7 Dispute Resolution

Ethiopian Roads Authority
Table of Contents
DISPUTE RESOLUTION AND AVOIDANCE

7 DISPUTE AVOIDANCE AND RESOLUTION ........................................................... 7-1
7.1 Background ..................................................................................................................... 7-1
7.2 Overview of Dispute Resolution Procedures .................................................................. 7-2
7.2.1 Mediation ................................................................................................................ 7-2
7.2.2 Conciliation............................................................................................................. 7-2
7.2.3 Early Neutral Evaluation (ENE) ............................................................................. 7-3
7.2.4 Adjudication............................................................................................................ 7-3
7.2.5 Dispute Boards ........................................................................................................ 7-3
7.2.6 Court Litigation....................................................................................................... 7-3
7.2.7 Arbitration ............................................................................................................... 7-4
7.2.8 Expert Determination .............................................................................................. 7-4
7.3 Avoiding a Dispute.......................................................................................................... 7-4
7.3.1 Contract Finalisation ............................................................................................... 7-5
7.3.2 Clear Definition of the Scope and Quality of Work................................................ 7-6
7.3.3 Clear and Equitable Contract .................................................................................. 7-6
7.3.4 Clear Provision for Dispute Resolution .................................................................. 7-7
7.3.5 Effective Contract Management ............................................................................. 7-9
7.4 What is a Dispute ............................................................................................................ 7-9
7.4.1 Selection of a Dispute Resolution Procedure........................................................ 7-10
7.4.2 Formulating a Claim ............................................................................................. 7-11
7.4.3 After Receipt of a Claim ....................................................................................... 7-11
7.5 Litigation ....................................................................................................................... 7-12
7.5.1 What is Litigation?................................................................................................ 7-12
7.5.2 Initiation Procedures ............................................................................................. 7-13
7.5.3 Court Proceedings ................................................................................................. 7-13
7.5.4 Conclusion ............................................................................................................ 7-14
7.6 Arbitration..................................................................................................................... 7-14
7.6.1 Arbitration Rules................................................................................................... 7-15
7.6.2 Commencing Arbitration ...................................................................................... 7-16
7.6.3 Stages of Arbitration ............................................................................................. 7-17
7.6.4 Arbitration Hearing ............................................................................................... 7-17
7.6.5 The Award............................................................................................................. 7-18
7.6.6 Challenging Arbitral Awards ................................................................................ 7-19
7.7 Adjudication .................................................................................................................. 7-19
7.8 Mediation ...................................................................................................................... 7-20
7.8.1 Principles of Mediation ......................................................................................... 7-21
7.8.2 The Psychology of Mediation ............................................................................... 7-22
7.8.3 Appropriate Use of Mediation .............................................................................. 7-23
7.8.4 Appointment of a Mediator................................................................................... 7-23
7.8.5 The Process of Mediation...................................................................................... 7-24
7.9 Conciliation................................................................................................................... 7-27
7.10 Expert Determination.................................................................................................... 7-27
7.10.1 Comparison with Other Dispute Resolution Procedures....................................... 7-28
7.10.2 Precautions to be Observed................................................................................... 7-28
7.11 Early Neutral Evaluation .............................................................................................. 7-29
7.11.1 What is ENE?........................................................................................................ 7-30
7.11.2 Implementing Early Neutral Evaluation ............................................................... 7-31
7.11.3 The Evaluation ...................................................................................................... 7-32
7.11.4 Conclusion ............................................................................................................ 7-32
Claims and Dispute Resolution Manual Final August 2008 Section 7 i

7.12 Dispute Resolution Expert and Dispute Resolution Board ........................................... 7-32
DISPUTE RESOLUTION AND AVOIDANCE
Claims and Dispute Resolution Manual Final August 2008 Section 7 ii

CONTRACT COMMENCEMENT
7 DISPUTE AVOIDANCE AND RESOLUTION
7.1 Background
Engineers often have to deal with disputes arising from contractual issues. This section explores
how an engineer might avoid disputes and, if a dispute is unavoidable, how it might be resolved at
an early stage before it escalates to more costly and complex procedures culminating in arbitration
or litigation.
If a dispute progresses to a situation in which legal advice is required, this must be sought from a
legal practitioner qualified in the jurisdiction in which the claim will be heard if it proceeds to
arbitration or litigation. The practitioner should also have knowledge and experience of the
construction industry and its forms of contract.
Dispute resolution describes generally recognised procedures that can be used to settle disputes.
However, disputes can also be resolved before they escalate to a stage requiring the use of more
formal methods. A simple and often overlooked means of resolving a dispute is for it to be
discussed between the parties at the lowest appropriate level as soon as its existence becomes
evident. All too often a formal letter is the first indication that a party to a contract feels aggrieved
about an issue and wishes to pursue it further. This then triggers a formal written response and so
the dispute can escalate without the parties having met to discuss any misunderstandings or
misinterpretations that might have given rise to the issue in question.
There are a number of forms of dispute resolution. They include:
• Litigation;
• Arbitration;
• Adjudication
• Expert determination;
• Dispute boards;
• Early neutral evaluation;
• Conciliation; and
• Mediation.
Until quite recently, the only options open to an engineer to resolve a dispute were litigation or
arbitration. However, new procedures for handling disputes have been developed and are often
included in contracts as necessary steps in dispute resolution before full blown arbitration or
litigation can be invoked.
These newer methods are included as a means of achieving resolution at a lower level; involving
fewer people, less paperwork and less time. They also encourage early settlement so that outcomes
are known and can be implemented quickly. Although seen as stages on the way to more formal
and traditional procedures, they are often successful in defusing disputes before they become
irreducible matters of principle.
As an example, mediation has a success rate in excess of 70%. This is one of the earliest and least
complex procedures for dispute resolution. Being able to resolve such a high proportion of issues
before they escalate to a higher level saves a great deal of effort, time and expense. It is also an
appropriate use of resources as it means that less complex problems and those capable of
straightforward determination do not necessitate the use of expensive and time consuming
procedures; these can be reserved for disputes less amenable to early resolution.
Claims and Dispute Resolution Manual Final August 2008 Section 7 7-1
Thus a choice to be made at an early stage in a project may be the strategy to be used for the
resolution of disputes. It may be decided that mediation should be the first step, followed by
adjudication if mediation fails with arbitration as the final resort. Possibly early neutral evaluation
might be selected with litigation as the final option in a two stage process.
The procedure to be followed in dispute resolution can be included in the Conditions of Particular
Application prior to tender or it may be left to joint agreement between the parties to the contract
post tender and pre award so that both parties agree to and have ownership of the processes.
7.2 Overview of Dispute Resolution Procedures

Court litigation, arbitration and expert determination are finally determinative procedures. This
means that their outcomes are final and binding decisions, which are open to appeal only where this
is permitted.
However, other, less formal, procedures are now in common use. They are used to filter more
easily resolved disputes before the procedures of last resort are invoked. These include
adjudication, dispute boards, early neutral evaluation (ENE), conciliation and mediation.
Court litigation is governed by the national laws and procedures of the country in which it takes
place. However, most other forms of dispute resolution can be applied easily to international
projects.
Before recognised procedures are brought into play, every effort should be made to resolve
disputes at the lowest possible level in the hierarchies of the parties to the contract. For a
construction contract this might be between a contractor’s foreman and an engineer’s inspector.
Even at this very basic level, there can be documented procedures. For example, it might be agreed
that, if the disagreement cannot be resolved at this level within ten minutes, it should be escalated
to the next level of authority, where half an hour might be allowed and so on until it reaches the
desks of the Resident Engineer and Contractor’s Representative, where a week might be allowed to
reach agreement.
Only if this less formal procedure does not succeed in resolving the dispute would more structured
and formal procedures be initiated.
There are eight generally accepted procedures for dispute resolution.
7.2.1 Mediation
This is the most basic recognised form of dispute resolution. It is a facilitated process in which the
facilitator or mediator helps the parties to come to agreement. The mediator does not have any
input into the results; he is solely involved in guiding the process.
Mediation is an attractive option as it usually requires only a one day meeting with a minimum of
preparation and expense. It can also be set up quickly, usually within a few weeks, so that
resolution can be achieved within a short time of identification of the issues. The success rate is
very high but is influenced by the skill of the mediator and the type of dispute.
7.2.2 Conciliation
Conciliation is an extension of mediation. If the mediation process does not achieve a result, the
mediator provides an assessment of what the outcome should be. The participants are free to
accept or reject this assessment.
7.2.3 Early Neutral Evaluation (ENE)

This is an evaluative process that goes beyond the scope of conciliation. It is designed to serve as a
basis for further negotiation and to avoid arbitration and litigation.
The appointment of an independent reviewer is agreed to by the parties. The reviewer evaluates
and gives an opinion on the merits of the issues. This opinion is not binding but does provide the
parties with an independent evaluation of their positions and a likely outcome should they pursue
the issue to litigation or arbitration.
7.2.4 Adjudication
Statutory adjudication came into effect in UK in May 1998. It serves to secure interim payments to
subcontractors and bans clauses, which tie payment to subcontractors to receipt of payments from
the employer by the main contractor. The payment provisions are coupled with an adjudication
procedure that allows for determination within 28 days, or more if agreed. This curbs
procrastination by the payer. The procedures associated with the statutory adjudication support the
enforcement of adjudication decisions. The intentions are that payments resulting from a decision
should be made speedily and that a dissatisfied party can resort to litigation or arbitration.
Adjudication has been successful in UK to the extent that similar schemes have been introduced in
other common law jurisdictions including Australia, New Zealand, Singapore and Malaysia. In
both Hong Kong and South Africa widely used standard contracts include provision for
adjudication, although neither utilises common law.
Adjudication does not have to be a statutory process supported by legislation. It is a process for
which the rules are agreed between the parties in dispute, either when the dispute arises or at the
commencement of a contract.
Some World Bank projects provide for adjudication in contracts, although they may be in areas that
are not subject to common law jurisdiction.
7.2.5 Dispute Boards

In this procedure a dispute board (DB) is appointed at the start of a project. The DB can be one
person or a panel of three. If a panel is chosen, it may consist of three engineers, although a lawyer
may be appointed to one of the positions. In a typical scenario one member is nominated by each
party and the third may be selected by the first two and act as the chairman.
The DB visits the project several times during its currency and deals with any disputes. This
usually prevents a dispute escalating to arbitration.
Both FIDIC and the International Chamber of Commerce (ICC) have introduced DB rules into their
procedures.
Each time the DB makes a decision it is similar to the result of adjudication and is binding unless
either party challenges it by starting arbitration within a specified time.
7.2.6 Court Litigation

