Disputes and dispute resolution

Contractual disputes in construction arise because of a series of factors that combine in

various ways to produce arguments, disagreements and, ultimately, disputes. Some of these
factors are basic to all disputes between humans, such as the motivating factors of
individuals, human behavior, organizational behavior, culture, etc. What makes construction
contract disputes different is the nature of the dispute. This, again, depends upon a variety of
things such as the terms of the contract, the technological issues of the site and the building,
the character of the project personnel, the amount of time and money available, the realism of
peoples’ expectations, project environmental factors, the legal basis of the argument, the
magnitude of the issue, and so on. The third group of variables in this area concerns the
choice of methods for resolving disputes once they have arisen. What are the options
available in the contract, and what other options are there?

BACKGROUND TO DISPUTES

In trying to understand why disputes occur on building contracts, the key clearly lies with the
fact that people are interacting in some way. Although many disputes are based upon
arguments about technical or legal points, disagreement escalates when people become
intransigent. It is important to be clear about the basic concepts. In particular, conflict should
be distinguished from dispute. These words are often interchanged in common parlance but
for our purposes conflict occurs when objectives are incompatible. This is to be expected in
construction. In fact, one of the reasons for appointing a team of professionals to contribute
advice to a client is to engage in this kind of conflict. Each specialist will bring a particular
agenda and skill to the problems at hand. The ensuing conflict of objectives is a central part
of the project development process and should be expected. On the other hand, disputes arise
when a conflict becomes an altercation; perhaps when one or both of the parties becomes
intransigent (from a behavioral point of view), but definitely when the argument revolves
around rights and is justiciable. These are more likely to arise when a project is on site
because the differences of opinion are more contractually based.

Pride or ignorance may sometimes be more important in influencing the outcome of a

disagreement than the nature of the dispute. Researchers into human behavior have outlined a
variety of things that affect the way that people interact (Robertson and Cooper 1983). Chief
among these are such ideas as the motivating factors of individuals, human behavior,
organizational behavior, culture, etc. An understanding of these issues highlights the fact that
disputes arise, not just because people are entering into building contracts but rather because
a wide variety of people are interacting on a project.
Reasons for disputes:

Motivating factors of individuals

1. It is often assumed that those who work on building projects all have a common
objective, but it has been shown, and indeed it is fairly self-evident upon reflection,
that most people bring with them very different sets of objectives. These personal
objectives can be very difficult indeed to predict, partly because people are from a
wide range of backgrounds. The fact that people are from different organizations will
also affect their interest in a project. However, this does not mean that all the people
from any one organization will have similar objectives. Objectives are influenced by
upbringing, education, family, friends and even radio or television. To make matters
even more complex, objectives change for an individual as time passes. The
complexity of objectives is thus due to the fact that they can be personal and/or
organizational, as well as dynamic. This inherent flux and likelihood of mismatch
means that conflict can develop and escalate very quickly. However, of itself, conflict
is not a problem

Preconceptions about roles

Another factor influencing the development and escalation of conflict is the fact that most
participants in a building project bring with them preconceived notions about what their role
ought to be. An architect will expect to be doing certain things and taking certain decisions.
In the same way an engineer, a quantity surveyor and a builder will all have very definite
ideas not only about their own roles but also about the roles of others. These expectations are
often modified by personal objectives, and can thus be yet another source of conflict. In
addition, the definite and entrenched views which construction professionals have about their
expected roles make it difficult to introduce new systems of building procurement.

Of course, one participant who may well have no preconceptions of this kind is the client.
This person is frequently new to the building process and finds it full of surprises! An
extremely important function for an architect or project manager is to explain to the client at
the earliest opportunity what the conditions of contract actually mean. The client needs to be
told in plain English the extent and nature of what is being promised, and by whom it is being
promised. If the client understands this, many disputes can be avoided.

Project success or failure

In the light of these issues, it is not at all surprising that conflict on building projects leads to
disputes which can very quickly become acrimonious. These disputes, if not dealt with
swiftly and equitably, can ruin everybody’s chances of ‘success’, by which we mean the
satisfying of one or more of their objectives. In this connection it is as well to reflect that,
since objectives are so diverse, it is just as easy for everyone to be satisfied as it is for
everybody to be dissatisfied. In other words, each individual’s potential for success within a
building project is not necessarily at the expense of the others’ potential. This is contrary to
the seemingly prevalent belief that avarice and conflict are the only routes to success in
construction!
The roots of contractual dispute

In order to identify the type of dispute, it is essential to examine the position of the parties in
terms of the amount of time and money available, project environmental factors, the
magnitude of the issue and so on. Of particular importance are the duties of the parties to the
contract. Contractual disputes tend to arise when one party alleges that the other party has not
kept to the bargain. Since the performance or non-performance of obligations is at the root of
any contractual dispute, it follows that the contracting parties must have a very clear
understanding of what they are undertaking.

Business relations

A further point affecting the origin of disputes is the preservation of good business relations.
There are often circumstances where the parties to the contract are from the same business
environment and will probably be contracting with each other again in the future. In these
circumstances they are likely to understand both the rules and each other’s needs and
requirements. For the sake of future business they will seek effective and quick resolution of
points of disagreement. This is particularly marked in civil engineering, where the client is
usually the government or some other public agency. Contractors are very keen to preserve a
good relationship with such a client.

