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1. Introduction
2. Construction Site Disputes
3. Sources of Construction Site Disputes
4. Planning for Problems
5. The Role of Relationships
6. What to do if a problem arises?
7. Avoiding Construction Disputes
8. Job Site Dispute Resolution
9. Resolving Construction Disputes
Content
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• The construction industry is not as famous for
its construction quality as it is for its
confrontation, claims, and litigation
• The attributes of honor, integrity, and pride in
workmanship have been replaced with
conflict, claims, delayed projects and cost
overruns
1. Introduction
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• Talk with anyone in the construction industry
and ask them is there a project you have
completed without any conflict? The answer in
100% of the time will be no
• The construction project does not exist that
hasn't seen some kind of misunderstanding,
disagreement, problem, unforeseen event,
design error or construction defect
• You cannot avoid conflict
2. Construction Site Disputes I
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• Not all of these situations evolve into disputes,
however, and not all disputes become claims or
lawsuits.
• Don’t get confused with indecision,
disagreement, stress or other common
experiences that may cause, or be caused by
conflict.
– By definition, conflict only occurs between
parties who need each other and who cannot
simply leave the relationship with no negative
consequences.
2. Construction Site Dispute II
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• Quality of work (Defective work)
• Responsibility for delays
• Differing Site Conditions
• Incomplete Scope Definition
• Poor communications
• Suspension of Work
• Disruption
• Variation Orders
• Variations in Estimated Quantities
• Inappropriate contract type
• Defective Specifications and Drawings
• Acceleration of the Work
• Force Majeure
3. Sources of Construction Site Disputes
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• Many disputes are cumulative.
– Unresolved small problems create antagonisms
between the parties and make it more difficult to
resolve new conflicts as they arise.
– It is not uncommon for parties to wait until the end
of the project to address all of the unresolved
disputes that have arisen.
– While they are waiting, their unstated expectations
continue to go unmet, and the level of antagonism
rises.
– In a nasty circle, as relationships deteriorate, the
cooperation so vital to the success of a project also
erodes.
– Mistrust may begin to cause delays and disruptions,
which in turn cause added costs that then breed
more problems.
4. Planning for Problems I
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• Against this volatile background, the stage is
set for a serious dispute. When the final
straw, perhaps an error occurs, serious but
otherwise forgivable, it may be too late for
negotiations.
• The longer the resolution of a problem is put
off, the more expensive it is to correct.
4. Planning for Problems II
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• As time goes by, what might have required
only a quick and relatively inexpensive
solution becomes a difficult and costly defect
to remedy.
• The best and least expensive way is to have a
project-wide commitment that at the first
indication of a problem, participants will work
together to resolve it and not allow it to
escalate into a dispute where third-party
resolution is required.
4. Planning for Problems III
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• Establishing trust among parties:
–Requires at least one person willing to risk
something.
–Trust also demands open and unbiased
communication. One way to do this is to try
to put yourself in the other parties' places
5. The Role of Relationships I
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• Parties who are aware that their relationship
will be of brief duration are more likely to
resist agreement.
• On the other hand, if all parties to the conflict
have had or anticipate a long-term
relationship, cooperation is more likely
5. The Role of Relationships II
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• Remain calm
• Report the incident immediately
• Keep seeking alternatives and solutions
• Do not automatically assume you are responsible,
no matter what the facts first seem to indicate
• Communicate
• Document and photograph
• Try to resolve the conflict with the others involved. If
direct negotiation fails, seek mediation by a third
party
6. What to do if a problem arises? I
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• Remain calm
– Examine any accusation calmly and objectively
– Authorities on dispute handling recommend that
you assume a neutral attitude, and seek to
understand the other party's position
– This is much more productive than a quick and
heated denial
6. What to do if a problem arises? II
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• Report the incident immediately.
–Do not wait until someone has made a
formal claim against you.
–Be sure that your staff understands that
reporting such a situation is positive
behavior to be rewarded, not punished
–The longer a problem is ignored, the more
expensive and difficult its resolution is
–If your sixth sense is telling you something
is wrong, report it.
6. What to do if a problem arises? III
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• Keep seeking alternatives and solutions.
– Remain flexible and continue to seek solutions to
a conflict before it escalates into a major lawsuit
– Allow yourself and your associates the freedom
to keep generating ideas for solving the problem
– Together, you may be able to come up with a
creative solution that will work for everyone
6. What to do if a problem arises? IV
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• Do not automatically assume you are
responsible, no matter what the facts first
seem to indicate.
– Any loss situation involves many factors; do not
try to rush to a verdict before all the facts have
been evaluated.
– It is almost impossible to undo the damage done
when you mistakenly assume responsibility and
communicate it to the other parties connected
with the loss
6. What to do if a problem arises? V
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• Communicate.
– Although you should not automatically assume
responsibility, do not cease communicating with
others
– Keep talking and listening
– Certainly, continued communication will help
preserve your relationships with the other party
and may motivate everyone to resolve the
dispute quickly
6. What to do if a problem arises? VI
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• Document and photograph.
