Today’s Lesson
Settling of Construction Dispute
Lesson Learning Outcome At the conclusion of this lesson, the student
should be able to:
Describe the complexity of construction disputes. State the methods for settling construction disputes. Describe the alternative dispute resolution techniques apart from litigation.
Definition of Dispute Disputes – means controversy, debate, heated contention, quarrel or difference of opinion or an argument or disagreement between two people, groups or countries discussion about a subject where there is disagreement
Construction Disputes Disputes between a contractor or a construction
company and a customer are all too common. Disputes often arise out of delays in getting the work down, unsatisfactory work, or a customer's failure to make payments. In many cases, the expense involved in pursuing a dispute is far out of proportion to the money actually at stake.
Construction Disputes ď Ž Whether you are building a road, a residence, a
commercial building, or any other major construction project, it is almost impossible to get through the entire project without having at least a few disputes to handle. ď Ž Those disputes are usually minor in nature and are
generally worked out through discussion between the contractor and project owner.
Common Causes of Disputes unrealistic expectations on the part of certain parties
(generally owner) who do not have sufficient financing to accomplish their goals Ambiguous contract provision Poor communication between and among parties involved in the project Reluctance on the part of project participants to deal promptly with changes and unexpected changes Contract administration who want to avoid making tough decision by passing the problem to higher authority within the organization. Etc.
How to Reduce/Prevent Construction Disputes Allow reasonable time for design team to produce clear
and complete contract documents with no or minimum errors and discrepancies Have a clear written contract with no ambiguity Read the contract several times before signing it to understand any unclear clauses Establish an efficient quality control techniques and mechanisms that can be used during tendering process to minimize errors, mismatches and discrepancies in the contract documents. Have a third party to read contract documents before the bidding stage.
How to Reduce/Prevent Construction Disputes (cont’d) Develop cooperative and problem solving attitudes on
projects through a risk-sharing philosophy and by establishing trust among partners. (e.g. owner, contractor) Establish a strategy on how to deal with tighter scheduling requirements. Have signed change orders before carrying out any changes on site Maintain proper job records on a timely manner including time sheets, diary record, reports, photographs, records of labors and weather and its effect on progress, progress of the construction, site instruction and etc.
Settling Construction Disputes Disputes can be settled/resolved through informal resolution method or formal resolution method ď Ž Informal resolution + negotiation – the most appropriate way to resolve dispute because it is inexpensive and maintain good relationship between the parties involved + Conciliation – a conciliator must be absolutely independent of the parties to the contract, bring parties together for open discussion, do not take sides, do not make decisions or make judgement
Settling Construction Disputes (cont’d) + mediation – the mediator consult first with one party and then with the other and if no negotiated settlement results the mediator will make recommendations to settle based on his own findings + dispute review board – the board have representatives from each contracting parties and a mutually agreed impartial third party and may meet informally for open and free discussion Formal resolution If informal resolution fails and are not in favour for the parties involved then the formal resolution is inevitable even though it is more complex, takes longer time, more expensive and integrity of company exposed to media and public.
Settling Construction Disputes (cont’d) + Arbitration – involve one or more neutral third parties as an arbitrator who conduct hearing according to specified rules and procedures to determine who is right or wrong on selected issues. The decision can either be binding or non-binding on all of the parties when deciding which parties are to receive an award
+ Litigation – is the use of court system to resolve disputes. The process is from the issuance of writ by the plaintiff appointed lawyer to the court against the defendant for hearing and proceedings and finally the judgment made by the judge. Both disputed parties appoint/hire lawyers that will represent them in court.
Resolving Construction Disputes The vast majority of construction projects are completed
without any major disputes that can’t be resolved between those two parties. Most construction contracts set out the manner in which disputes are to be resolved. Usually, those contracts call for use of a means other than litigation, such as arbitration or mediation, to resolve disputes. There are some construction-related disputes that will only be resolved through litigation. (a mechanic's lien requires court action for enforcement )
Ways of resolving construction disputes 1. Litigation 2. Alternative methods as prescribed in the
contract.
Arbitration (Binding/Non-binding) Mediation (Binding/Non-binding)
Litigation ď Ž Litigation that uses the court system is a right granted
by the Constitution ď Ž If there is no provision for dispute resolution in a
construction contract, either party, including the contractor, has the right to sue the other party using the court system.
Problems with Litigation
Problems with Litigation One of the major problems incurred by using the
court system is the very long time it usually takes to have a case come before the court. Many contractors go out of business while waiting for their case to be heard. When litigation is used, if either party is unhappy with the verdict, they can appeal. This appeal process can add many months and even years to the dispute resolution process.
Problems with Litigation (cont’d) If a construction case is heard by a judge and/or a
jury who have a limited or no construction knowledge related to the issues in the dispute, it is generally the best and most convincing presentation that will be the winner, not necessarily who is right or wrong. The construction industry phrase that sums up this problem is, “If the judge doesn’t know the difference between rebar and a Kit Kat Bar, he or she is not the right person to hear the case.” Presentation of the case most likely will be long and costly due to the lack of construction knowledge of the judge or jury.
