Abstract – Every project is bound to have disagreement. Alternative dispute resolution (ADR) techniques do not require full legal process and become mainstream option to traditional dispute resolutions. Yet, the actual practice of ADR is very low in the construction industry. Therefore, a comprehensive study is necessary to understand the behaviour of these dispute resolution methods. The research described in this paper discusses the philosophies and the selection factors of the dispute resolution methods. The factors are based on the attributes of the methods. Preliminary interview and questionnaire survey were conducted. The results from the data collected indicated that the contractors and developers are keen on ADR methods, however arbitration and litigation are somehow accepted and agreed by the respondents. It is concluded that selection on ADR or non-ADR is not a major issue, rather the increased efficiency and appreciation of the methods is more demanding towards the desired benefits at the end of the proceedings.

Keywords – Conflict, dispute, dispute resolution, construction industry

I. INTRODUCTION Conflict in project management is inevitable. Usually, conflict is manageable. It would exist where there is an incompatibility of interest [1] and the management of conflicts is to select a conflict resolution mode, i.e., confronting, compromising, smoothing, forcing, and avoiding [2]. On the other hand, dispute is defined as an assertion of opposing views or claims or a disagreement as to rights (Merriam-Webster's Dictionary of Law ©1996). The conflicts and dispute are co-related. The conflict would turn into the dispute when the contracting parties failed to manage the conflict. At this moment, dispute resolution would be applied either through binding or nonbinding approach. There are pros and cons in every dispute resolution method. Hence, the objectives of the study described in this paper are to critically review the philosophy of dispute resolution methods and identify the factors to be considered when selecting the methods. The dispute resolution methods are discussed together based on similar characteristic of the methods that have been identified from literature review. This study is different from the previous researches which mostly

discussed on a single dispute resolution method, for instance, negotiation [3], [4], mediation [5], [6], adjudication [7]-[10], and arbitration [11], [12]. Some of the researches have discussed about ADR, but it is still limited to the method individually [13]-[15].

II. STAGES OF DISPUTE RESOLUTION

Disputes may be resolved in a number of ways using various proceedings. It would not be true to say that all disputes are resolved at court proceedings or other formal or informal settings of alternative dispute resolution methods. The stages of dispute resolution should begin with a grievance. The grievance may be abandoned where a person considers it to be trivial and not worth pursuing. The person may feel unable to pursue the matter or may not realize that he/she may have legal recourse in respect of it [16]. This grievance is the least confrontation and time consuming as the person would just follow or surrender due to his limited understanding or resources. In developing countries, the grievance is very obvious and common, even though the jeopardized person may not realize it. After that, the stage is negotiation, which is a very popular informal method in dispute resolution. This stage tries to communicate the grievance and negotiate for a settlement. The negotiation technique is a preferred choice of the disputants, with most disputes being resolved through this process [17]. It is the least expensive, and it can preserve the working relationship of the parties involved. In negotiation, the parties have absolute freedom with respect to the form, process and type of agreement. In order to make it successful, the negotiation demands cooperative effort from the disputants [18], [19].

However, negotiation is not always workable and bringing consensus in the end. It is because projects will be diverging from what has been anticipated and triggered to other more formal method of dispute resolution. At this moment, mediation or conciliation would take place to reach a settlement after the negotiation [20]. Ironically, mediator has no power to impose a solution and his/her function is to help or guide disputants to focus on their actual objectives and resolve their matter consensually [21].

Therefore, the next stage is the methods that could render a legal binding decision, i.e., adjudication,

The Behaviour of Dispute Resolution Methods in Malaysian Construction Industry

H. Y. Chong1 and M. Z. Rosli2 1Department of Built Environment, Universiti Tunku Abdul Rahman, Kuala Lumpur, Malaysia

2Department of Structure and Materials, Universiti Teknologi Malaysia, Skudai, Malaysia (chonghy@utar.edu.my)

978-1-4244-4870-8/09/$26.00 ©2009 IEEE 643

arbitration and litigation. The alternative to arbitration is to the use of adjudication, if we look into perspective of the characteristics and benefits [7]-[9]. Adjudication deals with the payment problem between the contracting parties in particular [10], [22]. Usually, it is under a contractual provision in the contract and enforceable by law [23].

