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5 methods for resolving construction disputes

How much time did you spend managing conflicts at work this week?

A study conducted in the United States reveals that employees spend an average of 2.8 hours a week managing conflicts (ref).

Now imagine that you are directing a major construction project, with a high level of technical complexity, that requires the cooperation of multiple stakeholders.

If you are a manager of such a project, you will probably spend a large part of your time resolving all kinds of conflicts.

Construction disputes may result from:

  • site conditions other than those you had anticipated at the time of the call for tenders;
  • contractual ambiguities that lead to different interpretations between the parties;
  • disagreement between the parties on a claim for compensation;
  • major changes in the contract or the accumulation of a large number of changes sooner or later in the development process.

The costs and delays induced by construction disputes hinder the success of projects.1

Fortunately, there are different methods for avoiding conflicts in construction projects or greatly limiting their number and scope.

1. Deploying preventive measures to avoid construction disputes

Few major projects proceed without a hitch. From the planning stage, it is essential to identify the aspects of the project that could lead to a dispute, and the steps that then will be necessary to resolve it.

Not all risks can be totally eliminated. This is why it is important to identify them properly, share them and manage them. Also, an accurate and realistic study of the deadlines and budgets will prevent many disputes.

It is essential that the people responsible for managing a project have an excellent understanding of the contracts, and the rights and obligations of all the stakeholders participating in the project. This includes the project owner (the client) and the contractor, as well as the consultants, subcontractors, site managers and insurers.

An adequate provision for contingencies and risk reserves, a clear decision-making process and complete studies are also effective measures for dealing with eventual claims.

Finally, the longer the delay recognizing a potential problem, the greater the consequences and the risks of having to resolve a dispute. You must therefore provide for internal conflict management mechanisms.

2. Establishing an internal conflict management process

Internal management processes are the best barrier to construction disputes: this requires clear planning of the procedures and the steps to follow to avoid disputes or to identify and manage them quickly.

This involves the deployment of several additional project management processes.

  • The client must be able to collect the relevant information to track disputes or eventual claims and thus make timely decisions.
  • Each claim must be screened by specific tools, such as estimates and schedule modelling.
  • The influence on costs and delays must be known, and an opinion must be given regarding the admissibility of the claim in terms of damages and liability.

The project management processes are therefore crucial, particularly management processes for deadlines, contract changes and risks. It is indispensable to allocate time and resources to these processes so that they are efficient and rigorous.

The contracts must be clear and precise, dictate each party’s roles and responsibilities and, if applicable, specify the dispute resolution modes. They must also define the orders of precedence of documents and decisions.3

These measures involved different negotiating sessions during various meetings. Diligent work in good faith in a climate of cooperation and transparency is then the best way to reach an agreement that maximizes the benefits, or minimizes the damages, of each party.1

3. Adopting your negotiating style

Negotiation should be the first step of any conflict resolution, as soon as an eventual dispute is identified. This contributes to maintaining good business relations and will be less costly than any other type of formal resolution.

An effective negotiating style then is essential, because it often determines the result. The Rahim Organizational Conflict Inventory-II accurately correlates the outcomes of negotiations depending on the style used: the “Collaborating style” (identification of the problems, exchange of information, joint search for a mutual acceptable solution) is the most effective for obtaining a functional outcome (dispute resolution and maintenance of good relations, and the “Compromising” style (search for compromise, exchange of good processes) is also useful in case of an impasses. These are the competencies to seek in the stakeholders (project managers, consultants, etc.) who will have to find solutions to the disputes.

