Avoiding disputes and mitigating their effects

By Malcolm Abernethy
Executive officer, NZ Contractors' Federation

Dispute resolution is a major issue within the construction industry and is one that has many facets.  Why do disputes occur and how can their occurrence be minimised?  When the dispute happens what can be done to reduce the impacts on the business and get paid?

Why disputes occur can be answered by looking at the way projects are delivered.  Traditionally the client or owner secures the services of a professional to design and prepare contract documents for the project and then to advertise and let a contract for construction. Within this process there are many things that are not controlled or completed well enough, resulting in the potential for disputes.

First, the client has the ideas for the project and believes the scope is well defined.  The reality is that as the project is constructed the client will ask for additional work, a different material or a change in size that will result in a claim for a variation and extension of time. 

As the client has started the project with a firm out turn cost in mind, the client will be reluctant to approve a claim for additional money or time resulting from a dispute.  The first lesson is that clients need to have a firm scope that is well defined, and they need to stick to that concept for the duration of the project. 

For clients it may be better to complete the project ‘as designed’ then to establish a separate contract to deal with those issues that have resulted from the scope change.

The consultant is responsible for the design, documentation, consents required and, sometimes, the contract management of a project.  This responsibility generally extends from the site investigations, through to conceptual design and final design, the consenting process and management of the contract during construction.  Depending on the complexity of the project, many consultants may be involved and these need to be well co-ordinated.

Disputes arise from this phase of the project due to inadequate investigation of ground conditions or other constraints, inadequate documentation of plans, specifications and contract documents.  The cause of these failings are related in part to the fee the client is prepared to pay to the consultants and the time available for the delivery of the service by the consultant.  Time may be of particular importance when obtaining consents.  When site conditions are not fully investigated costly variations may occur once work has started.

Once design work is complete the project is put out for tender in a number of different ways. These can be from a negotiated price or lump sum through to a measure and value contract with many alternative procurement methods in between. 

The contract documents will generally specify a time for the works to be completed leading to a further dispute situation related to unrealistic time frames being specified in the contract documents.

Other factors within the contract documents can unfairly place risk on a contractor, the consultant or the client that the party cannot deal with or accept.  Risk is generally allocated to the contracting party best able to accommodate the risk.  The most common way of dealing with risk is to apportion cost to that risk.  The client wants to minimise risk to commercial aspects of the project while most other risks are to be carried by the contractor.  The consultant generally accepts risk associated with design and will pass ground condition or investigation risk to the contractor.

In summary, disputes frequently result from skill shortages within the consulting and contracting sectors of the industry, a poorly defined project scope, unrealistic allocation of risk, and unrealistic time and cost objectives.

Dispute resolution can best be achieved by avoidance of the dispute or situation that leads to dispute; managing the dispute so that personalities do not enter the argument; and, if all else fails, mitigating the dispute costs and time consequences.  Factors that will achieve these results include ensuring that a clear project definition and scope is used to provide the best project outcomes; providing adequate compensation for site investigations and design including detailing and documentation; and early contractor involvement to ensure buildability of the design can have positive outcomes for time and cost once construction begins.

If these factors are achieved and given that almost every project will have variations of some form it is essential that situation that may lead to a dispute is identified as early as possible.  The situation should be managed to reduce cost and time impacts on the project by using defined, timely and cost effective process for resolution of the dispute.

Most importantly, projects can best be delivered by contracting with the best people available to do the work in a non adversarial manner.