Subsequently, the next stage is the use of arbitration. Here it is clear that the disputants need an arbitrator, an independent expert to act as the decision maker. The parties must agree to the appointment and are bound by the arbitrator’s decision. Arbitration is conducted in private and confidentially [24]. Yet, over the years, with the increase in procedural complexity, arbitration is regarded as a replicate of litigation where the designed original positive effects were disappeared [17], [26]. Therefore, arbitration is categorized as traditional dispute resolution method, rather than ADR. Last but not least, litigation is the following stage of dispute resolution. Litigation is costly, delaying and risky [25]. It also brings a number of variables and unable to satisfy the litigants [12]. On the other hand, the court proceedings consist of several layers too, which is the hierarchy of the courts. This is important and one kind of advantages for the provision of an appeals structure [16].

In conclusion, the dispute should be resolved as early as possible in the stages of dispute resolution. The contracting parties’ controversy and adversary would be increased together with the consumption of cost and time once higher stage of dispute resolution applied as illustrated in Fig. 1.

Fig. 1. Stages of dispute resolution

III. METHODOLOGY The scope of research is focused on Malaysian construction industry. A preliminary interview was conducted prior the questionnaire survey. Local experts in construction contract administration and dispute resolution were interviewed to understand the local

scenario and enhance research’s validity and significance. Basically, the questionnaire surveys were the main sources of primer data collection. The 5-point likert scales (1=strongly disagree, 2=disagree, 3=neutral, 4=agree and 5=strongly agree) was designed for the main part of the questionnaire, i.e., factors to be considered while choosing a dispute resolution method. Subsequently, the result was statistically analyzed by using the SPSS Version 15.0.

IV. RESULTS A. Preliminarily Interview

A preliminary study was conducted with the local

experts in contract administration and dispute resolution. The research method by interviewing has been adopted to strengthen and verify the research area. The experts are a professor, a registered architect, a registered arbitrator and a licensed and practicing lawyer.

First and foremost, the interview would like to verify the practice of dispute resolution in the construction industry. The interviewers agreed that few methods of dispute resolution are popular in the industry, such as negotiation, mediation, adjudication, arbitration and litigation. These methods are rather common except for adjudication, which is going to be implemented in the near future.

Besides, another important finding from the interview was the interviewers have the same opinion that negotiation is the most practice method as its informal and non-adversarial nature, while the arbitration also very familiar to the practitioners as there is arbitration clause in every local standard form of contract.

The interviewers also commented that prevention should be applied before adopting any dispute resolution methods. The prevention is always the best method, yet human factors also play a big role in the dispute resolution. In conclusion, the preliminary interview renders a great insight and direction for the research that would be carried out.

B. Questionnaire Survey

Survey samples are concentrated on Klang Valley

(Kuala Lumpur and Selangor), Malaysia due to the strategic location. 281 developers were identified from Real Estate and Housing Developers’ Association (REDHA), while 273 Grade 7 ISO certified contractors were selected out of 2332 Grade 7 contractors registered with the Construction Industry Development Board (CIDB). The questionnaires were distributed and returned with 60 valid questionnaires for analysis. A total of 44 contractors and 14 developers have participated in this survey. It is acceptable for the larger portion of contractors as it reflects to the population ratio of the industry.