Similarly, these stakeholders must have enough authority to make effective decisions during the meetings, without the need to have their superiors intervene. 4 However, healthy negotiations cannot exist without cooperation among the owner, the contractor and the professions.3

4. Knowing the legal conflict resolution methods

Depending on the provisions of the contract between the parties, they generally have the right to arbitration in case of a dispute or a claim, or to take the matter to court. The case is then settled by the binding decision of an arbitrator or a judge, who often must rule on complex construction problems while referring to expert opinions. 4

In either case, the process leading to this decision is burdensome and may take several months, or even years.5  This is a loss of time and money to be avoided whenever possible. 4 In all cases, the best way to obtain a favourable decision is to act in good faith and comply with the contracts, particularly the suspensive conditions (compliance with communication deadlines, documentation processes, etc.).

However, in case of failure during negotiations and before resorting to a resolution by legal methods, you should first resort to alternative dispute resolution (ADR) methods.1

5. Using alternative dispute resolution methods

ADR or out-of-court settlements often allowing the stakeholders to find their own solutions effectively to resolve their construction disputes.4

Tensions then are often allayed internally, quickly and confidentially, avoiding degeneration into conflicts. 5 ADR thus can greatly save the parties resources, costs and time.

Appointing a contract administrator

Several methods exist, including the appointment of a contract administrator who must rule on disputes. This may be a professional, but ideally should be an independent intervener paid by the various parties concerned.

Dispute review boards

Dispute review boards are another method, where a board of independent experts resolves the daily business tensions among the stakeholders. The advantage of its presence on the site is that it is already familiar with the project and its decisions are quick. Its initial cost, which may seem high (between 0.04% and 0.51% of the total cost of the project) is quickly amortized, however.

Alliancing

Finally, alliancing allows integration of a contractual partnership charter, which sets common objectives for the stakeholders in the best interest of the project. The risks and benefits are shared.

Dispute prevention mechanisms are therefore integrated directly into labour relations and administrative processes.

Conclusion

Action can therefore be taken on different levels to prevent construction disputes and resolve conflicts effectively in the event of a claim. Nonetheless, it is important to always follow a conflict management made to measure for each project,4 based on the stakeholders’ common objectives and the expectations in terms of business relations, costs, fairness, etc.

ADR and legal resolution methods should only intervene in case the negotiations fail to reach amicable agreements. Litigation will only be considered as a last resort, in case of disagreement. All this must be recorded in a contract that should be approved by legal advisors before signing.

But above all, “conflict resolution can be managed”. Although it is impossible to prevent conflicts, good project management, particularly management of the content, deadlines, costs, information, communications, risks,[6] changes and decision-making, and an adequate contingency provision and risk reserves, are the most effective ways to reduce the frequency and intensity of claims and conflicts. 1


References

1. Rochon, Pierre. 2013. « Les facteurs de succès pour un règlement efficace et accéléré des
différends ». In 12e Journée d’Étude sur les Réclamations sur Contrats : Mieux gérer le
dossier de la demande de compensation. (Québec (QC), 5 février 2013). [Présentation
électronique]. Récupéré le 26 novembre 2014 de Strategia Conseil inc.
2. Fenwick, Elliott.2014. « Avoiding conflict and resolving dispute ». In Fenwick Elliott: The construction and energy law specialists. » En ligne
3. Abdul-Malak. M. Assem U. et Mustafa M.H. El-Saasi. 2000, « Claim-avoidance administrative procedures for construction projects». In Construction Congress VI : Building together for a Better Tomorrow in an increasingly Complex World. Orlando, FL,20-22 février 2000. P584-592. Reston (VA) : American Society of Civil Engineers
4. Jones, Doug. 2006. «Construction project dispute resolution options for effective dispute avoidance and management». Journal of Professional Issues in Engineering Education and Practice, vol. 132, no 3. P.225-235
5.Treacy, Thomas B. 1995. «Use of alternative dispute resolution in the construction industry». Journal of Management in Engineering, vol. 11, no.1, p.58-63.
6. Cheung, Sai-On, Tak Wing Yiu Yiu et Sau Fung Yeung. 2006. « A study of styles and outcomes in construction dispute negotiation ». Journal of Construction Engineering and Management, vol. 132, no 8, p. 805-814.