Court litigation means proceedings in a court of the country stated in the contract, following the
procedures of that court. In some countries there are courts specifically for dealing with this type
of litigation. In UK a Technology and Construction Court (TCC) is located in London and
specialist TCC judges officiate in the main provincial centres.
The protocols require full or substantial disclosure of documents by both parties. Technical experts
may be engaged and this, in conjunction with the cost of solicitors, barristers and court charges, can
make litigation an expensive and lengthy process.
Both sides of the case must be set out in detail in documents; witnesses have to produce detailed
statements of their evidence and experts must provide reports.
Because of the complexity and cost of the exercise, it is frequently preferable to resolve the dispute
through negotiation or mediation.
7.2.7 Arbitration
Arbitration is similar to litigation with the exception that it is confidential so that the parties and
their dispute are not subject to public scrutiny. Many contracts specify arbitration as the final
option in settling a dispute and also that its determination is final and binding.
As is the case for litigation, it is preferable to resolve any dispute before arbitration becomes
necessary.
7.2.8 Expert Determination

This is useful where there is a particular technical issue at the centre of a dispute. An independent
professional who is acceptable to both parties is appointed to rule on an issue within his field of
expertise. Thus a consultant mechanical engineer might be appointed to determine whether an item
of equipment such as a pump or turbine comply with the specification. The expert’s opinion is
binding.
Both parties must agree to the procedure if it has not been written into the contract between them.
Experts are free of much control; their opinions are usually not open to appeal; the procedure they
elect to follow is of their own choosing; and they are not obliged to discuss the results of their
enquiries with the parties to the dispute before making a decision.
7.3 Avoiding a Dispute

It is far better to avoid a dispute than to have to resolve one. Some disputes cannot be prevented by
prior action, but many can. Ensuring that a formal contract agreement is executed between parties
to a contract is a first step towards avoiding disputes.
Contractual precautions that provide some safeguard against disputes include:
• Ensuring that the parties enter into a finalised contract before work commences;
• Ensuring that the scope of works is clearly defined prior to tender;
• Ensuring that the quality constraints are fully defined prior to tender;
• Ensuring that the conditions of the contract are fair and clear, using standard forms unless
non standard provisions are essential;
• Ensuring that the contract provides for early notification of potential disputes and that
dispute resolution procedures are stipulated and not restricted to arbitration or litigation;
and
• Ensuring that contract management is effective.
7.3.1 Contract Finalisation

Many construction contracts commence on the basis of a letter of intent, prior to the finalisation
and signing of the contract. Such letters are unavoidable in some contracts. For example, in FIDIC
Conditions of Contract, the Letter of Acceptance is issued to the selected tenderer to notify him of
the award of the Contract. It is a specifically structured letter making a commitment to the
Contractor and requiring him to prepare certain contractual obligations within times stated in the
Contract.
The Letter of Acceptance also binds the Contractor and the Employer to the Conditions of Contract
and to the other documents that are constituent parts of the contract, such as drawings,
specifications, Conditions of Particular Application etc. In fact, the Letter of Acceptance, together
with the other documents it includes in the contract, forms a binding contract until such time that
the Form of Agreement is signed to finalise the conformed contract. This contract is enforceable
even if the Form of Agreement is not signed.
The Letter of Acceptance forms an integral part of the contract, which cannot be complete without
its existence as many clauses refer to the date of the letter as a starting point for an activity.
In spite of this, some authorities remain wary of issuing a Letter of Acceptance, although accepting
that it forms an integral part of the contract. In order to accommodate this reluctance the Letter of
Acceptance is signed at the same time as the Form of Agreement. This means that there is a delay
between determining who the preferred contractor is and binding them to their tender. Care must
be taken that the validity of the tender does not expire before the tender is formally accepted by
signature of the Letter of Acceptance.
Whatever the power of a properly constructed Letter of Acceptance may be, it is preferable to
ensure that a formal contract is executed before the contractor embarks on his obligations under the
contract.
The Contractor has most to gain from the absence of a formal contract. During the tender process
and negotiation, the Employer has the strongest hand. However, once the Employer commits to the
Contractor and authorises the commencement of works, the Contractor is then in a position to
initiate disputes as to what is, or should have been, included in the agreement.
Once a project is underway, finalising the contract is often accorded less priority than getting on
with the works. However, failure to do this has led to problems (see Attachment 1).
The effect of a letter of intent is also open to interpretation, whether it is enforceable or just an
agreement to agree, in which case the contractual rights of the parties are not defined.
In one case a letter of intent was issued stating that the employer intended to enter into a contract
using its standard form. However, the court rejected the argument that the contractor had agreed to
the terms simply by starting work.
In a second case a letter of intent was issued to the contractor who completed design work before
the project was abandoned without a formal contract having been concluded. The court found that
the employer was bound to pay the cost of the design work because the letter of intent had given
rise to an ancillary contract.
These examples show that letters of intent tend to be interpreted in favour of the contractor and that
the time taken to finalise a properly executed contract is well spent.
7.3.2 Clear Definition of the Scope and Quality of Work

Disputes concerning the scope of work involve what was actually agreed to be included and,
importantly, what was excluded. This determines whether an item or area of work is a variation or
was included in the original scope forming part of the contract.
What work is actually covered by the agreed contract sum obviously has an impact upon the value
of the contract.
Differences of opinion frequently arise concerning whether the workmanship and materials are of
the required quality.
Clear definition of the scope and quality of the works prior to tender, with clarification during
tender negotiations if required, is of assistance in avoiding disputes.
Claims for extensions of time and additional payments frequently result from variations, or from
works that are claimed to be variations. Similarly, claims for delay and disruption can arise as a
result of changes in design.
Clear definition of the scope of work is enhanced if the design and drawings are completed and
reviewed before issuing tenders. There are cases where detailed design is dependent upon
confirmation of survey information or foundation materials, which might require information from
surveys taken after clearing a road alignment.
If this is the case, the scope should state clearly what information will be made available after
commencement of the contract, what responsibility the contractor has for providing any
information or for facilitating the work of others to obtain it. It is also essential that the
timeframes, within which this information must be provided to the engineer and how long it will
take for final design details to be given to the contractor, are stated in the contract. These periods
must then be adhered to so that there are no grounds for claims for delay or disruption.
In the same way, the quality of workmanship and materials that are required should be specified
clearly by reference to recognised standards and testing procedures. Any particular materials to be
used in the work should be specified in the contract.
If there is a specific requirement for testing this must also be stated. For example, when testing for
compaction of earthworks or a pavement layer, the locations at which tests are made are usually the
specified number of tests taken at random within each lot. However, it may be desirable to specify
that 20% or a set number of tests must be taken within 300 or 600 mm of the edge of the shoulder
to ensure that the compaction is uniform to the edges of the cross section.
7.3.3 Clear and Equitable Contract

Research has shown that the use of a clear form of standard contract does not prevent disputes from
arising. However, it does result in fewer sources of conflict. This is because, if a risk event occurs,
the contract is more likely to be clear as to which party is responsible for it. This reduces the
potential for disagreement.
One of the main purposes of a contract is to allocate risk between the parties. A lack of clarity over
the responsibility for a risk is one of the primary reasons for disputes to arise. The use of plain
language contributes towards clarifying this responsibility.
The use of standard forms of contract is a significant factor in removing confusion over the
allocation of responsibility. Standard forms of contracts confer a number of benefits:
• Parties to the contract are familiar with the terms of the contract;
• Tenderers are able to respond more quickly as they do not have to analyse the conditions to
determine the risks to which they are exposed;
• Tenders can be produced more quickly and do not have to contain the Conditions of
Contract, only the Conditions of Particular Application;
• Engineers have experience of the form of contract and so are able to administer it with
greater ease;
• The forms are usually generated by panels, which have members from all stakeholders, so
they are accepted as fair to both parties to a contract;
• Because the forms are in general use, they are likely to address most of the reasons for the
development of disputes. Often, they have been amended by feedback to remedy areas in
which they may be defective;
• As the forms have been in use for some time in a large number of contracts, many disputes
will have been resolved through litigation or arbitration and there will be references or
precedents, which can assist in resolving disputes over the interpretation of clauses in the
contract; and
• Insurance companies prefer to insure projects using standard forms of contract as they are
familiar with the risks attached to them. This means that premiums are more reasonable
and that disputes over a claim are less probable.
It is preferable that the standard forms are changed as little as possible. Special Conditions of
Contract or Conditions of Particular Application can be used to amend the provisions of standard
forms for individual contracts. These changes to the standard form are made to transfer risk from
one party to the other. As the contracts are prepared by the employer, it is almost inevitable that
the effect of these changes is to reduce the risk to which the employer is exposed and to increase
the risk faced by the contractor.
When contemplating amendments such as this, it should be remembered that the standard forms are
generally accepted as being fair to both parties; any changes will therefore be seen as being less fair
to the party required to accept greater risks. This is a view that often prevails in dispute resolution
when contracts terms are interpreted in favour of the contractor rather than the employer.
It is also important to recognise that changes to standard terms may not always have the effect that
is intended.
7.3.4 Clear Provision for Dispute Resolution

A contract should set out clearly what is to happen in the event of a dispute.
Before addressing the methods to be used to resolve a dispute, it should be forceful about the
necessity to give early notification of disputes and to keep comprehensive contemporary records.
As discussed previously, it is desirable that the dispute resolution procedure should be phased and
progressive. This allows a dispute to be resolved at the earliest opportunity using a minimum of
resources and causing a minimum of disruption. Provision for dispute resolution could allow for
escalation through:
• Inter party negotiations at increasing levels of authority;

