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Conflict avoidance and disputeresolution in construction

RICS Professional Guidance, UK

1st edition, guidance note

Conflict avoidance and disputeresolution in construction 1st edition, guidance note

This guidance note summarises what is meant by conflict avoidanceand dispute resolution; it identifies in outline the key issues that allsurveyors should understand in respect of these distinct substantiveareas.

Any surveyor adopting a good practice approach should seek to avoiddisputes and should understand the basic principles of disputeresolution. An understanding of the range of dispute resolutiontechniques is particularly important as is understanding when a clientshould be advised to seek assistance from an appropriate consultantor lawyer.

Guidance is given in respect of dispute avoidance processes anddispute resolution techniques that are encountered within the industryunder the following headings, which follow the Assessment ofProfessional Competence (APC):

• General principles (Level 1: Knowing)• Practical application (Level 2: Doing)• Practical considerations (Level 3: Doing/Advising).

rics.org/standards rics.org/standards

GN 91/2012RICS QS & Construction StandardsRICS QS & Construction Standards (the ‘Black Book’)

Conflict avoidance and dispute resolution inconstructionRICS guidance note

1st edition (GN 91/2012)

Surveyor Court

Westwood Business Park

Coventry CV4 8JE

UK

www.ricsbooks.com

Produced by the Quantity Surveying and Construction Professional Group of the Royal Institution of Chartered Surveyors.

ISBN 978 1 84219 780 6

Royal Institution of Chartered Surveyors (RICS) April 2012. Copyright in all or part of this publication rests with RICS. No part of this work may bereproduced or used in any form or by any means including graphic, electronic, or mechanical, including photocopying, recording, taping or Webdistribution, without the written permission of the Royal Institution of Chartered Surveyors or in line with the rules of an existing license.

Typeset in Great Britain by Columns Design XML Ltd, Reading, Berks

Printed in Great Britain by Page Bros, Norwich

Contents

Acknowledgments iv

RICS guidance notes 1

Introduction 2

1 General Principles (Level 1 – Knowing) 3

1.1 Conflict avoidance processes 3

1.2 The three pillars of dispute resolution 5

1.3 Dispute resolution techniques 6

1.4 Alternative dispute resolution (’ADR’) 7

1.5 Standard form contracts 7

2 Practical application (Level 2 – Doing) 9

2.1 Conflict avoidance 9

2.2 Dispute resolution procedures 10

3 Practical considerations (Level 3 – Doing/Advising) 19

3.1 Dispute escalation clauses 19

3.2 Interim valuations and claims 19

References 24

CONFLICT AVOIDANCE AND DISPUTE RESOLUTION IN CONSTRUCTION | iii

AcknowledgmentsRICS would like to thank the following for theircontributions to this guidance note:

Lead Author

Nicholas Gould (Fenwick Elliott LLP)

Working group

Chair: Andrew Smith (Laing O’Rourke)

Alpesh Patel (APC Coach Ltd)

Christopher Green (Capita Symonds Ltd)

David Cohen (Amicus Development Solutions)

Duncan Cartlidge (Duncan Cartlidge Associates)

Jim Molloy (Department of Health, Social Servicesand Public Safety NI)

John G Campbell (BAM Construction Limited)

Kevin Whitehead (McBains Cooper ConsultingLimited)

Michael T O’Connor (Carillion Construction Limited)

Michelle Murray (Turner & Townsend plc)

Roy Morledge (Nottingham Trent University)

Stuart Earl (Gleeds Cost Management Limited)

The working group would like to thank the RICSDispute Resolution Professional Group Board andthe RICS UK Project Management World RegionalProfessional Group Board.

iv | CONFLICT AVOIDANCE AND DISPUTE RESOLUTION IN CONSTRUCTION

RICS guidance notes

This is a guidance note. Where recommendationsare made for specific professional tasks, these areintended to represent ‘best practice’, i.e.recommendations which in the opinion of RICSmeet a high standard of professional competence.

Although members are not required to follow therecommendations contained in the note, theyshould take into account the following points.

When an allegation of professional negligence ismade against a surveyor, a court or tribunal maytake account of the contents of any relevantguidance notes published by RICS in decidingwhether or not the member had acted withreasonable competence.

In the opinion of RICS, a member conforming tothe practices recommended in this note shouldhave at least a partial defence to an allegation ofnegligence if they have followed those practices.However, members have the responsibility ofdeciding when it is inappropriate to follow theguidance.

It is for each surveyor to decide on the appropriateprocedure to follow in any professional task.However, where members do not comply with thepractice recommended in this note, they should doso only for a good reason. In the event of a legaldispute, a court or tribunal may require them toexplain why they decided not to adopt therecommended practice. Also, if members have notfollowed this guidance, and their actions arequestioned in an RICS disciplinary case, they willbe asked to explain the actions they did take andthis may be taken into account by the Panel.

In addition, guidance notes are relevant toprofessional competence in that each membershould be up to date and should have knowledgeof guidance notes within a reasonable time of theircoming into effect.

Document status defined

RICS produces a range of standards products.These have been defined in the table below. Thisdocument is a guidance note.

Type of document Definition StatusRICS practice statement Document that provides members with

mandatory requirements under Rule 4 of theRules of Conduct for members

Mandatory

RICS code of practice Standard approved by RICS, and endorsed byanother professional body that provides userswith recommendations for accepted goodpractice as followed by conscientiouspractitioners

Mandatory orrecommended goodpractice (will be confirmedin the document itself)

RICS guidance note Document that provides users withrecommendations for accepted good practiceas followed by competent and conscientiouspractitioners

Recommended goodpractice

RICS information paper Practice based information that provides userswith the latest information and/or research

Information and/orexplanatory commentary

CONFLICT AVOIDANCE AND DISPUTE RESOLUTION IN CONSTRUCTION | 1

Introduction

This guidance note summarises what is meant byconflict avoidance and dispute resolution. Itidentifies the key issues that all surveyors shouldunderstand in respect of these distinct substantiveareas. It cannot cover every issue or everytechnique for avoiding disputes, nor can it coverthe wide-ranging issues that relate to disputeresolution, the applicable rules or strategies thatmight be adopted.

However, Any surveyor adopting a good practiceapproach should seek to avoid disputes and shouldunderstand the basic principles of disputeresolution. An understanding of the range oftechniques is particularly important, as isunderstanding when a client should be advised toseek assistance from an appropriate consultant orlawyer. Surveyors should avoid the danger ofstraying into an area that is beyond the scope oftheir expertise and should recognise when andwhat type of assistance might be required.

Conflict avoidance involves carefully and properlyplanning, with clarity, the strategy for executing aproject as disputes often arise from ambiguity or anunclear definition of risk. It is also about adoptingproactive conflict avoidance approaches such asthe carrying out of a risk analysis; the production,updating and maintenance of a risk register as wellas proactively managing the risks that are on thatregister; and adopting where appropriate a properapproach to partnering. Dispute resolution is aboutrecognising when a dispute has arisen andappreciating the escalation of that dispute. Inaddition, it is understanding the range oftechniques that might be available to resolve thedispute and seeking appropriate guidance beforethe client is placed at a disadvantage in respect ofits position with the other party.

Guidance is given in respect of conflict avoidanceprocesses and dispute resolution techniques thatare encountered within the industry under thefollowing headings, which follow the Assessment ofProfessional Competence (APC):

+ General principles (Level 1: Knowing)

+ Practical application (Level 2: Doing)

+ Practical considerations (Level 3: Doing/Advising).

This guidance note is written for charteredsurveyors who are not specialist lawyers. Ittherefore covers in general terms only conflictavoidance and dispute resolution. It is not anattempt to provide specialist knowledge, neither isit any substitute for more detailed text on not justconflict avoidance and dispute resolution, but alsoeach of the techniques. It is no substitute forspecialist advice.

The techniques considered are applicable in manycountries around the world. For the purposes ofpractical application or example English law isoccasionally referred to in this guidance note. Careshould be taken to determine which jurisdiction isapplicable to the project, contracts or disputeswhich might be encountered.

Minimum level of service

Depending on the role that the chartered surveyoris undertaking and the terms of his or herappointment, a chartered surveyor is expected tofulfil the following duties:

+ to seek clarity in any documents that areproduced for the purpose of procuring work

+ to identify, within the surveyor’s area ofexpertise, risks that should be brought to theclient’s attention, and assist the client in themanagement of these risks

+ to manage professionally, objectively andconsensually the day-to-day or regular conflicts,disagreements and causes of dispute that arisein respect of property and construction matters

+ to recognise the escalation of disputes andkeep the client informed

+ to understand in outline the range of disputeresolution techniques that are available

+ to know and understand the applicable disputeresolution technique or techniques that apply inrespect of any contract or contracts in whichthe surveyor is advising

+ to recognise when more specialist assistance isrequired and advise the client accordingly.

2 | CONFLICT AVOIDANCE AND DISPUTE RESOLUTION IN CONSTRUCTION

1 General principles (Level 1 – Knowing)

This section deals with conflict avoidance anddispute resolution separately.

1.1 Conflict avoidance processes

Conflict avoidance ranges from the simplistic, butstraightforward, approach of care and managementin the preparation of documentation in order toavoid ambiguity in the adoption of partnering andalliancing. The main conflict avoidance processesthat a surveyor should know about include:

Good management: A surveyor who proactivelymanages a project for which he or she isresponsible or the duties that they have to theirclient in respect of the appointment is an excellentstarting point for the avoidance of disputes.Proactivity and planning and managing future work,as well as raising early any issues of concern,provide confidence in the surveyor’s ability,enabling problems to be analysed and managed.

