Construction projects may not go smoothly as planed

due to uncertainties about events in the future.

Delay which are the major causes of claims may occur due
to
unforeseen site conditions

Increase in scope of work and others

As a result, disagreement can arise regarding contractual
matters.
 Potential claims
Claim is mostly concerned with
entitlements and

 liabilities arising under, or as a result of, a

legally valid contract.
Construction Claims
 A construction claim is therefore can be a demanded
for
 payment of additional compensation,
 adjustment of the parties' respective contractual
obligations,
 Extension of Time or compensating delay
damages,
 any other change with regard to the contractual
conditions or terms.
The bases of such interpretations of the word claim
indicate that any claim is:
-A willful act by the claimant when s/he believes that there is
no other way than claiming to compensate for the loss
suffered during relationships,
All of such willful act of the claimant should base on
her/his right, entitlement and privilege that can legally
be supported,
-All of such willful act by the claimant need to be
proved and the claim should be properly presented and
can be justified,
 Contractual notice provisions

Claims from the contractor

Much of the trouble with mismanaged claims from the
contractor has been the lack of:
Accurate record
 For late claims, for possibility of further
arrangements
sub-clause 20.1 requires
Contractor shall give notice as soon as practicable
Contractual notice provisions

 sub-clause 20.1 requires

 Contractor shall give notice as soon as practicable
 And not later than 28 days
 Describing the event or circumstances
 The notice need not state time or amount claimed or
contractual basis of claim
 Notice shall comply with cl.1.3 i.e in writing and properly
delivered
 Progress reports-cl.4.21-must list notice given
 No response required from Engineer (Employer)
 Note: if contractor fails to give notice within 28 days,
he/she loses entitlement to his claim
Contractual notice provisions

 In the past the engineer/ employer withheld the

amount they considered and extend defects liability
period for one or another reason.
 To prevent these unfair practice, FIDIC 1999
introduces Employers claim sub-clause 2.5
 Thus, sub-clause 2.5 requires notice and particulars
 Employer shall give notice as soon as practicable
 Notice relating to extension of DNP
 Particulars to specify clause
 Notice shall comply with cl.1.3 i.e in writing and
properly delivered
Contractual notice provisions

Thus, sub-clause 2.5 requires notice and

particulars
 No response required from contractor

 Particulars may be given at any time

 Any amount so determined is deducted from

payment certificate
 Any extension so determined is added to DNP
3.Common sources of contractor’s claims

 Sections of the contract documents dealing with

the following items should be considered to ensure
the contract is complete with respect to terms and
conditions to have dispute mechanisms.
 Changes/extras,

 disputes,

 authority/roles/definitions,

 soil/site conditions,

 delay payments and

 notice provisions
3.Common sources of contractor’s
claims
 The causes of claims on construction projects
are many. Some of the major ones are:
 Extra works,
 design change,

 differing soil/site conditions ,

 untimely payment,

 limited access to the site,

 defects in plans and specifications ,

 failure on the part of the owner to approve

drawing
 They are also causes of valid claims.
 4.Types of claims

 Claims can be classified as follows based on legal

basis
a. Contractual claims
b. Ex-contractual claims
c. Ex-gratia claims
 Contractual claims
 These are claims made under the expressed
provisions of a contract (claims under contract )
 A claim for which both the event and the
remedy are specified in the contract
 But this does not mean that the claim should be
necessarily on the provisions of the contract, it
may also be claims for breach of contract
 For which the remedy is specified in the
contract
 Ex-contractual claims
 Legitimate claims that occur but that do not have
their basis in the conditions of contract are called
ex-contractual and need to be dealt with by
 mediation

 arbitration or

 litigation in the normal way

Claims in tort :
 the law of tort is concerned with civil duties and
relationships
 It regulates wide variety of unlawful, behavior, those
related to construction includes nuisance, trespass,
negligence etc..
 Ex-gratia claims

