Methods of Dispute Resolution

Contracts & Specs

Dept. of Civil Eng.
Spring 2008
Hashemite University
Dr. M. El-Mashaleh
١

Background
• Construction projects are complex

• The unique aspect of each project and the

unique constitution of each construction team
are common reasons for disagreement to
occur

• Since each project is unique, not all of its

aspects can be anticipated by the designer
Contracts & Specs
Dept. of Civil Eng.
Spring 2008
Hashemite University
Dr. M. El-Mashaleh
٢

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• This may result in omissions and
contradictions within the contract documents

• Possible and common reasons for disputes

– Changes in the original plans and specifications
– Differing site conditions
– Delays
– Variation orders
– Construction parties may interpret contract
documents differently
– Other…….

Contracts & Specs

Dept. of Civil Eng.
Spring 2008
Hashemite University
Dr. M. El-Mashaleh
٣

• These are also often viewed as

opportunities for contractors to make up
for lost profit from improper bid losses in
other parts of the project

• Regardless of the reasons, disputes in

construction are common!!

• Construction parties are advised to

outline a procedure to follow in the case
of disputes
Contracts & Specs
Dept. of Civil Eng.
Spring 2008
Hashemite University
Dr. M. El-Mashaleh
٤

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 Negotiation
• The best time for resolving disputes is
at the beginning before parties take
strong positions
• It is important to communicate the point
of disagreement as soon as the problem
is identified
• Parties need to recognize their common
objective
Contracts & Specs
Dept. of Civil Eng.
Spring 2008
Hashemite University
Dr. M. El-Mashaleh
٥

Litigation
• When negotiations fail to resolve a
dispute and there is no contractual
guidance for dispute resolution, the
parties will find themselves in a lawsuit

• The process for filing claims is often

specifically addressed in the contract
documents
Contracts & Specs
Dept. of Civil Eng.
Spring 2008
Hashemite University
Dr. M. El-Mashaleh
٦

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• The claims provision often includes a
time period in which claims must be
made and the appropriate procedure for
initiating claims

• Failure to follow these requirements

may bar a contractor from successfully
pursuing a claim against the owner

Contracts & Specs

Dept. of Civil Eng.
Spring 2008
Hashemite University
Dr. M. El-Mashaleh
٧

Example from FIDIC

Contracts & Specs

Dept. of Civil Eng.
Spring 2008
Hashemite University
Dr. M. El-Mashaleh
٨

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 20.1 Contractor’s Claims

• If the Contractor considers himself to

be entitled to any extension of the
Time for Completion and/or any
additional payment, under any Clause
of these Conditions or otherwise in
connection with the Contract, the
Contractor shall give notice to the
Engineer, describing the event or
circumstance giving rise to the claim
Contracts & Specs
Dept. of Civil Eng.
Spring 2008
Hashemite University
Dr. M. El-Mashaleh
٩

• The notice shall be given as soon as

practicable, and not later than 28 days after
the Contractor became aware, or should have
become aware, of the event or circumstance

• If the Contractor fails to give notice of a claim

within such period of 28 days, the Time for
Completion shall not be extended, the
Contractor shall not be entitled for additional
payment, and the Employer shall be
discharged from all liability in connection with
the claim
Contracts & Specs
Dept. of Civil Eng.
Spring 2008
Hashemite University
Dr. M. El-Mashaleh
١٠

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• The Contractor shall also submit any
other notices which are required by the
Contract, and supporting particulars for
the claim, all as relevant to such event
or circumstance

• The Contractor shall keep such

contemporary records as may be
necessary to substantiate any claim,
either on the Site or at another location
acceptable to the Engineer
Contracts & Specs
Dept. of Civil Eng.
Spring 2008
Hashemite University
Dr. M. El-Mashaleh
١١

End of FIDIC Quote

Contracts & Specs

Dept. of Civil Eng.
Spring 2008
Hashemite University
Dr. M. El-Mashaleh
١٢

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• When the parties do not agree on the validity
of the claim, the contractor may wish to
pursue litigation

• Most courts do not have good background

about construction

• It will take a real effort to make the court fully

understand the case
• In short, litigation
– Time consuming
– Costly
– Lawyers are the only winners!
Contracts & Specs
Dept. of Civil Eng.
Spring 2008
Hashemite University
Dr. M. El-Mashaleh
١٣

Alternative Dispute Resolution (ADR)

Techniques
• With the downsides of litigation in mind, much
attention has been focused on alternative
methods of dispute resolution
– Partnering
– Mediation
– Arbitration
– Dispute review boards
– Minitrials