Clear contract documentation: Many disputesarise from ambiguities in contract documentation orargument as to whether there is a contract at all.The real cause of a dispute might lie elsewhere, forexample, a contractor that is in financial difficultiesin respect of a project might seek to exploitambiguities in order to recoup its financial position.Good documentation means capturing the specificdetails of the project and addressing the particularcircumstances and risks of that project. Volumes ofgeneral specifications might not meet thisrequirement. The key is to identify the main areasof risk and set out a strategy for dealing with themclearly.

Partnering and alliancing: Building co-operationbetween the project participants in order to fosterteam working, problem solving and an emphasis onproject delivery can assist in the avoidance ofdisputes.

Good project management: Means proactivelymanaging all aspects of time, money and riskassociated with the project. This involves oftenaddressing some of the most difficult issues.Simply allocating responsibility for any and all items

to others is never adequate. Surveyors should seeRICS Practice management guidelines: Themanagement of surveying businesses (3rd edition,2010) for further guidance in this area. If a surveyoris not acting as the project manager they should inany event apply project management technics tothe planning and management of their ownservices.

Good client management: A good understandingof the client’s objectives and the client’s approachto risk is also extremely valuable, as will bemaintaining good lines of communication with theclient. This will assist not only in identifying howrisks and issues are to be dealt with within thecontract documentation and throughout the project,but will also build sufficient rapport to avoid asituation where the client incorrectly believes thatthe surveyor is simply in control of all aspects ofthe project. This is not always possible and goodlines of communication will mean that the surveyorcan warn the client about issues and problems thatare within the surveyor’s services under theappointment with the client, and then discuss howthose issues might best be dealt with.

Good constructor management: In terms ofconflict avoidance, this means having an objectiveunderstanding of the project, the contract and theprogramme of works. This goes beyondcommunication with the constructor, and requiresregular objective assessments of progress andproactively dealing with issues arising during theproject that fall within the chartered surveyor’sappointment. Problems and delay need to be dealtwith at the time in a positive and objective manner.Primary responsibility will fall to the projectmanager, architect, contract administrator oremployer’s agent, but the surveyor should be partof the employer’s or contractor’s team to assist ifnecessary.

Good design team management: The provision ofinformation within the design team and from thedesign team to the constructor is also crucial.Good forward planning and the management ofconflict that could arise among the design team or


between the design team and the constructor arealso crucial for the avoidance of dispute. See RICSguidance note on Managing the design delivery (1stedition, 2010).

Good payment practice: The design team and theconstructor rely upon cash flow. Once paymentprovisions have been agreed, the valuation shouldbe carried out and payments made promptly. Thisin itself can avoid animosity, conflict and dispute.

Record keeping: Many disputes can be resolvedby retrospectively considering records that havebeen kept during the course of the procurement orthe carrying out of a project. This means keeping aproper record of the labour, plant and materialsused in respect of a project. It will also meanobtaining a daily record of the site’s activities aswell as regularly obtaining progress reports.Importantly, this should also include a record ofresource movement. In other words, when changeoccurs, some record of how that change hasimpacted upon the project should be madecontemporaneously.

Regular reporting and proactivity: The regularmonitoring of cost, progress and quality isimportant for the success of any project. This maytake the form of minutes of meetings, progressreports, drop lines on programmes, and photos. Itis perhaps even more important to raise andmanage any issues that are causing delay, anyincreases in cost or quality problems as soon as ispractically possible. Any actions should berecorded so that they can be tracked towardsconclusion.

All of these simple principles can be considered inrespect of any project. The more sophisticatedapproach of partnering and alliancing might not beappropriate for all projects but good management,clear documentation, a good approach to projectmanagement, record keeping and regular reporting,and proactivity are core conflict avoidancetechniques in respect of all projects.

The exact requirements are subject to therequirements of the contract and the scope of thesurveyor’s duties under the appointment with theclient.

1.1.1 The spectrum of dispute resolutiontechniques

Many different labels have been given to the widerange of dispute resolution techniques. In realitythere are only three distinct processes and alldispute resolution techniques are built upon theseprocesses. They are:

1 negotiation – the problem-solving efforts of theparties themselves

2 mediation or conciliation – a third-partyintervention does not lead to a binding decisionbeing imposed on the parties; and

3 an adjudicative process – the final outcome isdetermined by a third party who does impose abinding decision on the parties.

Professor Green of Boston University labelled theseas the three pillars of dispute resolution. His chartwas adapted by Gould (1999)1 and is reproducedoverleaf.


Figure 1: The Dispute Resolution Landscape

Source: Mackie, K., Miles, D. and Marsh, W. (1995) Commercial Dispute Resolution: An ADR Practice Guide,Butterworths, London, p. 50. The figure was derived from a chart by Professor Green of Boston University(1993).

1.2 The three pillars of disputeresolution

Regardless of the label given to a disputeresolution technique it is important to advise whenassistance might be useful in the resolution of adispute. If the negotiations are not leading to anoutcome then perhaps it would be more economicto employ a mediator in order to see whether thedispute can be resolved without continuing costand management time. A mediator will not imposea binding decision on the parties. Conciliation is forour purposes the same as mediation; a conciliator

does not impose his view on the parties but, onceagain, assists the parties to reach a settlement.

Both mediation and conciliation are treateddifferently in different parts of the world, forexample, in China mediation is more coercive.Further, the agreement to mediate or conciliate, orapply a procedure under a contract, might definethe process in a slightly different manner. Forexample, the ICE conciliation procedure providesthat if the conciliator is unable to assist the partiesto reach a settlement then the conciliator will makea recommendation that is binding unless theparties, within 28 days of issue of that decision,


serve a Notice of Dissatisfaction. This procedure israrely used because the real benefit of mediationand conciliation is that the parties can speakopenly with the mediator or conciliator, duringprivate sessions, knowing that the mediator orconciliator will not use that information to impose abinding decision.

Finally, it is extremely important to recognise whena dispute resolution process will lead to a bindingdecision in order to alert the client as soon aspossible. Clearly, litigation and arbitration will leadto a Judgment or Award, both of which can beenforced under legislation. Also, contractual expertdetermination and adjudication will, in mostcircumstances, lead to a binding decision.

1.3 Dispute resolution techniques

The basic principles of the most frequentlyencountered dispute resolution techniques are:

Negotiation: The process whereby the parties workout between them how to resolve any issues thathave arisen. Power to settle the dispute rests withthe parties.

Mediation and conciliation: The parties agree onan independent, third-party neutral system tofacilitate discussions between them, with the goalof reaching a settlement. The power to settleremains with the parties, but the process is led bythe mediator.

Expert determination: The parties agreed by acontract that a third party will make a bindingdecision on them. The terms are therefore governedby the contract. In most cases the decision of anexpert will be final, and it will not be possible toappeal that decision. This means that the decisionof an expert finally determines the dispute withoutfurther recourse.

Adjudication: Adjudication under section 108 ofthe Housing Grants, Construction and RegenerationAct 1996 (HGRCA) was introduced in May 1998.The Local Democracy, Economic Development andConstruction Act 2009 and the updated Schemewill revise some aspects of the adjudicationprocess. It has been widely used in theconstruction industry and applies not only tobuilding contracts but also to professionalappointments. If the Act applies to a contract theneither party may request the appointment of an

adjudicator to be made within seven days ofserving a Notice of Dispute, and the adjudicatorhas 28 days from issue of the Referral within whichto issue a decision. That decision will bind theparties and in most cases be readily enforceable inthe Technology and Construction Court (TCC). TheTCC is the part of the High Court that deals withconstruction related litigation.

Arbitration: For arbitration to apply, the contractbetween the parties must contain a writtenagreement to arbitrate. Where it applies the partiesmight choose to refer to or incorporate anarbitration procedure, such as the ConstructionIndustry Model Arbitration Rules. Alternatively, thearbitration can simply be covered by the applicablelegislation, such as the Arbitration Act 1996. Manyjurisdictions around the world contain legislationdealing with arbitration, often based upon theUnited Nations Commission on International TradeLaw (UNCITRAL) Model Arbitration Law.

Litigation: The courts have inherent jurisdiction tohear a dispute in respect of just about anything. Inthe absence of any other procedure, the parties willhave a right to refer their matter to an appropriatecourt. The procedure is governed by the CivilProcedure Rules, and the nature, complexity andvalue of the dispute will determine which court willhear a particular dispute. Courts have the widestjurisdiction and in addition to determining disputesand declarations, they can also issue ChargingOrders, summon witnesses and involve the thirdparties in the dispute as necessary. Note thatbankruptcy and insolvency proceedings such asadministration and the winding-up of companiesare not primarily governed by the Civil ProcedureRules but by the Insolvency Act and relatedregulations. In some circumstances a clear debtmay be more economically and easily obtained byserving a Statutory Demand or a Winding-UpPetition rather than commencing an action in thecourt. This is beyond the scope of this guidancenote, and specialist advice should always besought.

Dispute boards: Interestingly, dispute boards sitsomewhere between avoidance and disputeresolution. Their genesis is in Dispute Review orRecommendation Boards (DRBs). Three disputeboard members are appointed at the start of aproject. They become familiar with the project byreviewing some of the project documentation and


also regularly visiting the site during the course ofthe works. If and as issues arise they can be askedfor their non-binding recommendation. This mayrelate to general disagreements or disputes. Oftentheir recommendations are used to resolve disputesbetween the parties, thus avoiding formal disputes.

