Resolving contractor differences

With the complexity and volume of contractual disputes on the rise, is a new approach to contract resolution needed?

As development projects have become larger and more complex over the last three or four decades, the incidence of disputes and their complexity have both increased. Whether the disputes flow from inadequacies in briefing, inadequacies in the procurement processes or inadequacies in the management of the construction process itself, they are often so complex that few, it any, individuals can comprehend a dispute entirely.

Dr Imad Al Jamal, Vice Chairman of the UAE Contractors Association and a leading expert in contract development, mediation and arbitration, believes the increasing number of contractual disputes within the construction industry call for more simplified, straightforward and clear contract documents with clearly defined time limits on actions, decisions, determinations and responsibilities with regard to employers, contractors and engineers.

"The game has changed drastically over recent years with the advent of the computer age, privatisation, the need for a more qualified experienced and the fact that specialised contractors are having more input into the design, construction and implementation of engineering projects," explains Al Jamal. "What is needed is the introduction of design/build contracts and engineering procurement contracts that clearly define the design and consultancy role of the contractors and the need for a specialist practical expertise and knowledge in an ever expanding and complex engineering world."

Since its establishment in 1913, many in the industry have looked to the International Federation of Consulting Engineers (FIDIC) for guidance in the field of contracts preparation and development. But Al Jamal believes tackling the latest developments in the construction industry requires both greater clarity and the active involvement of the contracting industry. "FIDIC in its early stage of development relied heavily on legal terminology and phrases that contained substantial ambiguities and uncertainties and couldn't be implemented easily by engineering professionals," he explains. "However, the present economic situation – and the problems and disputes arising as a result – require a more affirmative and simplified approach, as well as concise documents to deal with the divided and overlapping lines of contractual, legal and financial responsibilities and duties on the part of all participants."

For one thing, he believes that the heavy use of vague and improper terms such as 'as soon as possible', 'as soon as practicable' and 'within reasonable time' should be completely omitted and replaced with clearer and more concise timeframes, bearing in mind the precise and calculated nature of engineering and construction contracts.

Secondly, he feels that the active participation of contractors would enhance the standards and knowledge needed in various advanced and complicated engineering fields, and could potentially reduce the number of disputes arising in the first place. Indeed, with many major contractors establishing their own in-house engineering and design arms, contractors are often able to provide expertise and knowledge in terms of planning, design, construction, completion, testing, handover, maintenance and operation of projects that is well above the standards and expertise of some consultants. As such, the exclusion of contractors from the preparation of and involvement in FIDIC task forces and committees designed to tackle contractual disputes (traditionally influenced by consultants and legal experts to a large extent) must be addressed. "We need hands-on experience with the day-to-day problems and practical implementations of the projects rather than a purely theoretical approach," explains Al Jamal.

Even so, disputes will always arise, and the major dilemma for most contractors and sub-contractors is resolving disputes arising from or during their works in a cost-effective, timely and controlled manner. Yet Al Jamal feels that current dispute-resolving procedures such as legal action through the courts, arbitration, conciliation and other such techniques are failing to achieve the desire results. Instead, he proposes what he calls a 'time-bound arbitration' approach to dispute resolution that requires an ongoing arbitration panel to be formed at an early stage and meet regularly during the construction period to resolve any issues.

"The formation of the TBA panel should be carried out during the tender stage or at the time of the contract/subcontract agreement as negative attitudes, bad feelings and tensions do not exist at this early point," he says. "This will make it easier to agree on qualified and competent arbitrators in a short time period and without the tension that is usually experienced during construction stage."

Both parties to any dispute should refer their claims to the panel 30 days prior to its official meeting date, which will give panel members ample time to study and verify documents, as well as the various claims and counter claims from each party. The panel will then have the responsibility to analyse and resolve the dispute, and provide any recommendations and judgment within 30 calendar days from the convening date. "The panel's decision should be firm and binding for both sides, with no room for further recourse to litigation or other dispute resolution methods," says Al Jamal. "This should be clearly stated in the contract."

He believes such an approach would contribute towards minimising and avoiding the "snowballing nature" of expected disputes and problems that arise during the practical execution of the contract between the parties. "Dealing with engineering disputes from the outset is essential in order to ensure the smooth running, completion and handover of the engineering contracts," he says. "What is more, the expense involved in setting up a time-bound arbitration committee is minor compared to the heavy costs involved in ordinary arbitration and legal proceedings, where an open-ended time span is often experienced. It will reflect positively on completive pricing and contribute towards progress and prosperity in the construction, real estate and other related industries. And it will have a positive impact on the economy and development in general, with a greater confidence within the industry that prices quoted by suppliers or contractors are not inflated in order to meet delayed payments due to disputes."

Of course, some disputes are unavoidable, but adversarial behaviour in resolving the dispute is usually counterproductive, especially when it is complex: it delays the execution of remedial measures, increases legal costs, creates adversaries and thus wastes resources unnecessarily. It also saps the energies of the parties in dispute unnecessarily, diminishing their ability to function effectively in the future. As such it is essential that we create an atmosphere of openness and cooperation within the construction industry – and this is what time-bound arbitration hopes to achieve.

Time-bound arbitration

The advantages of the time-bound arbitration approach include:

1. Speedy resolution of disputes if and when they arise
2. Drastic reduction in time spent on litigation and ordinary arbitration
3. Reduction of correspondence, filing, cost and time involved in following up disputes over long periods
4. Prevention of minor disputes developing into major and complicated problems that will be difficult, expensive and time-consuming to resolve
5. Completion of all works with minimum disputed items, which reflects positively on relations within the construction industry
6. Prevention of cash flow problems for smaller contractors due to withholding of large sums of money by the main contractor or owner because of lengthy and costly disputes
7. Relieving the judicial system from the burden and time of handling contractual and specialised disputes
8. Enhancement of relations between clients, contractors, sub-contractors, suppliers and consultants