 The ex-gratia claims are claims made

 With no ground in the contract or
 At law but, only on the sense of fairness

 e.g. an ex-gratia claims might be made to recover

cost incurred by the contractor the expenditure of
which give benefit to the employer, but for there are
no grounds for recovery under the contract
Claim Preparation/Procedure
The first notice starts the claims procedure
 Any other notice and supporting details may also be
required by specific clauses
 Contemporary records to be kept
 Record may be inspected by Engineer
 Fully detailed claims to be submitted within 42 days or
other agreed time
 Within 42 days of receiving the claim with details the
engineer shall respond with approval/disapproval
 Quantifying a claim/Claim analysis

 Proper analysis of claims reduce the degree of

impacts and the development of other claims.
Three phases for analysis
 Phase 1---Presentation of claims

 Phase 2---Assessment of claims

 Phase 3---Response of claims

Valid Claims
 All parties involved in the contract should be aware of the
causes of valid claims.
In case of contractor, valid claims are those
claims that the contractor is entitled to.
 Claims rejected by one of the following reasons
 Timely notice was not given
 Late claims
 Contract procedures were not followed
 Proper record were not kept
 Inadequate information is provided to verify
claims
 The claim does not establish any valid
entitlements under the contract
Both the employer and the contractor’s can rise claim.
The employer may claim for
Liquidate damage
Extension of defects notification period
the contractor may claim for
Time extension,
Additional cost or
 both time extension and additional
payment.

One of the most important problems in the

construction industry is delay.
 Dispute Resolution
 Unresolved claims are the basis for the existence of
construction disputes.
• The basis of remedy for the claims or disputes may be the
contract and/or the applicable law.
 Construction Disputes Construction dispute may
take different forms: dispute in relation to time or
cost, time & cost.
 The contractual parties will pass through different
dispute resolution system depending on their
acceptance over the proposed compensation
varying from
 the simplest mediation by the consulting
engineer to
 the final court ruling in the form of litigation.
Claim Processing
This phase is classified further in to the following three sub-
processes,
 Claim Handling;

 Dispute Resolution;

 Claim Approval;
“claims” can end up to:
 claims which are resolved between the parties and do not
therefore become dispute,
Or
 to “disputes” that is those claims which are not resolved
and escalates to disputes
 What is a Dispute?

 How a dispute starts

 Selecting a dispute resolution procedure
 Default procedures
 Parties must agree
 Confidentiality
 Working relationship
 Scale of dispute
• Unresolved claims are the basis for the existence of
construction disputes.
• The basis of remedy for the claims or disputes may be the
contract and/or the applicable law.
• With respect to disputes, the definition of construction
disputes, the available mechanisms to resolve the same, will
be addressed.
 Construction Disputes Construction dispute
may take different forms: dispute in relation to
time or cost, time & cost or otherwise.
 Dispute Resolution, the contractual parties will
pass through different dispute resolution system
depending on their acceptance over the
proposed compensation varying from the
simplest mediation by the consulting engineer
to the final court ruling in the form of litigation.
 Settlement
 is a win – win process
 Is a voluntary process
 Can be made by the contracting party or assisted by other
parties
 Can be direct negotiation or assisted
 It is either process and/or outcome or not both controlled.

