Lecture 06 CEB 3421
ARBITRATION
IN
CONSTRUCTION
Prepared by Mr. Shengeza J.
CONFLICT, CLAIM AND DISPUTE
The terms conflict, claim and dispute are often
used interchangeably, but their meanings are
very different.
Conflict – “serious disagreement and agreement
about something important” or “an expressed
struggle between at least two independent
parties who perceive incompatible goals, scare
resources, and interference from other achieving
those goals”.
Claim – “for the assertion of a right to money,
property or remedy or can be defined as “a
request for compensation for damages incurred
by any party to a contract”.
Dispute – “any contract question or controversy
that must be settled beyond the jobsite
Conflict, claim and dispute how
relates
Dispute in construction projects
Why do construction disputes occur?
A combination of environmental and
behavioral factors can lead to construction
disputes.
Projects are usually long-term transactions
with high uncertainty and complexity, and
it is impossible to resolve every detail and
foresee every contingency at the outset.
As a result, situations often arise that are
not clearly addressed by the contract.
The basic factors that drive the
development of construction disputes are
uncertainty, contractual problems, and
behavior.
Factors that drive the development
of construction disputes
Uncertainty
Uncertainty is the difference between the
amount of information required to do the task
and the amount of information available.
The amount of information available depends
on the effectiveness of planning and requires
the collection and interpretation of that
information for the task.
When uncertainty is high, initial drawings and
specification will almost certainly change and
the project members will have to work hard
to solve problems as work proceeds if
disputes are to be avoided.
Factors that drive the development of
construction disputes ctd
Contractual problems
Standard forms of contract clearly prescribe the
risks and obligations each party has agreed to take.
It is not uncommon to find amended terms or
bespoke contracts that shift the risk and obligations
of the parties, often to the party least capable of
carrying that risk.
As a consequence, differences may arise in the
parties’ perception of the risk allocation under the
contract.
Where the parties have agreed to amended or
bespoke terms, those conditions take effect in
addition to the applicable law of the contract, which
is continually evolving and being refined to address
new issues.
Factors that drive the development
of construction disputes
Behavior
Since contracts cannot cater for every
eventuality, wherever problems arise either
party may have an interest in gaining as
much as they can from the other.
Equally, the parties may have a different
perception of the facts.
At least one of the parties may have
unrealistic expectations, affecting their
ability to reach agreement.
Alternatively, one party may simply deny
responsibility in an attempt to avoid liability.
Causes of construction disputes
Category of Disputes Causes of Disputes
Owner related variations initiated by the owner
change of scope
late giving of possession
acceleration /rushing
unrealistic expectations
Contractor related Delays in work progress
Time extensions
Financial failure of the contractor
Technical inadequacy of the
contractor
Tendering
Quality of works
Delays in work progress
Time extensions
Causes of construction disputes
Category of Disputes Causes of Disputes
Design related Design errors
Inadequate / incomplete
specifications
Quality of design
Availability of information
Contract related Delays in work progress
Time extensions
Financial failure of the contractor
Technical inadequacy of the
contractor
Tendering
Quality of works
Human behaviour related Adversarial / controversial culture
Lack of communication
Lack of team spirit
Causes of construction disputes
Adversarial / controversial culture
Project related Site conditions
Unforeseen changes
External factors weather
legal and economic factors
fragmented structure of the sector
Legal implications to the contracting
parties when disputes arise.
Construction disputes, when not resolved in a
timely manner, become very expensive – in
terms of finances , personnel, time, and
opportunity costs.
The visible expenses (e.g., attorneys, expert
witnesses, the dispute resolution process itself)
alone are significant.
The less visible costs (e.g., company resources
assigned to the dispute, lost business
opportunities).
The intangible costs (e.g., damage to business
relationships, potential value lost due to
inefficient dispute resolution) are also
considerable, although difficult or impossible to
Procedures of disputes resolution in
construction projects
A number of different Alternative Dispute Resolution (ADR) methods
are currently used in the construction industry.
A few of the more common methods are highlighted briefly:
Step Negotiation generally requires the individuals directly involved in
the dispute to
seek resolution through direct negotiation. If a resolution is not reached
within a predetermined length of time, the dispute is elevated to the
next level in the organizations. This process normally continues to
senior levels of each organization.
Dispute Review Boards typically consist of three neutral experts, who
visit the site periodically in order to monitor progress and potential
problems. When requested by the parties, the board conducts an
informal hearing of the dispute and issues an advisory opinion that the
parties use as a basis for further negotiations.
Procedures of disputes resolution in
construction projects ctd
Mediation is “a forum in which an
impartial person, the mediator,
facilitates communication between
parties to promote reconciliation,
settlement, or understanding among
them.
Arbitration is “a forum in which each
party and counsel for the party
present the position of the party
before an impartial third party, who
renders a specific award.”
Procedures of disputes resolution ctd
Procedures of arbitration
Arbitration is a technique for the
resolution of disputes outside the
courts.
The parties to a dispute refer it to
arbitration by one or more persons
(the "arbitrators", "arbiters" or
"arbitral tribunal"), and agree to
be bound by the arbitration
decision (the "award").
The approved arbitrator from the
contract during tendering
Benefit of arbitration
It is confidential process
Parties can agree on a arbitrator
who has relevant experience in the
matter.
Compared to court proceedings, it
is relative quack process.
It is highly flexible compared to
court proceeding.