On the other hand, there are circumstances where one party is deliberately obstructive and
seeks to exploit every possible opportunity to its limit. This can happen where the parties are
not likely to work together in the future. In the building industry, as opposed to civil
engineering, most work is done in the private sector, and the number of disputes is much
larger as a consequence.

This need to preserve business relationships is particularly marked where the construction
market is closed, or where access to the market is limited in some way. For example, for
many years the Japanese construction market was characterized by a strong ethos of trading
only with people already known. While there is now considerably more competition, the
tradition creates an atmosphere where it is more usual to find commercial disputes settled by
private negotiation rather than public litigation. It must also be remembered that a
contractor’s risk of losing long- term clients can easily slip from being an inducement to seek
a negotiated settlement of an argument into a threat by an unscrupulous client.

THE NATURE OF CONSTRUCTION DISPUTES

The first factor defining the nature of a construction dispute is the terms of the contract.
Basically, a contract is an enforceable promise. And the subject of this enforceable promise is
the production of a unique, technical artefact, using temporary management systems.

Enforceable promises

Building contracts, like any other contract, are concerned with making promises, with the
expectation that one can be forced to carry them out. A person who has no intention of doing
a thing should not sign a contract recording that there is such an intention!

Of course, it can happen that people enter into contracts that they did not completely intend.
A shared mistake is no real problem, as the parties can rectify it by mutual consent. However,
what sometimes happens is that one party claims, due to oversight or mistake, to have signed
a contract that does not accurately reflect his or her intentions. If there is a difference of
interpretation, then the type of contract will be important in terms of the way in which it will
be interpreted. If it is not a standard-form contract, the principle of ‘contra proferentem’ will
prevail. This means that any ambiguity in the contract will be construed against the party who
seeks to benefit by exclusions or limitations in it. This will usually, although not always, be
the party which put it forward.

It is during disagreements about the intentions of contracting parties that such details as notes
of telephone conversations, minutes of meetings, correspondence and the like may become
relevant. These seek to provide evidence of the parties’ intentions. However, it will in most
cases be too late for the dissenting party to alter the contract. Building contracts, as we have
seen, are very comprehensive and specific about what is expected of each party, and it is
difficult to claim that the obligations arising from entering into such a contract were not
properly understood at the time it was made.

Technical matters

Disagreements often arise over technical questions. The technology involved in construction
is idiosyncratic, difficult to understand and subject to change. Added to this is any change
that may be associated with the technology of the client organization. The use of different
and/ or unfamiliar techniques is often the cause of arguments and disagreements.

For example, the nature of the site is often a source of contention. While the site itself is
clearly visible at ground level, it can hold many surprises once excavation starts. It is not
enough merely to look at a site in order to ascertain the site conditions. The part where the
building is going to sit is actually several meters below the part that is visible. Adequate site
investigation is a constant source of problems in the industry. Whose responsibility is it? In
order to answer that question, one must look at the clauses in the contract. Do they represent
what is intended? It is depressing to realize how many clients are shocked to discover the
extent of their liability for site conditions once problems arise.

Disputes that escalate to arbitration or litigation often hinge on an intricate understanding of

some particular technical matter. An example concerns the failure of the Emley Moor
television transmitter. A large tower fell down in a storm, on a moor, in the middle of the
night. Nobody actually saw it fall down. How did it fall down? What caused it? Was it the
wind, the rain, the frost, creep, metal fatigue, foundation failure or something else? It is a
purely technical question to ascertain the cause of such a problem. Once the cause is
identified, it is a fairly straightforward matter to allocate blame and with it legal
responsibility.

Legal matters

Some disputes are technically simple, and turn on what is the law on a specific point. The law
is not infinite! There are many day-to-day occurrences that have not previously been decided
upon by the courts. There are many spheres of activity not covered by statute. The resolution
of a dispute may hinge upon the ascertainment of the law in a previously undefined area.
Also, even where there are statutes or precedents, they may be inappropriate in the particular
case. No two cases are identical, so there are often tremendous difficulties to overcome in
interpreting and applying the law.

One particular legal problem area arises from the inconsistencies between various contracts.
A consequence of the fragmentation of the industry is that each participant’s involvement
with the project is formalized with a contract. A major problem mentioned by Latham (1994)
was the inconsistencies and gaps between the various consultant appointments and the
building contract. As a result, most of the bodies who draft contracts now seek to produce
integrated packages of contracts, rather than a standard form for just one of the relationships.

Entitlement and magnitude

The rough division of disputes into ‘technical’ and ‘legal’ is often reflected in two aspects of
a claim. The first aspect is that, for any claim to succeed, legal entitlement to the money must
first be proven. After this, the magnitude of the claim must be established. Entitlement arises
from the legal interpretation of the contract and associated documents. Magnitude then
follows as a factual ascertainment of technical data. In consequence, most disputes contain
elements of both types of dispute.

THE ROLE OF THE CONTRACT ADMINISTRATOR

One of the most distinctive features of construction contracts in the UK is the part played by
the contract administrator (whether described as architect, engineer, supervising officer,
project manager or whatever). In fact, the contract administrator plays not one part but two in
a construction project: first, as agent for the employer in such matters as the issue of
instructions, and secondly, as an impartial decision maker in such matters as certification and
the valuation of variations and other claims. The latter role is obviously of considerable
relevance to the topic now under discussion – decisions of the contract administrator may
avoid or resolve potential disputes, although it must be said that such decisions are often the
cause of disputes!