• Mediation;
• Early neutral evaluation;
• Adjudication; and
• Arbitration.
The traditional means of resolving disputes have been arbitration and litigation. Both of these
processes are costly and time consuming, although they result in final determinations.
Not all the options available for dispute resolution result in a binding determination. Any decision
reached by one of these procedures is only temporarily binding at best until the result of a
challenge by one of the parties is determined by proceeding to the next stage of dispute resolution,
or to arbitration or litigation, within a prescribed length of time. In spite of this, the less complex
procedures have proved very successful in getting parties to resolve issues without proceeding to
the final stages of dispute resolution.
Thus it is becoming increasingly common for contracts to include staged procedures for dispute
resolution. The first stage is a non binding form of resolution, which may be followed by a
temporarily binding form and finally arbitration or litigation. The mix can be quite flexible.
The reason for adopting a staged or tiered response to disputes is that the non binding procedures
are cheaper and faster; they present an opportunity to reach a settlement at minimal cost and in a
comparatively short time. This is obviously preferable to a lengthy wait for an expensive and time
consuming trial or arbitration, which itself is a lengthy process and often one that seems to assume
a life of its own.
As with other clauses in a contract, it is essential that those defining dispute resolution procedures
are written clearly and that they cover all aspects necessary.
An example is a contract, which included reasonably detailed clauses describing tiered resolution
procedures that were to apply. The contractor applied for arbitration and the employer requested a
stay of the proceedings as the alternative procedures had not been followed and they should be tried
first. The request was refused because the contractual clauses lacked certainty; there was no
provision for the appointment of an alternative mediator in the event that the mediator originally
selected by the parties was not available, nor was the payment of the mediator dealt with.
Provided that the parties to a contract agree, any method of dispute resolution can be used, whether
or not it is included in the contract. However, it is often the case that neither party will propose this
if they are not written into the contract. A reason may be that proposing an alternative means of
resolving a dispute may be seen as a lack of confidence in one’s case.
An employer may be reluctant to enter into a procedure that may lead to a quick conclusion,
particularly if a contract has been completed. There may be a wish to make the process as
expensive and drawn out for the contractor in an endeavour to persuade him to accept a settlement
that is more favourable to the employer.
An employer may also be reluctant to follow one of the alternative procedures, particularly if it is a
governmental or quasi governmental or otherwise publicly funded organisation. The reason for this
is that all of the procedures that do not result in a final, binding determination can be interpreted as
negotiation with the contractor. If the employer agrees to cede something to the contractor, there is
a fear that it might be interpreted, at worst, as corruption. If the matter is allowed to go to
arbitration the decision is removed from the employer and is enforced by an independent arbiter.
The employer is then able to demonstrate that the issue was contested to the greatest extent
permitted and that no favouritism was displayed towards the contractor. The fact that this may well
have cost the public purse considerably more than was necessary is not a consideration. This can
be hazardous to the employer as contractors’ claims seldom fail totally. Once some payment is
recovered by the contractor, the employer is likely to be made responsible for the costs of the
action. In addition, in a claim situation, contractual clauses tend to be interpreted in favour of the
contractor.
This reasoning is probably less likely to occur in established, first world economies, but it can be
an issue in developing countries where corruption can be a major issue and pragmatic negotiations
with a contractor may be construed as a corrupt act.
On occasion parties may be reluctant to force an issue until the end of a contract, on the basis that
disagreements at an earlier stage of the contract may taint the relationship for the rest of the
duration. This should not be allowed to happen as it is in everybody’s interests to resolve an issue
as soon as it arises, so that its consequences are known and can be allowed for.
For example, if a contractor is entitled to an extension of time this should be determined as quickly
as possible so that the new contract completion date is known and the contractor can reschedule his
resources to meet that date. If he is not entitled to an extension of time it is better for this to be
known as soon as possible so that he can accelerate the work to avoid liquidated damages.
If the employer has to pay compensation to the contractor for a problem arising from employer’s
risk, it is an advantage to know this and the amount so that the necessary funds can be found from
within or outside the contract.
In either of these cases, delay can result in difficulty when trying to resolve the issue. Not least is
the problem of comprehensive contemporary records. If a problem is addressed as it arises it is
fresh in the minds of those involved and proper records can be kept.
7.3.5 Effective Contract Management

Good contract management is a prerequisite for minimising the occurrence and the severity of
disputes. It should ensure the early identification of potential disputes so that contemporary
records are kept to facilitate their resolution based on fact rather than recollection.
In many contracts claims and disputes are not presented in full until the end of the contract, partly
in the hope that they will all be resolved in the final account. In addition, the key players are intent
upon getting the work completed and accord claim and dispute resolution a lower priority.
Problems arising from this include the potential lack of contemporary records and the absence from
the project of people who were involved at the time of the event giving rise to the dispute.
It is not unusual for parties to bring in troubleshooters when a project goes wrong. This is often
towards the end of a project when the scale of outstanding claims becomes apparent. The people
appointed to get the best settlement possible by whatever means necessary may include external
claims consultants, lawyers, senior contract managers and other head office personnel. It is
unlikely that any of these people will have been involved with the contract at the time the events
giving rise to the disputes occurred.
This may not be a significant problem if comprehensive, contemporary and verifiable records are
available to show the true position at the time. However, it is difficult to substitute for personal
knowledge of events.
Site photographs can be extremely effective in demonstrating the effect of causes for delay. For
example, meteorological records may verify that rainfall was unusually heavy for a given period
and that there was a potential for disruption. However, photographs of floods, bogged equipment
and unworkable material are far more effective in establishing that work was not possible,
especially if they are dated and supported by documents such as site diaries.
If foresight was displayed in ensuring that comprehensive documentation was available, it will be
of little help if the evidence cannot be located because it has not been archived in a logical manner
that allows ease of access. Thus the keeping of site diaries must be monitored, particularly in the
case of junior staff and it must be emphasised that they belong to the project, not the individual.
All relevant documents must be provided to a project clerk to ensure secure storage and accurate
indexing for ease of retrieval.
7.4 What is a Dispute

A claim has to be made before a dispute can arise. The dispute comes into being if the claim is not
admitted.
There are innumerable ways of not admitting a claim. The most obvious is a formal rejection.
Discussions may follow the submission of a claim during which it becomes evident that the claim
is not accepted; procrastination or prevarication on the part of the respondent will permit the
inference that the claim is not accepted; or the respondent may simply not respond to the claim,
with a similar result.
The time for which a respondent may remain silent before a dispute can be inferred varies and is
dependent upon the contract as well as the facts of the case. An engineer has an obligation to
consider a claim independently and to respond to it in a professional manner; this requires a
reasonable length of time before the existence of a dispute can be inferred.
The imposition of a deadline by a claimant cannot cut short the reasonable time necessary to
respond to a claim. However, a stated deadline and the reasons for it may have weight when
establishing what a reasonable time for a response is.
The claim must be sufficiently well defined for a sensible response to be formulated. If it is not, a
failure to respond or an outright rejection of the claim will not necessarily give rise to a dispute.
7.4.1 Selection of a Dispute Resolution Procedure

FIDIC4 requires that any dispute between the parties is referred to the Engineer in writing and a
copy sent to the other party. The Engineer then has 84 days in which to make a decision and
communicate it to the parties.
The Contractor is required to continue with the works until the Engineer makes known his decision.
Both the Employer and Contractor are then obliged to give effect to the Engineer’s decision unless
and until it is revised in an amicable settlement or arbitral award.
If the Engineer does not advise his decision within 84 days or if either party disagree with his
decision, then either the Contractor or the Employer has 70 days to advise the other of the intention
to seek arbitration with a copy to the Engineer.
The Contract requires the parties to attempt amicable settlement once notice of arbitration has been
given. Unless the parties agree otherwise, arbitration can commence 56 days after notice has been
given, whether or not an attempt at amicable settlement has been made.
The Engineer’s decision becomes binding if neither the Employer nor the Contractor indicates his
intention to seek arbitration within 70 days of the decision.
The ERA Conditions of Particular Application for both NCT and ICB contracts nominate the use of
either a Dispute Review Board (DRB) or a Dispute Review Expert (DRE) before a dispute can go
to arbitration.
The fact that a contract stipulates a particular procedure or sequence of procedures to be used in
resolving disputes does not preclude the use of other procedures, provided that the parties to the
contract agree to their use.
Thus mediation could be used before the dispute was referred to the DRB or DRE, provided that
both parties agree.
An international contract will also nominate the jurisdiction that is to be applied to the resolution of
disputes and this is likely to have an influence upon the type of dispute resolution that is chosen.
The circumstances may also affect the choice.
If the parties wish to keep their dispute confidential, the less people involved the better, so the least
complex procedure, possibly negotiation at a senior level or mediation, would be preferred.
Litigation would be eschewed as courts are open to the public.
If the working relationship between the parties is important, either in the context of the ongoing
project or because of a desire to work together in the future, particularly if the contractor does not
want to jeopardise the possibility of future work with the employer, a more amicable procedure
might be indicated. Mediation or early neutral evaluation might be considered.
These procedures might also be appropriate if a speedy resolution is important, because either the
dispute is affecting progress or is seriously affecting the cash flow of one of the parties.
Adjudication might also be considered in this case as it produces a temporarily binding result and is
quicker than arbitration or litigation.
The means of resolution should also be appropriate to the scale of the claim, so that the cost of its
resolution is not out of proportion to its value.
7.4.2 Formulating a Claim

The contract will often dictate how and when a claim must be submitted and so must be consulted
before compiling the claim document.
FIDIC4 requires that a claim is notified within 28 days of the event from which it arises or the
circumstances giving rise to it become apparent. The primary reason for this is to allow the
engineer to ensure that comprehensive contemporary records are available to allow proper
assessment of the claim.
Failure to comply with this requirement may not disqualify the claim but it does limit any award
that might be admitted to the value that can be verified from such contemporary records as do exist.
Thus it is certainly in the interest of the claimant that notification of a claim is given as soon as
possible.
Regardless of what is required by the contract, it is sensible to provide as much information as

possible with the claim and also to submit any corroborating evidence that is available. The more
detail that is given, the more seriously a claim is likely to be taken. It may also be advantageous to
suggest an appropriate method of resolving the issue; this also adds to the impression that the claim
is to be taken seriously.
7.4.3 After Receipt of a Claim

The most important consideration on receiving a claim is that the time in which a response must be
given to the claimant is restricted in most contracts. In some cases the response time may be
limited to as little as 7 days in adjudication. 28 days is often considered to be a reasonable time. If
a claim is particularly complex it is possible to request an extension of time. However, it is
essential that receipt of the claim is acknowledged in due time.
A complex claim will almost certainly comprise a number of components. It may be possible to
respond definitively to some portion of the claim while reserving a position on other aspects until
there has been time to research the justification and defence for them.
In preparing a response to a claim the principles to be followed are the same as those for preparing
a claim. As much information as possible should be gathered. This may provide information to
refute the claim.
Consideration should also be given to the technicalities of the dispute such as the jurisdiction, the
applicable law or exclusion clauses that might preclude the claim or elements of it. These might
include failure to follow the specified procedures for resolution or to comply with time constraints.
In order to mount a defence against a claim a number of issues should be addressed, including the
following:
• Are the facts set out in the claim correct? Any incorrect statement should be corrected in
the response.
• Are there any facts omitted from the claim that contradict it or support arguments against
it? These should be substantiated in defence of the claim.
• Are any of the people involved in the events available? If so, they should be contacted to
provide a statement of the circumstances surrounding the claim in as much detail as
possible. They may also be required as witnesses at a later stage.
• Would the input of an expert be useful in presenting interpretations of fact different from
those presented by the claimant?
• Are there any circumstances that might give rise to a counter claim?
It may also be worthwhile to take legal advice on any aspects of the claim relating to the law,
particularly in an unfamiliar jurisdiction.
Should the claim proceed to arbitration or litigation it will be necessary to engage legal
representation to present the case for the defence.
7.5 Litigation
7.5.1 What is Litigation?