Dispute Adjudication Boards (DABs), on the otherhand, follow a very similar pattern but they makeformal written decisions which bind the parties inrespect of any disputes that arise. There istherefore a clear distinction between a DRB andDAB. Generically they are called DBs. There is onevariation on the theme and that is a combineddispute board which was developed by theInternational Chamber of Commerce (ICC). TheICC’s Combined Dispute Board (CDB) procedureprovides for recommendations or decisions. Theparties may request the dispute board to delivereither a recommendation or a binding decision. Ifthe parties cannot agree then a dispute board candecide whether simply to issue a non-bindingrecommendation or a written binding decision.

1.4 Alternative dispute resolution(‘ADR’)

The term ADR has attracted a great deal ofattention since the mid-1980s. ADR predominantlymeans alternative dispute resolution, and refers toprocesses which are alternatives to the traditionalbinding dispute resolution procedures of litigationand arbitration. It is alternative in the sense that itis providing a faster and more economic disputeresolution procedure. Originally ADR was used todescribe a consensual alternative approach, whichhelps to maintain business relationships. Morebroad definition could include adjudication,negotiation or mediation, or indeed some otherform of contractual dispute resolution technique.

More recently, the debate has moved from‘alternative’ to ‘appropriate’. In other words, what isthe most appropriate dispute resolution procedure.This more broad definition could includeadjudication, negotiation or mediation, or indeedsome other form of contractual dispute resolutiontechnique.

The important point is that the appropriate disputeresolution procedure should aim to resolve thedispute in an appropriate economic manner, takinginto account the circumstances of the dispute.

Business relationships should be maintained, whileresolving disputes at the lowest cost and within asensibly fast timetable.

Confidentiality can be maintained, as indeed shouldflexibility in the process. This should lead to agreater satisfaction with the dispute resolutionprocedure for the parties.

1.5 Standard form contracts

A large number of standard form contracts are nowpublished and widely available. Originally, the JointContracts Tribunal (JCT) family of contracts werepredominant in the building industry, whilst theInstitution of Civil Engineers (ICE) standard formcontracts were used for infrastructure and civilengineering works. That division is still largely true,however the introduction of the Engineering andConstruction Contract (NEC 3), as well as theProject Partnering Contract (PPC) are also nowreasonably widely used.

The usual approach in the JCT contracts is anexpress reference to adjudication in the Articles ofAgreement, together with a further expressreference to arbitration or legal proceedings. Inrespect of adjudication, either party may refer adispute to adjudication under the applicableclauses of the relevant JCT contract. Theprocedural rules are those of the Scheme forConstruction Contracts. This avoids the oldproblem under JCT, which was the question as towhether the Scheme applied or the purpose writtenJCT Adjudication Rules. The Scheme has withstoodthe test of time, and has now been adopted byJCT.

The parties can either then select arbitration at theoutset of the works, or court proceedings. Thebenefits of arbitration are that the dispute willremain private, however, an employer might choosecourt proceedings litigation on the basis that it willbe easier in court to bring a claim for defects, asthose claims are often multi-party. Multi-partydisputes are not so easily dealt with in arbitration.

Finally, most JCT contracts provide that the partiescould, by agreement, seek to resolve any dispute ordifference through mediation. The JCT produces ahelpful guide for mediation.

The ICE forms of contract provide that any disputewill be referred to the engineer under the contract,


who would then make a decision which would bebinding. If the contractor did not accept thatdecision then the matter could be referred toarbitration. The introduction of adjudication meantthat disputes could be referred to adjudication atany time, and so the ICE contracts have beenamended to reflect that approach. It is no longerpossible to delay a referral to adjudication on thebasis that the parties are apparently waiting for theengineer to make a decision.

NEC3 provides an adjudication procedure for use inthe UK when the HGCRA applies. The final disputeresolution procedure is a ‘review by the tribunal’. Ifeither party is dissatisfied with the adjudicator’sdecision then they may refer that dispute to thetribunal. The tribunal may be a court or anarbitration. If the parties are to refer their dispute toarbitration, then they need to make it clear in thecontract data that arbitration applies. In addition,the parties will also have to identify an arbitrationprocedure, the place where the arbitration is to beheld and the default method for appointing anarbitrator.

PPC provides a procedure for problem solving andconflict avoidance or resolution. The escalationprovisions provide that the partnering team is toattempt to resolve any differences or disputes. Aproblem solving hierarchy should be established,which provides for a core group to review, within anidentified timetable, the issues and attempt to finda solution. Disputes may also be referred toconciliation, mediation or another alternativedispute resolution procedure. These procedurescould be set out initially in the contract documents,or might be recommended by the partneringadvisor during the course of the works. PPC alsoprovides for adjudication, in order to meet with therequirements of the HGCRA.

The final dispute resolution procedure could belitigation or arbitration. The parties must make itclear in their project partnering agreement whetherarbitration is to apply.

The international FIDIC forms of contract alsoprovide dispute escalation provisions. A writtennotice commences the procedure by identifying thedispute. The notice needs to be given as soon aspracticable, and not later than 28 days after thecontractor became aware, or should have becomeaware of the event or circumstances giving rise tothe dispute. Initially, the engineer is to consider afully detailed claim. This may resolve the disputeeither by agreement or a certificate paying anyadditional money.

Disputes that are not resolved are then referred tothe Dispute Adjudication Board. The DisputeAdjudication Board has 84 days within which tomake a reasoned decision. If either party is notsatisfied with that decision then they will need toissue a notice of dissatisfaction within 28 days afterreceiving the decision. In the absence of a notice ofdissatisfaction the decision becomes final andbinding. Either party may refer a failure to complythat decision to arbitration.

If a notice of dissatisfaction has been given theneither party can refer that dispute to be finallysettled under the Rules of Arbitration of theInternational Chamber of Commerce. Thearbitrators have the power to open up, review andrevise any certificate, determination, instruction,opinion or evaluation of the engineer when comingto their decision.


2 Practical application (Level 2 – Doing)

This section looks in more detail at some aspectsof conflict avoidance, but in particular disputeresolution. It begins by looking at the practicalapplication of the general principles discussed itthe last section, and focuses on some of thestandard forms of contract that were discussed inLevel 1.

2.1 Conflict avoidance

This section simply considers some basic principlesin respect of two areas: contract documentationand partnering.

2.1.1 Checking the contract documentation

Disputes can be reduced by checking that thecontract documents are in place. This can beconsidered in two stages: preparing the tenderdocuments and then preparation of the contractdocuments.

The tender should not only contain all of thetechnical works-related documents, such asdrawing and specifications, but it should also setout the contract details. Consideration should begiven to:

+ the exact description of the contract (assumingthat this is likely to be a standard printed form),which edition, does sectional completion apply,do any supplements or amendments apply

+ the exact details for the appendices,completion dates, insurances, etc.

+ the full text of any purpose-written amendmentsto the contract, and

+ the full text of any ancillary documents such asbonds, guarantees, collateral warranties, etc.

The contractor needs to have the opportunity toconsider these documents when calculating a priceand developing the design solution and so thesedocuments will need to be included at tenderstage. If a contract forms when the work iscommenced but, for whatever reason, a formalcontract is not then completed hopefully thedocuments included in the tender will form part ofthe contract.

It is, therefore, important to take care in producinga coordinated set of tender and contractdocuments. Operating under a letter of intent onlydelays dealing with the key issues between theparties, which need to be agreed for there to be aformal contract. Completing the formal contractand avoiding letters of intent is a good conflictavoidance strategy.

The next stage involves putting together orchecking the contract before it is signed. Careshould be taken to ensure that:

+ the contract is prepared and signed as soon asis practically possible after the client hasdecided to appoint a contractor.

+ any purpose-written amendments are expresslyincorporated, and that they are attached to thecontract (in some instances the purpose-writtendocument might be the leading contractdocument which contains the appendicesinformation).

+ full and complete descriptions of the worksinformation are included. Avoid making generalstatements, and instead set out a complete listof specifications, drawings, questions andanswers, etc. that apply

+ the appendices are completed fully andcarefully

+ the exact description of the ancillary documentsis referred to and copies are attached

+ the contract is signed

Keep a full copy of the contract bundle before it isissued in case it is lost while being circulated forsignature.

2.1.2 Partnering

Partnering is a general term covering practices thatare designed to promote greater co-operationbetween all project team participants. Theemphasis is on the management of people, notnecessarily within a business, but betweenbusinesses. It is not limited to the contractualrelationships, but is about building collaborativerelationships in order to minimise conflict and


promote a more open system of communicationthat leads to a greater practical benefit to theproject.

The participants in a project might sign a partneringcharter which is non-binding. In other words, it isnot intended to have contractual effect.Alternatively the parties could adopt a bindingcontract which incorporates partnering principles.That contract could be between the maincontractor and employer, or it could be a multipartycontract embracing the design team and keymembers of the supply chain. Regardless of thecontractual nature, partnering is only effective if theparticipants are proactively engaged in the processthroughout the project.

An important step in a partnering arrangement is tohold, at the outset of the project, a partneringworkshop with the key participants. This providesan opportunity for the key individuals within theorganisations to understand in practical terms howthe processes operate and also, importantly, tobecome familiar with each other, hopefully in thespirit of co-operation and best endeavours for theproject.