Contracts & Specs

Dept. of Civil Eng.
Spring 2008
Hashemite University
Dr. M. El-Mashaleh
١٤

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 Partnering

• Idea started in the late 80s

• Partnering aims at changing the
traditional adversarial owner-contractor
relationship to one of cooperation and
the achievement of common goals
• It attempts to change the usual lose-
lose attitude into a win-win attitude
Contracts & Specs
Dept. of Civil Eng.
Spring 2008
Hashemite University
Dr. M. El-Mashaleh
١٥

Partnering process
• The partnering process typically begins with
an invitation to the key parties on a
construction project (owner, designers,
general contractor, subcontractors, suppliers,
etc.)
• The process continues with a facilitated
session consisting of organized workshops
attended by the key parties of the contract

Contracts & Specs

Dept. of Civil Eng.
Spring 2008
Hashemite University
Dr. M. El-Mashaleh
١٦

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• The workshop sessions will initially
focus on team building, group
awareness, and conflict awareness
• This workshop is generally led by an
outside facilitator who helps in getting
parties acquainted and in developing a
cooperative attitude and commitment
toward the partnering objective
• At the conclusion of the 2-3 days
workshop, a partnering agreement is
drafted
Contracts & Specs
Dept. of Civil Eng.
Spring 2008
Hashemite University
Dr. M. El-Mashaleh
١٧

Partnering agreement
• The agreement outlines:
– Common goals of participants (avoid claims,
reduce costs, complete on time, eliminate delays,
zero injuries, positive public relations, etc.)
– Framework for resolving conflicts
• All participants then sign the agreement
• If all stakeholders do not ‘buy into” the
concept of partnering, it will not generally
succeed
Contracts & Specs
Dept. of Civil Eng.
Spring 2008
Hashemite University
Dr. M. El-Mashaleh
١٨

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 Successful partnering
• Fundamental to the success of partnering is
the fair and equitable sharing of risk
• Under partnering, a problem for one party
becomes a problem for both parties
• Both parties use their resources and
experience to solve problems and keep the
project moving toward a successful
completion

Contracts & Specs

Dept. of Civil Eng.
Spring 2008
Hashemite University
Dr. M. El-Mashaleh
١٩

• The personnel involved in solving the

problem or dispute are the ones working
on-site and most familiar with the
project
• There are several keys that make a
successful partnering relationship
– Trust
– Commitment
– Shared vision

Contracts & Specs

Dept. of Civil Eng.
Spring 2008
Hashemite University
Dr. M. El-Mashaleh
٢٠

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 Benefits of partnering
• Quantified
– The decrease in litigation and the number of
unresolved conflicts at project completion
• Perceived
– Reduces the exposure of the contracting parties to
claims
– Lowers the risk of cost overruns
– Results in better quality projects
– Fosters open communication
Contracts & Specs
Dept. of Civil Eng.
Spring 2008
Hashemite University
Dr. M. El-Mashaleh
٢١

– Decreases administrative costs

– Improves project performance
• Downside of partnering - some argue
that:
– Owner’s representative try to “keep the
peace” at the expense of project quality
– Or that the inspectors simply do not
enforce the specifications as rigorously on
partnered projects

Contracts & Specs

Dept. of Civil Eng.
Spring 2008
Hashemite University
Dr. M. El-Mashaleh
٢٢

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 Partnering of private and public
owners
• In private construction, partnering seeks to be
a long-term relationship
– Big owners like Intel, Motorola, etc. have
partnerships with construction companies
• In public works, where the low bidder gets the
contract, the partnering agreement
– Is developed after awarding the contract
– The partnering process terminates with the
completion of the job
Contracts & Specs
Dept. of Civil Eng.
Spring 2008
Hashemite University
Dr. M. El-Mashaleh
٢٣

Mediation
• This is the most popular ADR method
• Mediation contains elements of both
negotiation and arbitration
• It is a non binding method of dispute
resolution
• If a dispute occurs on a construction
project, the parties may agree to try to
resolve the matter through mediation
Contracts & Specs
Dept. of Civil Eng.
Spring 2008
Hashemite University
Dr. M. El-Mashaleh
٢٤

١٢
 The mediator

• The mediator is a third party who is

mutually agreed upon by both parties

• The mediator tries to persuade the

disputing parties to agree on
appropriate settlement of an issue

Contracts & Specs

Dept. of Civil Eng.
Spring 2008
Hashemite University
Dr. M. El-Mashaleh
٢٥

• Mediator qualifications:
– Strong negotiation skills
– Expert in technical aspects of construction
disputes

