2. INTRODUCTION
CLAIM, CONFLICT AND DISPUTE
Being used interchangeably and sometimes used separately or in pairs and frequently
without any clear indications of the precise meaning of each term. There is often a lack of
clarity to the terms claim, conflict and dispute.
Claim is defined as - An assertion of a right to money, property or a remedy and can be
made under the contract itself for breach of the contract, for breach of a duty in common
law or on a quasi-contractual basis.
Conflict - As any divergence of interests, objectives or priorities between individuals,
groups or organisations.
Dispute - As a class or type of conflict which manifest itself in distinct justifiable issues. It
involves disagreement over issues capable of resolution by negotiation, mediation or
third party adjudication.
3. DISPUTES AND ARBITRATION
âTechnically, a dispute implies assertion of a claim by one party and
repudiation thereof by another.â
Thus, neither a mere claim without repudiation, nor a pair of claim and
counterclaim, can be called a dispute.
Because of the uncertainties involved in a construction project and the magnitude of
funds involved, it is only natural to have disagreements between parties.
Most of such day-to-day differences are resolved in an amicable manner. However, it
is some times not possible to resolve disputes in such fashion.
In such situation construction and legal laws become helpful for resolving disputes.
4. DISPUTES AND ARBITRATION
Ă Improper risk allocation increases the potential for claims, disputes and the need
for litigation.
Ă These disputes are perpetuated by both parties unwillingness to equitably share
the responsibilities and risks associated with completing the project.
Ă A contract dispute is typically the result of major differences in opinions
between the owner and contractor about contract terms, conditions or
performance.
Ă The contract dispute process generally follows a formal corrective action process
such as a notice to cure.
Ă When a dispute arises between the agency and the contractor, there are certain
fundamental steps in the process to follow:
(a) Provide written notice of the dispute; and
(b) Work in good faith with the contractor to resolve the dispute.
5. TECHNIQUES OF CONFLICTS RESOLUTION
There are five techniques that are generally used to resolve conflicts.
(a) Withdraw/Avoid
(b) Smooth/Accommodate
(c) Compromise/Reconcile
(d) Force/Direct
(e) Collaborate/Problem Solve
6. ĂThis technique of resolving conflict is to delay or avoid situations of potential conflict
occurrence. Avoid or delay the settlement of the conflict in order to have a better
preparation or expect to be completed by others.
ĂIn this conflict resolution technique, you avoid the conflict or retreat and allow the
conflict to resolve itself. This is for when stakes are low, and the conflict is likely to
disappear on its own.
ĂUse this technique in the following cases:
§ Individuals involved in the conflict are not influential stakeholders.
§ The issue does not require a time investment.
§ An intense argument has already happened, and the individuals need time to cool off.
§ You do not have enough information to pursue other techniques.
Withdraw/Avoid
7. Withdraw/Avoid
ĂAdvantages
§ This technique saves time that you can invest elsewhere. It is a good conflict
management strategy to apply to low-level disagreements and gives you enough
time to prepare if the conflict re-emerges.
ĂDisadvantages
§ Withdrawing or avoiding is not really a resolution, does not resolve a conflict, and
may weaken your position because parties may assume you have an unfair bias.
Team members may think you are lacking skills or are not authoritative.
§ Many experts donât consider this technique as a conflict management strategy
because avoiding and escaping is not a solution.
8. Smooth or Accommodate
ĂThis technique of resolving conflict is to emphasis the level of agreement.
ĂIn this conflict resolution strategy, you find areas of agreement, try to smooth
out the situation, and circumvent tough discussions.
ĂThe smoothing technique gives more consideration to one party than the other.
You downplay the seriousness and behave as if the conflict never existed.
ĂThis technique is helpful in the following cases:
⢠You donât have time to deal with it.
⢠You require a temporary solution to the problem.
⢠The conflict is minor and involves less influential stakeholders.
9. Smooth/Accommodate
⢠Advantages
⢠This conflict resolution strategy does not require much effort. You can
focus on essential issues by ignoring unimportant arguments. Situations
can be potentially handled simply while bringing harmony, creating
goodwill, and providing enough time to find a permanent solution.
⢠Disadvantages
⢠If you fail to bring a balanced approach, one party may take advantage
since you are giving them more consideration. Other parties not being
accommodated may question your authority or stop reporting conflicts.
⢠This conflict resolution strategy is not recommended as it often weakens
the project managerâs authority.
