Construction Disputes

Introduction
Construction Dispute is a situation where two
parties typically differ in the assertion of a
contractual right, resulting in a decision being
given under the contract, which in turn becomes a
formal dispute.

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Dispute in business is inevitable, and the
construction industry is no different. Disputes
arise within this sector for all sorts of reasons,
with several possible ways by which to resolve
them. However, although often resolvable,
disputes inevitably bring many challenges and
legal issues to take into consideration.

ww.fenwickelliott.com
Construction disputes are fairly common, and they
vary in their nature, size, and complexity. When it
is not resolved in a timely manner, become very
expensive in terms of finances, personnel, time,
and opportunity costs.

www.americanbar.org
Construction disputes stem from a variety of
problems that can be faced during the
construction process. Disputes can arise during
the formation, meaning, breach or termination of
construction. Disputes also can arise out of
financing and real estate development contracts
and the associated duties imposed on the
contracting parties by law.

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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.
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 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 required depends on the task
complexity and the performance requirements,
usually measured in time or to a budget. The
amount of information available depends on the
effectiveness of planning and requires the
collection and interpretation of that information
for the task.
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 Contractual problems
Standard forms of contract clearly prescribe the
risks and obligations each party has agreed to
take. Such rigid agreements may not be
appropriate for long-term transactions carried out
under conditions of uncertainty.

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 Contractual problems
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. Where amended terms or bespoke contracts
are used, they may be unclear and ambiguous. 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.
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 Behaviour
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.
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Common causes of Construction Disputes
Acceleration
Co-ordination
Culture
Differing goals
Delays
Design
Engineer and Employer's Representative
Project complexity
Quality and workmanship
Site conditions
Tender
Variation
Value engineering

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 Acceleration
It is not uncommon for commercial property owners to
insist upon acceleration of a construction project. Such
examples might include the completion of a major retail
scheme, and the need to meet key opening dates or tenant
occupation in an office development. The construction
costs associated with acceleration are likely to be less than
the commercial risk the developer may face if key dates are
missed.

The circumstances surrounding acceleration are often not

properly analyzed at the time the decision is made, and
that inevitably leads to disputes once the contractor has
carried out accelerative measures and incurred additional
costs only to find that the developer refuses to pay.
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 Co-ordination
In complex projects involving many specialist trades,
particularly mechanical and electrical installations,
co-ordination is key, yet conflict often arises because
work is not properly co-ordinated. This inevitably
leads to conflict during installation which is often
costly and time-consuming to resolve, with each party
blaming the other for the problems that have arisen.

Ineffective management control may result in a

reactive defense to problems that arise, rather than a
proactive approach to resolve the problems once they
become apparent.
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 Culture
The personnel required to visualise, initiate, plan,
design, supply materials and plant, construct,
administer, manage, supervise, commission and
correct defects throughout the span of a
large construction contract is substantial. Such
personnel may come from different social classes
or ethnic backgrounds. Forming a teamwork
approach across cultures can be very difficult
where each culture has its own values.
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 Differing goals
Personnel engaged on a large construction
contract are likely to be employed by one of
many subcontracted firms, including those
engaged as suppliers and manufacturers. Each of
these firms may have their own commitments and
goals, which may not be compatible with each
other and could result in disputes.

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 Delays
Disputes frequently arise in respect of delays and who should
bear the responsibility for them. Most construction contracts
make provision for extending the time for completion. The sole
reason for this is that the owner can keep alive any rights to
delay damages recoverable from the contractor.

On international construction projects the question of any rights

the contractor might have to extend the time for completion was
a matter often addressed towards the end of the contract, when
an overrun looked likely. From the owner's point of view, this
made the examination of the true causes of delay problematical
and inevitably led to disputes between the contractor and the
owner as to the contractor's proper entitlement.

