Dispute Resolution in Construction Projects

What is a Dispute?

“A conflict or controversy; a conflict of claims or rights; an assertion of a right, claim, or demand on one side, met by contrary claims or alleg
ations on the other.” -West’s Encyclopedia of American Law, edition 2
“A conflict or controversy, esp. one that has given rise to a particular lawsuit” – Blacks Law Dictionary, 10th Edition

Common disputes that occur in the Kenyan construction industry
• Increasing project cost
• Unclear risk allocation
• Unrealistic cost/ time targets
• Project delays
• Failure of compliance with the pre-set project standards
• Slow decision making
• Estimation errors
• Changes by the clients
• Inadequate contract administration etc

Common disputes that occur in the Kenyan construction industry

PREVENTION IS BETTER THAN A CURE

3 Ways to prevent Disputes:
• risk assessment and allocation, including detailed project scope definition;
• partnering, including creating a set of common project goals;
• proper communication channels throughout the project life

Factors to consider in preventing disputes

Dispute Resolution Mechanisms

1. Dispute review/Resolution Boards (DRBs)
2. Negotiation
3. Mediation
4. Arbitration
5. Litigation

Dispute review/Resolution Boards (DRBs)

The involvement of a dispute review board adds value as such a board may conduct informal meetings to assist the parties in resolving the dispute in a timely and efficient manner before it escalates to a point that severely impacts the project.

By issuing advisory opinions rather than binding decisions on the arising dispute, such a board can assist the parties in finding a basis for more focused negotiations.
The most visible benefits of this early stage dispute resolution method are its lower costs and timely resolution. In addition, assisted negotiations do not interrupt a construction project in the same manner as litigation or arbitration usually would and helps to maintain good relations between the parties NB:
DRBs main focus is on circumventing disputes rather than resolving them
Negotiation
A consensual bargaining process in which the parties attempt to reach agreement on a disputed or potentially disputed matter.
Negotiation usually involves complete autonomy for the parties involved, without the intervention of third parties

Mediation

Mediation is a non-binding, consensual process of resolving disputes through settlement meetings expedited by an impartial third party who facilitates negotiations between conflicting parties.
Mediation is mostly entered into voluntarily and it does not bind the parties in any way other than by mutual agreement.
It is becoming popular because it is faster, less expensive, more confidential and a more satisfactory way to resolve disputes.
Though the mediator may exercise guiding control over the process, it is the contenting parties that determine the outcome.

Arbitration

A method of dispute resolution involving one or more neutral third parties who are agreed to by the disputing parties and whose decision is binding
Arbitration is a more formal process than other dispute-resolution processes mentioned earlier, but arbitration has many advantages. Some of these are:

1. Expert knowledge of a selected arbitrator;
2. Possible savings in legal representation costs;
3. Flexibility of the process;
4. The decision is final and binding;
5. Time and money are saved; and
6. Arbitration is a private matter

Litigation

Litigation is the process of carrying out a law suit in a court of law.
Litigation may be preferred in resolving construction disputes if the dispute involves expansion of existing law
However, generally, litigation is not a preferred method. It is has a lot of procedural rigidity, costly, time consuming and the proceedings are public for viewing by anybody and even media scrutiny.
It is also discouraged due to its adversarial nature and may result to breakdown of business relationships putting a risk to future relationship/work that may be dependent on present or former work done between the parties. 

Arbitration vs Litigation

While the parties may choose counsel who has technical understanding, the parties do not have the option of selecting judges in litigation procedures. In this respect, arbitration offers an advantage.
It allows the parties to choose arbitrators who have experience in construction disputes. Thereby, choosing arbitration over litigation as a means of dispute resolution may provide the parties of a construction dispute with higher quality decisions.

Dispute Resolution Clauses in Contract

These dispute prevention and resolution tools are not to be understood as a one-fits-all standard, but rather a selection that may be shaped to fit the specific requirements of the individual project.
Construction contract’s dispute resolution clause should combine multiple dispute resolution methods and provide for different stages of escalation.
At the least, it should combine requirements to attempt to resolve disputes through negotiation with dispute resolution through third parties.
To provide further flexibility, the dispute resolution clause can stipulate that prior to resorting to arbitration, the parties are required involve a dispute review board that participates in the negotiations between the parties and provides suggestions for the resolution of disputes.
Dispute Resolution Clauses in Contract
Furthermore, the parties may be committed to submit to mediation prior to filing a request for arbitration. In summary, the proposed framework offers multiple benefits.
It provides a comprehensive system that emphasizes prevention and collaborative resolution.
In addition, it encourages resolution close to the source of the dispute, involving the parties in a participative, relationship preserving process.
Furthermore, through involving a third party, i.e., a dispute review board, at an early stage, it provides continuity regarding dispute prevention and resolution.
Finally, it limits the cost and time required to resolve disputes

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