10. Compromise or Reconcile
ĂThis technique of resolving conflict is to seek solutions that provide a level of
satisfaction to all parties for temporarily or partially resolving the conflict. This
approach is also called the "give-and-take".
ĂIn this conflict management strategy, you take suggestions from both sides and
partially satisfy them. This technique is useful when the stakeholders involved
hold equal power.
ĂYou may use this technique in the following cases:
⢠All parties involved need to win
⢠When you have an equal relationship with both parties
⢠Collaborative and forcing techniques have failed
⢠When you need a temporary solution
11. Compromise or Reconcile
ĂAdvantages
⢠This technique brings quick results, lowers stress, and keeps all parties
placated until you can find a permanent solution. You can cool off and
revisit the situation later.
ĂDisadvantages
⢠This conflict management technique does not generate trust in the long run;
all parties remain unsatisfied, and the conflict could resurface at any time.
Morals are not being strengthened. You may have to ensure all parties abide
by the agreement.
12. Force or Direct
ĂThe force/direct technique is based on the dominance of one party
without having regard for the other party. It is usually based on the
authority and power that the parties have to resolve the conflict. Also
known as the win-lose approach.
ĂIn this conflict management strategy, you agree with one partyâs
viewpoint and enforce their wishes. This is a win-lose situation and risks
demoralizing the team.
ĂYou can use this conflict resolution technique in the following cases:
⢠When you need a quick solution
⢠When you know that one party is right
⢠You do not have time to investigate
⢠When the conflict is not very important
⢠When the relationship with stakeholders is not essential
13. Force or Direct
ĂAdvantages
⢠This technique provides a quick solution. It requires almost no effort from
the project manager and may help establish their authority.
ĂDisadvantages
⢠Using this technique may cause a negative impression on you. You may lose
opportunities gained from the opposing partyâs viewpoint. You cannot apply
this technique with powerful stakeholders. It may backfire and worsen the
conflict.
14. Collaborate or Problem Solve
ĂThis technique of resolving conflict is to combine the views from several
different perspectives. It requires cooperative and open dialogue to
obtain a consensus or shared commitment.
ĂIn a collaborative conflict resolution strategy, you discuss the issue with
all parties and agree on a solution while considering multiple viewpoints.
ĂYou may use this technique in the following cases:
⢠When incorporating multiple views
⢠If influential stakeholders are involved
⢠When a consensus is required
⢠If you want to distribute responsibility
15. Collaborate or Problem Solve
ĂAdvantages
⢠This is a real problem-solving technique that provides a solution to the
conflict. It brings consensus, commitment, and shared responsibility for the
outcome. This technique creates a win-win situation, builds your teamâs
confidence, earns respect, and establishes your authority.
ĂDisadvantages
⢠You cannot use this technique when you need a quick solution because it
takes time and effort. It is generally used for conflicts that may affect your
project, not all issues.
16. DISPUTE AVOIDANCE VS DISPUTE
RESOLUTION
DISPUTE AVOIDANCE VS DISPUTE RESOLUTION
Ăan appropriate strategy for dispute avoidance and dispute resolution needs to
be drafted, and put in place even before the onset of works in a project.
ĂGiven that the client or the owner usually takes the lead in drafting contracts,
the onus is largely on him to ensure that both dispute avoidance and dispute
resolution are adequately addressed in the contract.
Ăthe important reasons as listed above are appropriately taken care of, the
possibility of disputes can be largely minimized.
17. DISPUTE AVOIDANCE VS DISPUTE
RESOLUTION
ĂContracts need to be drawn up with a professional mind set, and a fair distribution
of risk between the contractor and the owner.
ĂSpecial care needs to be taken in drafting dispute-prone clauses and identifying
potential neutral agencies, which could be called upon to mediate any dispute.
ĂIt may be considered advisable to provide for a binding mechanism for alternate
dispute resolution (ADR), which could include constitution of dispute review board
(DRB), comprising persons drawn from the contractorâs and the ownerâs sides, which
should meet periodically to review any pending or potential dispute.
18. ALTERNATE DISPUTE RESOLUTION (ADR)
There are various forms of dispute resolution alternatives available for
implementation with regard to construction contracts. They are as follows:
(a)Mediation or Assisted Negotiation :The mediator acts as an advisor and consultant to
assist in the dispute process. It is a voluntary process.
