Reproduced with permission from The Revay Report Volume 28 Number 1 published by Revay & Associates Ltd © August 2009. Published here January, 2010.

PART 1 | Introduction to Part 2 | Pricing Uncertainty | Communications
Construction Scheduling and Schedule Updating | Project Performance Monitoring
Efficient Dispute Resolution  | Down Time | The Road Ahead | Conclusion

Efficient Dispute Resolution

In the economic circumstances preoccupying us all, our sensitivity to money is heightened and Revay anticipates more frequent disputes as a consequence.

"The success of the contractual relationship depends less upon what has been agreed than how the parties will agree to handle events in the future."[13]

Most contracts now make provision for some type of dispute resolution process prior to resorting to litigation or arbitration, and specify procedures for various types of Alternative Dispute Resolution (ADR).

One of the fundamental obstacles to the effective resolution of disputes at the project level is that often the same individuals who caused the problem in the first place are charged with providing findings on the issue. Positions harden, emotions frequently get in the way and the process quickly reaches a stalemate. For these reasons the intervention of a third party is often the catalyst required to break the impasse and move the parties to a settlement.

If parties are to reach an amicable settlement without external help:

  • Ground rules must be established and agreed to by both parties before proceeding to any form of settlement procedure;
  • Each party should take an informed position, born of a dispassionate business decision;
  • Individuals prone to personal attacks or emotional outbursts must be excluded from the negotiations;
  • Unless the parties intend to torpedo their working relationships, threats of forcing the dispute to litigation should be avoided.

Obviously negotiation should always be the initial step - it costs very little and often a mutually acceptable commercial solution is reached.

Alternatively, negotiations can be formalized and given more credence by resorting to mediation or a dispute resolution board. The major benefit of using a mediator or dispute resolution board is the structure and direction that it entails. Experienced mediators and dispute resolution board members will be able to spot parties who are simply "going through the motions" and will halt the negotiations. The caliber of these external aides is paramount. Amongst other things, they must be able to mitigate any unrest and be prepared to offer opinions to the parties on the strengths and weaknesses of their case.

Increasingly Revay has been privy to the mechanism described as "Third Party Neutral" or "Project Neutral" wherein an independent construction professional assists the resolution process by offering independent forensic analysis for both parties. Typically, the referral to the neutral party is voluntary and the decision is non-binding. The neutral party submits a written opinion to the participating parties and, although non-binding, it tends to promote an amicable settlement of the issue.

A similar approach is resolution by independent claims expert - this was the approach taken by the Greater Toronto Airports Authority during its recent $4.4 billion development of Lester B. Pearson Airport.

In the event of an intractable disagreement, a claim is inevitable. Revay recommends that a claim always be prepared as if it was being litigated. Claims should be easily readable, properly substantiated and pragmatic. In today's market place the emphasis must be on making a claim in a timely fashion, if only because budgets are tight and staff who can recall the facts may be more transient.

When considering whether to prepare a claim, the following steps must be taken:

  1. Determine the merits of the case.
  2. Determine the relationship between cause of action and damages suffered.
  3. Decide whether the information needed to prepare a claim is or will become available.
  4. Determine whether the action is time barred or will be before the claim can be realistically completed.
  5. Allocate a budget and deliverables.

A preliminary review of the issues in dispute, based upon the evaluation of a few key documents will provide an indication of the merits of a case, as well as the wherewithal to prepare a document that will either facilitate the settlement of an issue or serve to proceed to litigation. Following this type of preliminary review, a budget estimate for the preparation of a suitable document can be estimated.

Claim preparation generally comprises the following stages:

  1. Review and compose - the salient events are extracted from the contract and project documentation and a clear concise narrative describing the issues in dispute is composed. The review determines if the party has complied with the contractual notice provisions and/or requirements essential to establishing entitlement.
  2. Analysis - project schedule and schedule updates, labor and cost records are analyzed to determine cause and effect of disruptions and delays, to quantify the delays, evaluate resource productivity and determine labor losses.
  3. Presentation for senior managers and the opposition - Revay has found that presenting the essence of the results of the research and analysis as a clear and concise narrative accompanied by simple explanatory diagrams and charts to be a most effective manner of communication. Carefully prepared and clear graphical representations that set out the facts and findings are essential aids to understanding the issues and invaluable at negotiations for settling disputes.

A contractor's claim for additional compensation will only be as good as the information used to prepare it. Hence the need for proper contemporaneous record keeping throughout the execution of the work is a fundamental responsibility of all those involved in any type of construction activity.

Project Performance Monitoring  Project Performance Monitoring

13. McInnis, A., Relational Contracting Under the New Engineering Contract: a model, framework and analysis, (London, England: Society of Construction Law, September 2003). Arthur McInnis, PhD is a consultant with international law firm, Clifford Chance, in Hong Kong.
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