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 Design
Errors in design can lead to delays and additional
costs that become the subject of disputes. Often no
planning or sequencing is given to the release of
design information, which then impacts on
construction. Equally, the design team sometimes
abrogate their responsibilities for the design,
leaving the contractor to be drawn into solving
any design deficiencies by carrying out that part of
the work itself to try to avoid delays, and, in doing
so, innocently assuming the risk for any
subsequent design failures.
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 Engineer and Employer's Representative
The personality of the Engineer or the Employer's
Representative and their approach to the proper and fair
administration of the contract on behalf of the Employer is
crucial to avoiding disputes, yet a substantial proportion
of disputes have been driven by the Engineer or the Employer's
Representative exercising an uneven hand in deciding
differences in favour of the Employer.

In domestic and international contracts,

the Engineer traditionally had an independent and impartial
role. This independence or impartiality was often not properly
exercised, and in some cases there was clear evidence of bias by
the Engineer towards the Employer. This practice was not
limited to third world countries but also existed in developed
countries.
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Project complexity
In complex construction projects the need to carry out
a proper risk assessment before a contract is entered
into is paramount: yet this is often not done.

There are numerous examples of projects taking much

longer than planned and contracted for because there
was insufficient appreciation of the risks associated
with the project's complexity. Inevitably the delay and
additional costs the contractor incurs, and the owner's
right to claim damages for delay, often develop into
bitter disputes.
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 Quality and Worksmanship
In traditional construction contracts, disputes often arise as to whether or not
the completed work is in accordance with the specifications. The specification
may be vague on the subject of the dispute in question, and each party to the
contract may have a different view on whether the quality and workmanship is
acceptable.

This is even more so in international contracts. Although great care may have
been taken to prescribe the quality of the materials and their compliance with
European standards, these standards may contradict the local laws and
regulations in the country where the project is being constructed, and any
dispute will be governed by the law of that country.

In design and build contracts, perhaps the greatest deficiency is in the contract
documentation, particularly the Employer's requirements. This inadequacy
inevitably leads to claims by the contractor for additional costs, which, if not
resolved, can lead in turn to costly disputes.

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 Site conditions
If the contract inadequately describes which party is
to take the risk for the site conditions, disputes are
inevitable when adverse site or ground
conditions impede the progress of work or require
more expensive engineering solutions.

Even if the Employer, in good faith, provides detailed

information on the site conditions to the contractor, if
that information is discovered to be incorrect and
the contractor has relied on it and acted upon it to
their detriment, the Employer may be liable to
the contractor for the consequences.
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 Tender
The time allowed to scrutinize the tender documents,
prepare an outline programmed and methodology,
carry out a risk assessment, calculate the price, and
conclude the whole process with a commercial review
is often impossibly short. Mistakes in this process may
have an adverse effect on the successful commercial
outcome of the project. A culture may be engendered
in the contractor of pursuing every claim that has a
prospect of redressing any ultimate financial shortfall.
This approach does nothing to foster close and co-
operative working relationships between the owner
and the contractor during the progress of the work,
and inevitably leads to disputes.
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 Variations
A variation is an alteration to the scope of works in
a construction contract in the form of an addition,
substitution or omission from the original scope of
works.
Variations are a prime cause of construction disputes,
particularly where there are a substantial number, or
the variations impact on partially completed work or
are issued as work is nearing completion. The nature
and number of variations can transform a relatively
straightforward project into one of unmanageable
complexity.
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 Value Engineering
This term often lacks definition in construction
contracts and can lead to disputes, particularly
where the saving is to be shared between
the contractor and the owner. Savings in respect
of the supply and installation of the material or
product in question might be relatively easy to
determine and agree, but these are not the only
benchmarks, and a proper value
engineering approach needs to take full account of
the life cycle costs of any proposed change.
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Alternative Dispute Resolution for
Construction (ADR)
Construction contracts usually provide for disputes to
be dealt with by agreed dispute resolution procedures
involving mediation, adjudication and arbitration.
Often a combination of all three.

The construction sector is also subject to statutory

schemes which impose adjudication procedures in the
absence of contractual agreement.