(b) Fact-based Mediation :This is a forum-based process that provides an advisory ruling
and acts as a mediator as well if a settlement cannot be achieved.
(c) Mini-Trial :The parties involved mutually select a neutral advisor or mediator to
participate in the mini-trial dispute resolution. The pre-hearing and hearing sessions of the
mini-trial shall be limited to short-term duration.
19. MECHANISMS OF DISPUTE RESOLUTION
Ă Apart from the normal legal process, emphasis here is on the
alternative dispute resolution (ADR) mechanisms generally available in
construction contracts.
Ă Such mechanisms could include :
Negotiation
Mediation
Conciliation
Arbitration
20. NEGOTIATION
ĂThis could refer to a focused discussion on the dispute among the engineers from
all interested parties, with the intention of resolving differences without
the involvement of third parties,
ĂThis is an informal process in the legal sense
ĂIf an agreement is reached through the process, it may have the usual legal
significance
ĂThe negotiation process is fast and does not involve additional expenses
ĂThe discussions are held between the parties across the table in a cordial and
peaceful atmosphere.
21. MEDIATION AND CONCILIATION
Ă Mediation and conciliation are essentially an informal process in which
the parties are assisted by one or more neutral third parties in their
efforts towards settlement.
Ă These mediators do not sit in judgement but try to advise and consult
impartially with the parties with the object of assisting in bringing about
a mutually agreeable solution to the problem.
Ă They have no power to impose an outcome on disputing parties.
Ă Mediation and conciliation are voluntary in the sense that the parties
participate of their own free will, and a neutral third party simply assists them
in reaching a settlement.
22. MEDIATION AND CONCILIATION
ĂThe process is private, confidential and conducted without prejudice to any
legal proceedings.
ĂThe process is non-binding unless an agreement is reached
- once an agreement is reached, and the parties have signed it, the document
(or the understanding) is as binding as any other agreement would be.
- Although the process is largely informal, the following could be identified
as parts or stages in a mediation process.
- In the pre-mediation stage, there has to be a basic agreement among
the parties to the mediation process, including the identification of
a mediator.
23. MEDIATION
ĂMediation could be direct or indirect, and could involve meeting(s) with parties,
presentation(s) being made by them, putting together of facts, negotiations and a
settlement.
ĂMediation is an informal process, it has certain inherent advantages over
Ăthe more formal and legal process.
ĂIt could be a lot less time-consuming
ĂInvolve lesser costs
ĂThe outcome could be more satisfying to the parties
ĂIt also opens channels of communication, and could contribute greatly
Ăto preserving or enhancing a professional relationship.
25. ARBITRATION
Ă ARBITRATION :
- Arbitration is perhaps the most commonly used mechanism for settlement
of technical disputes in a construction project.
- It is a quasi-judicial process to the extent that legal protocol is largely observed.
- In principle, collection and interpretation of evidence, examination and
cross- examination of witnesses, etc., are some examples of essentially legal matters.
Arbitrator should be able to guide and provide a direction to the proceedings.
- As far as the number of arbitrators is concerned, much like the judicial system, technical
disputes can also be resolved by single arbitrators, or a panel of several arbitrators, and though
the parties are free to determine the number of arbitrators, it should be ensured that the
number is odd, so that a situation of a âtieâ in an award is pre-empted.
26. CAUSES LEAD TO ARBITRATION
Among the causes factors that lead to arbitration are :
Incorrect ground data
Contracts containing faulty and ambiguous provisions
Faulty administration of contract
Deviations
Suspension of works
Contractor being of poor means
Default by contractor
No publicity involved
Unreasonable attitude adopted by contractor
Overpayment
Levy of compensation for delay
Delay in payment of bills
Observation arising out of technical examination of works
27. ADVANTAGES OF ADR OVER LEGAL PROCEEDINGS
IN A COURT
ĂAlternative dispute resolution (ADR) has clear merits over formal legal proceedings
in a court of law, and is often preferred over the latter.
ĂThe process is less formal and quasi judicial which allows a certain degree of
flexibility and ease to the parties.
ĂThe arbitrator works on a lesser number of cases at any given time, the settlement
of cases is quicker and less expensive.
ĂPlace of a hearing are fixed based on the mutual convenience of parties.
ĂSince the hearings are not open to the public, the overall relationships are less
affected.
ĂThis aspect is important considering the fact that the parties often want to avoid
needless publicity as it adversely affects their professional standing and
relationships.
