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7/19/2018

Conflict Avoidance and Dispute Resolution


in Construction Contracts

By: Yasas Chandradasa MSc, PGCert.(Arb.), BSc(Hons)QS, MRICS, MCIArb

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Dispute

What is a Dispute?
“An argument or a disagreement between two people, group or countries”

(Oxford Advanced Learner’s Dictionary)

Definition of “Dispute” in Construction Context:

In the case of AMEC Civil Engineering Ltd v The Secretary of State for Transport [2004] EWHC 2339,
the court wrote:

The word ʹdisputeʹ should be given its normal meaning. It does not have some special or unusual
meaning conferred upon it by lawyers.

Despite the simple meaning of the word ʹdisputeʹ, there has been much litigation over the years as
to whether or not disputes existed in particular situations.

Notification of a claim does not automatically and immediately give rise to a dispute. A dispute does
not arise unless and until the claim is not admitted.

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7/19/2018

Dispute

Definition of “Dispute” in Construction Context:

The term “Dispute” is not defined in the FIDIC 1999 Red Book.
However, it is defined in FIDIC 2008 Gold Book and FIDIC 2017 Red
Book.

FIDIC 2008 Gold Book:

“Any situation where (a) one Party makes a claim against the other
Party; (b) the other Party rejects the claim in whole or in part; and
(c) the first Party does not acquiesce,..”

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Dispute

Definition of “Dispute” in Construction Context:

FIDIC 2017 Red Book:

“Dispute means any situation where:

(a) one Party makes a claim against the other Party;

(b) the other Party (or the Engineer under Sub-Clause 3.7.2 [Engineer’s
Determination]) rejects the claim in whole or in part; and

(c) the first Party does not acquiesce,

provided however that a failure by the other Party (or the Engineer) to oppose or
respond to the claim, in whole or in part, may constitute a rejection if……”

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Dispute

Sequence of Events Leading to a Dispute:

One party suffered or


An Event Asked for
thought they had
Occurred Compensation
suffered

Problem Conflict Claim

Party who suffered did Not Admitted by


DISPUTE not accept the rejection the Other Party

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Main Causes of Construction Disputes

2016 Rank Main Causes of Construction Disputes – Middle East 2015 Rank

1 A failure to properly administer the contract 1

2 Poorly drafted or incomplete and unsubstantiated claims 2

Employer/Contractor/Subcontractor failing to understand and/or comply New in


3
with its contractual obligations 2016

(Arcadis, “Global Construction Dispute Report 2017 - Avoiding the Same Pitfalls”)

Latham 1994:
• “The best solution is to avoid disputes.
• If procedures relating to procurement and tendering are improved, the causes of conflict will be reduced.
• If a contract document is adopted which places the emphasis on teamwork and partnering to solve problems, that
is another major step.”

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7/19/2018

Conflict Avoidance
Pre-Contract Stage
Have a carefully drawn up set of Contract documents at the beginning of the project to ensure
that there is no or minimum ambiguity.

• Prepare Tender documents with proper coordination among various trades (architectural,
structural, MEP, etc.).

• Use Standard Methods of Measurement.

• Allow sufficient time.

• Appoint qualified professionals.

• Chose the correct procurement path.

• Use standard forms of Contracts (CoC).

• Provide proper answers for tender queries & distribute them to all tenderers.

• Provide Correct information at the right time.

• Carry out proper tender evaluation.

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Conflict Avoidance

Post-Contract Stage
Administrate the Contract by fully competent Contract Administrators, in accordance with the
Contract Agreement .

• Understand and properly discharge the contractual obligations in timely manner.

• Have a proper knowledge of their rights.

• Contractor should seek clarifications as soon as the need becomes apparent and the Employers
and the consultant(s) should provide timely responses to the Contractors‟ requests for
information and clarifications.

• Follow the contractual procedures.

• Contractor should timely notify all cost increases and schedule delays, and the Employer and its
consultants should assess them promptly.

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7/19/2018

Conflict Avoidance

Post-Contract Stage
Administrate the Contract by fully competent Contract Administrators, in accordance with the
Contract Agreement .

• Understand and properly discharge the contractual obligations in timely manner.


• Have a proper knowledge of their rights.

• Contractor should seek clarifications as soon as the need becomes apparent and the Employers and the
consultant(s) should provide timely responses to the Contractors‟ requests for information and clarifications.