Contract disputes are a complex area of law and the

choice of procedure is one which requires careful
consideration.
start
Methods of Dispute Resolution
Contract claims
Alternative Dispute Resolution
The term claim applies to the differences that are
developed during the life of the contract under
protests and potential claims, and that are not yet
resolved at the time the contractor returns the
proposed final estimate of the amount of additional
money or time asked for. In other words, a protest or
potential claim does not become a claim until the
contractor repeats its objections by notifying the
architect/ engineer or owner at the time the proposed
final estimate for such claim is returned to the
architect/engineer.
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PREPARATIONS FOR CLAIMS
DEFENSE
1. Documentation
One of the most important things to be
considered in presenting any claim is
documentation. In cases other than construction,
very often the facts can be reconstructed from
public records, police documents, or witnesses.
The data required to support construction claims
cannot generally be reconstructed after the fact
without careful documentation.
Checklist of Documentation for Claims Protection
2. Burden of Proof
It is the plaintiff who has the burden to prove its
claim. Where the contractor succeeds in proving
substantial compliance against the owners claim
of nonperformance, the burden of proof reverts to
the owner to prove its claim for residual defects.
3. Method of Presentation

Photographic evidence and charts are very

effective in conveying the facts. Actual site visits
may save time and energy consumed in otherwise
describing the general physical conditions. An
expert witness who can translate technical
concepts into simple language is an invaluable
evidentiary aid.
4. Evidence
Documentation
1. Bid documents
2. Boring logs and soils reports
3. Drawings: as-planned
4. Drawings: as-built
5. Specifications
6. General and supplemental
general conditions
7. Schedule: as-planned (CPM, etc.)
8. Schedule: as-built (progress
charts)
9. Addenda
10. Change orders
11. Instructions and directives
12. Inspection records
13. Contractors logs
14. Architect/engineers or owners
diaries
(through deposition)
15. Correspondence files
16. Check registers
17. Purchase orders
18. Shipping and delivery tickets
19. Time cards
20. Person-loading charts
21. Memoranda (including memos
to file)
22. Site photographs
23. Testing results
24. Public records
25. Requests for Information (RFI)
and responses
 Witnesses

1. Contractors project 6. Inspectors

personnel 7. Suppliers
2. Owners project 8. Testing lab
personnel personnel
3. Architect/engineer 9. Consultants (expert
personnel witnesses)
4. Construction 10. Adverse witnesses
manager personnel
5. Subcontractors
5. Estimates

An objective review of the source material and

methods upon which the estimate was based will
often show weaknesses or deviations from
accepted industry practice.
6. Schedules

Scheduling controversies arise not only from poor

planning, on occasion, but also from disagreement
over construction methods or sequences of
operations.
7. Costs
It is in the presentation of cost data and their
supporting documentation that most construction
claims are the weakest. A carefully detailed
reconstruction of all construction activities and
their related costs must be made and presented so
that they can be clearly identified for use in
negotiating affirmatively or defensively.
THE USE OF PROJECT RECORDS IN
LITIGATION
1. Planning Strategy
project records are essential to the establishment
of the facts in a case and to the planning of
litigation strategy. In addition, project records are
valuable as an aid to weighing the credibility of an
additional source.
2. Prelitigation Use of Records
During the prelitigation phase of case preparation,
the project records are invaluable in the
preparation of interrogatories and depositions, for
without competent and thorough documentation,
key issues could easily be overlooked.
3. The Litigation Process

During litigation, these records may be used to

define relevance and establish probative value of
facts under dispute.
4. Records Are Your First
Line of Defense
ORDER OF PRECEDENCE OF
CONTRACT DOCUMENTS
In resolving such conflicts, errors, and
discrepancies, the documents should be given
preference in the following order:
1. Agreement
2. Specifications
3. Drawings
Within the specifications, the order of precedence is as
follows:
1. Change Orders or Work Change Directives
2. Agreement
3. Addenda
4. Contractors Bid or Proposal
5. Supplementary General Conditions
6. Notice Inviting Bids
7. Instructions to Bidders
8. General Conditions of the Contract
9. Technical Specifications
10. Standard Specifications
11. Contract Drawings
With reference to the drawings, the order of
precedence is as follows:
1. Figures govern over scaled dimensions.
2. Detail drawings govern over general drawings.
3. Change order drawings govern over contract
drawings.
4. Contract drawings govern over standard
drawings.
5. Contract drawings govern over shop drawings.
End
Alternative Dispute Resolution
ADJUDICATION: The legal process of resolving a dispute; the process of
judicially deciding a case.

