23 Non-adversarial dispute resolution
Contractual disputes in construction arise because of a series of factors that combine in various ways to produce arguments, disagreements and, ultimately, disputes. Some of these factors are basic to all disputes between humans, such as the motivating factors of individuals, human behaviour, organizational behaviour, culture, etc. What makes construction contract disputes different is the nature of the dispute. This, again, depends upon a variety of things such as the terms of the contract, the technological issues of the site and the building, the character of the project personnel, the amount of time and money available, the realism of people’s expectations, project environmental factors, the legal basis of the argument, the magnitude of the issue, and so on. The third group of variables in this area concerns the choice of methods for resolving disputes once they have arisen. What are the options available in the contract, and what other options are there? These are the topics confronted in this Chapter.
23.1BACKGROUND TO DISPUTES
In trying to understand why disputes occur on building contracts, the key clearly lies with the fact that people are interacting in some way. Although many disputes are based upon arguments about technical or legal points, disagreement escalates when people become intransigent. It is important to be clear about the basic concepts. In particular, conflict should be distinguished from dispute. These words are often interchanged in common parlance but for our purposes conflict occurs when objectives are incompatible. This is to be expected in construction. In fact, one of the reasons for appointing a team of professionals to contribute advice to a client is to engage in this kind of conflict. Each specialist will bring a particular agenda and skill to the problems at hand. The ensuing conflict of objectives is a central part of the project development process and should be expected. The idea that conflict should be avoided does not sit well with the idea that different people are brought into a team to represent different agendas (Tjosvold, 1992).
On the other hand, disputes arise when a conflict becomes an altercation; perhaps when one or both of the parties becomes intransigent (from a behavioural point of view), but definitely when the argument revolves around rights and is justiciable. These are more likely to arise when a project is on site because the differences of opinion are more contractually based. Pride or ignorance may also play a significant role in influencing the outcome of a disagreement, perhaps more than the nature of the dispute. Disputes arise, not just because people are entering into building contracts but because of a wide variety of interactions between diverse people. While disputes are often characterized as problems in the construction sector, it may be useful to characterize a dispute procedure as a
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solution, rather than as a problem. A formal dispute is sometimes the only remaining solution to a protracted period of disagreement.
23.1.1Motivating factors of individuals and organizations
It is often assumed that those who work on building projects all have a common objective, but it has been shown, and indeed it is fairly self-evident upon reflection, that most people bring with them very different sets of objectives. These personal objectives can be very difficult indeed to predict, partly because people are from a wide range of backgrounds. The fact that people are from different organizations will also affect their interest in a project, because organizations (i.e. companies) have their own objectives. Moreover, not all the people from any one organization will have similar objectives. Objectives are influenced by upbringing, education, family, friends and even the media. To make matters even more complex, objectives change for an individual as time passes. The complexity of objectives is thus due to the fact that they can be personal and/or organizational, as well as dynamic. This inherent flux and likelihood of mismatch means that conflict can develop and escalate very quickly. However, of itself, conflict is not a problem, as demonstrated in Section 2.1.5.
23.1.2Preconceptions about roles
Another factor influencing the development and escalation of conflict is the fact that most participants in a building project bring with them preconceived notions about what their role ought to be. An architect will expect to be doing certain things and taking certain decisions. In the same way an engineer, a quantity surveyor and a builder will all have very definite ideas not only about their own roles but also about the roles of others. These expectations are often modified by personal objectives, and can thus be yet another source of conflict. In addition, the definite and entrenched views which construction professionals have about their expected roles make it difficult to introduce new systems of building procurement.
Of course, one participant who may well have no preconceptions of this kind is the client, whether a corporate client or an individual. Such people are frequently new to the building process and find it full of surprises! An extremely important function for an architect or project manager is to explain to the client at the earliest opportunity what the conditions of contract actually mean. The client needs to be told in plain English the extent and nature of what is being promised, and by whom it is being promised (see Section 18.1.2). If the client understands this, many disputes can be avoided.
23.1.3Project success or failure
In the light of these issues, it is not at all surprising that conflict on building projects leads to disputes which can very quickly become acrimonious. These disputes, if not dealt with swiftly and equitably, can ruin everybody’s chances of
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‘success’, by which we mean the satisfying of one or more of their objectives. In this connection it is as well to reflect that, since objectives are so diverse, it is just as easy for everyone to be satisfied as it is for everybody to be dissatisfied. In other words, each individual’s potential for success within a building project is not necessarily at the expense of the others’ potential. This is contrary to the belief that avarice and conflict are the only routes to success in construction! The concept that all parties to a project can be equally satisfied has gained much support in recent years with the publication and wide dissemination of strategic reports (especially Latham 1994, Egan 1998) and by UK governmental initiatives such as ‘Achieving Excellence in Construction’ (Office of Government Commerce 2007). However, it is not always clear that procurement methods under the label of ‘partnering’ truly allow all parties a reasonable profit margin and abstain from overburdening the weaker party with unbearable risks (see, for example, Bresnen and Marshall 2000, Gruneberg and Hughes 2006).
23.1.4The roots of contractual dispute
In order to identify the type of dispute, it is essential to examine the position of the parties in terms of the amount of time and money available, project environmental factors, the magnitude of the issue and so on. Of particular importance are the duties of the parties to the contract. Contractual disputes tend to arise when one party alleges that the other party has not kept to the bargain. Since the performance or non-performance of obligations is at the root of any contractual dispute, it follows that the contracting parties must have a very clear understanding of what they are undertaking.