• Mediators provide their services for a fee

• The mediator collects his/her fee regardless

of the success of reaching a resolution or not

• The “best” mediators maintain statistics on

the percentage of disputes for which
settlements have been obtained
Contracts & Specs
Dept. of Civil Eng.
Spring 2008
Hashemite University
Dr. M. El-Mashaleh
٢٦

١٣
 On the day of mediation

• The whole process takes usually 1 day

• Disputing parties present their cases
• Parties are then separated into different
rooms
• The mediator utilizes his negotiation
skills and technical expertise to reach a
resolution before the end of the day
Contracts & Specs
Dept. of Civil Eng.
Spring 2008
Hashemite University
Dr. M. El-Mashaleh
٢٧

Strong points of mediation

• Claims that involve little sum of money

• Resolution is fast compared with other
methods (1 day)
• Cost is simply that of the mediator
• Throughout the mediation process the
resolution is solely controlled by the
disputing parties
Contracts & Specs
Dept. of Civil Eng.
Spring 2008
Hashemite University
Dr. M. El-Mashaleh
٢٨

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• The mediator has no authority to decide
the outcome of the dispute

• The disputing parties must therefore

enter the mediation process in good
faith

• When the disputing parties have true

desire to reach a resolution, mediation
will generally be successful
Contracts & Specs
Dept. of Civil Eng.
Spring 2008
Hashemite University
Dr. M. El-Mashaleh
٢٩

Arbitration
• Arbitration has traditionally been the
most popular alternative to litigation
• The use of arbitration in the construction
process dates back to the nineteenth
century
• It became popular in the 1960s as a
method of resolving construction
disputes
Contracts & Specs
Dept. of Civil Eng.
Spring 2008
Hashemite University
Dr. M. El-Mashaleh
٣٠

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• Many construction contracts now
require that disputes be resolved by
binding arbitration

• Binding arbitration means that the

disputing parties will agree to adhere to
the decision reached

• Without the contractual requirement for

arbitration, litigation is the only option
unless the parties agree to another
means of resolving the dispute
Contracts & Specs
Dept. of Civil Eng.
Spring 2008
Hashemite University
Dr. M. El-Mashaleh
٣١

• US contracts that state that disputes will be

resolved by binding arbitration often stipulate
that the procedures of the American
Arbitration Association be used

• The American Arbitration Association

maintains a list of qualified arbitrators
– Lawyers, contractors, claims consultants,
architects, and engineers
– These arbitrators are knowledgeable about the
construction industry, understand the vocabulary,
and can readily grasp the nature of a dispute
involving technical matters

Contracts & Specs

Dept. of Civil Eng.
Spring 2008
Hashemite University
Dr. M. El-Mashaleh
٣٢

١٦
• This is one aspect of arbitration that
represents a particular advantage compared
with litigation

• Jurors rarely can fully appreciate or

understand all the technical details

• With the ability of the arbitrators to quickly

grasp the nature of the problem, the
arbitration process often can resolve disputes
in a matter of days while a court trial might
take several weeks

Contracts & Specs

Dept. of Civil Eng.
Spring 2008
Hashemite University
Dr. M. El-Mashaleh
٣٣

• Since they can more easily visualize the

various points of view, a more moderate
resolution will often be the result

• There will still be winners and losers,

but the actual settlement costs for the
losing parties will not be as high as they
often in court decisions

Contracts & Specs

Dept. of Civil Eng.
Spring 2008
Hashemite University
Dr. M. El-Mashaleh
٣٤

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 Selection of arbitrators

• While a single arbitrator may be utilized

to resolve small disputes, it is common
to use three arbitrators for larger
disputes

• The selection process may vary

Contracts & Specs

Dept. of Civil Eng.
Spring 2008
Hashemite University
Dr. M. El-Mashaleh
٣٥

• The disputing parties may each be given a list

of potential arbitrators, and each party will
indicate which individuals are deemed
acceptable

• One way to organize the panel is for each

disputing party to select one individual from
the list of arbitrators, with the third arbitrator
being selected by the arbitration association,
jointly by the disputing parties, or by the
arbitrators already selected

• Arbitrators are paid for their time

Contracts & Specs

Dept. of Civil Eng.
Spring 2008
Hashemite University
Dr. M. El-Mashaleh
٣٦

١٨
 Arbitration ruling
• When the arbitration panel rules on a
particular dispute, the decision is binding or
final

• The disputing parties can not appeal the

decision unless they can prove fraud, lack of
impartiality (not biased), conflict of interest, or
bad faith or show that the scope of arbitrators
was exceeded
Contracts & Specs
Dept. of Civil Eng.
Spring 2008
Hashemite University
Dr. M. El-Mashaleh
٣٧

