Dispute Resolution in Con Truction Industry (Msc Thesis Proposal)
BACKGROUND OF STUDY INTRODUCTION 1. 0 NATURE OF CONSTRUCTION INDUSTRY The construction industry is a conglomeration of diverse fields and participants that have been loosely lumped together as a sector of the economy. The construction industry plays a central role in national development, including the development of the nation’s infrastructure and other public facilities.
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The importance of the construction industry lies in the function of its products which provide the foundation for industrial production, and its impacts on the national economy cannot be measured by the value of its output or the number of persons employed in its activities alone. To be more specific construction refers to all types of activities usually associated with the erection, and repairs of immobile facilities such as buildings, offices, dams, bridges, motorways, home extensions, chimneys, factories and airports.
The fragmentation of construction in to a larger number of diverse skills is an inevitable consequence of the economy, technology and sociological environment, there is an extra ordinary diversity of professions, specialist and suppliers. It is important to approach construction contract problems in an organized, rational way. Although each professional discipline likes to focus upon its own contribution and the way that it relates to other project team members, a deeper understanding can be gained by considering how the industry provides a service to clients and the society at large. The characteristics grouping of project teams very often results in dispute at a variety of levels. Each project participant has particular aims and it is rare to find contact structures that encourage harmony among these aims. Project participantly expect to enter into confrontations with each other and with the client. One of the purposes of assembling a team of people from different professions is to achieve standard. It should be expected that each person rings his own idea for discussion-making; they all have their own agenda and this as it should be. The tension thus generated should precipitate debate and dialogue so that clear choices can be made. Tjosvold (1992): The idea that dispute is destructive and causes misery is so self-evident that it is seldom debated. Employees fight about many issues, but the wisdom of avoiding dispute is too often not one of them. However , it is the failure to use dispute that causes the distress and low productivity, associated with escalating dispute.
Dispute avoidance and the failure to develop an organization equipped to manage it, not dispute itself. Open, skilful discussion is needed to turn differences into synergistic gain rather than squabbling losses. CONSTRUCTION DISPUTE Dispute is inevitable in construction projects and it can be regarded as endemic in the construction industry. Disputes can either be avoided from the start by way of efficient risk allocation and management or resolved once it is occurs.
The former seems to be more suitable to avoid unnecessary time and cost. However, the latter may be practical for complex issues which require third party’s interference (Edwards & Shaoul, 2003). 2 Construction disputes are fairly common, and they vary in their nature, size, and complexity. Mark Appel, senior vice president of the American Arbitration Association, stated that “[t]he construction industry…[is] really the industry that sponsors our work. (ENR 2000). Although this statement may initially appear to be an indictment, it simply reflects the complexity of a contemporary construction project, which requires the orchestration of numerous interdependent components, including information, materials, tools, equipment, and a large number of personnel working for independent engineers, contractors, and supplier.
Respected professionals estimate that construction litigation expenditures in the United States have increased at an average rate of 10 percent per year over the last decade, and now total nearly $5 billion annually (Michel 1998, Pena-Mora, Sosa, and McCone 2003). Osver the past two decades the construction industry has made tremendous progress in developing more efficient methods of dispute prevention and resolution. In fact, experts frequently refer to the construction industry as being on the innovative edge regarding dispute resolution (ENR 2000, Hinchey and Schor 2002).
Despite the progress, there remains much room for improvement. Current practice in construction dispute resolution generally reflects one of two perspectives: that one size (or resolution method) fits all disputes, and that dispute resolution is a menu of independent stand-alone choices. It is more effective to approach dispute resolution in a manner similar to medical treatment – diagnose the problem first, and then select the least Invasive procedure that will correct it.
Because the cost-effectiveness and timeliness of dispute resolution are critical factors, this thesis proposes a flexible framework – a strategic approach to dispute prevention and resolution that employs a neutral advisor, early intervention, and the ability to tailor the resolution 3 method to the particular nature of the dispute. II. Current Practice A number of different Alternative Dispute Resolution (ADR) methods are currently used in the construction industry.
A few of the more common methods are highlighted briefly: Step Negotiation generally requires the individuals directly involved in the dispute to seek resolution through direct negotiation. If a resolution is not reached within a predetermined length of time, the dispute is elevated to the next level in the organizations. This process normally continues to senior levels of each organization. Dispute Review Boards1 typically consist of three neutral experts, who visit the site periodically in order to monitor progress and potential problems.
When requested by the parties, the board conducts an informal hearing of the dispute and issues an advisory opinion that the parties use as a basis for further negotiations. The prevalence of construction disputes indicates that the current approach to dispute resolution is not effective enough. First, as evidenced by standard construction contract forms, dispute resolution tends to be addressed by specifying the resolution method(s) to be used. This “pre-ordaining” of the ADR method obviously cannot consider the nature of the dispute, and may in fact limit the parties’ consideration of possible resolution methods.