28. RESOURCES OF DISPUTE FACTORS
Constraints in the implementation of the project will appear when project objectives are
not achieved. Factors of conflict or dispute in the project must be managed properly in
order to avoid losses. There are many resources which can lead to factors in conflicts and
disputes such as the owner, consultant, contract and specifications.
29. These resources shall affect the efficiency and productivity of work, thus,
disturbing the implementation stage of the project. Among the more common
resources are:
(a) Owner -The common disputes would be the failure to respond to issues in a
timely manner, lack of communication among the team members, the
mechanism to provide information has not been clearly established or
communicated, poor management, control and coordination.
(b) Consultant -The failure to determine the responsibilities in accordance with
the contract, design errors and specifications, pictures and specifications are
incomplete, incorrect calculation of work progress, lack of experience, lack of
contractor management, supervision and coordination, job delays and lack of
understanding of the existing contract agreement.
(c) Contract and Specifications - Employment contracts are not clearly defined,
complete lack of construction documents, lack of clarity documented in the
distribution of workflow and confusing terms used in the contract documents.
30. Figure below shows the stages of the disputing process in the Dispute Pyramid. A
reference to the dispute pyramid stated that the lower layers in the dispute pyramid
relate to the construction of dispute while the upper layers refer to the lawyers and the
courts.
Litigation is always the last resort. Good contract management and monitoring
will uncover that might have been in the process of heading the wrong direction
and allow you to mitigate the issue before it gets to the level of âdisputeâ.
31. Figure 8.1: The Dispute Pyramid
Sources: Sarat (1985) and Gould (2004)
32. ARBITRATION vs LITIGATION
Ă Arbitration was established as a method to resolve contract disputes without
having to enter into long , exasperating and expensive litigation process.
Ă Although the mechanics used for dispute resolution are somewhat different
between these two systems of justice, arbitration procedures are not
completely divorced from the judicial system.
Ă The courts are called upon when enforcement of an arbitration clause is
required. The courts also enforce the awards made by the arbitration board if
they are not complied with voluntarily. This is because the arbitration board
has no enforcement authority.
33. ADJUDICATION
The enactment of the Construction Industry, Payment and Adjudication Act
(CIPAA) was established in Malaysia in 2012 and has been enforced in its entirety
since 2014. It follows the practice of other countries such as Singapore, United
Kingdom and Australia in having its own act on statutory adjudication. The
CIPAA provides a platform for disputes from construction contracts via the
process of adjudication. Its primary function is to address the cash flow problems
in the said industry. The Kuala Lumpur Regional Centre for Arbitration (KLRCA)
plays an extensive role in the administration of the CIPAA as it is the statutory
authority which manages the Act for it to be enforced.
34. ADJUDICATION
ĂAccording to CIPAA, construction contract is inclusive of construction work
contracts and consultancy services contracts. It applies to every construction
contract made in writing including government contracts. The features of the
CIPAA include its procedure, scope, application, binding decisions and
enforcement.
ĂThe scope of the CIPAA is wide, covering the building industry,
infrastructure, consultancy, oil and gas industry, petrochemical industry as well
as the utilities industry. The procedure focuses on payment resolution disputes
at the intermediate stage where all the parties involved do not have to wait for
the arbitration process or even litigation.
35. ADJUDICATION
Ă The resolution of disputes in the construction industry is usually achieved through a
tiered system of escalation, starting with mediation followed by adjudication,
arbitration, and litigation. However, this is mostly driven by behaviours and established
working relationships as, according to the Construction Act, a dispute can be referred to
adjudication at any time.
Ă The process of adjudication is to adhere to a very strict timetable to arrive at a decision
within twenty-eight days. However, the process to arrive at a decision via arbitration
could take anything from a few weeks to many months depending on how fast the flow
of information is between the parties and the timetable set by the arbitrator or panel.
36. ADJUDICATION
ĂThe paths to dispute resolution through either adjudication or arbitration both
arrive at a decision or âawardâ, but clearly there are different time and cost
implications of using one versus the other.
ĂWhilst adjudication can be overturned through arbitration or litigation, the
intent is clear in that it must be enforced straight away. Therefore, if the
dispute links back to payment, the twenty-eight-day process is a decision and
the CIPAA is enforcing the adjudication decisions.