23.1.5Business relations
A further point affecting the origin of disputes is the preservation of good business relations. There are often circumstances where the parties to the contract are from the same business environment and will probably be contracting with each other again in the future. In these circumstances they are likely to understand both the rules and each other’s needs and requirements. For the sake of future business a party that feels aggrieved by the other party will often seek effective and quick resolution of points of disagreement, even if that implies giving up a claim that would have good chances to succeed in court. The practicalities of business are often more crucial for the outcome of disputes than questions of liability. This is particularly marked in civil engineering, where the client is usually the government or some other public agency. Contractors are very keen to preserve a good relationship with such clients.
On the other hand, there are circumstances where one party is deliberately obstructive and seeks to exploit every possible opportunity to its limit. This can happen where the parties are not likely to work together in the future. In the building industry, as opposed to civil engineering, most work is done in the private sector, and the number of disputes is much larger: perhaps these two factors are connected. The growth of partnering and the importance of developing long-term
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business relationships are, at least in part, reactions to the problems of doing business with strangers.
This need to preserve business relationships is particularly marked where the construction market is closed, or where access to the market is limited in some way. For example, for many years the Japanese construction market was characterized by a strong ethos of trading only with people already known. While there is now considerably more competition, the tradition creates an atmosphere where it is more usual to find commercial disputes settled by private negotiation rather than public litigation. It must also be remembered that a contractor’s risk of losing long-term clients can easily change from being an inducement to seek a negotiated settlement of an argument into a threat by an unscrupulous client.
23.2THE NATURE OF CONSTRUCTION DISPUTES
The first factor defining the nature of a construction dispute is the terms of the contract. Basically, a contract is an enforceable promise. And the subject of this enforceable promise is the production of a unique, technical artefact, using temporary management systems.
23.2.1Enforceable promises
Building contracts, like any other contract, are concerned with making promises, with the expectation that one can be forced to carry them out. A person who has no intention of doing a thing should not sign a contract recording such an intention!
Of course, it can happen that people enter into contracts that they did not completely intend. A shared mistake is no real problem, as the parties can rectify it by mutual consent. However, what sometimes happens is that one party claims, due to oversight or mistake, to have signed a contract that does not accurately reflect his or her intentions. If there is a difference of interpretation, then the type of contract will be important in terms of the way in which it will be interpreted. If it is not a standard-form contract, or if it is an organization’s own standard-form contract, the principle of ‘contra proferentem’ will prevail. This means that any ambiguity in the contract will be construed against the party who seeks to benefit by exclusions or limitations in it. This will usually, although not always, be the party which put it forward (also see Section 10.2).
It is during disagreements about the intentions of contracting parties that such details as notes of telephone conversations, minutes of meetings, correspondence and the like may become relevant. These seek to provide evidence of the parties’ intentions. However, it will in most cases be too late for the dissenting party to alter the contract. Building contracts, as we have seen, are very comprehensive and specific about what is expected of each party, and it is difficult to claim that the obligations arising from entering into such a contract were not properly understood at the time it was made.
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23.2.2Technical matters
Disagreements often arise over technical questions. The technology involved in construction is idiosyncratic, difficult to understand and subject to change. Added to this is any change that may be associated with the technology of the client organization. The use of different and/or unfamiliar techniques is often the cause of arguments and disagreements.
For example, the nature of the site is often a source of contention. While the site itself is clearly visible at ground level, it can hold many surprises once excavation starts. It is not enough merely to look at a site in order to ascertain the site conditions. The part where the building is going to sit is actually several metres below the part that is visible. Adequate site investigation is a constant source of problems in the industry. Whose responsibility is it? In order to answer that question, one must look at the clauses in the contract. Do they represent what is intended? It is depressing to realize how many clients are shocked to discover the extent of their liability for site conditions once problems arise.
Disputes that escalate to arbitration or litigation often hinge on an intricate understanding of some particular technical matter. An example concerns the failure of the Emley Moor television transmitter.1 A large tower fell down in a storm, on a moor, in the middle of the night. Nobody actually saw it fall down. How did it fall down? What caused it? Was it the wind, the rain, the frost, creep, metal fatigue, foundation failure or something else? It is a purely technical question to ascertain the cause of such a problem. Once the cause is identified, it is a fairly straightforward matter to allocate blame and with it legal responsibility.
23.2.3Legal matters
Some disputes are technically simple, and turn on what is the law on a specific point. The law is not infinite! There are many day-to-day occurrences that have not previously been decided upon by the courts. There are many spheres of activity not covered by statute. The resolution of a dispute may hinge upon the ascertainment of the law in a previously undefined area. Also, even where there are statutes or precedents, they may be inappropriate in the particular case. No two cases are identical, so there are often tremendous difficulties to overcome in interpreting and applying the law.
One particular legal problem area arises from the inconsistencies between various contracts. A consequence of the fragmentation of the industry mentioned in Section 2.1.3 is that each participant’s involvement with the project is formalized with a contract. A major problem mentioned by Latham (1994) was the inconsistencies and gaps between the various consultant appointments and the building contract. As a result, most of the bodies who draft contracts now seek to produce integrated packages of contracts, rather than a standard form for just one of the relationships.
1 Independent Broadcasting Authority v EMI Electronics Ltd and BICC Construction Ltd (1978) 14 BLR 1, HL.