• Unlike litigation, the rationale for an

arbitration decision does not become
public record

• This aspect appeals to many firms

Contracts & Specs

Dept. of Civil Eng.
Spring 2008
Hashemite University
Dr. M. El-Mashaleh
٣٨

١٩
 Scope of arbitration

• Arbitration is generally restricted to

disputes between two parties

• Third parties are excluded

Contracts & Specs

Dept. of Civil Eng.
Spring 2008
Hashemite University
Dr. M. El-Mashaleh
٣٩

To utilize arbitration
• If arbitration is deemed desirable to
resolve disputes on a project, a
contractual requirement for binding
arbitration should be included

• This provision should address the scope

of arbitration and the procedures to be
employed
Contracts & Specs
Dept. of Civil Eng.
Spring 2008
Hashemite University
Dr. M. El-Mashaleh
٤٠

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• Should state which arbitration
association’s procedures are going to
be followed
– Jordan Arbitration Association
– American Arbitration Association

Contracts & Specs

Dept. of Civil Eng.
Spring 2008
Hashemite University
Dr. M. El-Mashaleh
٤١

Arbitration compared to litigation

• Compare arbitration to litigation in terms

of:
– Cost
– Time
– Arbitrators/judges
– Public record

Contracts & Specs

Dept. of Civil Eng.
Spring 2008
Hashemite University
Dr. M. El-Mashaleh
٤٢

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 Disputes Review Board

• This type of board generally consists of 3

members

• The board is assembled shortly after contract

award

• Each contracting party nominates a person to

serve on the board
Contracts & Specs
Dept. of Civil Eng.
Spring 2008
Hashemite University
Dr. M. El-Mashaleh
٤٣

• Each nominee must then be approved

by the other contracting party

• After two board members have been

selected, they jointly decide on the third
member, normally the chair for the
board

• The compensation for the board

members is split between the owner
and the contractor

Contracts & Specs

Dept. of Civil Eng.
Spring 2008
Hashemite University
Dr. M. El-Mashaleh
٤٤

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• The procedures by which the board
operates are generally informal

• The board will be expected to stay

informed about progress on the
construction project through regular
meetings

• This will ensure that the board can

grasp the nature of any conflict or
dispute that arise
Contracts & Specs
Dept. of Civil Eng.
Spring 2008
Hashemite University
Dr. M. El-Mashaleh
٤٥

• The board is expected to prepare a set

of recommendations for each dispute it
reviews

• The owner and the contractor are given

a period of time, such as 4 weeks, to
consider the board’s recommendation,
which can be accepted or rejected

Contracts & Specs

Dept. of Civil Eng.
Spring 2008
Hashemite University
Dr. M. El-Mashaleh
٤٦

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• If either party does not accept the
recommendations, the decision can be
appealed to the board for another review, or
other methods of dispute resolution may be
pursued

• The decisions of the board are not binding

(unlike arbitration)

• Therefore, litigation is still an option if one of

the parties is not satisfied with the decision

Contracts & Specs

Dept. of Civil Eng.
Spring 2008
Hashemite University
Dr. M. El-Mashaleh
٤٧

Minitrials

• Also called private litigation

• As the name implies, this method has

some of the features of the courtroom

Contracts & Specs

Dept. of Civil Eng.
Spring 2008
Hashemite University
Dr. M. El-Mashaleh
٤٨

٢٤
• There is no current model by which all
minitrials are conducted

• Instead, the parties to a dispute are free to

draft their own procedures

• Minitrials are not commonly addressed in

construction contract documents

• The parties must agree to a minitrial as an

appropriate means to settle a dispute after
the dispute has materialized
Contracts & Specs
Dept. of Civil Eng.
Spring 2008
Hashemite University
Dr. M. El-Mashaleh
٤٩

• The parties must have similar objectives

in order for an agreement to be reached
on how the minitrial will be conducted

• The disputing parties may decide

beforehand if the resolution of the
dispute by minitrial will be binding or not

Contracts & Specs

Dept. of Civil Eng.
Spring 2008
Hashemite University
Dr. M. El-Mashaleh
٥٠

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• A person is selected to play the role of
the judge

• It is also accepted to select several

persons to act as a jury

• Judge candidates include: construction

attorneys, claims consultants, university
professors specializing in construction,
etc.)
Contracts & Specs
Dept. of Civil Eng.
Spring 2008
Hashemite University
Dr. M. El-Mashaleh
٥١

ADR

• Several ADR techniques have been

reviewed
– Partnering
– Mediation
– Arbitration
– Dispute review boards
– Minitrials

Contracts & Specs

Dept. of Civil Eng.
Spring 2008
Hashemite University
Dr. M. El-Mashaleh
٥٢

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