2.2 Dispute resolution procedures

2.2.1 The process of negotiation

Negotiation is more than just a dispute resolutionprocedure; it is a way of conferring with others inorder to reach a compromise or an agreement. Itcan, of course, be used in a positive way in orderto negotiate the building contracts andappointments in the first place. There need not beany dispute and perhaps very little conflict at all.Using negotiation as a way to communicate for thepurposes of persuasion is ‘the pre-eminent mode ofdispute resolution’ according to Goldberg.2 In orderto resolve any dispute, negotiation would involvesome form of communication leading, hopefully, toa joint decision. It is the most widely used form ofdispute resolution, but of course relies upon theparties finding common ground.

Much has been written on the subject ofnegotiating tactics and the process of negotiation.One important aspect of any negotiation is beingproperly and fully prepared. A detailed andthorough understanding of the issues is crucial ifyou or the party that you represent is going to put

forward its best position and hopefully resolvematters in a satisfactory manner.

Preparation for any negotiation will therefore involveunderstanding the range of issues and both parties’positions. Any analysis should include theconsideration of liability as distinct from time orvalue. In other words, it is important to separatewhether there is any liability in the first place beforeconsidering how much time or money the item isworth. Simply coming to a conclusion that there isno liability should not stop the objectiveassessment of how much time or money might bedue if there were a liability. The mistake is oftenmade of coming to a conclusion that there is noliability and therefore failing entirely to assessobjectively time or cost if the liability assumptionswere incorrect. Negotiations progress much further,and are more likely to resolve matters if all theissues are considered.

Finally, there are two main approaches tonegotiation. The first is competitive and the secondis principled. Competitive negotiators will make anoffer that is very low, usually much less than theywould in fact accept. Their tactic is simple, in thatthey raise their offers gradually (while weaving inother issues) in order, hopefully, to settle the matter.They will of course take whatever tacticaladvantages are available. Some are quitesophisticated while others adopt a verystraightforward manner. It all depends upon theirexperience and expertise.

The alternative approach is that of ‘principled’ orinterest-based cooperative negotiations. The key tothis approach is:

+ Separate the people from the problem. Theparties should focus on the issues rather thanon attacking each other.

+ Focus on the interests not on the positions. Theparties should consider the reasons for theirdemands and search for mutual interests whichcan be bargained over.

+ Invent options for mutual gain. The partiesshould consider ways in which they can giveand take between each other to their mutualgain.

+ Insist on objective criteria. Rather than simplybargaining over amounts, the parties couldidentify objective criteria or steps which can beused in order to work to a more accurate value.


+ Properly assess an alternative to a negotiatedsettlement. Parties often fail to work out whattheir true position might objectively be if theyfail to negotiate a settlement. This wouldinclude considering the risks associated witheach of the items, together with any delay,management time, as well as legal and expertcosts, and reputational risks to the employer orclient. A proper assessment in this respect willlead to more flexibility in the negotiations.

This principled approach was developed by Fisherand Ury, and much has been written on the subjectby them and others.3

2.2.2 Mediation and conciliation

Mediation and conciliation are basically informalprocesses whereby the parties are assisted by oneor more neutral third parties in their efforts towardssettlement. It is important to make a cleardistinction between bilateral negotiation (in otherwords, negotiation between the parties) andmediation or conciliation where there is a neutralthird party who assists the parties in theircommunication. Mediation or conciliationconducted properly involves an independent thirdparty. It does not involve a representative from, orof, one of the parties negotiating in a friendlymanner with the other parties. Any party thatnegotiates on its own behalf or through others isnot independent, and any form of mediation thatmight take place is in truth simply part of theprocess of negotiation or a tactic of the negotiation.

There are two important aspects then to mediationor conciliation. First, is the form of the third partyintervention. The role of the third party is tofacilitate the decision-making of those in dispute. Itbuilds upon negotiation processes, but it is themediator who sustains and reviews the situationwith the parties. Second, the mediator or conciliatorshould be independent of the parties. The mediatoris impartial and trust develops during thenegotiation process between the parties and themediator in order to allow the mediator to developa settlement for or with the parties.

Conciliation and mediation are terms that are oftenused interchangeably. Generally they mean thesame thing. However, in some parts of the world,one or the other might be taken to mean a moreinterventionist or evaluative style. In other words, a

process where the conciliator or mediator tends toevaluate the information and offer a view.Fundamentally, a mediator or conciliator should notlose their impartiality by suggesting an outcome ormaking a recommendation, although they can andshould use objective criteria to test the reality ofeach party’s situation. This reality test can oftenmean pushing the parties to seriously consider andevaluate their positions based upon objectivecriteria and evidence available.

The mediator is therefore the manager of thedispute resolution process. It is important that themediator takes control and aids the parties towardssettlement. A mediator should:

+ manage the process firmly and sensitively;

+ facilitate a settlement and overcome deadlock;

+ gather information and identify the parties’objectives;

+ act as a reality tester, assisting the parties totake a realistic view of the problem;

+ act as a problem solver, thinking creatively inorder to help the parties construct their ownoutcome;

+ soak up the parties’ feelings and frustrations inorder to channel the parties’ energy into apositive approach to the issues;

+ act as a settlement supervisor, aiding theparties to record their settlement, but not torecord it for them; and

+ maintain momentum towards settlement andprompt the parties to settle at an appropriatepoint in the mediation.

2.2.3 Mediating construction disputes

Mediation is now used frequently in theconstruction industry to resolve disputes. It can beused during the project to resolve disputes, aftercompletion, during the escalation of a dispute or atany time up to a hearing. The contract need notmake provision for mediation as the parties can justagree to attempt mediation as a faster, cheaperalternative to the court, arbitration or adjudication.

Research undertaken by King’s College London, inassociation with the Technology and ConstructionCourt (TCC), shows that mediation is used toresolve about 35 per cent of all disputes that go tocourt in relation to construction work.4 In summary,the findings show that:


+ Mediation now plays an important role in theTCC and is an indispensable tool for settlingcases before they go to trial.

+ Parties do not generally wait until a hearing isimminent before attempting to settle theirdispute, and successful mediations are mainlycarried out during the exchange of pleadings oras a result of disclosure.

+ Where a settlement was reached prior tojudgment, the most successful method usedwas conventional negotiation, not mediation.

+ In the vast majority of cases, mediation isundertaken on the parties’ own initiatives.

+ Surprisingly, only a low number of typicalmainstream construction disputes (such asclaims for variations, delays and site conditions)come before the court. The common disputesthat reach the TCC are those involving defects,payment issues, design issues and professionalnegligence.

+ For the vast majority of mediations inconstruction disputes, the mediator isappointed by agreement of the parties, ratherthan by an appointing body.

+ The cost savings attributed to successfulmediations are a real incentive for parties toconsider mediation.

2.2.4 Court annexed ADR

Formal training for mediation has been offered by anumber of organisations in the UK, most notablythe Centre for Effective Dispute Resolution (CEDR).The court has in some instances offered courtannexed mediation. The first of these schemes inthe UK commenced in April 1996 at the CentralLondon County Court. A pilot mediation schemewas established in order to provide parties tolitigation with an option to mediate. Mediation wastherefore voluntary and the take-up rate was quitelow initially. A second scheme was also run at theCentral London County Court and this time partieswere automatically referred to mediation. The pilotscheme ran for one year from April 2004 to March2005. Despite more parties attending the mediation,the settlement rates decreased from 69per cent forthe initial cases to as low as 37 per cent for thosereferred in March 2005.

In respect of construction disputes, the TCC inLondon offers a court settlement process. From

early 2005, any construction dispute that has beendealt with in the TCC could voluntarily submit itselfto the court settlement process. One of the judgeswould then undertake an evaluation of the case andattempt to resolve the dispute between the parties.If settlement was achieved then it could berecorded and a court order issued bringing thematter to a close. If a settlement was not achieved,then a different judge would go on to hear thedispute in the normal way. The new judge wouldtherefore not have been involved in any of theprivate settlement discussions and so could not beinfluenced when dealing with the litigation in theusual way.

2.2.5 Adjudication

The adjudication of construction disputes is now awell-established and fundamental procedure in theUK. Adjudication was introduced in England, Walesand Scotland in May 1998 under the HousingGrants, Construction and Regeneration Act 1996(HGCRA). Section 108 in Part 2 of that Actintroduced a right to adjudication for any contractsin writing that came within the definitions insections 104 and 105. The requirement forconstruction contracts to be in writing wasrepealed on 1 October 2011 by Part 8 of the LocalDemocracy, Economic Development andConstruction Act 2009. In effect, most frequentlyencountered construction and engineeringcontracts involving the carrying out of constructionoperations whether by way of new refurbishment,repair or maintenance or otherwise were covered.Professional appointments also fall within thejurisdiction of an adjudicator.

Adjudication does not apply to a residentialoccupier carrying out work to a house that theyoccupy, or intend to occupy, as a residence.Neither does it apply to a series of specificexclusions included within the Act, including thedrilling for or extraction of oil or natural gas,minerals tunnelling or boring, or the assembly,insulation or demolition of plant and machinery orerection or demolition of steelwork for the purposesof providing access to plant or machinery on a sitewhere the primary activity is nuclear power, powergeneration or water or effluent treatment. This alsoexcludes sites where the primary activity relates tochemicals, pharmaceuticals, oil, gas, steel or food


and drink. Reference must be made to sections104 and 105 in order to deal specifically with theseexclusions.

The key provision of the HGCRA is section 108.Assuming that the HGCRA applies to a particularconstruction contract, then section 108 providesany party with the right to refer a dispute at anytime to adjudication. The noticeable features ofsection 108 are:

+ There must be ‘a dispute’. In other words, adispute must have crystallised between theparties which can then be referred to anadjudicator. For example, there could be adispute about the amount that should be paidin respect of a particular monthly valuation. Anymatters that make up that dispute could thenbe referred to an adjudicator, subject to thescope of the Notice of Adjudication.