ARBITRATION: A method of dispute resolution involving one or more

neutral third parties who conduct an arbitration hearing, according to
specified rules and procedures, to determine who is right and who is wrong
on selected issues and whose decision in either binding or non-
binding. Binding arbitration is a method of dispute resolution where an
arbitrator or panel of arbitrators conducts a hearing for the purpose of
deciding which party or parties are to receive an award that is binding on all
of the parties. Non-binding arbitration is a method of dispute resolution
where an arbitrator or panel of arbitrators conducts a hearing for the
purpose of deciding which party or parties are to receive an award that is
non-binding on all of the parties.
 ARBITRATION ACT: Any state or federal statute that governs the
arbitration process that may be followed in the jurisdiction in which the
arbitration shall be conducted if the applicable contract specifying the
arbitration doesnt state specific rules or statutes to be followed.

ARBITRATION CLAUSE: A contractual provision of a contract,

agreement or other document that specifies binding arbitration, non-
binding arbitration or med-arb as the dispute mechanism to settle any
dispute relating to the contract, addendums to the contract, change orders
or any other change to the primary contract.

ARBITRATION DEMAND: (Demand for Arbitration) is a written notice

by one party to another party of the first partys intent to initiate the
arbitration process.
 ARBITRATOR: A neutral person who conducts an arbitration proceeding
or participates on a panel of neutral persons who conduct a tripartite panel
arbitration proceeding. An advocacy or selected arbitrator may represent
one of the parties on a tripartite panel and may not be considered a neutral.

AWARD: The final decision of the arbitrator(s) at the conclusion of an

arbitration hearing. Most arbitration awards are rendered within 30 days
after the conclusion of the arbitration hearing.

CASE-IN-CHIEF: The part of an arbitration hearing when a party

presents evidence to support its claim or defense.

CIRCUMSTANTIAL EVIDENCE: Evidence based on inference and not

on personal knowledge or observation that does not directly prove a fact but
gives rise to a presumption that a fact does exist.
 CLAIM: A request for a remedy to a given situation including but not
limited to: a request for payment, a request for the correction of a
construction defect(s), an interpretation of the provision(s) of a
construction contract or related documents, a release from the provisions of
a construction contract, a request for damages, a request for equitable
remedy for breach of performance, a claim for the recovery of specific
personal property wrongfully taken or detained and other related issues for
which a party feels they have a claim.

CLAIMANT: The primary party in an arbitration who brings charges

against another party (the respondent) and initiates the arbitration
process; the one who asserts their right or demand for arbitration.

COUNTERCLAIM: A claim for relief asserted against an opposing party

(claimant) after an original claim has been made; a defendants
(respondents) claim in opposition to or as a setoff against the claimants
original claim.
 DECLARANT: A person who has made a statement or signed a
declaration of a statement.

DEPOSITION: Testimony of a witness that is reduced to writing and

taken prior to an arbitration hearing. It is admissible during the arbitration
hearing as if the witness was present. It must be pre-authorized by the
arbitrator.

DISCLOSURE: The act or process whereby the arbitrator makes known

to all parties, their attorneys and/or their representatives, any pertinent
information concerning any previous relationships or interests that the
arbitrator may have that could potentially affect the neutrality of that
arbitrator. This obligation to disclose pertinent interests or relationships is
a continuing duty of the arbitrator during the entire arbitration process.
 DISCOVERY: The process of looking for information that is either
previously known or unknown. Discovery usually involves but is not
limited to the following procedures: admission of documents or plans,
interrogatories, witness or specialist testimony, depositions, and other
requests for the introduction of relevant information, documents or
materials.

EXHIBITS: Tangible objects, documents, photographs, audiotapes and

videotapes, and other items offered for the arbitrators consideration. In an
arbitration hearing, the exhibits enhance or supplement the testimony of
the parties, their attorneys or their representatives or witnesses or
specialists.

