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Sat 20 Oct 2007 04:00 AM

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Taking a systematic approach to resolving contract disputes

Preserving a working relationship is the target for all parties in contract disputes. Anwar Omar, Msc, PMP, PSP, claim specialist, Ellisdon Construction, explains the techniques.

Contracts traditionally include dispute clauses, which detail, to a greater or lesser degree, the process by which all disputes will be prosecuted.

In general, there are four basic methods of resolving disputes in projects: negotiation, where, face-to-face talks take place between project teams from both the owner and the contractor. The idea is to discuss the disputed issues and to mutually reach an acceptable business solution.

Mediation, alternatively, is a form of structured negotiation between the parties which utilizes the services of an outside neutral facilitator. The role of the mediator is to help bring the parties closer together in terms of persuasion until agreement is reached. This process is largely controlled by both parties.

Arbitration is a more formal and legal process where both parties no longer control either the process or the outcome. In this process, the dispute is heard by an outside organization that is typically operating under a nat-ional or even sometimes an international set of rules. In most arbitration proceedings, the arbitrator's rule is enforceable under law and may be appealed only for very limited causes.

Finally, litigation is a formal lawsuit in court pursuant to the terms of contract and under the rules of the jurisdiction where the lawsuit is filed. Lawsuits are time-consuming, lengthy and very expensive.

The basic equation of a successful claim can be summarized as follows:

Liability: An event or circumstance caused by one party has occurred during the project, which gives rise to a legal right to an adjustment to the contract.

Causation: The event or circumstance causes something which otherwise would not occur.

Damages: Quantificating the impact of an event in terms of cost and time, or both.

As construction budgets and schedules for completion continue to tighten, current construction projects are increasingly fraught with tremendous risk.

Claims and disputes over even the smallest issues can quickly escalate, with crippling consequences to the parties involved. The traditional methods of dispute resolution regarding construction are nowadays enormous and costly. Relationships between parties that were strained before litigation are often irrevocably broken during lengthy and acrimonious court battles.

Due to the cost and risk associated with litigation, construction professionals searched for new ways to resolve disputes at earlier stages, with lower costs. Resolving construction disputes is easier when resolution occurs quickly at the lowest possible levels of management and with less confrontation.

It is always preferable to reach completion of all issues related to claims and disputes by the end of works execution. It is more interesting for all project stakeholders to find a close-out report for the project showing that all variations, claims and disputes, arising during the course of execution have been finalized and agreed upon, and the related registers are also mentioned. It is almost certain that the longer a claim remains unresolved, the harder and more expensive it will be to resolve later.

Alternative Dispute Resolution (ADR) techniques have been highly successful over recent years as an alternative method to facilitate dispute resolution process.

ADR techniques usually involve selection of a third party, often contract/claim experts. Techniques of ADR include non-adjudicatory procedure, quasi-adjudicatory procedure and adjudicatory procedure, and range from mediation and mini-trial to a project arbitration panel.

Implementation of ADR technique helps ensure that the disputes are resolved quickly with less hostility and at the lowest possible cost. The time and cost saved by immediately addressing disputes can help preserve the relationships among the parties and keep them focused on mutual goals. Ultimately, preserving a cooperative relationship benefits not only the participants, but the project itself.

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