+ The construction contract must provide thatnotice can be given ‘at any time’ in respect ofthe dispute. In other words, any party can referthe dispute at any time to an adjudicator. Thisability to refer the dispute at any time cannot berestricted.

+ Once the dispute has been referred, anadjudicator should be appointed and thedispute referred to that adjudicator within sevendays of issue of the notice. The emphasis hereis for the parties either to agree an adjudicatorpromptly or for an adjudicator nominating bodyto appoint one sufficiently quickly for thereferring party to refer the dispute to theadjudicator before the seven-day deadline hasexpired. There are a number of adjudicatornominating bodies in the UK, of which theRoyal Institution of Chartered Surveyors is themost widely recognised.

+ The decision must be given within 28 days ofissue of the referral. The referral must be issuedto the responding party and the adjudicatorsimultaneously on or before the expiry of theseven-day referral period. It is important to notethat the referral could be made within just acouple of days after issue of the notice ofadjudication. In that case, the 28-day periodwould start from the issue of the referral and soadjudication would proceed quicker than aresponding party might anticipate. If theadjudicator has accepted jurisdiction then theadjudicator is obliged to complete the decision

within the 28-day period (or any other properlyextended period). The referring party canextend the period by up to 14 days, but anyfurther extension must be approved by bothparties. There is very little leeway available tothe adjudicator who must reach a decision andcommunicate it to the parties.

+ There is an obligation on the adjudicator to actimpartially and fairly. In effect, this means thatthe adjudicator must give both parties areasonable opportunity of putting their case andresponding to the case before them.

+ The adjudicator’s decision will be binding. Thecourts have taken a robust attitude to theenforcement of adjudicators’ decisions andproviding that the adjudicator has jurisdiction tomake a decision, and has not lost it along theway because of some procedural error orbreach of natural justice, then there is a veryhigh chance that the decision will be enforced.

2.2.6 Expert determination

Expert determination is a creature of contract. Theparties agree by contract to refer a dispute to athird party who will then decide that particularissue. The third party might decide a technical orvaluation issue, as is common, but, in theory, anexpert can determine any dispute which the partiesagree to refer. Traditionally, expert determinationwas used for valuing shares in private companiesor certifying profits or losses of companies duringsale and purchase. In the construction industryexpert determination has been and is used fordetermining value, either of an entire account orsometimes in relation to parts of an account, suchas variations.

There are many instances when adjudication isavailable, and so expert determination has beensomewhat eclipsed. However, expert determinationcan still be used and may be applicable where theHGCRA does not apply. Internationally expertdetermination is still encountered, often as part of amulti-stage dispute resolution procedure. It is alsoused in property-related agreements such asdevelopment agreements. Finality is a fundamentalfeature of expert determination. The provisions inthe contract for expert determination frequentlystate that the decision of the expert shall be finaland binding on the parties. The courts have taken


the view that the decision of an expert will thereforebe enforced regardless of any errors.

A leading case in this area is Jones v SherwoodComputer Services Plc [1992] 1 WLR 277 where anexpert was asked to determine a valuation inrespect of a sale and purchase agreement. Oneparty was not satisfied with the outcome andchallenged the reasoning behind the determination.The Court of Appeal stated that the expert hadbeen asked to determine a level of sales, and thatis exactly what the expert had done. As the experthad asked the right question the decision had to beenforced. This approach has been followed andadopted in subsequent cases.

2.2.7 Arbitration

Arbitration is a process, subject to statutorycontrols, whereby formal disputes are determinedby a private tribunal chosen by the parties. It is analternative to litigation and has been used forresolving disputes for a considerable period oftime.

Arbitration in England and Wales has legislativesupport in the form of the Arbitration Act 1996(Arbitration Act). The Arbitration (Scotland) Act 2010applies to Scotland. This Arbitration Act provides alegal framework for arbitration, including recognitionof the process, the arbitrator, the procedures, andalso the award and enforcement of that award.Arbitrators receive their powers from the provisionsof the Arbitration Act, in the absence of anyagreement between the parties.

The Arbitration Act contains five main objectives:

+ to ensure that arbitration is fair, cost-effectiveand rapid

+ to promote party autonomy. In other words, torespect the parties’ choices

+ to ensure that the courts have supportivepowers at appropriate times

+ to ensure that the language used is user-friendly and readily accessible to the parties

+ to follow the model law (which is usedinternationally) wherever possible.

Parties can agree to arbitrate once a dispute hasarisen. However, it is more common to encounteran agreement to refer future disputes to arbitration.Many of the standard form contracts containarbitration provisions. Section 6(1) of the Arbitration

Act recognises the distinction between anagreement to refer existing disputes to arbitrationand an agreement to submit any future dispute toarbitration.

An arbitrator might be appointed by agreement ofthe parties. Alternatively, if the parties are unable toagree and have already identified an appointinginstitution within their arbitration agreement thatinstitution would then have the power to appointthe arbitral tribunal. For example, the President ofthe Royal Institution of Chartered Surveyors isfrequently included within building contracts as theperson to appoint an arbitrator.

Section 33 of the Arbitration Act requires a tribunalto act fairly and impartially between the parties.Each party must be given a reasonable opportunityto put its case and also to deal with the case of itsopponent. Further, the tribunal should adoptprocedures suitable to the circumstances of aparticular case. They should avoid unnecessarydelay or expense in order to provide a fair meansfor resolving the dispute.

Section 29 of the Arbitration Act provides immunityfor the arbitrator. The arbitrator is not liable foranything done or omitted in the discharge of theirfunction as an arbitrator, unless the act or omissionis in bad faith. The immunity does not apply if anarbitrator resigns, but the court has the power togrant the arbitrator relief from liability if the courtconsiders the circumstances appropriate.

The Construction Industry Model Arbitration Rules(CIMAR) were drafted to comply with the ArbitrationAct 1996. Those Rules were adopted by JCT as therules for an arbitration arising under a JCT contract.CIMAR sets out the available procedures that are tobe followed during the arbitration. It deals withappointment of the tribunal, joining of parties, thepowers of the arbitrator, evidence and documents,procedure, hearings, provisional relief, sanctions,awards, remedies and costs. The rules anticipatethat the parties might hold a documents onlyarbitration, or one with a short hearing asalternatives to an arbitration with a full hearing.

The arbitrator’s award is final and binding on theparties, unless they agree to the contrary. Theaward by an arbitrator can, with leave of the court,be enforced as if it were a judgment of the court.The standing of an arbitration award is thereforethat of a court judgment and so is easily enforced.


An arbitrator’s award is therefore in reality final andconclusive and the opportunity to challenge anaward is extremely limited.

An arbitrator need not make one composite awardin respect of a dispute. It is possible to issueinterim awards, before issuing the final award. Anymatters dealt with in an interim award are final.Substantial issues could be dealt with during thecourse of an arbitration, perhaps leaving only thecosts to be dealt with in the final award.

If the parties settle their dispute, then the arbitratorcan issue, in the same way that a court can issue,a consent award recording the settlementagreement of the parties.

2.2.8 International commercial arbitration

International arbitration is also worth a mention.Many standard form construction and engineeringcontracts used internationally contain internationalcommercial arbitration provisions. The mostfrequently encountered contracts are thoseproduced by FIDIC. Disputes under the FIDICstandard forms of contract are referred for the finaldetermination of an arbitral tribunal under theInternational Chamber of Commerce (ICC) Rules.The ICC administers more international arbitrationsthan any other institution in the world. While theICC deals with a broad range of disputes,construction and engineering make up a noticeableproportion.

Projects in many developing parts of the world arefunded by international banks. The works are oftencarried out by contractors from other jurisdictions(sometimes contractors in joint venture) and alsowith consultants from other jurisdictions. It istherefore not unusual to encounter a constructionproject where the substantive law is that of acountry other than the one in which the project istaking place.

The law applicable to the dispute resolutionprocedure might also be separate. For example, aproject being carried out in Indonesia might besubject to English law, with any disputes resolvedby arbitration in Singapore, in accordance with thearbitration laws of Singapore. This would mean thatany substantive legal issues between the partieswould be governed by English law. As a result thecontract law of Indonesia would govern the issuesof interpretation of contract, breach and the amount

of damages. However, as the procedural aspect ofthe arbitration would be in Singapore, then it wouldbe the local courts in Singapore that would supportthe process, and so any issues relating to theprocedure of the arbitration would be governed bySingaporean law.

2.2.9 Litigation in the TCC

The Technology and Construction Court dealsspecifically with disputes arising in respect ofconstruction and engineering work. The types ofclaim that may be appropriate for bringing to theTCC include:

+ building and other construction disputes,including claims for the enforcement ofadjudicators’ decisions under the HGCRA

+ engineering disputes

+ claims by and against engineers, architects,surveyors, accountants and other specialisedadvisers relating to the services they provide

+ claims by and against local authorities relatingto their statutory duties concerning thedevelopment of land or the construction ofbuildings

+ claims relating to the environment, for example,pollution cases, and

+ challenges to decisions of arbitrators inconstruction and engineering disputes,including applications for permission to appeal,and appeals.

The case will be assigned to a named TCC judge,who will have primary responsibility for themanagement of that case and who, subject to theexigencies of the list, will be the trial judge.Proceedings cannot usually be instituted in theTCC without first complying with the requirementsof the pre-action protocol for construction andengineering disputes (see below).

