of dispute resolution.

 The mediation alternative followers have the opinion that this method
understands and reduces the dispute reasons and future disputes, through
open communication between the parties.
Elements of Mediation
•A Mediator – is a person who conducts the mediation.
•The Mediation party – A Mediation party is a person/s who
participates in mediation. As well as whose consent is
necessary to resolve the dispute. So aside from consent as an
element. There is an adverse party or as we say, there is an
adversarial case. Therefore, there is a cause of action against
another person. Also, there is a remedy after establishing the
cause of action.
•A Record – A piece of information written on a tangible
medium. Or stored in an electronic or other similar medium
or retrievable form.
Mediation exception
The cases exempt or do not qualify for a mediation proceeding are labor disputes,
civil status of persons, the validity of a marriage, legal separation, the
jurisdiction of courts, future legitime, criminal liability, as well as those that
can not compromise under the law.

What must a Mediator Do?

Before acceptance
•Make an inquiry to determine whether there are any known facts that a
reasonable individual would consider likely to affect the impartiality of the
mediator:
• Financial or personal interest in the outcome;
• Any existing or past relationship with a party or a foreseeable participant;
and
• Disclose to the parties any such fact known or learned as soon as is
practical before accepting the mediation.
After acceptance
•Furthermore, if after acceptance the mediator learns any fact that could be part of
the conflict of interest. He must disclose it as soon as practicable. That is what the
law requires.
Disadvantages of Mediation

•Not compulsory;
•Concerns exist around the enforceability of a mediation
agreement;
•All parties must agree to a resolution as the result is not
guaranteed;
•Can be difficult if either party are withholding information;
•Mediation may not be appropriate if one of the parties
required public disclosure;
•Utilizing the services of an unskilled mediator can contribute
to an unproductive resolution;
•An unwillingness of one or both of the parties to
cooperate can make the whole process a waste of time,
effort and money;

•If the dispute cannot be resolved in mediation the cost

of mediation will have been wasted;

•During the mediation process either party can withdraw

from proceeding at any time;

•There is the possibility that information may be given

away to the other party during the mediation process that
could benefit the other party.
Benefits of Mediation
 The mediator will be an intermediate person, who have no
judgment or decision making. He just facilitates the discussion

 Mediators are experienced in dispute areas and with the judges

of TCC

 The business relationship can be maintained

 The happenings within the mediation are kept confidential

 The mediator will help the parties to bring up a decision which

is favorable for both the parties
•Mediation can be carried out relatively quickly compared to
litigation, taking on average between 1 to 2 days;

•If both parties agree to mediation this clearly demonstrates a

willingness to achieve a negotiated solution;

•The appointed mediator will be independent, they will not advise

or provide judgement;

•The mediator is there to facilitate and guide the discussions

between the parties, with the primary objective of resolving the
dispute;

•It is the parties involved in the mediation process that arrive at a

final solution and not the mediator;
•It is a flexible process that provides parties access to a wide range of
outcomes that are not available in litigation. For example, courts will
usually order one party to pay money to the other party, whereas in
mediation the parties come to their own agreement and other things can
be taken into account;

•If a solution cannot be achieved then other options are still available;

•The process will attempt to preserve the relationship between the

parties;

•Mediation can allow each party to hear the opposing view in a non-
confrontational environment;
•Both parties must sign an agreement of the final
recommendation in order for it to be binding;

•The parties via the mediator can bring other matters

outside of the contract itself into the mediation in order to
assist a commercial settlement;