Litigation is a public adversarial contest in a court of law for the purpose of enforcing rights and
seeking remedies.
Once a dispute has been referred to a court, the court has the power to require the parties to follow
procedural rules, to compel the production of evidence and to make a binding and enforceable
decision.
Litigation has the reputation of being time consuming and costly. There is little doubt that it is the
most expensive and most lengthy of dispute resolution procedures. For these reasons, other
avenues of settling problems should be explored before resorting to litigation.
Litigation may be appropriate where:
• Difficult points of law are involved;

• There are a number of similar disputes requiring a clear legal precedent to be set;
• There are a number of claimants or defendants, or where the defendants want to involve
other parties in the proceedings;
• There is little or no cooperation between the parties;
• The main remedy sought is an injunction; or
• There is no other provision for dispute resolution.
Some countries have introduced schemes to streamline litigation for cases involving technology
and construction disputes. An example is the UK, which has developed Technology and
Construction Courts. These courts try disputes that are technically complex or involve construction
contracts. The judge is experienced in these matters.
7.5.2 Initiation Procedures

Codes of practice apply to litigation. These require parties to exchange information and to explore
the possibility of early settlement. These protocols are the groundwork for the conduct of the
proceedings.
They are established by the legislation under which the case is to be tried, which is fixed as the
jurisdiction, or applicable law, specified in the contract. The protocols will specify how a claim is
to be initiated, what information is to be provided to other parties, the disclosure of evidence and
time frames within which claims and responses must be made.
The protocols and requirements of the applicable legislation will vary between jurisdictions. As
litigation will not be undertaken without engaging legal representation, advice and guidance on
actions to be taken and deadlines for those actions will be provided by the lawyers appointed by the
parties.
A letter of claim is the first step in the process and a copy is sent to each defendant. The letter
should include a clear statement of the facts upon which the claim is based, the bases upon which
the claims are made and the remedies sought by the claimant. It may also include a schedule of the
evidence on which the claimant relies, such as correspondence and programmes as well as the
names of experts to be used to support the claimant’s case and their fields of expertise.
There will probably be a statutory requirement for the defendants to acknowledge receipt of the
letter of claim and to respond to it within specified periods.
The response should make clear any objections to the technical competence of the claim such as the
jurisdiction or compliance with procedures. It should also state whether the facts stated by the
claimant are accepted or rejected and the basis for such rejection, the claims that are accepted or
rejected and the basis for such rejection, acceptance or rejection of the remedies sought and the
basis, any alternative valuations of amounts claimed, details of any counterclaim and the names of
any experts to be relied upon by the defendants and their fields of expertise.
7.5.3 Court Proceedings

These will vary between jurisdictions, but are likely to have some similarities in format.
Legal proceedings will be started by the issue of a claim form by the court, which has to be served
on the defendants within a specified time. The form should state the nature of the claim, the
remedies sought and the value of the claim in a concise manner.
The particulars of the claim must be provided to the defendants with the claim form or within a
specified time. The particulars should be set out in a logical manner such that each paragraph deals
with only one allegation and is followed by the reasons giving rise to the allegation. Each point
should be addressed separately so that responses can be made to individual points. The facts and
allegations should be set out in chronological order. Schedules and appendices should be used to
present supporting explanatory documentation so that it is not necessary to leaf through pages of
evidence in order to understand the substance of the claim. Obviously, supporting documentation
should be properly indexed and referenced.
The court will manage the trial in accordance with the applicable law. This will deal with
disclosure, witnesses, expert reports and other matters. The court may make a summary
judgement, issue an order for interim payment or issue an interim injunction prior to or during the
trial to ensure that the rights of a party are not harmed or that the circumstances giving rise to a
claim are not exacerbated while the case is tried and a judgement arrived at. An interim payment
may be ordered if some liability has been admitted by a defendant or if the court is satisfied that the
claim will succeed in obtaining a substantial payment.
The trial will determine whether any claim is successful and to what extent the remedies sought
should be granted, the allocation of costs and whether an appeal against the judgement can be
made.
7.5.4 Conclusion
Litigation is expensive and time consuming and should only be contemplated if alternative dispute
resolution procedures cannot be used to obtain a settlement.
Both claimant and defendant should be confident that their cases have a good chance of success
and that the outcome of the case will justify the investment in cost and time.
Parties should satisfy themselves that the other parties have the means to comply with the
judgement, as winning a case against a party that does not have the capacity to pay is a hollow
victory.
If litigation does occur, the assistance of qualified and experienced legal practitioners should be
engaged to ensure that the claim is prosecuted or defended to the fullest extent and that all
protocols of the applicable law are adhered to.
7.6 Arbitration
Arbitration may be described as a private form of final and binding dispute resolution by a third
party, based upon the agreement of the parties and according to the applicable law of the contract.
The main attributes of arbitration that separate it from other forms of dispute resolution are:
• It is a private process, not open to the public, which is funded by the parties to the dispute
and not by public funds as is the case with courts.
• It is final and binding and an award will generally be enforced by a court if a party does not
comply with it. There are very limited grounds for appeals against an arbitral award.
• It is conducted by a third party, who, having considered all the evidence, will make a
decision. Arbitration can be by an individual or by a tribunal, usually of three members.
• It results from agreement of the parties to use arbitration instead of litigation.
• The decision complies with the applicable law of the contract.
Compared to litigation, arbitration has certain advantages:
• It is private and confidential in that there is no public access to hearings and documents
disclosed in the process are confidential. Both of these benefits can be lost if one party
elects to appeal a decision to a court.
• Internationally, arbitral awards are enforceable under the 1958 New York Convention on
the Recognition and Enforcement of Foreign Arbitral Awards. This convention has been
ratified by two thirds of the countries recognised by the United Nations. Under its
provisions, arbitral awards made in one convention country are enforceable in another. It
is for this reason that arbitration is preferred as a method of dispute resolution in
international construction contracts.
• The arbitration process can be as flexible and informal as the parties choose within the
limits of the arbitration model that is followed.
• The appointment of the arbitrator is decided by the parties to the dispute. Thus they are
able to select an arbitrator whose expertise is relevant to the issues raised in the dispute.
• Disputes can be resolved more quickly and at less cost, particularly for smaller and less
complex cases. This may not be true when more complex issues are involved. However,
arbitration does have the advantage of flexibility, so parties can determine procedures that
will streamline the process.
• It is a process that uses international rules to resolve a dispute. This means that it is
considered to be neutral in that it is not subject to the possible vagaries of a national court
and that there is less potential for a dispute to be resolved with partiality towards a national
organisation or entity.
• It results in a decision that is final and binding, with very limited grounds for appeal.
Arbitration also has some disadvantages when compared to other forms of dispute resolution.
• If the parties have agreed that arbitration shall be the method used to resolve disputes, an
arbitrator or tribunal has to be appointed before either can seek a remedy. This can create
problems in the event of urgent applications. In addition, an arbitrator does not have the
jurisdictional authority to enforce a decision through the power to commit a party for
contempt; this is reserved for a legally constituted court. However, if an injunction or
other enforceable action is required, either party can resort to a court to obtain a judgement
in support of an arbitral decision. More rapid resolutions may also result if a simpler form
of dispute resolution is agreed as a necessary precursor to arbitration, for example
mediation.
• It is a private and mutually agreed procedure. This restricts arbitration only to those
parties, which have agreed to its use. This may preclude the inclusion of a third party, such
as a subcontractor, into arbitration between the employer and contractor, who are the
parties to the main contract, unless all parties agree. Even then, the third party may not be
bound contractually by the arbitration.
• There may be a number of arbitrations connected to the same project or dependent upon
the same facts, but arising from different contractual relationships. This can result in
conflicting and inconsistent decisions.
7.6.1 Arbitration Rules

The rules to be applied to arbitration in a contract are established by the clauses relevant to dispute
resolution. These must be drafted properly so that it will operate as intended. It is also important
that it cannot be overturned because it omits necessary considerations, such as alternative means of
appointing arbitrators.
There are many sets of model arbitration rules that have been established and amended over long
periods of time so that they now address all issues likely to arise during arbitration. These models
are developed and maintained by various institutions including:
• The International Court of Arbitration (ICC) in Paris;

• The London Court of International Arbitration (LCIA); and
• The American Arbitration Association (AAA).
If one of these, or other similar, sets of rules is nominated to be used for arbitration, the parties can
be confident that they have been developed through application to actual disputes to be fair and to
cover all the procedures that are likely to be needed in arbitration.
An added benefit is that, if the rules of one of these institutions are nominated, it will administer the
arbitration. The possibility of disagreements over procedure is reduced dramatically and arbitrators
can be appointed quickly. Of course, the administration has to be paid for by the parties, so this
form of dispute resolution can prove to be more expensive than others.
An alternative is for parties to establish procedural rules themselves and to manage the arbitration
in accordance with them. There are rules available for this purpose. Perhaps those most commonly
used are those developed by the United Nations Commission on International Trade Law
(UNCITRAL). They were developed specifically for use internationally in ad hoc arbitrations and
are perfectly adequate for successful application. They do not include a default appointing
authority to appoint arbitrators if the parties do not agree. It is essential that the contractual clause
should address this shortcoming. It is often the case that the President of the national Institution of
Engineers is nominated as the appointing authority.
National institutions may also have their own sets of rules, which may be applicable as they will
have been written in accordance with the national legislation and so will be appropriate if that is the
applicable law of the contract.
Each of the model sets of rules and the standard forms of contract contain appropriate forms of
wording, which should be used. However, it is also necessary to consider the following when
deciding upon the exact form of the dispute resolution clauses:
• They should permit the reference of all disputes to arbitration;

• They should ensure the use of simpler resolution procedures in a tiered process before
arbitration is initiated;
• The number of arbitrators should be decided. A single arbitrator may be preferable for
smaller disputes, but a tribunal of three arbitrators may be appropriate for larger or more
complicated cases;
• They should include default provisions for the appointment of arbitrators in the event that
the parties cannot agree. Necessary professional attributes should be specified if they are
required;
• The place in which arbitration is to take place should be stated. This has implications for
the procedural law to be applied and for the enforcement of the arbitral award. At the very
least the arbitration should be in a country that has ratified the New York Convention.
• The language of arbitration should be stated and is usually the same as that specified for
the contract.
• If a right to appeal does exist under the procedural law, this can be waived so that
arbitration is truly final and binding.
• They should include any mandatory requirements of the law of the place of arbitration.
This may include immunities or privileges that benefit a state authority or agency.
7.6.2 Commencing Arbitration