Litigation

Arbitration

Adjudication

Mediation

Negotiation

Grievance

Amount of Controversy and Adversary

Consum

ption of Cost and Tim

e

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Consequently, the respondents’ particulars and organizations’ background were studied. Most of the respondents were contract manager and executive, while the rest were quantity surveyor, project manager and director. Besides, majority of respondents (74%) have had more than 5 years working experience and 45 respondents were degree holder or higher. Moreover, type of project mostly completed by the contractors and developers were residential projects (61%), commercial projects (15%), industrial projects (12%), and infrastructure and environment utilities (12%). Typically, the projects were private funded, which contributed 66% of the total. Conflict and dispute were studied in the survey to understand the frequency of cases involved in the industry as shown in Table 1 and 2. Majority of the respondents (63%) expressed that average 1-5 cases of conflict in a project and only 5 respondents (8%) indicated zero case of conflict in a project. Meanwhile, slightly more than fifty percent of the respondents did not involve in any dispute case. However, quite a number of respondents (35%) indicated average 1-5 cases of dispute involved in the organization annually. The result indicated that conflicts are very common in a project while disputes are infrequent. Hence it is justified that the disputes only occurred when the conflicts failed to be managed.

TABLE 1 AVERAGE CASES OF CONFLICT IN A PROJECT

Number of Cases Frequency Percent Nil 5 8.3 1-5 38 63.4 6-10 8 13.3 > 10 9 15.0 TOTAL 60 100.0

TABLE 2 AVERAGE CASES OF DISPUTE INVOLVED ANNUALLY

Number of Cases Frequency Percent Nil 32 53.3 1-5 21 35.0 6-10 6 10.0 > 10 1 1.7 TOTAL 60 100.0

The main part of this study is to identify the factors to be considered while choosing a dispute resolution method. The factors were discussed based on the dispute resolution methods’ attributes. The methods which have been abbreviated in Italic are negotiation (Neg), mediation (Med), adjudication (Adj), arbitration (Arb) and litigation (Lit). Grievance was excluded in this study as it is not a method of dispute resolution.

For data analysis, central limit theorem was applied to model the sample mean [27]. According to this theorem, the mean of the sample size is equal to the mean of the population, where μμ =x . The samples approach to normal distribution. As a result, the mean is valid for the data obtained from this questionnaire survey.

Table 3 shows the factor to be considered by the respondents while choosing dispute resolution methods. It was sorted according to the mean rank. The highest rank was the factor related to negotiation and mediation, i.e. both parties are fairly treated during negotiation process before any official hearing and ruling. The second highest mean was 3.88, which contributed by “expertise judgment in construction of those involve in process (Adj & Arb)” and “the parties are free to look for other dispute resolution methods (without legal liability) if they are not satisfied with the result (Neg & Med)”. On the other hand, the lowest rank (3.30) was improvement of cash flow as referring to adjudication.

TABLE 3 FACTORS OF SELECTING DISPUTE RESOLUTION METHODS

Factors to be considered while choosing a dispute resolution method Mean SD P-

value

Both parties are fairly treated during negotiation process before any official hearing and ruling (Neg & Med)

3.98 0.70 0.16

Expertise judgment in construction of those involve in process (Adj & Arb) 3.88 0.61 0.48

The parties are free to look for other dispute resolution methods (without legal liability) if they are not satisfied with the result(Neg & Med)

3.88 0.69 0.08

Flexibility of the process (Neg & Med) 3.83 0.76 0.10

Speedy of the process (Neg, Med & Adj) 3.83 0.78 0.19 Providing a qualified, neutral experts to hear complex matter (Med, Adj & Arb) 3.82 0.79 0.21

Ability to appeal if not satisfy with the result (Adj, Arb & Lit) 3.77 0.81 0.25

Helping the parties to understand each other demands (Neg & Med) 3.75 0.73 0.35

Enforceability of the decision (Adj, Arb & Lit) 3.70 0.81 0.09

Preservation of relationship (Neg, Med & Adj) 3.68 0.77 0.22

Economical (Neg, Med & Adj) 3.68 0.85 0.35

Privacy of the process are protected (Adj & Arb) 3.68 0.87 0.74

Bindingness of the decision (Adj, Arb & Lit) 3.67 0.75 0..33

Confidentiality of the process (Adj & Arb) 3.67 0.91 0.59 Resolving the dispute without involving legal profession (Neg, Med & Adj) 3.67 0.75 0.45