37. ADJUDICATION
Ă Adjudication awards are enforced by the Courts. The idea behind adjudication
proceedings is that it is designed to protect cash flow for businesses by preventing one
party from withholding payments for significant periods of time. Adjudication however,
does not finally dispose of the matter.
Ă The adjudicatorâs decision often last until practical completion, at which point it can be
arbitrated or litigated if not accepted. Generally, adjudication is appropriate for dealing
with claims relating to:-
⢠Interim payments
⢠Extensions of time for completion of works
⢠Delay and destruction of works
⢠The final account sum.
38. Adjudication versus other approaches to
construction disputes -
TIME
Adjudication
⢠Adjudication is a very quick process in comparison to other more formal
methods. The adjudicator has 28 days to decide the dispute once it has been
referred to him. This period can be extended to 42 days by the referring party,
or longer by the agreement of both parties. With limited rights to challenge the
decision even if it is wrong, adjudication is often termed "quick and dirty"
justice.
Mediation
⢠In comparison to adjudication, the timeframe for mediations depends upon the
parties' agreement. Mediations are usually fixed for one or two days initially but
complex, multi-party disputes can result in much longer mediations.
39. Adjudication versus other approaches to
construction disputes -
TIME
Litigation and arbitration
⢠Litigation and arbitration can take years to conclude depending on
party and court or tribunal availability. In litigation the procedural
timetable is fixed by the court; in arbitration it is largely agreed
between the parties. While these processes may be objectively
viewed as more thorough than adjudication in terms of the ability
of the tribunal to give due consideration to the issues, a
significant time invested is required by both parties.
40. Adjudication versus other approaches to
construction disputes -
COST
Adjudication
⢠Only one dispute can be referred to an adjudicator at any one time.
Combined with the quick timetable and the fact that hearings and
meetings between the parties are rare, the cost of adjudications is
usually low compared to other more formal processes.
⢠The parties are able to agree that the adjudicator's fees and expenses
can be allocated between the parties, provided the term is set out in
writing and is contained in the construction contract, but the parties can
only agree that the adjudicator has power to allocate the parties' costs if
the agreement is made in writing after the notice of adjudication is
given. In practice, this often means that parties bear their own costs of
adjudication.
41. Adjudication versus other approaches to
construction disputes -
COST
Mediation
⢠Costs are usually low and consist primarily of the mediator's fees, any venue
hire costs and the legal fees in preparing and attending the mediation.
Litigation and arbitration
⢠These are both expensive processes because they run for a long time and
because of the procedures involved.. In litigation the costs of the disclosure and
trial phases of the dispute are usually the most expensive as these involve very
time-intensive exercises and the engagement of third party disclosure providers
or counsel. Such processes do not feature in adjudications. However, the
advantage these processes have over adjudication is the prospect of recovery of
some or all of a party's costs from the other side.
42. Adjudication versus other approaches to
construction disputes -
FORMALITIES
Adjudication
⢠The process is less formal than arbitration or litigation. Strict rules of
evidence do not apply and the parties produce only the documents that
they rely upon.
⢠Rules of procedure are selected by the parties and are usually the rules
of the adjudicator nominating body, such as RICS (Royal Institute of
Chartered Surveyors) or TeCSA (Technology and Construction Solicitors
Association)
⢠The adjudicator must also abide by the rules of natural justice in
conducting the adjudication and arriving at a decision. The adjudication
process and decision is confidential unless it becomes the subject of
enforcement proceedings or a challenge in court or through arbitration.
43. Adjudication versus other approaches to
construction disputes -
FORMALITIES
Mediation
⢠Mediation can be as informal as the parties wish. The parties produce only those
documents that they wish to support their negotiating position. Mediation is
private, confidential and conducted on a 'without prejudice' basis.
Arbitration
⢠Arbitration is more formal than adjudication but less formal than litigation.
Strict rules of evidence do not apply but the arbitral rules agreed by the parties
usually dictate the process of production of evidence and, in contrast to
adjudication, the disclosure process usually involves the production of
categories of documents requested by the other party. Arbitration is
confidential unless the subject of court intervention.
44. Adjudication versus other approaches to
construction disputes -
FORMALITIES
Litigation
⢠This is the most formal dispute resolution procedure. In the UK
the process is governed by the Civil Procedure Rules which are
rigid and applied strictly. Strict rules of evidence are imposed. For
example, rules of disclosure provide that a party must produce all
documents that both support and are adverse to its case, though
the courts of England and Wales are currently running a number of
disclosure pilots in this regard. All court documents and the
judgment are public and accessible.