EX PARTE COMMUNICATION: A generally prohibited communication

between a party and/or their attorney or representative and the arbitrator
when the opposing party, their attorney and/or their representative is not
participating in the communication. Ex parte (private) communications are
usually only allowed concerning administrative or procedural matters.
 FINAL ARGUMENT: (also known as the closing argument) At the end of
the arbitration process, it is the partys only opportunity to tell the case
story in its entirety, without interruption, free from most constraining
formalities, delivered in their own words, using their organizational,
analytical, interpretive and other skills for the express purpose of
persuading the arbitrator in the merits of their case.

HEARSAY: A statement, other than one made by the declarant while

testifying at the hearing, offered in evidence to prove the truth of the matter
asserted.

INTERROGATORY: A discovery technique where a written question or

questions are submitted to the opposing party for the purpose of disclosing
relevant information to the arbitration.

ISSUANCE: The dissemination of an official document to a mediation or

an arbitration.
 JOINDER OF PARTIES: It may become apparent during the pre-
hearing conference, or at other times, that other parties may need to be
notified of the arbitration and of their opportunity for voluntary addition as
parties. They may need to be joined as additional parties because of the
existence of multiple arbitration clauses making them named parties to the
dispute.
 MEDIATION: A method of dispute resolution where a neutral person
facilitates discussions between the parties in an attempt to get the parties to
reach an agreement that is mutually agreeable to the parties. Binding
mediation is a method of dispute resolution where a neutral person
facilitates discussions between the parties in an attempt to get the parties to
reach an agreement that is mutually agreeable to the parties and after the
mediation has reached settlement on as many items that is possible through
the mediation process, any unresolved items are then left to the mediator to
render a decision that will settle those unresolved items. In binding
mediation, the decision of the mediator is binding upon the parties and is
added to the final Settlement Agreement that is executed and signed by all
of the parties to the mediation.
 MED-ARB: A method of dispute resolution that is a combination of
mediation and binding arbitration. The process begins with mediation and
any unresolved items that remain at the end of the mediation, according to
the pre-negotiated med-arb agreement, are then put into the hands of the
same mediator to act as an arbitrator or the unresolved items are put into
the hands of a new arbitrator who will conduct an arbitration and render a
final binding decision and award on those remaining unresolved items.

OPENING STATEMENT: The partys first opportunity to help the

arbitrator understand the evidence that you are about to present and helps
to identify issues for the arbitrator while his/her mind is still fresh and
uncluttered by volumes of evidence. It also alerts the arbitrator to
questions of fact and law that the arbitrator will need to understand prior to
rendering an award.
 PARTIES: Any individual, company, or entity involved as the primary
participants in the arbitration and their attorneys or other representatives.

PLEADING: A formal document in which a party to a legal proceeding

sets forth or responds to allegations, claims, denials, or defenses.

POST-HEARING BRIEF: A summation of the final arguments of each

party in lieu of or in addition to closing arguments. Usually requested by an
arbitrator if it is not completely clear, even from the counsels oral
arguments, whether there is sufficient evidence to sustain particular
elements of claims or defenses. Post-hearing briefs may add time to the
rendering of the award by the arbitrator.
 PRE-HEARING BRIEF: (also known as pre-hearing position statements
and opening briefs) A short memorandum, usually five to ten double-
spaced pages in the average case, which succinctly apprizes the arbitrator of
the significant facts, separate claims, contentions, supporting law and other
relevant issues concerning the arbitration issues. This brief is usually filed
from a few days to a few weeks prior to the arbitration hearing, at the
direction of the arbitrator.

PREHEARING CONFERENCE: (also called the preliminary hearing) A

hearing or conference between all of the parties and their attorneys or their
representatives to discuss the procedural and substantive matters of the
upcoming arbitration hearing. Cases that require little or no discovery and
a small amount of dollars would probably not warrant the scheduling of a
pre-hearing conference. This conference may be conducted as a conference
call on the telephone at the discretion of the arbitrator.
 REBUTTAL: The time given to the respondent to present contradictory
evidence or arguments in response to the claimants opening statement.

RENDER: To transmit or deliver a decision related to an arbitration,

binding mediation or med-arb, by the mediator or arbitrator.

