Legal definitions

A construction dispute is defined as: “A difference or dispute of whatever nature between the Concessionaire and the Contractor arising under, out of or in connection with the Construction Contract”.

Also defined in more depth as: “(i) Any dispute that may arise between the Borrower and any Construction Dispute Party as result of the termination of any such relevant Construction Agreement or (ii) Any dispute with respect to, or any additional work required to be undertaken by Sinoma or any other party as a result of, any settlement with any Construction Dispute Party”.

 

What causes a construction dispute to occur? 

There are a variety of factors which lead to a construction dispute usually around the uncertainty of the project, contractual issues or the behaviour of each party. 

 

Uncertainty of the project 

This is defined by Galbraith (1973) as “The difference between the amount of information required to do the task and the amount of information available”. 

This can be a fault of both parties depending on the complexity of the project and requirements of the construction team. The team may be incapable of completing the project or the concessionaire may not have provided adequate planning information. 

This is a common construction dispute as it is very difficult to plan every detail of a project before work begins. Even initial drawings will almost certainly be changed and both parties will have to work to solve problems as they occur to avoid a dispute. 

 

Contractual issues

Contracts issued for standard projects usually contain clearly prescribed risks and obligations of each party. However, the more complex and long-term a project is, the more likely there are to be contractual issues. 

One of the most common contractual issues to occur is actually down to each parties perception of the contract. For example, when amended terms or bespoke contracts are used for long-term projects or where the contract is continually evolving and being refined to address issues with the project as they occur. 

 

The behaviour of each party

It is fairly commonplace for parties to disagree with some elements of a contract when work is taking place as both parties aim to gain as much as they can from the other. As well as this, as previously stated each party can have a different perception of the facts outlined in the contract. 

Unrealistic expectations or unreasonable requests can lead either party to act poorly, potentially leading to a dispute.

 

What construction issues can cause a dispute to arise? 

• Different goals – The larger the project the more complex it can be, with the main contractor involved, subcontractors and the hiring party. Each party will have their own goals and desired outcomes which may not always align, causing disputes.

• Time and money – This is usually raised by the contractor for reimbursement of loss/expenses under a construction contract due to delay or disruption to the works.

• Uncoordinated work – For a larger complex project, usually a number of specialist trades will be required to complete some part of it. This may be caused by ineffective management or planning leading to conflict during the project installation, which can be time-consuming to resolve. 

• Delays – This is a common cause for a dispute as delays can be caused by both parties and who should bear the responsibility. Under FIDIC (International Federation of Consulting Engineers) a contractor is required to give prompt notice of aunty delays which may occur. 

Delay damages can be claimed where, for example, the contractor does not achieve the completion date agreed.

• Site conditions – Both parties can be responsible for assessing site conditions as this can impede the progress of the project. For example, if the site details have been incorrectly supplied by accident and the contractor has relied upon these, the employer may be liable for the consequences. 

• Quality of the work – Disputes may arise over the quality of the work carried out and whether it is in accordance with the specifications of the project. This can be due to the workmanship itself or the quality of the materials used if, for example, they must comply with regional standards. 

This is often an issue with the contract itself where the employer’s requirements have not been properly outlined.

• Acceleration – This is defined as “The process of moving a project towards completion at a faster pace than originally anticipated”. This may occur if the project is required to meet strict deadlines or key opening dates. 

Acceleration can lead to increased costs but are likely to be less than the commercial risk a developer may face if they miss these key dates. As this decision is usually made quickly, the circumstances are often not properly analysed leading to disputes as contractors will have incurred extra costs which the developer may then refuse to pay.

 

How are construction disputes resolved? 

Construction disputes can be resolved in court or by ADR (Alternate dispute resolutions) such as negotiation, adjudication, mediation or expert determination. To read more about ADR methods in the construction industry take a look at our blog outlining the pros and cons of each method.