• Follow the contractual procedures.

• Contractor should timely notify all cost increases and schedule delays, and the Employer and its consultants
should assess them promptly.

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Conflict Avoidance
How standard forms of contract deal with conflict avoidance – FIDIC

• Provide clear definitions and interpretations.

• Clear explanations of the parties rights and obligations.

• Clear explanations of the Engineer‟s duties and authorities.

• Clear explanations of the procedures; e.g. Variation procedure.

• Clear and fair allocation of risks.

• Priority of Contract Document.

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7/19/2018

Dispute Resolution Procedures

Litigation

Dispute Resolution Procedures

Alternative Dispute
Resolution

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Dispute Resolution Procedures

Litigation:

The process of resolving disputes by filing or answering


a complaint through the public court system

When to Litigate

• Where negotiations have proved unsuccessful and there


is no right of adjudication (in UK) and/or Arbitration; or

• Where there is no dispute resolution clause in the


contract; or

• Where there is a litigation clause in the contract.

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7/19/2018

Dispute Resolution Procedures

Advantages of Litigation:
• judgments of the court are readily enforceable;
• judgments are subject to very limited rights of appeal;
• the quality of judges is usually very high;
• the court and judge's time is free (subject to the payment of court fees);
• an array of interim remedies, such as injunctions, is available to support the process;
• the process is able to deal easily with third parties;
• judges are usually full-time and are therefore very experienced. Arbitrators in contrast
usually only sit as arbitrators once in a while;
• legal costs are recoverable from the losing party;
• claims can be brought against several defendants in the same action; and
• the processes are detailed, well defined and widely understood.

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Dispute Resolution Procedures

Disadvantages of Litigation:
• proceedings are often time-consuming and complex. The process requires the
use of solicitors and/or barristers, and is therefore often expensive;
• the courts are not able to deviate from the Civil Procedure Rules (CPR). They are
relatively inflexible;
• the process is necessarily adversarial. This often leads to conflict and a
destruction of any goodwill between the parties;
• the courts are open to the public and the press; and
• the losing party has to pay the costs of the winning party (subject to any offers)
thus turning the attention of the parties very quickly form an argument over
damages to an argument over who will pay the costs.

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7/19/2018

Dispute Resolution Procedures

Alternative Dispute Resolution (ADR):

ADR is a collective description for methods of resolving disputes without the


need to go to court

These include:
Common Advantages of ADR

• Negotiation  Less adversarial


Confidentiality
• Mediation 
 No or less destruction of any goodwill and business
• Conciliation relationship between parties

• Expert Determination

• Dispute Boards

• Adjudication

• Arbitration

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Dispute Resolution Procedures

Dispute Boards:
Dispute Boards is a “permanent panels set up to accompany the performance of a contract, which
assist in avoiding or overcoming disagreements and disputes, minimize impacts of disputes and
enhance trust between parties.”
(International Chamber of Commerce)

• A Dispute Board comprises a board of one or three members, independent of the contracting
parties, engaged to perform an overview role of the execution of the project and the contract.

• Primary function of a dispute board is to assist the parties to avoid disputes if possible, or if not,
to assist them to a speedy, cost-effective and acceptable resolution of disputes, and avoid the
need for arbitration or litigation.

• A dispute board acts in „real time‟ as compared to dealing with events now which occurred in the
far distance past such as in court proceedings and arbitrations.

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7/19/2018

Dispute Resolution Procedures


Types of Dispute Boards:

Dispute Review
Boards (DRB)

Combined Dispute
Boards (CDB)

Dispute
Adjudication
Boards (DAB)

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Dispute Resolution Procedures


Adjudication:
Adjudication is a procedure by which any party to a construction contract can
have a dispute decided by an adjudicator. It is intended to be quicker and
more cost effective than litigation or arbitration.

The Adjudicator must generally decide the dispute in less than 42 days.

Adjudication Procedure:

Appointment
The 7 days of the
Notice of
Referring Adjudicator &
Adjudication
Party Referral
Notice

Evaluation
Decision (28 days or
Max. 42 days)

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7/19/2018

Dispute Resolution Procedures

Arbitration:

“Arbitration is a private form of binding dispute resolution, conducted before an impartial


tribunal, which emanates from the agreement of the parties but which is regulated and
enforced by the state”

(Latham & Watkins (2014), “Guide to International Arbitration”)

The arbitral tribunal can be made up of legal and/or industry experts chosen by the parties or
appointed by a professional body that has been requested to do so by the parties.