– All data and correspondence relating to the
dispute should be documented. Keep detailed
notes on all communications.
– Notes and records not only help clarify the issue
but will also be needed by any lawyer who may
come to your rescue in the event of a suit.
– "A picture is worth a thousand words" still holds
true in potential claims situations. Photographing
or videotaping the disputed subject matter is an
excellent way of preserving the record for the
future.
6. What to do if a problem arises? VII
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• Try to resolve the conflict with the others
involved. If direct negotiation fails, seek
mediation by a third party
– Sit down and talk to the other parties ASAP, try to
find a solution you can all live with
– If informal negotiations fail, invite a neutral,
experienced mediator to help you reach a
settlement
– If these processes fail, or are not attempted, the
dispute could escalate into binding arbitration or
litigation
6. What to do if a problem arises? VIII
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Prevention
7. Avoiding Construction Disputes I
• “For every $1 you spend on disputes
management during the front-end of the
project, you will save at least $20 to $25 on
claims during construction”
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• Recommendations for Conflict Prevention
(Avoidance):
– Partnering & Team Building
– Incentives for Cooperation
– Realistic Risk Allocation
– Constructability Analysis
– Dispute Resolution Clauses
– Competent Engineering & Documentation
– Training and Development
– Honesty in Contracting
– Continuity of Personnel
7. Avoiding Construction Disputes II
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• Recommendations for Conflict Prevention
(Avoidance):
– Being ready for unforeseen or changed conditions
– Balancing interests of team members with regard
to schedule, payments, decision making, and
performance.
– Performing contract obligations on time
7. Avoiding Construction Disputes III
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Project Partnering & Team Building I
• The goal is to create a shared vision of the project
• The concept behind today's partnering is to dispel
the adversarial "us-versus-them" approach often
found on today's construction projects and to
promote "let's-all-pull together" attitudes.
• Typically, partnering involves a series of workshops
with representatives from all parties to the project
• A facilitator conducts team-building activities aimed
at achieving mutually agreed-upon goals
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• The benefits of partnering can be significant
– The quality of the project is typically improved
– The workplace tends to be safer
– Partnered projects tend to be brought in on time
or even ahead of schedule and the process
typically helps reduce cost overruns
– The designers' roles in the problem-solving
process may be enhanced and their participation
in construction phase services is more likely
– Best of all, there is a reduced exposure to
litigation for all parties to the project
Project Partnering & Team Building II
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• For partnering to work, it must be owner-
driven and have the full backing of the top
management of all participating team
members
• Partnering does not guarantee that disputes
will not arise
–It is a way to manage and resolve the
disputes that do come up
Project Partnering & Team Building III
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• Partnering has had great success and holds
even greater promise for the future.
• It is a straightforward and proven mechanism
to handle construction disputes as they were
once handled
Project Partnering & Team Building IV
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• Cost/Schedule Incentive Matrix
– A matrix that defines incentives to contractors for
certain reductions in time and cost of the project
• Subjective determination of fee
– In cost + fee projects a portion of the fee is
awarded based on owner’s evaluation of
performance
Incentives for Cooperation
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• Structuring contracts to allocate risks clearly and
fairly.
• A study by Shen (1997) surveyed 85 contractors in
Hong Kong and identified the following sources of
risk:
– Insufficient or incorrect design information
– Variations in ground and weather conditions
– Subcontractors’ manpower shortage
– Shortage of materials/plant resources
– Poor coordination with subcontractors
– Poor accuracy of project plan
– Shortage of skills/techniques
– failed works due to poor workmanship
Realistic Risk Allocation
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Equitable Risk Sharing
• A study by Vega (1997) on risk sharing in
large infrastructure projects, it was
concluded that
– “The general guiding principle of risk
allocation should be that the different parties
involved should seek a multi-beneficial
distribution risk. A dominant party that off-
loads all project risks onto others is unlikely to
enhance the chances for a successful
outcome.”
Realistic Risk Allocation II
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• Reduces disagreements because it eliminates
errors, omissions, and impractical details
• The contractor assigns engineers to work with
the design team in order to improve
construction details
• Performed during the planning, design, and
procurement phases
Constructability Analysis
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• A well-drafted contract provides procedures for
conflict resolution without involving courts. (i.e.
ADR).
• Examples include:
– Relying on designer to resolve conflicts between
the owner and contractor;
– Using third-party mediator to help participants
structure negotiations, provide neutral evaluation
and encourage fair settlement;
– The use of dispute review board judges, or
standing neutrals to resolve disputes and
– Binding arbitration.
