Up to recently, the emphasis has been on the resolution of claims and contested cases rather than early recognition and resolution of problems and disputes on construction projects.
We need to get back on track; it is vital to use current and available people and documents which are directly relevant and, where possible, return control of disputes to project level and proactively manage the relationship between risk allocation and behavioural attitudes.
Construction is a high-risk business. Delays and differences between parties are common. By its very nature, the delivery of a construction project is a dynamic process, this requires members of the team to work together to continually fine-tune and adjust the detailed project requirements, designs and construction methods, sequence, resources, and logistics. Project teams are usually created from scratch for each project.
There are many reasons for disputes, the most common being:
- Failure to properly administer the contract;
- Poorly drafted or incomplete and unsubstantiated claims;
- Errors and/or omissions in the contract documents;
- Incomplete design information or employer requirements (for design and build);
- Employer/contractor/subcontractor failing to understand and/or comply with its contractual obligations;
- Unforeseen or differing ground conditions and utility infrastructure relocation issues;
- Actions/inactions of third parties/practice of agencies.
The avoidance of or the fair and timely resolution of construction disputes can reduce administrative and other costs benefiting the public, the employer and the contractor. We need to find ways to settle a higher percentage of disputes on projects at their inception before they become formal adjudications, arbitrations, or lawsuits.
Parties need to identify methods for timely dispute avoidance, recognition, and resolution during the currency of projects.
Unrealistic expectations regarding construction projects
It is not realistic to expect construction projects to run perfectly. The expectation should be that the project manager should identify problems and quickly take appropriate action. Confidence is critical on construction projects and this is a quality that often determines the difference between success and failure.
All too often, projects fail to achieve their goals because of indecision and uncertainty. Unfortunately, not enough project managers are trained or equipped to measure communication effectiveness; technical reporting on its own provides an impersonal one-dimensional view.
Project managers should lean towards people and action; relationships are key. But parties may fail to see eye-to-eye at any point during a contract. We must focus on avoiding disputes in the pre-and post-contract stages.
No two construction projects are alike — drawings, specifications, ground conditions, building methods, the trades involved and the goals of the participating parties all differ. Construction projects are unique, covering a wide spectrum of products and skills, carried out in a profit oriented, commercially aware environment.
Projects are usually executed by organisations with opposing objectives, by individuals with different cultures, experiences and backgrounds, executing complex operations in difficult environments. Decisions are generally made on forecasts of future expectations, more often than not when the information needed to make those decisions is cloudy at best.
The scope for uncertainty and change is high in construction and the risk of conflict and escalating disputes is ever present. Ambiguities and/or discrepancies in the contract documents, design changes, unknown ground conditions, defects, delay and disruption issues may all give rise to conflict.
The ‘handshake agreement’ of the past is rare, replaced today by a complex set of contract documents regulating the parties’ dispute. Regulation of dispute management is seemingly preferred to dispute avoidance!
Why does dispute avoidance matter?
Construction disputes cost money. The costs are direct (legal services, adjudication, arbitration, advisers and in – house resources) and indirect. The direct costs can be substantial and often dwarf the initial claim itself.
Some of the indirect costs include: adverse performance, reduced morale, erosion of confidence and trust in working relationships, delays to the project, negative reputational impact, emotional impact on people involved and the loss of people to the industry because of wasted effort, disillusionment and frustration and lost opportunities for future work due to the destruction of business relationships.
If such unnecessary expense and waste of resources can be avoided the same capital and human resource pool could be released to produce significantly more public and private infrastructure and services.
Risk averse contracts which attempt to transfer risk within the control or influence of the party transferring the risk tend to be entirely counterproductive and can lead directly and indirectly to project inefficiency, quality issues, delays, costs, and disputes; it is preferable that parties remain proactively engaged and in control of risk management throughout the life of a project.
Figure 1 shows the high costs and time involved in formal dispute resolution procedures.
An organisation’s underlying policy objective should be:
- Developing realistic plans and schedules, maintaining their accuracy, and dealing with delays and other ‘claims’ contemporaneously;
- Ensuring that the contract contains a process to resolve issues at project level;
- Ensuring process and procedural fairness at all times;
- If necessary, escalate the conflict or issue to a more senior level;
- Employing every endeavour to resolve issues by negotiation while they are fresh;
- Using skilled facilitators, standing conciliators and dispute boards to assist in resolving issues; and
- If formal dispute resolution is inevitable, selecting the most appropriate method to achieve an early, and non-project disruptive solution.
These matters must be considered at contract formation, not when a conflict or difference arises.