 The basis of remedy for the claims or disputes may be the

contract and/or the applicable law.
Dispute Resolution System
Three types of dispute resolution systems are well
recognized. These are,
 Preventive Dispute Resolution System; ( by use
of partnering, dispute resolution advisors,
facilitators, …)
 Amicable Dispute Resolution System or Non
Judgmental ; ( through negotiation, mediation,
conciliation, mini-trial, …)
 Judgmental Dispute Resolution System; (through
Dispute Adjudication Board, Arbitration,
Litigation…)
 Where dispute was handled in any form of its resolution System, it
is termed as Dispute Resolution.
 In relation to this there is also the concept of ADR: Alternative
Dispute Resolution. Alternative to what?
 The concept of ADR is related to alternative to litigation or
sometimes alternative to all binding decision making process
(including the decision of the arbitrator & adjudicator).
 Both preventive & amicable dispute resolution systems may be
categorized under Alternative Dispute Resolution (ADR). There is
no any binding or imposed decision by a third party in them.
 In this respect, except with respect to the preventive aspect, the
Ethiopian law recognizes both the amicable & the judgmental
aspect of dispute resolution systems.
 The scope of the Ethiopian law may be limited in this regard.
Because not all amicable & judgmental forms of dispute resolution
systems are recognized.
 From the amicable settlement both:-
 Negotiation (Compromise: See Article 3307-Article 3317 of the Civil Code);
and
 Conciliation: See Article 3318-Article 3324 of the Civil Code); are
recognized.
 From the judgmental forms of dispute resolution both:-
 Litigation ( the Court System or the Judiciary System: See Article 78-Article
82 of the FDRE Constitution); and
 Arbitration (See Arbitral Submission: Article 3325-Article 3346 of the Civil
Code & Article 315-Article 319, Article 350-Article 357 & Article 461(for
foreign arbitral awards) of the Civil Procedure Code) are recognized.
Clause 67
Settlement of Disputes
 Under FIDIC there are three preconditions for a
reference to arbitration.
1. There must be a dispute.
2. The dispute must be within the scope of an
arbitration agreement.
3. The dispute must first be referred back to the
Engineer under Clause 67 for his decision.
Clause 67
Timetable for Dispute Settlement
 Engineer to give decision in 84 days.
 Either Party can give notice of his intention to
commence Arbitration within a further 70 days
(from receipt of decision).
 Final and binding if notice not given in 70 days.
 56 days for amicable settlement.
 ..\..\Settlement of Disputes.docx
Preventive Aspect
 The following aspects may contribute to the prevention of
construction disputes. To mention few of them:-
 To have a well planned project;
 To have a well studied project;
 To have a well designed project;
 To have a clear, accurate & complete tender dossier & document;
 To have a clear, accurate & complete contract document;
 To have a balanced (in terms of allocation & distribution of risks,
rights & obligations) contract document;
 To discharge the expected contractual & legal obligations by the
contracting parties;
 To have a good project governance;
 To have a well thought & suitable dispute prevention system;
Amicable Aspect
 The very feature of Amicable Settlement is that the
disputing parties shall have full control both over the
process & the outcome.
 There is no third party imposition of solution on the
parties to the dispute.
 The following are some of the highly recognized
amicable settlement methods.
 Negotiation;
 Mediation;
 Conciliation;
 They are binding as long as the parties agree but not
final or it is initially non-binding but the parties can
however, agree to be bound by their final decision.
Negotiation

 Negotiation is a give & take process, a serious attempt

to reach a settlement agreement.
 Negotiation could be:-
 Direct negotiation; or
 Assisted negotiation;

 Direct negotiation is held directly between the very parties to

the dispute. The parties may, of course, be assisted by their
own internal advisors.
 In case of assisted negotiation, mediation & conciliation come
in to picture.
Mediation
 Mediation describes the process of a neutral &
disinterested person helping disputing parties to
negotiate a resolution to their dispute.
 Mediation is simply a facilitated or assisted negotiation.
To agree or not to agree is left to the decision of the
parties.
 The mediator helps disputing parties to understand the
dispute in a way that will maximize their chances to
reach a mutually acceptable & lasting solution.
 A mediator facilitates the discussion or negotiation. He
will never propose a solution for the settlement of the
dispute. He is a mere facilitator.
 He simply performs the task of persuading the parties
in dispute to change their respective positions in the
hope of reaching a point where those positions coincide,
without actively initiating any ideas as to how the
dispute might be settled.
 The advantages of mediation include informality, speed &
economy, but more importantly perhaps, it often leads to an
agreed settlement between the parties rather than an imposed
award or judgment.
Conciliation

 Similar to mediation, conciliation is a voluntary form of dispute

resolution where a neutral party, the Conciliator, is appointed to
facilitate negotiation between the parties in dispute & to act as
a catalyst for them to reach a resolution of their dispute.
 Unlike the mediator, the conciliator under the
conciliation process, takes a more active role probing
the strengths & weaknesses of the parties’ case, making
suggestions, giving advice, finding persuasive
arguments for & against each of the parties’ positions,
and creating new ideas which might induce them to
settle their dispute.
 Conciliation is a process similar to mediation except that the conciliator
can express an opinion on the merits of the case and is required to
recommend a solution if the parties fail to agree.