The TCC will fix the date of the first casemanagement conference at the outset of thelitigation. At that conference the judge will issuedirection of the proceedings up to the trial. Thecourt will also consider whether expert evidence isneeded; it must be restricted to that which isreasonably required to resolve the proceedings. Theoverriding duty of the expert is to help the court onmatters within his expertise. A surveyor acting asan expert witness should refer to the RICS PracticeStatement: Surveyors acting as expert witnesses.


The court will want to know whether the partieswish there to be a stay of proceedings to enablethem to try to settle the case by negotiation or bysome other form of alternative dispute resolutionprocedure (ADR). The court is obliged by CPR Part1.4(1) to further the overriding objective by ‘activecase management’. CPR Part 1.4(2)(e) defines thisas including ‘encouraging the parties to use analternative dispute resolution procedure if the courtconsiders that appropriate and facilitating the useof such procedure’. The court may therefore includein the programme of preparation for trial a shortperiod of stay of the proceedings for ADR to takeplace.

The facility for a without prejudice, non-binding,early neutral evaluation (ENE) by a TCC judge of adispute, or of particular issues in it, may beavailable in appropriate cases. The approval of thejudge in charge of the list must be obtained beforeany ENE is undertaken. If the parties suggest it,and the judge considers that an ENE is likely toassist the parties in the resolution of the dispute, orparticular issues in it, they may offer to provide thatevaluation themselves or to arrange for anotherjudge to do so. If the parties accept, thendirections will be given for the ENE. Where an ENEis provided by a judge, that judge will, unless theparties agree otherwise, take no further part in thecase.

At the first case management conference the courtwill also usually deal with the question of witnessstatements, disclosure of documents, whether tomake any order for the carrying out of inspections,a site view and the use of IT. Parties shouldcarefully consider how the burden of preparingdocuments can be reduced by co-operation andthe use of IT. In the TCC the IT protocol producedby the Technology and Construction SolicitorsAssociation is often useful.

At the pre-trial review the court will look at whetherthe previous directions have all been complied withand if not, why not. Where necessary, it will giveany further directions required to ensure that thecase will be ready to start on the day fixed for trial.The court will also give directions for the conductof the hearing itself, including the preparation of thetrial bundles, the service and lodging of openingstatements, chronologies, copies of authorities andpre-trial reading lists for the judge, the use oftechnology, the timetable, etc.

2.2.10 Legal costs and recovery

A judge has the power to award the winning partyits costs. At the conclusion of the litigation, a judgenot only decides the outcome of the substantivedispute between the parties, but also determineswho pays the legal costs. The general rule is thatthe winning party receives its costs. This does notmean the entirety of its costs but all that have beenreasonably incurred. Similar rules apply inarbitration though an adjudicator does not have ageneral power to award costs. The parties couldagree for an adjudicator to award costs but this isunusual.

One of the benefits of this approach is that there isan increased pressure on the parties to settle theirdispute. If a party loses, then not only will it not beable to recover its costs, but also it would have topay those of the winning party. Parties are thereforeencouraged to assess their chances of winning orlosing objectively and take this into account whentrying to settle the matter. There is clearly greaterpressure to settle a dispute in the court or througharbitration than there is by way of adjudication. Thisis not just because of the time factors involved, butalso because of the increased risk of paying thewinning parties’ costs.

2.2.11 The Pre-Action Protocol forConstruction and Engineering Disputes

The Pre-Action Protocol for Construction andEngineering Disputes applies to all disputes in thatcategory, including professional negligence claimsagainst architects, engineers and quantitysurveyors. A claimant must comply with theProtocol before commencing proceedings in thecourt, subject to some exceptions. In summary, theprocedure requires:

+ the claimant to issue a claim letter and attachcopies of key documents such as the contract

+ the defendant to reply within 28 days, althoughthat period can be extended

+ the claimant to reply to any new issues within14 days.

The parties should then meet in order to discussthe issues in dispute and attempt to reachsettlement on at least some aspects of the dispute.The Pre-Action Protocol for Construction andEngineering Disputes also recommends that theparties should consider whether some form of ADR


is more suitable than litigation.5 This accords withthe Court of Appeal’s recognition in Burchell vBullard that mediation should act as a track to ajust result running parallel with that of the courtsystem.6

2.2.12 Dispute boards

The term dispute board (DB) is a generic onecovering:

+ Dispute review boards (DRB) makerecommendations rather than binding decisions.

+ Dispute adjudication boards (DAB) make abinding decision about any dispute referred toit.

+ Combined dispute boards (CDB) rules providethat the dispute board could make arecommendation or a binding decision.

+ Dispute resolution advisor (DRA) is a singleperson dispute board.

A DB is appointed at the outset of the project. It ismost usually encountered on substantial majorprojects and will comprise three individuals. Thereare a number of ways that these three could beappointed, but most usually the employer appointsone member, and the contractor another. Thosetwo members then (with the agreement of theparties) nominate a chairperson.

The benefit of appointing a DB at the outset of theproject is that its members can read some of thekey documentation, such as the contract, and thenattend regular meetings on site. It may be that theywill visit the site every three or four months in orderto ascertain the progress of the works and discussany issues. The members will also get to know thekey individuals involved in the project. This meansthat they will be available to discuss any problems,and any solutions if appropriate, and will also beavailable to resolve disputes.

DRBs have had some noticeable successinternationally, particularly in the United States. Oneof their strengths is the fact that they do not makebinding decisions, but instead assist the parties toresolve their differences, and also makerecommendations which the parties adhere tobecause of the respect that they hold for thedispute board.

DABs have become more popular outside theUnited States mainly because the World Bank has

supported the decision-making function of DBs,and also because international FIDIC standardforms of contract include a dispute adjudicationboard within its standard terms and conditions.FIDIC is an association of national associations ofengineers.

The FIDIC DAB is established under clause 20 ofthe FIDIC Contract. It provides that any disputescan be referred to the dispute board in writing. TheDAB then has 84 days within which to make awritten binding decision.

The ICC (an institution for resolving internationalcommercial and business disputes) developedcombined dispute boards in an attempt to utilisethe benefits of both a recommendation-makingfunction as well as a binding dispute resolutionprocedure. The parties can decide whether, duringthe course of the works, they wish to have arecommendation or a binding decision. If they areunable to make a decision, then the dispute boardcan decide whether to simply issue arecommendation (which is non-binding) or abinding decision.

2.2.13 Med-Arb

The key function of Med-Arb is that the thirdperson appointed to the board is to act asmediator, and then go on to act as arbitrator if thedispute cannot be settled. So, the mediatorbecomes the arbitrator. It is not simply a case ofarbitration following mediation if a settlement is notachieved. Some believe that the benefit of thisprocess is that it is more efficient and economic.However, one of the strengths of mediation is thatthe mediator can meet with the parties privatelyand discuss issues in respect of the dispute inorder to find a settlement.

One of the fundamental principles of arbitration isthat both parties have an opportunity to hear theallegations against them and respond. An arbitratorcannot therefore speak privately with the parties.Further, parties are reluctant to share privateinformation with a mediator in private sessions ifthey think that that mediator might then go on tobe an arbitrator. It will be very difficult for thearbitrator to put out of his or her mind anything thathe or she has learnt whilst acting as mediator.


2.2.14 Project mediation and standingneutrals

Project mediation bridges the gap betweenpartnering and dispute resolution. It requires theappointment of one or two project mediators at theoutset of the project, who become familiar with theproject and the individuals involved. They attendsite occasionally and keep up with the progress ofthe project. They cannot make any bindingdecisions, but instead adopt mediation techniquesin order to facilitate communications between theparties, and help resolve any issues that might ariseduring the project. Unlike a dispute resolutionprocess, they can liaise with each party individuallyin the absence of the other party. There is nobreach of natural justice because the projectmediators do not make any binding decisions.

Project mediators are therefore ‘standing neutrals’and can be called upon during the project toresolve a dispute, and even hold a formalmediation. The benefit of project mediation is thatthe independent project mediators provide aconflict avoidance process, but in the event of amediation they are familiar with not just the projectbut also the individuals involved. It should thereforebe possible to constitute a mediation relativelyquickly and with a high chance of success.

2.2.15 Arbitration or litigation

The parties will normally have the ability to referany dispute to litigation in the court. However, if theparties have agreed in writing to resolve a disputeby arbitration, then they will be bound by thatagreement. If, in those circumstances, one of theparties were to commence litigation in court theother party would ask the court to ‘stay’ thatlitigation. If the court decides that there is a validarbitration agreement then they will refuse to hearthe dispute, and instead the parties will have toresolve the dispute by arbitration.

It is therefore important to consider whether a clientwishes to resolve their dispute through arbitrationor through the court. This is because manystandard forms now provide for that option. If achartered surveyor is completing the appendix to astandard form contract then they will have toadvise the client that there is an option, seek theclient’s instructions and then fill in the appendixappropriately. A chartered surveyor should notmake that decision, but rather inform the clientsufficiently to allow the client to make the decision.

The advantage of arbitration for a client is that it isprivate and confidential, and should provide thebenefit of an industry-qualified arbitrator. However,the ICC is highly experienced in dealing withconstruction disputes, and the parties do not needto pay for the hire of the venue, nor the hourlycharges of a judge (while of course in arbitrationthe parties will need to hire a venue to hold thehearing and pay the hourly charges of anarbitrator).