An arbitration commences when one party issues a notice of arbitration in accordance with the
contract. This notice:
• Defines the scope of the dispute and the matters to be referred to the arbitrator or tribunal;
• Is important under any contractual or legal provisions limiting the time within which
arbitration may be commenced; and
• Might allow the defendant the opportunity to avoid arbitration if it is not properly drafted.
FIDIC4 states that arbitration shall be carried out in accordance with the Rules of Conciliation of
the International Chamber of Commerce (ICC). These rules determine the notices to be given and
any time constraints.
FIDIC4 also requires that attempts are made to settle any dispute through amicable settlement
before a party can resort to arbitration.
If the contract does not stipulate the number of arbitrators, the parties will have to decide whether
they wish to employ a single arbitrator or a tribunal, which usually consists of three arbitrators.
The decision will be influenced by the value and complexity of the dispute. A tribunal is likely to
take longer to conclude an arbitration and will certainly be more costly than a sole arbitrator.
However, it has been argued that a tribunal will arrive at a more equitable decision.
Provided that the specified rules of arbitration are followed, how to conduct the arbitration can be
decided by the parties and the arbitrator. Generally the rules will require that the arbitrator shall act
fairly and impartially and give each party a reasonable opportunity to put its case and to respond to
that of its opponent. The arbitrator should also use procedures that are appropriate to the dispute
and that do not require unnecessary delay or cost.
7.6.3 Stages of Arbitration
The first stage of an arbitration may be for the arbitrator to convene a preliminary meeting of the
parties at which are discussed the issues in dispute, the timetable for the arbitration, the extent of
the documentation and any requirement for witnesses. If the parties are unable to reach agreement,
the arbitrator will determine the procedure to be followed.
Written submissions will be provided by all parties. These will describe the factual, contractual
and legal bases upon which the claim and its defence are made. These are often more detailed than
for litigation and include background information and extracts from relevant documents. The
written submissions are intended to set out the whole of the case for each of the parties. In many
cases the matter is decided solely on the information contained in these written submissions.
In litigation, the parties are obliged to disclose all relevant documents to one another. This is not
necessarily the case with arbitration. The arbitrator will decide what documents should be
disclosed in accordance with the rules. If full disclosure is required, the obligation should be
included in the arbitration clause in the contract to obviate any uncertainty.
Factual witnesses may be required to give evidence about any events, agreements or discussions
that are not documented. If witnesses are not readily available, the use of video conferencing or
sworn statements may be permissible.
A dispute may rest upon the interpretation or application of technical issues, which may be
complex. Typical issues of this nature might include the adequacy of a design, whether the
standard of workmanship is acceptable and identifying responsibility for defects in completed
work. Expert witnesses may be engaged by parties to give their opinions on such matters.
Although appointed by the parties, expert witnesses are expected to provide independent and
impartial analysis and opinion to the arbitrator. An expert may be appointed by the arbitrator if the
parties do not believe that the appointment of separate experts is warranted or if the arbitrator
requires help in deciding between two conflicting points of view.
The time taken for an arbitration to reach a conclusion can vary from a few months for an
uncomplicated issue to two years or more for a large and complex dispute. The parties can choose
to omit or accelerate some parts of the arbitration should they agree to do so and are permitted to
within the rules of the arbitration.
A party may apply to the arbitrator for relief before arbitration commences. This may be to ask for
security for costs or for the payment of an award. Requests may also be made for an order to
prevent other parties taking certain actions that might be to the party’s disadvantage and for interim
payment pending an award. These actions are within the power of an arbitrator but he does not
have the authority to enforce them. It would be necessary to seek court orders if the parties on
whom these orders were served elected not to obey them.
7.6.4 Arbitration Hearing

A hearing is not essential to an arbitration. Arbitrators can determine a dispute solely on the basis
of written submissions. This is one reason the submissions are more comprehensive than those for
litigation. If there are differences between the parties as to the facts of the dispute, a hearing will
be necessary for the arbitrator to decide what the facts are.
Written submissions alone may be sufficient to determine whether particular activities are included
in the scope of work forming part of a contract. Whether work is defective may be decided by a
visit to the site to inspect the works. Expert witnesses can be asked to meet to explore and resolve
or reduce the differences between their opinions in order to limit the extent of the unresolved issues
to be determined by the arbitrator.
Preparation for a hearing requires the provision of a venue of a size sufficient to accommodate all
persons involved as well as having separate facilities for each party to discuss matters
confidentially. It may be necessary to engage someone to transcribe everything said at the hearing.
This differs from litigation in which the building and facilities are provided by the court.
The cost of these arrangements is usually split between the parties until the arbitration is concluded,
when costs are reallocated in accordance with the award.
Opening submissions are made at the beginning of a hearing. In most cases written submissions
will already have been made so that opening submissions will summarise these and place emphasis
on the key provisions of a party’s argument.
Only a certain amount of time may be allocated for a hearing and it may be spread over several
sessions if necessary.
Closing submissions are made at the end of the hearing and include reference to any oral evidence
given by witnesses that strengthens the party’s case. They may not introduce any new issues, ones
that have not been addressed during the hearing. The lengths of closing submissions may be
limited, especially if a transcript is available, in order to minimise repetition of material that has
already been submitted.
7.6.5 The Award

The award is the final, and usually binding, determination of the issues in dispute upon which
arbitration was requested. Unless the right of appeal is precluded by the contract or has been
waived by the parties it may be appealed to a court. This is in contrast to the orders of the
arbitrator concerning the procedures to be followed and the conduct of the arbitration, which
cannot be challenged.
The final award resolves all the issues in dispute that were referred to arbitration and is a decision
that can be enforced. Once the award has been issued, the arbitration is concluded and the
arbitrator has no further power to hear the parties except in certain restricted circumstances.
The ICC rules specify a time limit of six months between signing the terms of reference for the
arbitration and making the final award. However, the arbitrator is entitled to extend that limit.
Disputes are not usually referred to arbitration until some time after the completion of a project. It
may then take up to two years before an award is made. This means that the successful party can
be denied access to money due to it for a considerable period. For this reason, the arbitrator has the
power to award interest on any compensation awarded.
Parties can also request the arbitrator to award costs. These include the fees and expenses of the
arbitrator, the fees and expenses of any arbitral institution and the legal or other costs of the parties.
The last of these can encompass a wide range of costs incurred in presenting a case for arbitration
and includes legal costs, witnesses’ fees and expenses, costs of advisers and the costs of preparing
and providing documentation. Generally costs will be awarded in accordance with the final award.
However, consideration may be given to the magnitude of expenses claimed in comparison to the
value of the award as the costs of arbitration can be high and exceed the value of the award.
7.6.6 Challenging Arbitral Awards

Once the final award has been issued, the arbitrator’s authority comes to an end. The award is final
and binding and can be enforced through the courts by any party if it is not honoured.
However, there are three grounds on which the parties may challenge the award.
The arbitrator has limited power to correct the award if there is a clerical mistake, an error arising
from an omission or slip or if there is need to clarify an ambiguity.
The ICC rules specified in FIDIC4 do not allow any appeal against the final award. However,
some rules do permit parties to appeal, provided that the parties have not agreed to waive the right
to do so. Even if this avenue has been left open, the permission of the court must be granted before
an appeal can proceed and this is given only in limited circumstances.
In reality appeals are rarely allowed; they can only be on points of law as the arbitrator’s findings
of fact are final and cannot be challenged.
A party can challenge an award in court on the basis that there has been serious irregularity
affecting the arbitration, its proceedings or the award or on the grounds that the arbitrator did not
have jurisdiction over issues in the dispute.
In order for a court to overrule an arbitral award, one of the parties must suffer a serious injustice
resulting from the irregularity. This might encompass fraud, failure to deal with all the issues
referred to arbitration or the arbitrator having exceeded his powers.
Lack of jurisdiction can only be claimed on the grounds that the arbitration agreement was not
valid or that the award included decisions on issues that were outside the terms of reference of the
arbitration.
Any challenge to an award must be made promptly if it is to have any chance of consideration.
7.7 Adjudication
In essence, adjudication is expert determination. It is a method of dispute resolution that has been
available for many years but has not been used frequently until recently, when legislative changes
in some countries have made it more attractive, easier and quicker to implement.
In adjudication a determination is made by somebody who is neither a judge nor an arbitrator nor
involved in operation of the contract. Where it has been used it is adopted by the parties to a
contract in the same way as other alternative dispute resolution methods. It was agreed between
the parties, usually as part of the contract, and the rules of application differed from contract to
contract. The determination reached by the adjudicator was given the effect that had been agreed,
whether that was that it should be final and binding, have a temporary effect or that it could be
superseded by arbitration or litigation.
Adjudication has been given legal status in several common law jurisdictions and is now becoming
used far more frequently.
In the UK, the reason for giving legal teeth to adjudication was that it was thought that contractors
in the construction industry experienced problems, particularly with cash flow, as a result of
delaying tactics on the part of their employers. It was considered that many employers, including
main contractors, used their position to process payment certificates slowly, or to withhold
payments that were due until they received payment for the work themselves.
The ‘pay when paid’ clauses of many back to back contracts are now banned by the legislation.
This means that any contractor or subcontractor must now be paid when payment becomes due,
regardless of whether his employer has received payment for that work. If the payment is not made
when due, the contractor can then refer the claim to adjudication and get a legally enforceable
decision that the payment should be made within a short period, sometimes only 28 days. If the
employer does not comply with the determination of the adjudication, the decision is enforceable
through the courts without appeal.
The dispute giving rise to the adjudication can be referred to arbitration or litigation but, until either
of these proceedings is completed, the decision of the adjudication must be complied with.
This means that a contractor may benefit from adjudication by getting paid rapidly through a
decision by an adjudicator and that, even if the decision is reversed in arbitration or litigation, that
may not happen for a lengthy period, possibly up to two years.
Thus, in jurisdictions where adjudication is a legal process, it is essential that any engineer with a
responsibility for certifying, supervising or managing a construction contract has an understanding
of adjudication and how it can be used.
Legally enforceable adjudication was introduced in the UK by an Act of Parliament in 1996. Since
then it has spread to a number of other jurisdictions, all of which are based upon common law
procedures. New Zealand, Singapore and states in Australia have adopted statutory adjudication;
its introduction is likely in Malaysia and a contractual process is available in Hong Kong, although
it does not have statutory backing.
Where it is a statutorily regulated process, adjudication is a powerful weapon available to

contractors and subcontractors and employers must be fully versed in the actions that they must
take in order to protect themselves insofar as the legislation allows.
Presently adjudication does not have statutory authority in Ethiopia and so is not of such great
effect. It is similar to expert determination, which is discussed later.
7.8 Mediation
Litigation and arbitration are the final resorts for dispute resolution. Mediation is at the other end
of the scale and could well be viewed as the first, formal step in resolving a dispute.
Generally contracts will require that any dispute is referred to the Engineer for a decision in the
first place. FIDIC4 Clause 67.1 contains this provision. The clause further requires that the
Engineer’s decision shall be final and binding upon the parties unless either serves notice of
proceeding to arbitration within a stated period.
Clause 67.2 requires the parties to attempt to achieve amicable settlement within 56 days of the
notice of arbitration. If amicable settlement is not achieved or attempted within that period,
arbitration commences.
Amicable settlement includes any procedure by which the parties can resolve a dispute without
resort to litigation or arbitration or, in jurisdictions that have the necessary legislation in place,
statutory adjudication.
The most informal method of dispute resolution is discussion between the Engineer, Contractor and
Employer. This may escalate to a meeting of directors of the parties.
The next level of resolution is mediation. It is not suggested that the dispute resolution clause of a
contract should require use of all amicable resolution procedures before it can be referred to
arbitration or litigation. However, the clause might require the use of mediation as a first attempt,
followed by another procedure such as expert determination, before a party can initiate either.
It should be noted that statutory adjudication is the right of any party to a contract and overrides
any contractual obligation to attempt amicable settlement before proceeding to adjudication.
Mediation is not restricted to two parties and can include three or more.
7.8.1 Principles of Mediation