When the project atmosphere deteriorates, parties frequently stop communicating effectively, become inflexible, and “wrap themselves in the contract. ” Therefore, a contract that specifies a particular dispute resolution method, rather than a flexible process, may unintentionally result in the oversight of “less invasive” methods that are available and probably preferable. Second, dispute resolution methods are too frequently viewed as a menu of stand-alone 4 choices.
Dispute resolution methods can be effectively combined into more comprehensive processes, where the benefits of synergy can be exploited to successfully resolve the dispute. A more effective approach would be a dispute resolution system that emphasizes prevention in addition to resolution, and includes the flexibility to determine the most appropriate ADR method (or combination of methods) for each dispute, in an effort to find the “least invasive procedure” that has a strong likelihood of success.
Such a system would address key industry concerns, those most commonly being the cost and time required to resolve the dispute. III. Dispute Resolution Systems Design Slaikeau and Hasson (1998) present a strategy to develop more cost-effective business dispute resolution systems. They describe four summary methods of dealing with conflict: avoidance, collaboration, resorting to higher authority, and power plays. Their consulting experience has shown that the majority of existing dispute resolution systems prematurely resort to “higher authority” (e. g. , boss, arbitration, litigation) or “power play” (e. . , strikes) resolution methods before fully exploring the collaborative (e. g. , negotiation, mediation/n) options. Slaikeau and Hasson present a comprehensive dispute resolution system template that includes four major components: site-based resolution (between the parties, with an optional appeal to internal higher authority, such as a supervisor), internal support, convening for external ADR, and appealing to an external higher authority (e. g. , courts or governmental agencies). The template generally requires collaborative methods prior to resorting to external higher uthority. After site-based resolution, the utilization and sequence of subsequent components are completely flexible, including the ability to “loop back” to a more collaborative 5 component at any time. Progressive dispute resolution exists in the construction industry, but most frequently in predefined escalation specified in the contract; for instance, the DBIA standard contract forms specify step negotiation, then mediation, and finally binding arbitration (DBIA 1998a, 1998b).
Groton (1997) presents four principles to consider when designing an effective dispute resolution system for construction: 1. “Consider the unique nature of the construction process. 2. Even when problems turn into disputes, litigation should not be the method used to resolve them. 3. If participants commit in advance to use dispute resolution techniques when problems arise, they create an atmosphere conducive to solving problems. 4. Many problem-prevention and litigation-avoidance approaches exist; these techniques are most effective when applied early in the project. The best practices for designing dispute resolution systems include flexibility, early intervention, exhaustion of collaborative options before resorting to adjudicatory methods, and controlled escalation of the dispute by using different ADR methods in a logical progression. IV. A Flexible Framework for the Prevention and Resolution of Construction Disputes Due to the number of individuals, organizations, and issues involved in a modern 1 construction project, problems are inevitable.
The desires (and/or pressure) to finish the project and a lack of resources for identifying the root cause of the problem contribute to the danger of delaying the intervention necessary to 6 resolve disputes. Timely intervention can also prevent reoccurrences of the same problem later in the construction process. Too often, contractors submit an all-inclusive claim at the end of the project, frequently fostering an adversarial atmosphere that threatens potential collaboration between the parties on future projects. A more effective approach is to ddress the issues quickly, while they are manageable, determine the root causes, and correct them. In addition to the issue of when to address disputes, there is the matter of how best to address them. Disputes vary in nature, and different disputes are more efficiently resolved through different methods. In the vast majority of construction disputes, some form of ADR is the most appropriate option. There are rare cases in which litigation is the most appropriate course – those in which a determination on a legal principle is required, or the establishment of a legal precedent is sought.
Even within the realm of ADR alternatives, a “one size fits all” approach cannot produce optimal results due to the varying characteristics of the disputes and of the ADR methods. (Groton 1997, Hinchey and Schor 2002). The question is then, “When is the best time to specify the ADR approach to be used for a particular dispute? ” The 1990 ABA forum concluded that mediations tended to be more successful when parties agreed to mediate after the dispute developed, as opposed to simply enforce as a matter of the contract (Hinchey 1990).
Considering these facts together, the proposed solution is to contractually specify a framework for dispute resolution that combines early intervention with flexibility in the selection of ADR methods, rather than specifying a particular method to be applied to all disputes. The proposed system concentrates 7 heavily on proven techniques to prevent and collaboratively resolve disputes, and includes the ability to tailor the resolution process specifically based on the characteristics of each dispute.