•It is a confidential process and anything discussed at

mediation is considered ‘without prejudice’ and therefore
cannot be used as evidence in any subsequent tribunal
ARBITRATION – the process of solving an argument between people
by helping them to agree to an acceptable solution.
- The investigation and determination of matters of differences
between contending parties by one or more unofficial persons, called
arbitrators or referees chosen by the parties.
- Is a way of setting disputes between parties who agree to submit the
same for resolution by their nominated judges or arbitrators. A
decision or an award rendered by arbitrators in CIAC (Construction
Industry Arbitration Commission) arbitration proceedings is
enforceable by a writ execution.
- 100 day procedure
- The arbitrator is usually paid an hourly rate
Arbitration in Alternative Dispute Resolution
This method is another form of litigation. Here
the disputing parties will refer the dispute to a
third party. He is called as the arbitrator. The
material facts, documents and relevant
principles of law are the basis for which the
disputes are solved. This method is used mainly
for international construction disputes.
ARBITRATION
- For example, often the parties do not have to follow state or federal
rules of evidence and in some cases the arbitrator is not required to
apply the governing law.
- The parties agreement gives the arbitrator the power to issue a
decision as to the parties rights and obligations, and such decision
will be legally binding on all parties.
- This is a dispute resolution method whereby an independent
third party is used to resolve a disagreement between two parties.
Common in employment contracts, this method is becoming
increasingly popular all over the world. The arbitrator makes the final
decision based on the evidence presented by the parties involved, a
decision that is binding. Although most disputes are handled by one
arbitrator, larger disputes may require two or more arbitrator.
Benefits of Arbitration in Alternative Dispute Resolution

•Fairness: Both parties agree to the arbitrator, resulting in a fair

outcome, especially when compared to a traditional legal trial in
which neither party has control over the jury or judge selection.
Parties can also agree to choose an arbitrator that has experience in
their specific area of legal dispute.

•Timeliness: A legal resolution through arbitration is much quicker

than waiting for a trial date. Arbitration is less formal and more
flexible in terms of scheduling. The discovery process is a simple
phone call, cutting down on much of the traditional trial process.

•Cost: Arbitration does not include expert witnesses or require as

much legal preparation. Both parties often split the cost of the
arbitrator, meaning the process is much cheaper.
•Confidentiality: The arbitration legal process is more
private than a trial.

•Finality: There is a level of

finality to the arbitration process. Because it cannot be
appealed, both parties can move on following the outcome.

•Agreeableness: Arbitration often results in an agreeable

outcome, as parties are encouraged to come up with a
solution together.

•Simplified Procedures: Legal outcomes are more

adaptable to the two parties present in the dispute. Each
party does not have to hire an attorney for representation
Disadvantages of Arbitration
•No Appeals: The arbitration decision is final. There is no
formal appeals process available. Even if one party feels that
the outcome was unfair, unjust, or biased, they cannot appeal
it.
•Cost: While arbitration is generally a more cost-efficient legal
settlement option, it might not make sense in cases when
minimal money is involved.
•Rules of Evidence: A judge in a traditional court setting has
specific regulations to follow when it comes to accepting
evidence. Arbitrators, however, can utilize any information that
is brought to them.
•Lack of Cross-Examination: The arbitration process
generally includes documents and not witnesses, voiding the
ability to cross-examine.
•Limited Discovery: In the event that arbitration is not filed
until litigation has already begun, both parties lose the cost-
saving advantage of limited discovery.
•Lack of Consistency: There are no set standards for
arbitration, making it difficult to find consistency. It is possible
that an arbitrator can be biased, which is sometimes the
case in mandatory arbitration contracts.
•Lack of Evidence: Because arbitration is not evidence-based,
you entrust the experience of the arbitrator to make the right
legal decision.
•Not Public: The level of confidentiality involved in arbitration
cases could potentially be disadvantageous to one party. There
is also a lack of transparency, which is not the case in public
courtrooms.
 Acceptance – a Need for Alternative Dispute Resolution (ADR)
 The increasing caseloads in the traditional courts have made the demand
of ADR to increase. Now some of the courts wanted the parties to resort
their problems through ADR. The acceptance of ADR is more among the
public as well as the legal profession.
 When compared to litigation through normal court means, ADR imposes a
fewer cost. Not only in terms of money but also in the choice of selection
of best personality to talk for one’s dispute and based on confidentiality.
 The chances for conflicts are higher with the increase in the size of
construction projects. Most of the cases the impact of money or finance is
material that will truly focus on project delay defects in service and
contractual penalties.
 The choice of litigation under such situation would affect the tempo of the
project drastically. Bringing up alternative dispute model ought to be an
efficient and quick way of solving the rising disputes in the construction
project organization.