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Management of construction disputes (Part – 1)

Disputes are inevitable part of construction industry irrespective of size and complexity of projects. They not only waste money, but also reduce profitability and relationship amongst project stakeholders. In this series of articles, management of disputes shall be discussed in depth covering the topics such as reasons for disputes, types of disputes, impact of disputes and resolution methods of disputes.

Reasons for construction disputes

  • Lack of understanding about contract
  • Financial pressure
  • Organizational and operational culture
  • External Factors (Consultants/Weather/Legislation)

Contract means the Contract Agreement, the Letter of Acceptance, the Letter of Tender, these Conditions, the Specification, the Drawings, the Schedules, and the further documents (if any) which are listed in the Contract Agreement or in the Letter of Acceptance. From this definition it can be understood, that any party involving in project need to have through understanding of the documents mentioned. In reality most of the stakeholders may not have a proper understanding prior to the start of construction process which leads to disputes.

Primary ingredients of contracts

  • Mutual Agreement and Genuine Intention
  • Offer and Acceptance
  • Capacity to Contract
  • Consideration in a Contract
  • Lawful Object of a Contract
  • Contract Time

Finance pressure

Due to the competitive nature of the bidding process, contractors generally attempt low margin to win bid. That leaves very little room for errors and it forces contractor to claim whenever possible since contractor need to make sure cash flow which creates disputes with employer.

Culture of Construction industry

As many different professionals with different interest working in construction industry, disputes may occur. High failure rate and fragmentation leads arguments and unsettle arguments converted as disputes.

External Factors

Government legislation and weather changes may the construction programme and creates delay in project completion. Once there is chance of delay conflicts arise to pass the delay to other parties.

Bad CommunicationForm of communication & Attitude
PersonalityCompeting, Avoiding, Accommodations, Collaborating, Compromising
InterpretationBased on expectations and presumptions, people see same events in different eyes.

Table 1. Parties and Disputes

Dispute Resolution Methods

There are several dispute resolution methods available and they can be categorized under three different types.
Consensual – The parties in dispute agree a solution, sometimes with help from independent group.
Recommended – A third party investigates and recommends a solution which parties can decide whether to accept or not.
Imposed – A third party makes a decision that is binding on parties.

NegotiationNeutral fact finderMed/Arb
2MediationMediator recommendationAdjudication
3Arb/Adj methodDispute resolution methodExpert Determination
4Court Settlement ProcessConciliationTribunal
5Early neutral evaluationLitigation

Table 2. Alternative dispute resolution methods

It is noted that, in above methods boundaries are not always clear and some process on the spectrum overlap. The detailed explanation about above mentioned methods shall be explained in next chapter.


Written by Gowrinath.S  ©