Some parties prefer the confidential nature ofarbitration in order to avoid publicly airing theirdisputes but arbitration is not always the mostconvenient method for hearing multi-party disputes.For example, if a client is a property owner andtheir property suffers from defective workmanshipand design, they might need to claim against thecontractor and certain members of the designteam. If the contracts with those parties do notcontain carefully drafted ‘joinder’ provisions thatallow the arbitrations to be consolidated, there is adanger that individual arbitrations will have to beheld, incurring greater cost and possibly reachingdifferent decisions. The court is able to hear multi-party cases more readily and more economically.


3 Practical considerations (Level 3 –Doing/Advising)

This section simply uses a checklist approach tolook at many practical considerations that need tobe taken into account when advising on conflictavoidance or dispute resolution.

A chartered surveyor should consider these issueswhen advising on conflict avoidance or disputeresolution. It is very important that a charteredsurveyor does not, particularly in the area ofdispute resolution, give advice which is beyond thescope of their knowledge and experience.

3.1 Dispute escalation clauses

Standard form contracts have traditionally includedarbitration clauses. Since the development ofalternative dispute resolution commercially from theearly 1990s and then the introduction ofadjudication in 1998, the trend has been towardsdispute escalation clauses. Rather than simplyproviding for arbitration standard form contracts attheir most simplistic might recognise that a disputecan, at any time, be referred to adjudication or bereferred to arbitration or the court.

The particular provisions in the contract need to beconsidered very carefully. A party might be able torefer their dispute to adjudication or go straight toarbitration. Alternatively the provisions of thecontract might require them first to complete anadjudication and only then refer a dispute about theissues on to arbitration.

More sophisticated dispute escalation clauses mayprovide further steps, for example:

+ service of a notice identifying and crystallisingthe issues in respect of the dispute that hasarisen

+ the referral of that dispute within a stricttimescale for negotiation between seniormanagers of each organisation

+ if a settlement is not reached, again within astrict timescale, then negotiations should takeplace between the chief executives of bothorganisations

+ the potential for a mediation, and

+ arbitration or litigation in the court.

Most standard form contracts are not assophisticated as this though purpose-writtencontracts, or amendments to standard formcontracts, can introduce dispute escalation clauses.A good example of a dispute escalation clausewhich adopts the above approach was consideredin the case of Cable & Wireless PLC v IBM UnitedKingdom Limited [2002] EWHC 2059 (Comm).

It is important to note that an agreement to agree isnot binding.6 In other words, the courts will notenforce a party’s agreement to simply meet andnegotiate or mediate with another party becausethe courts cannot force either party to settle.However, the courts will enforce a contractualtimetable for holding negotiations or ADRprocedures. The court can require a party toattempt to settle by adhering to a timetable agreedbetween the parties.7

3.2 Interim valuations and claims

Most standard form contracts separate time andmoney. For example, the JCT Standard FormContracts provide a mechanism for accessing anyextensions of time which is separate from themechanisms for identifying any loss or expense.The NEC Standard Form of Contract deals withtime and money as compensation events in acomposite manner.

In either event, the financial impacts of anychanges or delays should be assessed regularlywhere the contract provides for frequent valuation.Any claims for disruption, prolongation costs orcosts related to change should be assessed on amonthly basis if the contract provides for monthlyvaluations. If they are left until the end of theproject then, in most cases, interest will be payablefor the delayed assessment of the costs associatedwith those parts of the payment application thathave not been assessed and included within theregular valuation.

The extent to which a chartered surveyor isexpected to consider the financial impact will of


course depend on the terms of the appointment,and the services set out in, or implied by, theappointment.

In either event, the financial impacts of anychanges or delays should be assessed regularlywhere the contract provides for frequent valuation.Any claims for disruption, prolongation costs orcosts related to change should be assessed on amonthly basis if the contract provides for monthlyvaluations. If they are left until the end of theproject then, in most cases, interest will be payablefor the delayed assessment of the costs associatedwith those parts of the payment application thathave not been assessed and included within theregular valuation.

3.2.1 Claim evaluation

In order to deal with any claims, or as part of adispute resolution procedure, the cost, time andrisks associated with any particular claim or disputeshould be evaluated objectively.

In very simplistic terms the three main categoriesfor claims relate to time (delay, extensions of timeand liquidated damages), money (changes of thescope of works, disruption, prolongation etc) andquality (predominately defects). Regular reporting tothe client of time, cost, in particular valuations anda projected final account cost should avoid thesudden shock of reporting a substantial delay orincrease in cost near the end of a project. This stilloccurs where too much reliance is placed upon acontractor’s applications for payment and claims incircumstances where the contractor is behind withcalculating and submitting these details. It is,therefore, always best to consider, within theframework of the valuation and cost reportingformat, the following main issues:

+ Time: The assessment and award, if any, of anextension of time is the responsibility of thearchitect, contract administrator or employer’sagent under the building contract. A charteredsurveyor could fulfil the role of contractadministrator or employer’s agent. However thesurveyor should consider whether the progressreports are accurate or perhaps optimistic. Ifdelay is occurring then what are the chancesobjectively for an extension of time to beawarded, and what if any liquidated damages

might be claimed. Remember that the financialimpacts of an extension of time might mean(but not always necessarily) that prolongationcosts will be payable. Prolongation costs relateto the extended period on site, and there is afundamental distinction between that anddisruption costs. Disruption costs arise wherethere has not necessarily been any extension oftime but the contractor has been disrupted andtherefore working less efficiently on site.

+ Money: Predominantly changes to the contractmight arise from simply the omission ofprovisional and prime cost sums, and then theaddition of the actual costs. Variations to theworks are often common, and there is then thecosts associated with the variation. Any delay,prolongation costs and disruption costs canoften be claimed as a part of that variation.However, it could be claimed separately andthis is frequently an area where under reportingand disputes occur. Prolongation costs couldbe claimed under a heading of loss andexpense, although might be claimed with thevariation. A failure to understand and establishwhere they have been claimed can lead todouble recovery. Alternatively, if no recovery forprolongation or disruption has been madewithin the variation then the contractor mighthave a separate claim for disruption orprolongation, which is brought at the end of thecontract and may well lead to a dispute.

+ Defects: There is sometimes confusionbetween work in progress on site and defects.The contractor should have the right to fix anydefects which have occurred during the courseof the works, with those breaches simply beinga ‘temporary disconformity’ rather than a‘permanent disconformity’ in the works. Ifsubstantial defects appear to be an issue thenthey should be carefully valued, especiallytowards the end of the project period. If thecontractor has been paid almost all of the sumsdue and then does not return to site to fix thedefects that are known about, an issue of overvaluation may arise. Expert assistance in thearea of the defect may well be required. Forexample, a structural engineer to advise onproblems with foundations or a on excessivecracks resulting from apparent settlement, or an


M&E engineer to advise on problems with airconditioning or the mechanical or electricalsystems.

Most contracts deal with time and moneyseparately. For example, the JCT family ofcontracts, the ICE standard forms of contracts andmany others contain contractual provisions dealingwith extensions of time, liquidated damages andthen the valuating of variations and disputesseparately. However, the NEC contract deals withtime and money together under the heading ofcompensation events. In other words for everyevent that occurs (including a variation) thecontractor and project manager need to considerthe time, money and also quality issues that mayarise and claim for all of those ramifications duringthe course of the works.

Consider also the distinction between instructedchange and constructive change. Where writtenorders for variations are given then the paper trail issomewhat easier. However, in the absence of awritten order, constructive change may haveoccurred. If the scope of the works has changed,perhaps as a result of the issuing of further reviseddrawings, then the contractor may well be dueadditional time and money even in the absence of awritten variation. The failure for an employer’srepresentative or contract administrator or architectto issue a written variation is a breach on the partof the employer not the contractor. The effects ofconstructive change, therefore, must be consideredwhen valuing the works, and can often form thegrounds for disputes arising during or after theproject has been completed.

It is extremely helpful if claims can be measuredagainst a simple contract which contains all thedocumentation. However claims may need to beissued and considered as arising under a letter ofintent. A claim outside a contract could be broughtfor work carried out in respect of a benefit receivedby an employer where there is no contract. Theremay be a contract subject to contractual changes(beyond variations). In other words a substantialchange could have taken place, which has beenagreed between the contractor and the employersuch that the scope of the contract has changed.Contracts could be formed outside the maincontract for substantial changes by way ofcollateral contracts or side agreements orsupplemental agreements. All these would need to

be considered within the contractual frameworkwhen assessing claims in respect of the project.

Claims for variations, delay, disruption andprolongation may in themselves lead to morediscrete claims. These might include:

+ Escalation costs: In the absence of an expressterm in the contract providing for escalation, acontractor may still be entitled to the increasedcosts of the labour, plant and materials as aresult of the project taking longer. The projectwill cost more because of inflation at the time.

+ Interest: Most contracts now provide a writtenclause dealing with interest. In the absence ofthat a contractor may still have a common lawright to interest or a statutory right to interest.These should not be ignored.

+ Head office overheads: A contractor may havea right to payment of head office overheads.Prolongation costs will cover the additionalcosts of being on site for a longer period.However, those costs will not reflect the cost ofrunning a head office, and a contributiontowards those running costs maybeappropriate.

+ Profit: There may also be a right to additionalprofit, as profit which would have been earnedon other projects had the contractor been ableto work on those projects rather than beingretained on site to complete the project inquestion.