Mediation can be defined as a process with the objective of the parties resolving their dispute in a
process assisted by a third party while maintaining confidentiality.
The mediator is a facilitator whose purpose is to help the parties to the dispute to negotiate their
own settlement. The parties own both the dispute and its settlement and decide whether to settle
and on what terms. This makes it important that those participating in the mediation must have the
authority to agree to a settlement or, at the minimum, have easy and immediate access to those who
do have that authority.
As in other less formal methods of dispute resolution, the parties retain control over the procedures
used in mediation. In litigation, arbitration and statutory adjudication, control of the resolution is
given, or taken, by others. The parties have to comply with procedures and timetables that are
established by the arbitrator, tribunal, adjudicator or judge in control of the case. Once these
procedures have started, it is difficult for the parties to take a step back and to reach a settlement
independently.
In mediation, control of the process stays with the parties and they can choose whether to settle or
to withdraw from the process. It is this freedom and control that gives the ownership of the dispute
and its resolution to the parties and ensures that any settlement is not imposed upon them but
agreed between them. A major benefit of this is that the relationship between them is not soured
irrevocably, although it may be tarnished. This can be of great importance if a dispute arises early
in a contract or where either party wants to maintain a commercial relationship with the other.
Although the parties control the mediation, the mediator is indispensable in assisting the parties in
coming to an acceptable solution. Mediators are trained in negotiating techniques and also in
methods of breaking deadlocks in negotiation between the parties.
Mediation is a confidential process in that the process is private and confidential in itself and that
negotiations and communications within the process are without prejudice and generally will not be
admissible in subsequent proceedings, if the mediation is unsuccessful.
Everything said to the mediator in private meetings with the parties is also confidential and cannot
be communicated to the other party without express permission of the first. This permits the
mediator to discuss with each party various options and its real requirements, which may differ
from its stated position.
Mediation is without prejudice and is not binding until a settlement agreement is signed by the
parties.
The mediator’s interest must be in bringing the parties to a settlement. To retain the confidence of
the parties, the mediator must be seen to be impartial towards and independent of the parties; to
have no interest in the outcome; and to have no interest in whether the settlement reached is
‘correct’. The mediator’s only purpose is that the parties reach an agreement, which they both
accept.
The role of the mediator is not to determine the dispute, nor the parties’ rights, nor their
obligations, nor to impose a decision upon them but to help them to arrive at their own negotiated
settlement.
7.8.2 The Psychology of Mediation
Mediation works because it brings the parties together and gives them an opportunity to settle their
dispute. The fact that they have agreed to mediation in the first place indicates that they want to
reach a settlement and are prepared to make the effort but require some assistance to do so.
As the people who participate in a mediation have to have the authority to agree to a settlement or
at least have ready access to those who do, this means that senior managers of the protagonists have
an opportunity to hear an unexpurgated version of the opposition’s argument and to assess its
strengths and weaknesses against those of its own position. They may previously only have been
exposed to assessments and briefings from their own advisors and staff, which may have given a
partial or incomplete picture.
The key ingredient of a mediation is the mediator. The parties have paid for the mediation and
have appointed the mediator to help them to reach a settlement. This predisposes them to make an
effort to do so, although they recognise that this is likely to mean that they must resile from their
stated positions to reach a compromise that is a mutually acceptable settlement.
The mediator will also help each party to identify the core factors of their positions. There may be
emotional tenets or matters of principle that colour a party’s view of its position or the opponent’s
argument. The mediator should be able to ensure that the party recognises that he may need to
dismiss these factors to make a completely logical analysis of the dispute. The mediator should not
argue that the principles or emotional aspects should be discounted, but that the party should
recognise that they exist and that they might influence judgement.
The mediator will also try to identify the actual differences between the parties rather than the
differences identified by them, as these can differ markedly. He will also act as a communications
link between the parties and help them to understand one another’s cases so that they can reassess
their own realistically.
Another benefit is that the mediator will be able to explore with the parties on an individual basis
what might happen if settlement is not reached. This could demonstrate the benefits resulting from
agreeing to a settlement, even if it is perceived as a withdrawal from a rightful position.
The mediator can also encourage the parties to perform a reality check. This helps them to
recognise whether their expectations are likely to be realised if the dispute proceeds to independent
assessment, or whether their optimism is based on an unbalanced evaluation of the facts.
The skill and experience of the mediator is of great importance to the success of mediation. He
must be able to obtain the trust and confidence of the parties as soon as possible after he is
appointed. If the parties do not have confidence in the mediator they will be unwilling to discuss
their position fully and frankly, but will tend to hold to their previously stated arguments. Gaining
this level of trust is dependent upon the parties’ complete belief that their discussions with the
mediator will be absolutely confidential.
A major element of mediation is the exploration of the parties’ strengths, weaknesses, interests and
emotions in relation to the dispute. These are closely tied to the personalities of the individuals
comprising the parties’ teams. Because of this, the mediator must be able to form a bond with a
wide range of personalities quickly so that they accept him as a professional and are prepared to
speak to him frankly. In achieving this end it is also necessary for the teams’ members to speak
honestly and frankly in front of other members of the same team; this may be difficult if the
corporate structure is one in which such behaviour is not encouraged or rewarded. All too often
people bias their reporting and assessments towards what they believe is wanted, rather than
honestly reporting the facts, even if they are unfavourable to themselves or the company. This can
be an unintentional reaction to the corporate philosophy.
When the mediator is able to interact with the individuals and the teams collectively at this level, he
is in a much stronger position to help them to recognise factors which may be preventing them
from moving towards a realistic settlement. Quite often something considered as important by one
party may have little significance for others.
Parties may have achieved some progress in earlier negotiations before encountering a point which
stopped further movement towards a settlement. The mediator’s function is to help the parties
overcome this deadlock and to smooth the path towards a mutually negotiated settlement. This
may well involve the parties surrendering a strongly held position, which may have been publicly
stated, thus causing a perceived loss of face to the party that has to retreat from its position.
The mediator may be able to break the stumbling block into a number of smaller elements, each of
which can be resolved individually so that the deadlock disappears without having been addressed
directly. However, this still results in a perceived loss of face to the party that appears to have
backed down. This is one reason why the discussions and deliberations between each party and the
mediator and between the parties must be confidential. It is easier for a party to give up a position
previously described publicly as non negotiable, if this retreat is not publicised or can be disguised
in a statement emphasising the positive aspects of having reached a settlement without going into
details, assuming that a public statement is thought to be necessary.
The mediation should also focus the parties on moving forward beyond merely resolving the
current dispute to establishing a relationship that will nip disputes in the bud, before they develop
to a stage requiring outside intervention. This should also result in a forward looking partnership
rather than one that allows past wrongs, whether perceived or real, to colour future interaction.
7.8.3 Appropriate Use of Mediation

The one prerequisite for mediation is the existence of a dispute. Whether or not mediation is an
appropriate procedure to be used in an attempt to resolve this dispute will depend upon the
particular circumstances.
Mediation may be written into the agreement between parties as the first stage in a tiered dispute
resolution process.
Parties may wish to settle a dispute with the least cost and disruption to an ongoing project or
relationship, effectively to quarantine it from interfering with the administration and management
of continuing projects.
One or more parties may wish to postpone mediation until some stages of litigation or arbitration
have been completed. They may consider it preferable to wait until documents have been disclosed
or expert reports have been reviewed. This suggests a certain lack of trust in the other parties’
willingness to make information available at an early stage in dispute resolution and also incurs all
the costs associated with initiating the more formal procedures.
Mediation may also be proposed by judges or arbitrators as an intermediate process in a litigation

or arbitration to encourage the parties to reach a settlement once opening arguments have been
presented, especially if the assessor feels that both sides have persuasive arguments.
7.8.4 Appointment of a Mediator

If mediation is written into a contract as part of a tiered dispute resolution procedure, the
contractual clauses must include the elements demanded by courts. If they are not, the court is
unlikely to uphold the requirement to use mediation before proceeding to more complex and
expensive dispute resolution procedures. This means that the contractual clauses must include
provisions for the appointment of a mediator with options for the appointment of an alternative if
the parties cannot agree on a mediator.
It is preferable for parties to agree to the appointment of a suitably qualified and experienced
mediator. Although there are no statutory requirements ruling the implementation of mediation,
there are a number of organisations involved in the process. These bodies can propose suitable
mediators and provide model formal agreements.
Lawyers, especially those experienced in construction law, are likely to have experience of
mediation and can provide advice on the appointment and conduct of the process. Some may even
offer a complete service, including a selection of appropriate mediators and the necessary facilities.
A mediator will usually insist upon entering into a formal agreement with all parties. This will
determine the fees to be paid and the parties’ responsibilities for payment as well as setting ground
rules for the procedure.
7.8.5 The Process of Mediation