Arbitration is a private and confidential process to a greater degree.

It can provide for the quick, practical and economical settlement of cross-border disputes.

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Dispute Resolution Procedures

Advantages of Arbitration:
• Usually a confidential process;
• More flexible in terms of procedure than litigation;
• Allows the parties to choose the tribunal;
• Can be a neutral forum (for international disputes);
• Award is final and binding; and
• Relatively easy to enforce the award internationally.

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7/19/2018

Relevant Clauses in FIDIC 87 - Red Book 4th Edition:


• Sub-Clause 67.1 – Engineer‟s Decision
• Sub-Clause 67.2 – Amicable Settlement
• Sub-Clause 67.3 – Arbitration

Relevant Clauses in FIDIC 1999 Red Book:


• Sub-Clause 3.5 – Determinations
“…..If agreement is not achieved, the Engineer shall make a fair determination in
accordance with the Contract, taking due regard of all relevant circumstances…”
• Sub-Clause 20.5 – Amicable Settlement
• Sub-Clause 20.6 – Arbitration

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Dispute Resolution Procedures


How standard forms of contract deal with Dispute
Resolution

Relevant Clauses in FIDIC 1999 Red Book (cont…):


• Sub-Clause 20.2 – Appointment of the Dispute Adjudication Board (DAB)

Appointment date of the DAB, number of members (one or three) shall be stated in the
Appendix to Tender.

If the number is not stated and the Parties do not agree otherwise, the DAB shall comprise
three persons.

If the DAB is to comprise three persons, each Party shall nominate one member for the approval
of the other Party.

The Parties shall consult both these members and shall agree upon the third member, who shall
be appointed to act as chairman.

If a list of potential members is included in the Contract, the members shall be selected from
those on the list.

Cost of the DAB shall be equally shared between the Parties.

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7/19/2018

Dispute Resolution Procedures

How standard forms of contract deal with Dispute


Resolution

Relevant Clauses in FIDIC 1999 Red Book (cont…):


• Sub-Clause 20.3 – Failure to Agree Dispute Adjudication Board

Appointing entity or official for the appointment of DAB in the event of Parties frailer to agree upon
the appointment of DAB shall be named in the Appendix to Tender.

Upon the request of either or both the Parties and after due consultation with both Parties, this
entity or the official shall appoint the DAB.

This appointment shall be final and conclusive.

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Dispute Resolution Procedures

How standard forms of contract deal with Dispute


Resolution
Relevant Clauses in FIDIC 1999 Red Book (cont…):

• Sub-Clause 20.4 – Obtaining Dispute Adjudication Board‟s Decision

Decision
Decision become final
and binding
Reference of Evaluation
dispute by (84 days or as
either Party approved) Notice of
DAB fails to dissatisfaction
give a within 28 days
decision

Dispute shall be resolved


through an amicable
settlement or an arbitration

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7/19/2018

Dispute Resolution Procedures

How standard forms of contract deal with Dispute Resolution

Relevant Clauses in FIDIC 1999 Red Book (cont…):


• Sub-Clause 20.7 – Failure to Comply with Dispute Adjudication
Board‟s Decision
“In the event that:
…(c) a Party fails to comply with this decision,
then the other Party may, without prejudice to any other rights it may
have, refer the failure itself to arbitration under Sub-Clause 20.6
[Arbitration]. Sub-Clause 20.4 [Obtaining Dispute Adjudication
Board’s Decision] and Sub-Clause 20.5 [Amicable Settlement] shall
not apply to this reference.”

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Dispute Resolution Procedures

How standard forms of contract deal with Dispute


Resolution

Relevant Clauses in FIDIC 1999 Red Book (cont…):


• Sub-Clause 20.5 – Amicable Settlement

Where notice of dissatisfaction has been given under Sub-Clause 20.4, both Parties shall
attempt to settle the dispute amicably before the commencement of arbitration.

However, arbitration may be commence on or before 56th day after the day on which notice
of dissatisfaction was given, even if no attempt at amicable settlement has been given.

• Sub-Clause 20.6 – Arbitration


Unless settled amicably, any dispute in respect of which the DAB‟s decision (if any) has not
become final and binding shall be finally settled by international arbitration.

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7/19/2018

Conflict Avoidance and Dispute Resolution


in Construction Contracts

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