Claims and Disputes in Construction

Construction Claims

During a project lifecycle, usual means cannot solve certain events. For that purpose, the contractor files a request called Claim in order to demand an extension of time, monetary compensation, or both. The issue is settled if the client approves the contractor’s demands and grants him an EoT or reimbursement of cost. In case the client disapproves of the contractor’s requests due to misinterpretation of the problem, the issue gives rise to a dispute. Claims have become an unavoidable issue in the project lifecycle.

Sources of Claims

As discussed previously, the contractor can file a claim due to any of the following reasons:

1. The contract document may contain defects and ambiguities. The contract text, for example, might be vague, may have multiple definitions in various ways or may not have adequate information.
2. The release of areas can be delayed as per the contract. Furthermore, the terms of the site vary considerably from those set out in the contract agreement.
3. The owner might prefer to get the task completed at a quicker rate than the contract agreement demands.
4. The owner may cause a delay in providing drawings, fuel, water, and other materials.
5. The most common reason is the delay in the release of payments by the owner to the contractor.
6. There might be changes in the scope of work by the owner.
7. Due to inadequate mobilization of labor, material, and plant, the contractor may delay the completion of the work.

Disputes

All the claims mentioned above, if left unsettled and disagreed upon, will cause disputes between the parties involved. Usual means cannot solve these disputes and hence require construction and legal laws. A dispute is “A claim by one party and a refusal thereof by the other party.”. Thus a claim without rejection is not a dispute. So, with a dispute at hand, how can we solve it?

Dispute Avoidance instead of Dispute Resolution

As you’ve heard, prevention is more affordable than treatment. So, a strategy should be put in place even before a dispute has arisen. Since the client is responsible for drafting the contract, it is his responsibility to ensure that there are no loopholes or defects that would cause any disputes between the parties. Additionally, he should address all dispute resolution clauses in the contract. Contracts need to be drafted with a balanced mindset so that a fair distribution of the risk can be set between the client and contractor. Just following these steps can minimize the possibility of disputes.

Dispute Resolution Techniques

Traditionally, courts resolved disputes. That method of dispute resolution was costly, time-taking, risky, and not always fruitful. However, alternate methods of dispute resolution called Alternate Dispute Resolution (ADR) were adopted in the 1990s. These were more fast, cheap, more flexible, and more confidential. Some of these ADRs that should be kept in mind while drafting the contract, and in particular the dispute resolution clause, are:

Negotiations

Legally, this method is informal compared to the other methods. Negotiations refer to a focused discussion between the two parties to resolve the issue without involving a third party. It is the fastest and cheapest method of dispute resolution. A solution will have legal importance if reached through this method.

Mediation

In this technique, the two parties select a mediator as a neutral third party to assist them toward settlement. The third party is not responsible for passing the final judgment but will assist both parties in reaching an agreeable solution. The process takes place in private, without the involvement of any legal proceedings. Although it is an informal process, the process takes place in the following steps:

1. Pre-mediation: Both parties mutually agree to the mediation process as well as the neutral party.
2. Mediation: It can be direct or indirect and involves discussions, presentations, and negotiations between the parties.

Adjudication

This process is similar to mediation in that it also includes selecting a neutral third party. The difference lies in the fact that the adjudicator chosen has the authority to make a final decision, while the mediator helps solve the problem. The adjudicator is required to decide within 28 days of his selection so that the flow of work and money can continue without delay. The operation flows while resolving the dispute.

Arbitration

The most widely used method of resolving disputes is Arbitration. Just like adjudication, the parties select an arbitrator. He has the technical know-how of the situation. The arbitrator can be a single person or multiple people. The number of arbitrators should be odd so that an event of a tie is not likely. Often, the contract and the client choose an arbitrator each, and together they determine the third person. The arbitrator will study all the facts and documents relevant to the situation and make a judgment in favor of one party. This process is usually legally binding, but the cost of the process is sometimes as high as legal proceedings.

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