45. Adjudication versus other approaches to
construction disputes -
REMEDIES
Adjudication
⢠Usually monetary, time related remedies or declaratory relief are sought
in adjudication. The adjudication process is not deemed suitable for
parties seeking creative remedies or for overly complex technical or
factual disputes.
Mediation
⢠The remedies or resolutions available in mediation are wide ranging. The
parties need not confine themselves to strict legal remedies and the
parties can be creative in reaching an agreement on a solution suitable
for their needs.
46. Adjudication versus other approaches to
construction disputes -
REMEDIES
Arbitration
⢠The remedies available in arbitration are wider than adjudication but
more restricted than mediation. The remedies requested must be legal
remedies capable of being performed, subject to rules or laws
surrounding the arbitration and enforcement of certain issues. Creative
remedies are not possible.
Litigation
⢠The remedies sought in litigation must be legal remedies and cannot be
creative. However, the court has wider powers than those of an
adjudicator or arbitrator and can grant additional remedies such as
injunctions, orders relating to security and witness summons etc.
47. CAUSES OF DISPUTES
ĂIt is often observed that tenders are hastily made and sufficient attention is
not paid to ensure that :
- all the required information and details are appropriately incorporated in
the tender document.
- the documents are internally consistent, i.e., there is no contradiction in the
provisions of general conditions, special conditions and drawings.
- specifications, where required, are available.
ĂIncompleteness, inaccuracy and inconsistency of information are only part of
the reasons for disputes in a construction project.
48. CAUSES OF DISPUTES
ĂUse of Faulty and Ambiguous Provisions and/or Language in Contracts:
- The language of the contract should be clear and such that it is not open
to different interpretations.
- Use of ambiguous language and/or provisions could open a floodgate
of avoidable litigation.
- It is also important that the contract clearly lays down specific
procedures that are to be adopted in the event of contingencies.
- absence of appropriate provisions to handle technical inspections by
the client or owner, or third parties, could become a source for litigation.
- ill-defined or a vaguely defined hierarchy of documents that will be deemed
to prevail in the event of a dispute could be a cause for dispute.
49. CAUSES OF DISPUTES
ĂIncorrect Ground Data:
- Such data includes information about ground conditions,
depth of groundwater table, rainfall and temperature data, availability
of power and water, etc.
- The estimates of a contractor are based on the ground data provided with
the tender documents.
- Any difference between the ground reality during execution and the
conditions provided in the contract could easily be the reason for disputes.
ĂDeviations
- The contract should be so designed that there are as few
extra items and/or deviations as possible.
- the scope of work in any contract should be unambiguously defined
50. CAUSES OF DISPUTES
ĂUnreasonable Attitudes
- It should be borne in mind that in order to complete the work professionally, it is
important that the parties involved resort to unilateral action to preserve an
environment of mutual trust.
- both the client and the contractor need to have a professional approach to the
project, including areas where there could be disagreement on interpretation, etc.
- Measures such as suspension of the contract or invoking of clauses related to
imposition of liquidated damages should be resorted to only in the most extreme
cases.
- Delays in payment of bills should also be avoided to ensure that the contractor
does not get cash-strapped, which will obviously affect his ability to perform.
51. CAUSES OF DISPUTES
ĂContractor Being of Poor Means
- It is important that the contractor identified to do a job possesses the
required human, financial and technical resources.
- In the absence of any of these, it is very likely that the contractor will look
for an escape route for leaving the project, and may try to force a suspension or
determination (termination) of the contract, or take the matter into
arbitration/litigation to cut his losses.
ĂUnfair Distribution of Risk
- This could be a major reason for not only avoidable litigation but also
increase in the cost of the project.
52. INSOLVENCY
Insolvency will compromise the completion and profitability of the project.
Insolvency can happen to any parties in a project. This is one of the main reasons
for the arrangement of performance bonds, guarantees or retention funds as a
protection from the effects of insolvency.
The standard form of contract particularly in Clause 37 PAM 2006 provides a
thorough explanation regarding the establishment of the performance bond with
the stipulated duration of contract period as a security measure. Adjudication and
arbitration have also been made available under Clause 34 of the same form. The
standard form of building contract generally set out procedures for employers and
contractors in the event of either becoming insolvent.