Dispute Resolution Clauses
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• Step Negotiations: A commitment to solve a
problem ASAP at the lowest possible level of
management
– If parties directly involved cannot resolve a
problem at the job site, their supervisors then
meet to work out a solution
– If they, in turn, cannot agree, then the problem will
be passed on to higher management in both
organizations, and so on
8. Job Site Dispute Resolution I
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• Step Negotiations
– Often each of these parties is identified at the
beginning of the project and there may be a
predetermined time limit for resolving an issue at
a given level
8. Job Site Dispute Resolution II
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• An important task for construction project
managers. The mechanism for dispute
resolution can be specified in the original
contract or, less desireably, decided when a
dispute arises.
9. Resolving Construction Disputes I
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Prevention
Negotiation
9. Resolving Construction Disputes III
• Step 2: Negotiation:
– Typically does not involve third parties such as
judges
– The negotiation process is usually informal,
unstructured and relatively inexpensive.
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Prevention
Negotiation
Standing Neutral
• Step 3: Standing Neutral
– The concept of a standing neutral involves an
independent person, or persons, who is/are totally
neutral to the problem
9. Resolving Construction Disputes IV
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• Standing Neutral:
– At the beginning of the construction phase of the
project, the parties select one or more independent
construction industry experts to be available as a
standing neutral throughout the project
– The neutral acts immediately to resolve any dispute
which the parties can not resolve themselves.
– Terms such as dispute review board, standing
mediator, and standing arbitrator are also used.
9. Resolving Construction Disputes V
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• Dispute Review Board
– Commonly consists of three members: a representative
from the owner, one from the contractor and a third,
selected by these two representatives. The third member
chairs the board
– The members usually have experience in the kind of
construction work being undertaken and are also familiar
and experienced in dispute resolution
– It is important that all the board members are independent
of any of the contracting parties, although they are paid by
them
9. Resolving Construction Disputes VI
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• Essential elements of a successful DRB:
– All members are neutral and subject to the
approval of both parties
– All members sign a three party agreement
obligating them to serve both parties equally and
fairly
– All fees and expenses of the DRP are shared
equally by the parties
– The DRP is organized when work begins, before
there are any disputes
– The DRP keeps an eye on job developments by
means of relevant documentation and regular site
visits
9. Resolving Construction Disputes VII
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• Essential elements of a successful DRB:
– An informal but comprehensive hearing is
arranged promptly
– The written recommendations of the DRP are not
binding on either party but are permissible as
evidence, to the extent permitted by law, in case
of later arbitration or litigation
– The members are released from any personal or
professional liability arising from their DRP
activities
9. Resolving Construction Disputes VIII
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Mediation
Prevention
Negotiation
Standing Neutral
• Step 4 Mediation: A process in which the parties to a
dispute, with the assistance of a neutral third party
(the mediator), identifies the disputed issues, develop
options, consider alternatives and endeavor to reach
an agreement
9. Resolving Construction Disputes IX
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• Mediation
– It is a non-binding resolution
– In mediation, the third party serves only as a
facilitator to help the participants reach a mutually
acceptable resolution.
– The mediator has no advisory or determinative
role in regard to the content of the dispute or the
outcome of its resolution
9. Resolving Construction Disputes X
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• Arbitration
– In this procedures, a third party serves a central
role in the resolution.
– These outside parties are usually chosen by
mutually agreement of the parties involved and will
have specialized knowledge of the dispute subject.
– The third party may make a decision which is
binding on the participants
– It is a binding resolution mechanism.
• Arbitration has evolved to a form very similar to
litigation, which defies its purpose
9. Resolving Construction Disputes XII
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• In most cases, litigation is the last resort and least
preferable way to resolve a dispute.
• In such instances, the parties are wise to conduct a
thorough and objective review of the costs and
benefits of litigation throughout the conflict.
• If litigation remains an option, each participant
carefully evaluates not only the merits of his or her
case, but also the likelihood of how well the facts
can be presented in a formal judicial proceeding.
9. Resolving Construction Disputes XIV
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• Main problems with litigation
– Too expensive
– Time consuming since it involves legal
representation and waiting in queues of cases
for available court times Too slow
– Lack of equality between powerful and under
resourced litigants
– Difficult to forecast cost and length of litigation
– Incomprehensible by many litigants
– Too adversarial
9. Resolving Construction Disputes XV
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• Litigation Costs: In pursuit of legal remedies
(litigation or arbitration), substantial direct and
indirect costs are involved included, but not limited
to:
– Direct external costs, e.g. attorneys’ fees, court
costs, deposition costs, expert fees, investigation
costs (soil, hydrology, testing).
– Direct internal costs, e.g. costs of key personnel
working with attorneys and experts, attending
forum proceedings, and other incidental costs.
9. Resolving Construction Disputes XVI
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• Litigation Costs
– Indirect costs, e.g. the interruption of management
and key personnel duties, impacts on reputation,
reduction in bonding capacity, interruption of cash
flow, etc.
– Loss of client relationship (temporarily or
permanent).
9. Resolving Construction Disputes XVII
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• List 5 possible issues that might lead to a
conflict in a construction project. Be specific
and illustrate the reason for disagreement
between the conflicting parties
• One page
• Due one week from now
Homework