A convenor – a neutral third-party expert advisor – assists the project team in implementing the system, and provides continuity throughout the duration of the project. 1. 2 SIGNIFICANT OF THE STUDY According to Robert (2010), Until early 1990s, the dispute resolution landscape in Nigeria was dominated by the adversarial, daggers drawn mechanisms of litigation and arbitration, and counsel deployed these vigorously on behalf of their client. However towards the end of last decade, the Federal Government of Nigeria opened its borders to nternational investors, particularly in the infrastructural development sector, leading to serious changes in the business landscape and in the dispute resolution. There are now many independent power projects (IPP) and concession agreements and most, if not all, have some element of foreign participation. The need for efficient and expeditious resolution of disputes has adoption of international recognized dispute resolution mechanisms, whether litigation, arbitration or some other form of alternative dispute resolution (ADR).
The adventof corporate entities investing in Nigeria, bringing with them their corporate culture including their preferred method of dispute resolution, has also contributed to advance of ADR (Marcellina and Okehia 1996). Tjosvold (1992): The idea that dispute is destructive and causes misery is so self-evident that it is seldom debated. Employees fight about many issues, but the wisdom of avoiding dispute is too often not one of them. However , it is the failure to use dispute 8 that causes the distress and low productivity, associated with escalating dispute.
Dispute avoidance and the failure to develop an organization equipped to manage it, not dispute itself. Open, skilful discussion is needed to turn differences into synergistic gain rather than squabbling losses. Mark Appel (2000) stated that construction disputes, when not resolved in a timely manner, become very expensive – in terms of finances, personnel, time, and opportunity costs. The visible expenses (e. g. , attorneys, expert witnesses, the dispute resolution process itself) alone are significant. The less visible costs (e. g. , company resources assigned to the dispute, lost business opportunities) and the intangible costs (e. . , damage to business relationships, potential value lost due to inefficient dispute resolution) are also considerable, although difficult or impossible to quantify. 1. 3 JUSTIFICATION OF THE STUDY Dispute resolution is a very important task in construction because huge sums are invested in projects and stakeholders are eager to resolve disputes before they bring their projects to a halt and bankrupt them. At the project level, unresolved disputes can lead to programme delay, increased tension, and can damage long term business relationships as a result. Hence, the mportance of dispute resolution cannot be over- emphasized, and selecting the most appropriate resolution strategy is equally important (Cheung and Suen, 2002). It is for this reason that the industry has managed to develop and adopt many unique ways of dispute resolution (Groton, 1997; Harmon, 2003; Gebken and Gibson, 2006) and has thus become a paradoxical leader in both dispute generation and resolution (Gibbons, 2007). Because disputes arise from so many 9 different sources and are so complex, there is no single “one size fits all” technique for resolving them.
Also, according to Groton (1997), the spiral of conflict, which can cause a simple problem to develop into a difference of opinion, then a disagreement, and ultimately a dispute, makes it impossible to use a single dispute resolution technique to deal with all successive stages in the development of a dispute. Dispute resolution methods range from the traditional techniques of litigation and arbitration to alternative dispute resolution (ADR) methods including mediation, adjudication, conciliation, negotiation, dispute resolution board, mini-trial, and dispute resolution adviser.
Figure 1 shows a continuum of dispute resolution methods with the degree of control of the outcomes by the stakeholders compared to both the cost of resolution and the extent of hostilities resulting from their use. The fundamentals of the use of these methods and their combinations and hybrids, including their relative merits and demerits have been extensively discussed by various authors, including Brooker and Lavers (1997), Cheung and Suen (2002), Harmon (2003), Chan et al. , (2006), Teo and Aibinu (2007) and Elis and Baiden (2008) 1. 4 AIM AND OBJECTIVES 1. 4. 1 Aim
This research is aimed at dispute resolution method in the Nigeria construction industry for the benefit of all professional and participant who desire comprehensive information on appropriate method of resolving dispute. 1. 4. 2 Objectives i To articulate the concept of dispute in construction industry. 10 ii To explore the origin, Nature and process of litigation, arbitration and other ADR iii To identify the method predominantly used for dispute resolution iv To distinguish between Adversarial and on adversarial methods of dispute resolution mechanisms available . 5 RESEARCH METHODOLOGY This research will be pursued through extensive review of literature from text books, journals, magazines and other documents relevant to the research. Also a well structured questionnaire will be administered to a sample of the population for the study. The population will include all professional in the construction industry, i. e. Architects, Builders, Engineers, Quantity surveyors who manage construction project at a senior cadre level in all categories of construction firms duly registered with corporate affairs commission in Nigeria. . 6 SCOPE AND LIMITATION The concept of dispute is extensive, but this research work intends to cover only resolution method in construction industry, using Federal capital territory Abuja, Kaduna and Lagos as area from which sample will be collected, considering that a lot of construction activities and companies are concentrated there. 11 References 1 Adams, O. (1997), ‘Contractor development in Nigeria: perceptions of contractors and professionals’, Construction Management & Economics, 15(1), pp 95-108 2 Aibinu, A. A. nd Odeyinka, H. A. (2006), ‘Construction delays and their causative factors in Nigeria’, Journal of Construction Engineering Management. 132(7), pp 667-677 3 Aniekwu, A. 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