Alternative Dispute Resolution (ADR) Mediation and arbitration are two forms of
alternative dispute resolution (ADR) that offer a resolution to the dispute rather than using the court system. Mediation and arbitration, two forms of alternative dispute resolution (ADR), offer a simple, expeditious process for settling disputes quickly—without a long and costly court case.
Arbitration Arbitration is like a trial, except that it is usually much
less formal. The dispute is heard by one or more arbitrators, who are selected from a panel of neutral arbitrators. Depending on the local practices and rules, the arbitrators may be attorneys, or people with expertise in the construction industry. The arbitrators act like a judge, in that they hear the case and make a final decision based on the evidence presented.
Arbitration (cont’d) Arbitration may be made binding on the parties, if
they so agree. Many construction contracts do require binding arbitration, and if you sign such a contract without removing that provision, you will be deemed to have agreed to binding arbitration. The courts will not overturn the order of an arbitrator in binding arbitration unless the arbitrator made a decision that completely lacked any legal foundation.
Arbitration (cont’d) Many construction contracts require that disputes
arising under the contract be resolved by arbitration . In addition, many courts will order that a case be submitted to arbitration before allowing it to come to trial. Although arbitration is less formal and complex than a regular trial, it still is important that you have legal counsel you can rely on to make your case. An experienced construction law attorney will work hard to present your case in the best manner possible.
Disadvantages of Arbitration ď Ž The problem is that panels set up to arbitrate tend to
be heavily biased towards the construction industry and so normal citizens will not have their constitutional rights protected as they would not get a chance to go through a jury trial. ď Ž The decision to arbitrate or litigate will generally depend on how big is your project and in case of big and complex projects, then arbitration will take a back seat to litigation because the latter will be more costeffective and also advantageous since it will allow for conducting detailed pre-trial discovery as well as dispositions.
Disadvantages of Arbitration ď Ž The bottom line is that arbitration that was meant to
allow construction experts to settle disputes in a cost effective manner, has not lived up to such expectations and is now virtually the same as litigation.
Mediation Mediation is another method of dispute resolution that is
often ordered by courts before a case may be brought to trial. Mediation is an effort to get the parties to reach a mutually agreeable settlement. A mediator, like an arbitrator, is a neutral party, but unlike an arbitrator, a mediator does not make a decision as to who is right or who is wrong, but will do what she can to get the parties to some common ground for an agreement. The mediator's role is limited to listening to each party, and presenting settlement options and proposals to the parties. Most mediators are selected for their knowledge of a particular area of the law.
Mediation (cont’d) The mediator advise a party as to whether a
particular claim may or may not be successful in court, and whether a party might be best advised to accept a settlement offer. No one forces the parties to come to an agreement, and there is ordinarily no penalty on a party who refuses to compromise or settle a claim. Mediation is seldom required by a contract, and it also differs from arbitration in that it is not like a trial. No one forces the parties to come to an agreement, and there is ordinarily no penalty on a party who refuses to compromise or settle a claim.
Mediation (cont’d) A settlement reached via construction mediation can
be a good way for a builder to avoid the bad publicity associated with litigation, so they will have a strong incentive to negotiate. In addition to saving money on legal costs, mediation is typically less of a hassle than full-blown litigation. About 95 percent of mediations are successful in settling construction disputes if the mediator is an experienced and trained construction mediator.
Binding Arbitration/Mediation To use a binding ADR, the parties must agree in
writing (in the contract) that they will use either binding mediation or binding arbitration. In effect, the parties are giving up their right to sue each other. Both binding mediation and binding arbitration offer a final and binding decision to construction disputes, binding arbitration is more widely used and accepted. Binding mediation is gaining in popularity, especially in smaller disputes, and is less costly than arbitration. Binding arbitration is more final than going to court, as the arbitration award is final and binding and generally not subject to appeal.
Binding Arbitration/Mediation (cont’d) Binding arbitration is more final than going to court,
as the arbitration award is final and binding and generally not subject to appeal. It may only be appealed for specific procedural reasons, such as the arbitrator not disclosing a former or current personal or business relationship with one or the parties. The award cannot be appealed if one of the parties does not like the award results.
Final Remarks Construction disputes can be complex, expensive
affairs. No matter the method used to resolve your dispute, you should be represented by an attorney who can help you explore your options, and pursue your claim in a way that meets your needs and that is in your best interest. If disputes go to court, construction projects would normally not get completed on time and within budget, and the builder probably would not be the builder who completes the project. Avoidance Is The Best Option
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Latest Dispute Prevention & Resolution Technique The "standing neutral" concept.
“Vorster”
one or more neutral dispute resolution advisers are selected at the beginning of a construction project, to be available for quick resolution whenever needed.
This concept is used currently in very large civil
engineering projects. The use of an objective third party is a "remarkably successful dispute prevention technique," and not just a resolution device.