Non complex dispute (Neg &, Med) 3.63 1.04 0.18 Providing the parties with the relevant information background in the process for consensus agreement (Med)

3.60 0.76 0.18

Meeting the budget and schedule of the process (Neg, Med & Adj) 3.58 0.77 0.53

Finality of the settlement (Adj & Arb) 3.57 0.83 0.23 Controlling of the process by the parties (Neg & Med) 3.57 1.01 0.24

Long period of the process (Arb & Lit) 3.53 0.77 0.54

Formality of the process (Arb & Lit) 3.53 0.79 0.99

Voluntary process (Neg & Med) 3.53 0.81 0.27 Third party helps to negotiate and narrow down the issues (Med & Adj) 3.48 0.77 0.26

Saving in trial expenses (Adj & Arb) 3.47 0.93 0.62

Complex dispute (Adj, Arb &Lit) 3.45 0.79 0.11

Improvement of cash flow (Adj) 3.30 0.98 0.55

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P-value of Kruskal-Wallis was included in the analysis to test the null hypothesis that the means of the contractors and developers are equal against the alternative hypothesis that their means are not equal. The nonparametric Kruskal-Wallis test was selected because of the result was a rank from the mean score and uneven sample size of developers and contractors. The test was compared the mean ranks to find out any statistically significant differences among the two groups. The Kruskal-Wallis test indicated that the means of two groups are equal on the factors as all the variables’ p (sig) value larger than critical value of significance (sig.) 0.05 [28]. In other words, they have same view of agreement for the factors according to the statistically analysis. Besides, a reliability test was carried out to assess the consistency of results across the factors. Hence Cronbach’s Alpha method was applied in this case to understand whether the data provide a good support for internal consistency reliability. The Reliability Statistic below showed the Cronbach’s Alpha value 0.833 from the correlation among the 27 factors. This value is larger than 0.70, which presents a great support for the consistency of the results [28].

V. DISCUSSION All the means were skewed toward agree category, which more than 3.00. It is not surprise for this considerably high agreement if it looks into the perspective that the factors are derived from literature review and described along with the methods. Nevertheless, the result is important to tell the behaviour of dispute resolution method by identifying the respondents’ view and priority towards the factors to be considered. The respondents are keen on ADR methods. Four out of the top 5 factors were associated with negotiation and mediation. The factors were discussed about fair treatment, voluntary, flexibility and speedy of the proceedings. The respondents ranked it as top priority in selection of a dispute resolution method. Although the priority of the factors was identified, questions would be raised on how the respondents are going to choose a dispute resolution method as a factor described along with some methods. The doubt can be cleared off by following the stages of dispute resolution as shown in Fig. 1 to select a method which contributes the least confrontation and consumption of time and cost. Apart from that, the factors associated with arbitration and litigation were ranked lower than ADR. However, the methods are somehow accepted by the respondents, for instance, the lowest mean of them was 3.45, which it is classified in the agree category. Most probably, the respondents are understood and appreciated the attributes of these methods. This finding could contribute one of the reasons why the actual experience of

ADR is very poor. Lastly, certain limitations need to be considered in

this study. More questionnaire samples may be required to enhance background of this study. The 60 samples from the developers and contractors in Klang Valley may hardly be considered a large percentage of all. Nonetheless, the data analysis from the survey is substantial and valid by considering the central limit theorem.

VI. CONCLUSION Dispute resolution methods were designed to resolve a dispute. The approach of grouping methods into a factor has rendered a wider view on the behaviour of the dispute resolution methods in the construction industry. The results of the survey indicated that every method has its pros and cons. ADR is the preferred option by the respondents. The continuing search for and use of the ADR should be emboldened and stirred up in the construction industry. Besides, increased efficiency of the ADR or non-ADR proceedings is extremely important. The methods’ attributes should be appreciated by the users in order to improve the actual practice and obtain the perceived benefits at the end of the proceedings.

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