 The conciliator’s role is also broader than in the mediation as it includes

advising the parties on the possible result of the dispute if it were
resolved in either arbitration or litigation.

 In conciliation, the process begins with identification of the issues, then

the options for resolution are explored, the conciliator advises on likely
outcome of dispute in other forums and in light of this the options for
resolution are considered; and ideally a consensual agreement is then
reached.
 Mediation (cont)

 Private and confidential

 Mediator/party communication confidential
 Parties have confidence in mediator
 Not imposed
 Brings parties together
 Informs decision makers
 Real needs and issues
 Conciliation is sometimes called evaluative mediation.
 Conciliation is a more formal process than mediation & it
generally involves the engagement of legal representatives, thus
making it a more expensive process than mediation.
 There are internationally recognized specific
Conciliation Rules. Like
• International Chamber of Commerce (ICC) Conciliation Rules;
• The UNCITRAL Conciliation Rules;
• The ICE Conciliation Procedure;
• Others;
 The conciliation service is regulated by specific
contract agreement signed between the parties
in dispute & the conciliator.
 There is also a fee to be paid by the parties to
the Conciliator.
 Evaluative role is made by the conciliator but
the decision to agree is up to the disputants.
 Evaluative role: giving weakness and strength of
the disputant and may recommend solutions.
But the agreement on the recommended
solution is up to the disputants
Judgmental Dimension
 The very feature of judgmental form of dispute
resolution is that the third party known as the court
judge, the arbitrator or the adjudicator decides the case
before him for the parties.
 The parties to the dispute shall have no control over the
process (especially in case of the court system) and/or
the outcome of same in all the three cases.
• Under the judgmental forms of dispute resolution the
following are recognized.
• Adjudication ;
• Arbitration; and
• Litigation;
 Adjudication and Arbitration are both process controlled
but not outcome by the disputants.
 Litigation is not both process and outcome controlled.
 In judgmental form there is win – loose
 Both arbitration and litigation are final and binding
procedures
Adjudication
 Adjudication can be defined as a process whereby an
appointed neutral & impartial party is entrusted to take
the initiative in ascertaining the facts & the law relating
to a dispute & to reach a decision within a short period
of time.
 Under the FIDIC Conditions of Contract Dispute Board
is suggested.
 Dispute Board can, according to ICC, be of three types,
namely,
 Dispute Review Board (DRB);
 Dispute Adjudication Board (DAB);
 Combined Dispute Board(CDB);
 The decision of a third party neutral, named in the contract,
is binding upon the parties with respect to any matter in
dispute until the contract is complete. At that time the
parties may challenge the decision through arbitration or
litigation.
 The disputants agree before hand that they will be bound
by the opinion of the expert and that this decision is
binding on the parties in the interim, until a further
decision by a court of law or arbitration is reached
 Adjudication could be:-
 permanent adjudication - appointed from the commencement of
the contract or
 ad hoc adjudication - appointed when a dispute arises.
 Adjudication can be statutory/compulsory or voluntary
 In Ethiopia, it is voluntary or introduced by contractual
agreement. But in England it is statutory before we go to
arbitration.
Arbitration