The formal mediation, when the parties convene with the mediator, is more the culmination of the
process than its beginning. Preparation is important to the parties as well as the mediator.
A good mediator will contact the parties in advance to discuss their position in the dispute and their
approach to mediation. The structure of the mediation will also be discussed and the mediator will
seek information of the numbers, names and titles of the team, which will represent each party at
the mediation. This initial contact is an important element in establishing confidence and trust in
the mediator.
Insofar as the parties’ representatives are concerned, it is important that somebody with the
authority to commit to a settlement attends. As a minimum, the representatives should have
immediate access to a director or other senior manager who has that authority and who can delegate
an attendee to commit to a settlement. Parties may wish to bring lawyers and experts or other
advisors. This is not always conducive to reaching a settlement as discussion can become focussed
on detail and expert opinions to the detriment of factors more relevant to a successful mediation.
It is also preferable that there is equality in representation so that one party’s team is not
intimidated by the size or composition of another’s. It is helpful for all those taking part to know
who will be representing other parties. The mediator will need to know whether the representatives
have been through mediation before and if they have any preferences in style or content.
Each party will be asked to prepare a position paper stating its case and its preferred outcome,
including reference to previous offers to settle and any that are still current. The papers will
include attachments including relevant contractual documents and any expert opinions that may
have been canvassed. These papers are important as they state each party’s case, not only for the
mediator’s information, but also for the benefit of the other parties, in particular those
representatives with authority to commit to a settlement.
The mediation, towards which these activities have been preludes, may require only one day or
may be spread over more for complex mediations or those involving several parties. The venue
should be comfortable and provide refreshments and meals for the participants. There should also
be separate facilities for each team to discuss issues and to have meetings with the mediator as well
as a larger room able to accommodate all attendees comfortably.
When the mediation starts, the mediator will welcome the parties, discussing whether there have
been any developments. He will also explain what will happen during the day and how it will be
structured.
The mediation will commence with a session attended by all parties, who will introduce
themselves. The mediator will again explain the planned structure for the day and remind the
parties of their obligations to negotiate sincerely, to keep the proceedings private and confidential
and any other obligations applicable to the case.
The parties will then be invited, in a previously advised order, to make introductory remarks and an
opening statement. This is important and should be prepared carefully as it is the initial step in the
negotiation of a settlement. In the first individual meetings following the first joint session the
mediator is likely to ask whether the party has any comments on the opening statements of the
other parties. If the opening statements have indicated a new willingness to negotiate, either by
conceding something not previously considered or by expressing an openness to compromise, this
will imbue the parties with some degree of optimism and, possibly, an inclination to flexibility on
their part. If the opening statements merely restate an existing position, the first step in the process
will have been wasted.
After the first joint session, the mediator will meet with each party separately. The duration of
these meetings will be dictated by the circumstances, as will the number of rounds of meetings. If
he feels it will be productive, the mediator can call another joint session at any time.
The majority of mediations follow a three stage process, although the stages are not distinct and
their boundaries may be blurred.
The first stage is an exploratory one. Here the mediator’s role is one of listening to the parties so
that he may clarify and understand the issues so that he can identify a party’s real needs and
concerns. These often differ from those stated by the party and may be centred on a point of
principle or a personality clash, which must be resolved in order for the mediation to move towards
a settlement. This is also an opportunity for the mediator to understand any previous offers made
or received and the reasons behind their formulation or rejection. Analysis of any offers and
counter offers may suggest a basis for settlement and also indicate the probable range of any
financial settlement.
This phase of the mediation is important. It may involve the mediator spending lengthy periods
with any of the parties and it may be thought that the process is moving too slowly, but experience
has shown that time spent at this time pays dividends later.
The mediator should keep the other parties advised of what is happening and give them an estimate
of the time to be spent in a meeting with a party. This does not mean that he should indicate what
matters are being discussed, solely that exploration of issues that have arisen is continuing. If the
meeting extends beyond the time estimated, the mediator should return to the other parties to let
them know that things are progressing and to give a further estimate of the time necessary to
conclude this discussion. It should be made clear that nothing should be inferred if the mediator
spends more time with one party than with another.
An important tool available to the mediator is reality testing. The exploratory stage is an
opportunity to acquaint the parties with reality testing and to introduce them to the idea that
settlement is likely to require that both parties move from their current positions. That movement
will be necessary to accommodate the real needs of the parties.
This phase is important in establishing these real needs. Establishing what they are is a primary
factor in the success of mediation. Subsequent stages of mediation attempt to address these real
needs, which constitute the true differences between the parties. Even when these real needs are
identified, the mediator must maintain the confidentiality of his discussions with each party, unless
he receives express permission to reveal anything to another party.
It has to be remembered that the parties set the agenda, not the mediator. Thus the mediator should
not press for consideration of issues he thinks to be important if the parties do not share that view.
When leaving one party to enter discussions with another, the mediator should set an exercise
involving a pertinent aspect of the dispute. This occupies the party while the mediator is involved
elsewhere and can also provide information relevant to the next phase.
The second phase of mediation is bargaining. This is when the possible terms of a settlement can
be discussed in detail. It should continue until the parties have reached an agreement or it becomes
clear that this is not possible. It is almost certain that a deadlock will arise during this stage.
The mediator must try to break this through negotiation and reality testing. This is when the
lessons learnt in the exploration stage pay dividends as the mediator should now know what
particular issues are important to each party. He may then be able to guide the negotiation so that
these issues can be accommodated by each party offering to compromise on those that it does not
consider to be critical. This can often lead to another deadlock that may tax the skills of the
mediator in attempting to negotiate a way round it.
The mediator can ask the parties what they want him to do. As the alternative to continuing to
negotiate is to abandon a settlement, this can be a persuasive approach. A reality test would also be
appropriate so that the parties recognise the risks associated with not reaching a settlement.
The bargaining phase can be continued by the mediator shuttling between parties with proposals
and counter proposals or through a joint session where parties discuss possibilities directly. It may
be appropriate for any joint session to be restricted to the decision makers from each party,
particularly if there are significant numbers of advisers in the supporting cast. The mediator should
also be conscious of personality clashes between principals and between their respective advisers.
The mediator should not press for a particular solution that might break a deadlock as he is there
only to facilitate an agreement, not to impose one.
It is important that all parties fully understand any offers made and that all points at issue are
addressed, including things such as duties and taxes on payments, interests and costs. If anything is
left out it may be necessary to return to the bargaining stage to resolve the outstanding issues.
The third and final stage is the conclusion. This occurs after a settlement has been reached. It is
then the responsibility of the parties to draft a formal agreement. During this process, there may be
further disputes over details that only become apparent and contentious at this stage. It may be
necessary to return to the bargaining stage to resolve these issues, depending upon their magnitude
and the attitude of the parties towards them.
The settlement agreement must be drafted so that it is legally binding upon the parties and can be
enforced if any of the parties do not comply with it. It must deal fully with all points of the dispute
in clear and definite terms so that there is no opportunity for disagreement over interpretation of the
settlement. The mediator maintains a watching brief over this process but should not have any
input into the document. It may well be appropriate for the parties to commission their legal
advisers to prepare the draft to ensure that it meets the criteria necessary for it to be legally binding.
Once mediation has been completed, nobody involved should make public statements about
whether the settlement is good or fair as one party may feel that it has lost out in the settlement.
There will be occasions when mediation does not result in a settlement. A good mediator should
not wash his hands of the dispute, but maintain contact with the parties to see if it is feasible to
continue the mediation through informal contacts in order to offer the parties the option to settle the
dispute after further consideration of their positions and the risks that they face if a settlement is not
reached.
7.9 Conciliation
Conciliation is very similar to mediation and has been described as evaluative mediation.
The essential difference is the added ingredient. Conciliation provides for the facilitator to propose
a solution if mediation does not result in the parties negotiating an agreement themselves. While
facilitating the mediation, the mediator forms an opinion as to the strengths and weaknesses of the
parties’ positions and their rights, obligations and liabilities. If they cannot reach agreement, he is
then able to put one forward.
This proposal can be used as a basis for further negotiation or as an interim resolution, which can
be enforceable if the parties so decide. It can also give an indication of how an independent
assessment might resolve the issue, so dissuading parties from pursuing more costly or time
consuming procedures.
The process then resembles Early Neutral Evaluation.
7.10 Expert Determination

In this form of dispute resolution the parties to the dispute agree that a third party, the expert, who
is independent of the parties, is engaged to determine a particular dispute or answer a specific
question and that the parties will be bound by that determination. This can result in a fast, final and
binding resolution.
Expert determination is also flexible as it is based solely upon agreement between the parties. This
means that they have the opportunity to specify the procedure to be followed to suit their particular
contract and circumstances. The parties can agree:
• Who to appoint as an expert;

• The questions that the expert is to answer;
• The dispute the expert is to determine;
• The process that is to be followed by the expert;
• The time in which a decision must be rendered;
• The finality of the decision; and
• Liability for the expenses of the process and for the parties’ costs.
Expert determination is usually employed to provide a final and binding decision. However, this is
not an absolute; the parties can agree that the determination will be temporarily binding to provide
an interim solution.
This is a flexible process, which can be concluded rapidly. The expert is able to use his own
knowledge and experience to investigate the issue referred for a decision.
An expert can be agreed when the contract between the parties is entered into, or when a dispute
arises. In the former case, an expert is appointed in order to address specific issues that may arise
or any issues that may arise. In the latter case, an expert is appointed to address a specific issue
when it has arisen. The second option means that different experts can be used for different issues
requiring different types of expertise. The first option does not preclude the use of additional
experts as the parties can elect to appoint a panel of experts with different fields of expertise or to
have a principal expert and to appoint others if issues arise outside his level of expertise. The
method of application is entirely up to agreement between the parties.
The benefit of finality in a determination is that the issue is concluded and work can proceed
quickly without wasting resources on revisiting the matter. However, this finality means that there
is no opportunity to appeal against or challenge the decision except, possibly, in very limited
circumstances.
Similarly, the speed of the process means that a resolution is reached quickly but that the issue may
not be investigated to the same depth allowed by other procedures.
The benefits must be balanced against the disadvantages as with other procedures. The type of
issues that are likely to arise during a contract will determine the type of dispute resolution
procedures that are nominated in the contract.
Expert determination has been used historically to resolve specific, limited issues. Examples
include:
• Determining whether ground conditions could reasonably have been foreseen by an

experienced contractor;
• What amounts should be paid for variations;
• Whether completed works comply with the specification;
• Whether remedial works are required; and
• Whether the employer is entitled to call on a performance bond.
The procedure is now used more widely and parties frequently agree that any dispute shall be
referred to an expert for determination. Depending upon the complexity and value of the contract,
a panel of experts may be substituted for a single expert to ensure that there is a range of expertise
and that a consensus has to be reached.
7.10.1 Comparison with Other Dispute Resolution Procedures

There are similarities between expert determination, adjudication, arbitration and resolution by a
dispute resolution expert or board (DRE or DRB).
The main feature of expert determination that distinguishes it from mediation, conciliation, early
neutral evaluation and adjudication is that it is final and binding. With the exception of
adjudication, the other methods result in outcomes that may form the basis of a binding agreement.
Adjudication provides a binding settlement that may not be final as it can be overturned by
arbitration or adjudication.
If the parties do not agree that the expert’s decision will be final and binding, the process is not
expert determination but is closer to conciliation.
Litigation and arbitration also provide final and binding settlements. However, both these cases
depend upon submissions and evidence provided by the parties to the dispute. In expert
determination the expert investigates the issues referred to him using his own knowledge, skill and
expertise.
Arbitrators are able to determine facts and to interpret the law and can, to some extent, supplement
the submissions and evidence provided to them.
An expert is engaged to use his skill and expertise to make his own investigation of the issues
referred to him, while taking account of the submissions and evidence provided by the parties to
the extent that he feels it to be useful. The expert must be fair and impartial but is not bound to
follow due process or the rules of natural justice.
An expert’s decision may be set aside if it can be proved that he was biased and this is one of the
few circumstances in which an expert determination can be challenged.
7.10.2 Precautions to be Observed

Expert determination is usually quick and uncomplicated. The parties have freedom to decide the
procedures that are to be followed. If procedures are not specified, or if they are broadly defined,
the expert can follow whatever procedure he chooses in reaching a decision, limited only by
fairness and impartiality.
Because of the final and binding nature of the outcome, it is in the interest of the parties to ensure
that each party is able to make at least a written submission and probably an oral one also, as well
as the opportunity to respond to the opposing parties’ submissions.
However, it should be remembered that expert determination is chosen for its ability to deliver a
rapid and inexpensive decision and that the expert has been selected to exercise his own skill and
judgement to reach a conclusion, not to rely upon material put forward by the parties or to reach his
decision on the basis of that material.
As the parties have selected an expert to resolve the issue, it would be most unusual for them to
appoint other experts to prepare reports to be submitted as evidence.
Litigation and arbitration are governed by strict and extensive rules and procedures, which are
supported by the law. However, expert determination does not have the same standing in law.
Litigation may be involved only to enforce the determination if a party does not comply or if a
decision is challenged on the grounds of bias.
Because of this, it behoves the parties to ensure that adequate provision is made for procedures in
their agreement to use expert determination.
It should also be remembered that the finality of this procedure is reliant upon the enforceability of
the decision under the applicable law.
The issues referred to the expert must be defined clearly for the contracts between the parties and
between them and the expert to be valid. The reference to the expert must also be well defined so
that the expert does not venture outside the bounds intended and it must be within the scope in
which the parties have agreed to use expert determination.
A clear definition of the extent of the issue to be decided by the expert is important as his decision
will be final and binding and the parties might regret their failure to limit the terms of reference
sufficiently.
Additionally, if the reference is ambiguous or open to interpretation, the expert may not answer the
intended question. In this case a decision may be invalid and open to challenge.
If the agreement between the parties to use expert determination is properly structured, the right to
use it will be upheld by courts. Similarly, if the agreement clearly distinguishes issues that may be
referred to expert determination, the option exists to use other methods to resolve disputes arising
from other issues.
7.11 Early Neutral Evaluation

Early neutral evaluation (ENE) was developed in the USA. It was originally intended to reduce the
costs of litigation by providing an opportunity early in the case to clarify it, not by focussing on
settlement but by improving the understanding of the parties and their lawyers of the issues in
dispute.
When ENE was used it often resulted in the settlement of cases without a trial. The result is that
ENE has now established itself as a dispute resolution procedure in its own right.
ENE has three core elements:
• It should take place early in attempts to resolve a dispute, either before arbitration or
litigation starts or right at the beginning of those processes.
• ENE should be carried out by a neutral evaluator, who is not connected with the project or
any of the parties.
• The evaluator should provide an evaluation of the likely outcome if the dispute proceeds.
ENE differs from expert determination in that it is a voluntary process conducted confidentially and
without prejudice and is not intended to arrive at a final and binding decision.
It also differs from mediation and conciliation as it focuses on the evidence and the law and is an
evaluative process. A settlement proposed in conciliation is likely to be influenced by information
gained in confidential discussions. An evaluation reached in ENE is not a proposal for a
settlement, although it may be used as the basis for one; and is based only upon evidence known to
the evaluator and all the parties.
7.11.1 What is ENE?