Care should also be taken to avoid payments inrespect of claims that might not be admissible.Much would depend upon the terms of the contractand the circumstances but frequently encounteredinadmissible claims include the cost of acceleratingthe works (there maybe a disruption claim, but thatis not acceleration), the cost of overtime and thecost of preparing a claim. The costs associatedwith the preparation of a claim are ofteninadmissible because the contract usually requiresthe architect, contract administrator or employer’srepresentative to ascertain the costs of the claim.The contractor is simply providing information thatwill facilitate that ascertainment. In limitedcircumstances a contractor may have somesuccess with a claim for preparation.

More substantial analysis will be required wherethere is a termination of contract, or a repudiationof contract resulting from substantial issues


between the parties or the insolvency of one of theparties. Particular care and assistance will beneeded in ascertaining the actual costs of theworks up to a certain point in time, and then thelike for like completion costs of the worksexcluding any charges for abandonment.

Finally, the key with claim evaluation is to beproactive and up to date. Claims for delay,disruption and prolongation should be dealt withduring the course of the works. If the contractorhas issued detailed claims promptly, it is still goodpractice to attempt to ascertain the costs of anydelay and changes in order to avoid any surprisesfor the client later on. The reporting of liability andthe proactive and objective ascertainment ofadditional costs during the course of the worksshould help to identify the potential for claims anddisputes to arise.

3.2.2 VAT

VAT and tax often require some considerationduring or at the end of the resolution of a dispute.The timing of any payments might requireconsideration. More importantly, VAT only applieswhere services have been rendered. VAT does notapply to true damages.

This can be a complex area depending upon thenature of the original transaction and the dispute.For most purposes, all figures in respect of thecontract, the dispute and any resolution or awardshould exclude VAT in order to simplify the matteras much as possible, allowing for VAT to be dealtwith separately.

3.2.3 Final account procedures

From a dispute resolution perspective, interimvaluations are carried out relatively quickly and atregular intervals during the course of the work. Thefinal account provides an opportunity to assessproperly and accurately the entire amount due tothe contractor in respect of the works.

Standard form contracts also provide further time inorder for that assessment to be carried out. Care isneeded as most standard form contracts providethat a contractor may not only submit a finalaccount but also request an interim valuation at thesame time. There is an obligation on the employer’svaluer to assess what should be paid promptly inrespect of the interim valuation in relation to the

information that is available, while continuing towork through the detail of the final account. It isusually not acceptable to ignore a request for aninterim payment on the basis that time is beingtaken up with the detail of the final account.

There is therefore a danger that interim paymentsduring the final accounting procedure areoverlooked, and also that the time available to carryout the final account is not used carefully in orderto assess properly the final account due. Interimvaluations that are due under the contract shouldbe made promptly and if withholding notices areneeded, they should be issued.

The time available to carry out the final accountshould be carefully used and further informationrequested promptly from the contractor. Ifdifficulties do arise then time is available to requestexternal assistance. Advice at this stage can beobtained more economically than advice that mightbe needed if an adjudication is commenced.Assistance obtained in respect of specific issueswhile time is available would be more economicthan assistance that is obtained during a suddencrisis.

3.2.4 Liability reporting

A surveyor’s role might include reporting to theclient, at stages during the course of the project,about the project’s financial liability. This may bedone by reference to the contract sum and thebuilding works, or more widely in respect of not justthe construction works but also the consultant’sfees. This task might be relatively straightforward atthe outset but becomes more complex as theworks proceed. Care should be taken in order toidentify an estimation of the potential time and costimpact (or, more appropriately, a range of the likelytime and cost implications) in respect of eventswhich might increase the cost of the project.

It would not be sufficient to wait until thecontractor(s) or consultants request additionalpayment. The surveyor should assess, at regularintervals, events that have occurred and considerwhether there has been an impact on time, cost orquality. The obvious manifestation is delay. If aproject is in delay then there will certainly be someform of financial impact, whether by way ofliquidated damages or a pending claim for anextension of time and perhaps prolongation costs


(often referred to as loss and expense), togetherwith additional consultant’s fees. Care should betaken throughout the project to review the futureimpact of current events. Assessing a preciseamount during a live project is not easy, but arange of potential costs can often be identified.

Identifying these additional liabilities early andraising them with the client is not only goodpractice but also provides the employer, thesurveyor and the design team with a betteropportunity to manage and reduce the impact ofadditional liabilities.

3.2.5 Requesting assistance

If additional liabilities are being encountered duringthe course of the project, then it may beappropriate to seek assistance from otherdisciplines. It may be that more specialist costadvice is required, or legal advice in respect of theprovisions of the contract, appointment ofconsultants or a legal and financial assessmentwith regard to particular events.

Strategic advice could also be provided by externalassistants. It may be that a financial legalassessment by an expert in that area can provideassistance or devise a strategy which, in the longrun, will be more effective and more economic forthe client.

There is often a tendency to ‘wait and see’ howparticular problems manifest themselves. There aremany occasions where projects finish successfullyand such problems are resolved. If assistance isneeded, it is often necessary to bring thatassistance in early rather than miss opportunitiesfor early advice, strategy development and strategicaction.

3.2.6 Finality of dispute resolution

It is important to consider the finality of anyparticular dispute resolution procedure. Litigation inthe court, arbitration and expert determination areall final. In other words, any dispute referred tothese processes will result in a final and bindingdecision, with very little opportunity to appeal oroverturn the decision. Providing an expert hasasked the correct question, his or her determinationwill be absolutely binding. A court will not interferewith the decision and is also highly unlikely to

consider an appeal against an arbitrator’s award.Appeals in litigation are also rare.

Adjudication is also final. However, the partiescould rehear the entire dispute by referring thematter after adjudication to litigation or arbitration ifappropriate. The matter is not appealed, but simplyreheard though evidence suggests that very fewdisputes progress beyond adjudication.

The finality of any decision is distinct from theability of a third party to make a binding decision. Amediator does not make a binding decision aboutthe issues in dispute but assists the parties tocome to an amicable solution. If the parties doreach an agreement which is then recorded inwriting and signed, that agreement will becomefinal and binding in respect of the dispute. If oneparty does not then honour that settlement, theother can enforce the settlement (as a contractualagreement) in court. In that sense, the non-bindingmediation process will lead to a final and bindingwritten settlement agreement if the mediation issuccessful.

3.2.7 Professional negligence

The fundamental issue to consider here is whetheran individual or an organisation has the ability todeal with the issues in dispute, and whether theorganisation has appropriate professional indemnityinsurance cover for the provision of advice inrespect of disputes. If advice is given in respect ofdisputes then the court will take the view that theindividual or organisation giving the advice washolding itself up as having the requisite knowledge.

The court will not apply some lesser standard to asurveyor who provides advice on dispute resolutionsimply because they are not a lawyer. Where aperson or an organisation holds themselves up ashaving knowledge in a particular area, then thecourt will apply the standard of a reasonablycompetent person appropriately qualified forproviding such advice.

Chartered surveyors should think carefully beforeproviding advice in respect of disputes, and seekappropriate assistance if necessary. Their advicecould be limited to advising the client to seekspecialist assistance.


References

1 Gould, N., Capper, P., Dixon, G. & Cohen, M.(1999) Dispute Resolution in the ConstructionIndustry, Thomas Telford, London.

2 Goldberg, S.B. et al. (1992) Dispute Resolution:Negotiation, Mediation and Other Processes,2nd edn, Little Brown & Company, Boston, p.17.

3 See primarily Fisher, R. et al. (1991) Getting toYes: Negotiating an Agreement Without GivingIn. 2nd edn, Century Business, London.

4 See Gould, N., King, C. & Britton, P. (2010)Mediating Construction Disputes – AnEvaluation of Existing Practice. The report wasa collaborative project involving severalcontributors with support throughout from theSociety of Construction Law and the Centre ofConstruction Law & Dispute Resolution, Schoolof Law at King’s College London. It is the firstpiece of empirical research ever undertakenjointly between the Technology andConstruction Court (TCC) and an academicinstitution. In the foreword to this final reportLord Justice Jackson notes that ‘Empirical dataare far more valuable than the anecdotalevidence about litigant behaviour whichsometimes informs decisions’. The report alsoincludes a preface by Lord Woolf (architect ofour present Civil Procedure Rules and a greatadvocate of mediation). The report can bedownloaded at: www.fenwickelliott.co.uk/mediating-construction-disputes-download

5 Pre-Action Protocol rule 5.4.

6 See Martin Walford v Charles Miles [1992]ADR.L.R. 01/23.

7 See Channel Tunnel Group Ltd v Balfour BeattyConstruction Ltd and Others [1993] 2 WLR 262;[1993] 1 All ER 664.


Conflict avoidance and disputeresolution in construction

RICS Professional Guidance, UK

1st edition, guidance note

Conflict avoidance and disputeresolution in construction 1st edition, guidance note

This guidance note summarises what is meant by conflict avoidanceand dispute resolution; it identifies in outline the key issues that allsurveyors should understand in respect of these distinct substantiveareas.

Any surveyor adopting a good practice approach should seek to avoiddisputes and should understand the basic principles of disputeresolution. An understanding of the range of dispute resolutiontechniques is particularly important as is understanding when a clientshould be advised to seek assistance from an appropriate consultantor lawyer.

Guidance is given in respect of dispute avoidance processes anddispute resolution techniques that are encountered within the industryunder the following headings, which follow the Assessment ofProfessional Competence (APC):

• General principles (Level 1: Knowing)• Practical application (Level 2: Doing)• Practical considerations (Level 3: Doing/Advising).

rics.org/standards rics.org/standards

GN 91/2012RICS QS & Construction StandardsRICS QS & Construction Standards (the ‘Black Book’)

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