 Arbitration is a process whereby parties in dispute agree

to submit the matter in dispute to the decision of a
person or persons in whom they have confidence & trust
& undertake to abide by that decision.
 According to Article 3325(1) of the Civil Code:-
 The arbitral submission is the contract whereby the
parties to a dispute entrust its solution to a third party,
the arbitrator, who undertakes to settle the dispute in
accordance with the principles of law.
 Disputes in Administrative contracts are finally resolved
by court but not arbitrated except ERA.
 The very nature of arbitration is that it is fundamentally
consensual. Arbitration is based on contract between the
parties to the construction contract & the dispute:
 arbitration is out-of-court proceeding where the
arbitrator acts as a judge
 The contract to resolve a construction dispute is known
as agreement to arbitrate.
 Agreement to arbitrate or the “Arbitration Clause” is
independent from the substantive contract. It is called
severability or autonomy of the arbitration agreement
from the rest of the construction contract.
 The decision of the arbitrator is legally binding and, often,
there is no provision for appeal to a court of law.
 There are exceptions, such as misconduct of the arbitrator.
Rules of evidence used in arbitration depend on the prior
agreement between the parties.
 It may take a long time, same as for a litigation process,
and may even be more costly.
 What makes it attractive is the mutual agreement by the
parties, appointment of arbitrator, privacy and
confidentiality
 Arbitration

 Private
 Final and binding
 Third party
 Individual or tribunal
 Complies with applicable law
Litigation
 Litigation takes place at the court of law having
jurisdiction over the case.
 The courts play here their dispute resolution role.
 Litigation is the most serious & adversarial method of
dispute resolution.
 The procedure before the court is so rigid & not tailor
made to the construction dispute resolution.
 The courts have standard procedure established under
the civil procedure code, which applies for all types of
disputes brought to them.
 The advantages of arbitration are all missing under
litigation.
 The clear disadvantage of litigation is that it being the most
time consuming.
 The clear advantage of litigation is that the court itself
enforces its own orders & judgments.
 Litigation

 What is litigation?
 Litigate when:
Points of law
Similar disputes
Number of claimants or defendants to be
joined
 Litigation (cont)

Lack of cooperation or trust

Seeking an injunction
No other provision
 Protocols
 Letter of claim
 Response
 Trial
 Summary judgement
 Arbitration v. Litigation

 Private and confidential

 Internationally enforceable
 Parties can determine formality and
flexibility
 Arbitrator chosen by parties
 Quicker resolution
 International rules
 Final and binding
 Arbitration v. Litigation

But:
 Delays remedies
 Enforcement by court
 Parties to arbitration
 Inconsistent decisions
 Arbitration Rules

 International organisations
 Administration of arbitration
 UNCITRAL rules
 Appointing authority
 National institutions
 Dispute Resolution Clauses

 Disputes to arbitration
 Tiered process
 Single arbitrator or tribunal
 Default appointment
 Location
 Language
 Right to appeal
 Statutory requirements
 Notice of Arbitration

 Starts arbitration
 Defines scope and terms of reference
 Stops the clock
 Properly drafted
 Requirement for amicable settlement
 Custom rules
 Mediation

 Amicable settlement
 FIDIC4 Clause 67.1
 Mediator
 Ownership
 Authority to settle
 Parties control procedures
 Ongoing relationship
 Mediation (cont)

 Communications link
 Reality check
 Risks of not settling
 Strengths and weaknesses
 Deadlock
 First stage in tiered process
 Mediation (cont)

 Least cost
 Least damage
 Encouraged in arbitration or litigation
 Mediation (cont)

 Appointment of mediator
 Formal agreement
 Preparation for mediation
 Attendees
 Equality of representation
 Position paper
 Venue
 Expert Determination

 Parties agree:
Who to appoint
The questions to be referred
The dispute to be resolved
The procedures to be followed
The time for a decision to be reached
The finality of the determination
Liability for expenses and parties’ costs
 Expert Determination (cont)

 Flexible process
 Expert agreed in contract
 Expert agreed when dispute arises
 Issue concluded but no appeal
 Quick but more superficial
 Expert Determination (cont)

 Specific limited issues:

Ground condition reasonable foreseen
Value of variations
Compliance of completed works
Requirement for remedial works
Calling of performance bond
 Expert Determination Precautions

 Parties to specify:
Submissions to be allowed
Responses to be allowed
Adequate provisions in procedures
Scope clearly defined
Unambiguous
 DRE and DRB

 Expert determination
 At start of contract
 Visits site regularly
 Involved from start