ENE is a voluntary procedure resulting in an evaluation that is not binding and the process is
confidential.
It defines the legal and factual issues in dispute and identifies the risks and likely outcome before
costs are accrued in arbitration or litigation. ENE not only informs protagonists of the probable
outcome of a dispute but also can give an indication of the likely value of a settlement.
It has been suggested that to propose mediation indicates a lack of confidence in a party’s position.
The converse is true of ENE as a willingness to submit a party’s case to independent assessment
suggests confidence.
ENE helps a party to identify and to clarify the key legal and factual issues in dispute as they relate
to its own and other parties’ positions. It encourages communication between the parties about
their claims and supporting evidence. This often brings about movement towards a settlement.
The evaluation that results provides a test of reality for all parties and informs the decision makers
of the strengths and weaknesses of their case.
This can be enough to create a desire for settlement in order to reduce exposure to any costs in
addition to those already incurred.
The role of the evaluator is defined in the ENE agreement between the parties. It can include
setting procedures, assessing submissions from the parties, researching case law, considering
presentations, clarifying facts and positions through questioning and seeking expert advice. Once
the evaluator has completed his review, he produces a written evaluation of the strengths and
weaknesses of each party’s position. The evaluation can include the reasons for this assessment, a
likely outcome if the dispute proceeds to arbitration or litigation and the probable value of a
settlement, if these are requested in the referral.
The process is of most value when the dispute involves technical or factual issues that are best
resolved through expert analysis. ENE is suited to disputes that can be posed as questions to which
the answers are positive or negative or one of a selection of clearly defined alternatives.
It is also useful to inform people with the authority to make decisions about the strengths and
weaknesses of their own position as well as those of the other parties. A realistic evaluation
encourages mediation or some other form of dispute resolution and can break a deadlock.
7.11.2 Implementing Early Neutral Evaluation

Having decided that ENE is to be used, the next steps are the appointment of an evaluator and the
preparation of an agreement.
The evaluator can be an individual or a panel. This will depend upon the range of issues in dispute
and their complexity and the potential value of any settlement.
It is important that the parties agree on the evaluator and are confident in his expertise in the issues
at dispute and the relevant law so that they will accept the validity of the outcome.
A party may propose three possible evaluators for other parties to select from. An option is to
nominate an authority to select an expert or a panel.
Bodies such as engineering institutions or arbitrators may have a list of suitable experts and may
offer to manage the ENE process. Generally people or bodies that are available for ENE will have
standard forms of agreement, which can be amended as the parties wish. It will include the
procedures to be followed, the types of presentations, what is to be included in the evaluation, how
long the process should take and how the costs should be allocated.
Usually the agreement will allow sufficient freedom for the evaluator to investigate the issues
thoroughly and to identify anything that may be of assistance to the parties.
A typical agreement might include the following provisions:
1) The evaluator shall be responsible for the conduct of the ENE. A preliminary meeting
shall be held with the parties to discuss the conduct and procedure of the ENE and to
give directions.
2) The parties shall exchange and send to the evaluator copies of paginated documents
including:
i) A concise summary of its case;

ii) Witness statements to which the summary refers;
iii) Any expert reports to which the summary refers;
iv) Any other documents, which the parties wish the evaluator to consider; and
v) Full copies of any case law relied upon.
3) Each party shall provide to the other parties and to the evaluator a copy of any written
response to the other’s written submission.
4) Upon receipt of all the above, the evaluator shall organise a conference with the
parties. At the conference each party shall make a presentation to the evaluator
summarising its position and addressing any issues identified by the evaluator. The
evaluator shall determine the duration of each presentation and response. The
evaluator may question the parties and request further written information or evidence.
5) The evaluator shall issue the evaluation within 10 working days of the conference or
such other period as may be agreed with the parties.
6) Each party may appoint one or more representatives or legal advisers to assist, advise
or attend.
7) The parties undertake to each other and agree that the entire process of the ENE
(including any submissions, the written evaluation and any other documents produced)
is confidential and shall not be disclosed without the prior written consent of the other
parties.
8) The fees and expenses of the evaluator, as well as any other expenses relating to the
ENE, shall be borne by the parties in equal shares.
9) Each party shall bear the costs and expenses of its own participation in the ENE.
7.11.3 The Evaluation

Each of the parties’ first action will be to prepare a written evaluation statement giving a clear and
logical summary of the dispute and the reasons for its position. It should also provide the
supporting documentation referred to in the agreement.
There will usually be an opportunity to respond to the written evaluation statements of the other
parties.
The parties may already have lawyers. However, if there is an oral presentation it is worth
obtaining legal representation, especially if issues concerning legal points are concerned.
The evaluation decision may simply answer the issues referred to the evaluator. However, if the
parties have allowed the evaluator freedom to comment, it may contain the reasons for the answers
and suggestions as to what should happen next. It may contain a summary of the risks to the
parties if they proceed to arbitration or litigation.
The evaluation should form the basis for further negotiation and possibly for mediation. At least
the process of ENE should have identified the key issues and this may enable the parties to focus
the dispute more accurately and reduce the costs of further action.
7.11.4 Conclusion
ENE is gaining in popularity. It has been recognised by courts in UK to the extent that the
Technology and Construction Courts now encourage all parties to a dispute to agree to ask a TCC
judge to undertake an ENE. As the judge would otherwise have been presiding over a possibly
lengthy and costly trial of the case he is evaluating, it is highly probable that the procedure will
become more widely used in the same way as adjudication.
7.12 Dispute Resolution Expert and Dispute Resolution Board

Dispute resolution by an expert (DRE) or by a board (DRB) is a variation on the theme of expert
determination.
Essentially the same procedure is followed. The DRE is a single expert appointed by the
agreement of the parties at the start of a contract. He visits the site on a regular basis, possibly
every three months, to observe the progress of the works and to resolve any disputes that have
arisen since his previous visit. If a particular need arises, the DRE can visit the site at other times.
The intention is that he will be familiar with the contract and its progress through having been
involved from the start of the works and as a result of his regular visits to the site.
His visits give all parties to the contract and to the dispute resolution agreement the opportunity to
raise any issues that they have been unable to resolve or consider are in danger of escalation.
A DRB operates in exactly the same way but consists of a panel of experts. It is obviously more
expensive than a DRE and may not be justified except for a large or complex contract. A DRB
may comprise a lawyer and two engineers with different fields of expertise that are relevant to the
project.
The process of determination by a DRE or DRB results from an agreement between the parties in
the same way that expert determination does. Thus the same advantages and disadvantages apply.
It is up to the parties to determine the terms of reference of the DRE and DRB and how final and
binding their decisions are.
The whole point of using a DRE or DRB is that they should be very familiar with the project and so
should be able to render decisions quickly without need for large submissions or presentations. As
issues brought to them should not be much more than three months old, they will have access to
contemporary information and witnesses, which will make their task a great deal easier.
The argument against using either a DRE or a DRB is the expense of retaining them for the
duration of the contract and bringing them to site on a regular basis, especially if this requires them
to travel internationally. However, the saving in time and expense resulting from dealing with
disputes at an early stage will probably more than compensate for the additional cost.
Some parties are reluctant to engage an expert or board from the commencement of a contract and
prefer to appoint an expert or a panel of experts to deal with a specific issue as it arises. This then
becomes an expert determination.

7 Dispute Resolution

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7 Dispute Resolution

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Ethiopian Roads Authority

DISPUTE RESOLUTION AND AVOIDANCE

Claims and Dispute Resolution Manual Final August 2008 Section 7 i

DISPUTE RESOLUTION AND AVOIDANCE

Claims and Dispute Resolution Manual Final August 2008 Section 7 ii

There are a number of forms of dispute resolution. They include:

7.2 Overview of Dispute Resolution Procedures

There are eight generally accepted procedures for dispute resolution.

7.2.3 Early Neutral Evaluation (ENE)

7.2.5 Dispute Boards

7.2.6 Court Litigation

7.2.8 Expert Determination

7.3 Avoiding a Dispute

Contractual precautions that provide some safeguard against disputes include:

7.3.1 Contract Finalisation

7.3.2 Clear Definition of the Scope and Quality of Work

7.3.3 Clear and Equitable Contract

7.3.4 Clear Provision for Dispute Resolution

• Inter party negotiations at increasing levels of authority;

7.3.5 Effective Contract Management

7.4 What is a Dispute

7.4.1 Selection of a Dispute Resolution Procedure

The circumstances may also affect the choice.

7.4.2 Formulating a Claim

Regardless of what is required by the contract, it is sensible to provide as much information as

7.4.3 After Receipt of a Claim

7.5.1 What is Litigation?

Litigation may be appropriate where:

• Difficult points of law are involved;

7.5.2 Initiation Procedures

7.5.3 Court Proceedings

Compared to litigation, arbitration has certain advantages:

7.6.1 Arbitration Rules

• The International Court of Arbitration (ICC) in Paris;

• They should permit the reference of all disputes to arbitration;

7.6.2 Commencing Arbitration

7.6.4 Arbitration Hearing

7.6.5 The Award

7.6.6 Challenging Arbitral Awards

Where it is a statutorily regulated process, adjudication is a powerful weapon available to

7.8.1 Principles of Mediation

7.8.3 Appropriate Use of Mediation

Mediation may also be proposed by judges or arbitrators as an intermediate process in a litigation

7.8.4 Appointment of a Mediator

7.8.5 The Process of Mediation

The process then resembles Early Neutral Evaluation.

7.10 Expert Determination

• Who to appoint as an expert;

• Determining whether ground conditions could reasonably have been foreseen by an

7.10.1 Comparison with Other Dispute Resolution Procedures

7.10.2 Precautions to be Observed

7.11 Early Neutral Evaluation

ENE has three core elements:

7.11.1 What is ENE?

7.11.2 Implementing Early Neutral Evaluation

A typical agreement might include the following provisions:

i) A concise summary of its case;

7.11.3 The Evaluation

7.12 Dispute Resolution Expert and Dispute Resolution Board

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