RESPONDENT: The party in an arbitration who is the defending party to

the original charges from another party (the claimant).

STIPULATION: A material condition or requirement in an agreement,

construction contract or other document that specifies a required condition,
requirement or procedure to be followed.
 SUBCONTRACTOR: One who is awarded a portion of an existing
contract by a general contractor. A sub-subcontractor is one who is
awarded a portion of an existing subcontractor's contract by a
subcontractor.

SUBPOENA: A writ commanding a person to appear before an arbitration

hearing to give testimony with or without required documents, subject to a
penalty for failing to comply.

SURREBUTTAL: The response by the claimant to the respondents

rebuttal of the claimants opening statement.

TRANSCRIPT: A handwritten, printed, or typed copy of testimony given

orally at an arbitration hearing that can become the official record of the
arbitration proceeding, as taken by a stenographer or court reporter with
the permission of the arbitrator.
 TRIPARTITE PANEL: A panel of three arbitrators who together conduct
an arbitration and render a binding or non-binding award.

VACATE: To nullify or cancel; make void; invalidate.

WARRANTY: An express or implied promise that something in

furtherance of the contract is guaranteed by one of the contracting parties
or their representatives.
Mediation is a process in which a trained third-
party neutral attempts to assist the parties to a
dispute in reaching an agreement that resolves the
dispute. Another way of saying this is that
mediation is a particular form of settlement
negotiation in which a trained third-party neutral
intervenes by agreement of the parties in order to
guide and facilitate the parties negotiations
toward an agreement that resolves the dispute.
Why is a Mediator Needed?
A mediator is needed when one or more of the following circumstances or desires exist:

1. Parties are unable to narrow the gap between the expectations of one group and
the inflexibility of the other.
2. Too many issues are open and the parties are unable to get movement going.
3. The parties wish the mediator to explore and narrow the differences between
them.
4. There is a desire to resolve a problem mutually and end a dispute amicably.
5. It is desired to furnish the parties with a realistic look at the demands and
possibility of obtaining them.
6. There is a wish to give the parties some idea of how their positions look to an
impartial person.
7. The parties wish a mediator to be used as a conduit through which private,
confidential disclosures can be made without jeopardizing their original positions.
8. There is a wish to avoid negative consequences, such as a Lawsuit.
"Arbitration" means a voluntary dispute resolution
process in which one or more arbitrators, appointed in
accordance with the agreement of the parties, or rules
promulgated pursuant to this Act, resolve a dispute by
rendering an award.

"Arbitrator" means the person appointed to render an

award, alone or with others, in a dispute that is the
subject of an arbitration agreement;

"Award" means any partial or final decision by an

arbitrator in resolving the issue in a controversy;
Republic Act No. 9285
Is arbitration the best method for resolving
construction disputes? The answer is a definite
maybe. The proponents of arbitration hail it as
being speedy and economical. Experience has
shown, however, that this is not always true,
especially in the larger cases. Arbitration can be
extremely lengthy, expensive, and by its very
nature can lead to inconsistent results.
Arbitration is not always economical. The filing fees
for initiating arbitration with the AAA greatly exceed
the fees to file a complaint in most state courts. Under
the rules of the AAA, the filing fee for a $100,000
claim is $1,500. By contrast the fee for filing a
complaint in most state courts is under $100. An
additional expense of arbitration is the fee paid to the
arbitrators, which can range from $300 to $1,500 or
more per day, depending upon the number and
experience of the arbitrators. Other costs may include
charges for a hearing room and a written transcript.
Arbitrators are normally not bound by rules of
law. For example, as an owner you may have
insisted that your construction contracts include a
clause providing that the contractor shall not be
entitled to any damages for delay. Though the
courts have held such clauses as enforceable in the
face of contemplated delays, there is nothing to
prevent an arbitrator from ignoring the clause and
awarding the contractor damages for such delays.
Reference:

Construction Project Administration, 9th Ed.

By Edward R. Fisk, PE and Wayne D. Reynolds, PE
University College of Estate Management (UCEM)Academic
(https://www.designingbuildings.co.uk/)
Republic Act No. 9285 April 2, 2004