CONSTRUCTION METHODS AND PROJECT MANAGEMEN

MODULE 11 CONSTRUCTION DISPUTES

CONSTRUCTION DISPUTES
Construction disputes arise as a result of disagreements between the parties involved in a contract. These disputes
themselves are not a breach of contract, but they may lead to a breach of contract, termination, or even claims threatening
the contractor’s surety bonds if unmitigated.
This is extracted from the writings of Victor P. Lazatin, a member of the Integrated Bar of the Philippines.
Listed below are some of the usual causes of construction disputes:
1. Ambiguous/Unclear Provision
Nothing has bred more disputes in the construction industry than ambiguous or unclear provisions.

a. Scope of Work. If the scope of work is not well defined, it is easy to imagine that the owner and the contractor
will keep on arguing about what the contractor was supposed to have done versus what he delivered. It means
not only clarifying what is included or what is in the “Scope of the Work” but in several instances, it is also
necessary to state “what is excluded.” It is the so-called “implied” or “necessary” works that usually cause
dispute.

b. Unclear Specifications. This applies both to the materials to be used, the construction procedure to be followed,
and the finishing and workmanship.

2. Measurement of Percentage Accomplishment Progress Billings

There is a continuing battle between the contractor and the owner with respect to the percentage of completion of
the project within a given period. Usually, the contractor will submit a higher and more optimistic percentage of
completion, say 30%, whereas the owner or the owner’s representative will be conservative and approve or certify
a lower percentage, say 25%.

This dispute on the percentage of completion will resolve itself upon the completion of the project, i.e. 100%.

3. Unclear Billing Procedures

Disputes may also arise with respect to billing procedures. Some contractors bill owners, as part of their
accomplishment, for purchases of materials even though the materials are not yet in place or made part of the
construction. On the other hand, owners generally resist paying, as part of the progress billing, material purchases
if these materials are not yet at the site and made part of the construction, and owners invariably insist that the
materials be “in place” to be considered as part of the accomplishment/progress billing.

4. Poor Contract Administration

A lot of disputes have likewise arisen due to a lack of documentation pertaining to:
a. Notices, particularly sub-surface conditions
b. Change orders, and
c. Extra work or variation orders.
In most cases, a certain contractor would have been entitled to an adjustment in his compensation due to changes
in sub-surface work conditions, however, due to a lack of notice to the owner of said sub-surface conditions before
he proceeded with the work, the owner denied and resisted the contractor’s claim for adjustment.
This is likewise true with respect to a lack of documentation and compliance with conditions precedent or procedures
on “variation orders," “change orders,” or “extra works.” To be valid, variation orders, change orders, or extra works
need to be reduced into writing, indicating their scope, adjustment (increase or decrease) in cost, and time of
completion, if applicable. Likewise, the timeliness of the notices or documentation of these variation orders has also
been a source of dispute.
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5. Compensation
If the contract provision on compensation and its adjustments are not defined, disputes invariably arise. This is
particularly true where the compensation is not a fixed lump-sum amount but is based on “unit prices” or “cost plus."
In certain instances, “unit prices” are usually maintained or fixed with an allowance plus or minus a certain percent,
say, a 20% percentage allowance of the estimated bill of quantities stated in the contract. A dispute will arise with
respect to the adjustment of the unit prices.

Escalation clauses are also a fertile source of disputes, more so if the base prices or indices are not clear, the future
reference price or indices are not easily verifiable, or the items subject to escalation are not defined. Unless an
escalation clause is provided in the contract, the contractor is generally not entitled to an escalation of the contract
price.

6. Extent of Warranty-Guaranty
Several disputes have arisen with respect to defects that have become manifest after the work has been turned over
to, and accepted by the owner.

7. Amount of Damages
For every dispute, a corollary issue invariably surfaces, i.e., what is the appropriate measure of damages suffered
by a party for a certain violation or breach of the contract? For delays, contracts invariably provide for a certain
amount of liquidated damages per day that the project is delayed.

8. Change Order/Extra Work

Usually, a change order is defined as a substitution, addition, or deletion in the work within the scope of the contract.
It does not involve any adjustment in the cost or time since it is within the scope of the contract. However, certain
change orders may affect the work in terms of added or reduced costs and/or time to complete the work.

In practice, the owner has the right to issue “change orders,” and usually said change orders which are usually
executed by the contractor and do not violate or invalidate the contract.

Extra work usually means work outside the scope of the contract. While the extra work is not within the scope of the
contract, usually the owner is given the right to require the contractor to do the “extra work” at a pre-agreed price.

9. Delays
Delay is one of the most common disputes in construction. It could be:
a. The delay in the accomplishment.
b. Delay in the supply of materials.
c. Delay in payment of the progress billing.
d. Delay of other contractors, especially contractors or sub-contractors.
It is important for the construction contract not only to have a definite reckoning date for the start and end of the
project but likewise to create periods of time or milestones in between to monitor the progress of the work. In cases
where there are milestones for accomplishments and these milestones are not achieved on schedule, the usual
penalty is not liquidated damages for delay but rather for the contractor to put in additional manpower or materials
and closer supervision to speed up or crash the work. It may also be good practice to give the contractor an incentive
to complete the project on time or early completion bonuses.
Another common dispute in the delay of construction is the interfacing and coordination with other contractors,
subcontractors, or specialty subcontractors. Usually, in a given construction project, there are several contractors
and specialty sub-contractors not directly under the main or general contractor.
At times, the owner has its own construction crew and is doing some portion of the work on its own. You can
appreciate what lack of coordination or interfacing between these different groups of people can do to delay the
project and how difficult it is to ascertain who is ultimately responsible, as the delay of one group will invariably delay
the work of most, not all of the others.

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MODES OF SETTLEMENT

It is unlikely for a project to run from start to finish without a dispute arising.
How are these construction disputes resolved in the construction industry today?

Basically, resolution of these disputes follows civilized society’s ways of settling disputes, i.e., either:

1. Through the courts, by judicial proceedings, or

2. By Arbitration/Conciliation

It should be pointed out that arbitration may involve judicial action, especially with respect to its enforcement, should the losing
party in an arbitration case refuse to abide by its terms and conditions. Settlement of construction disputes is better achieved
through the arbitration or reconciliation process.

Negotiation
In most cases, the first step in resolving a problem is negotiation. Before turning to alternative methods of dispute resolution,
the parties in a disagreement will negotiate to attempt to come to a mutually agreeable settlement. It is the simplest, least
expensive, and might produce the fastest and most fruitful outcomes.

Mediation
When two parties cannot come to an agreement, mediation is used to help them reach a compromise. Although it is not a
legally binding means of dispute resolution, mediation is one of the best ways to resolve an issue before it becomes more
serious. Before pursuing other options, the parties make an effort to come to a fair agreement outside of court.

Arbitration
When it comes to conflict resolution, contractors and professionals choose arbitration. The majority of contractors list it as a
means of resolving contractual disagreements. If the parties choose arbitration, they must select a third party who is neutral
and has the necessary expertise to help them reach a mutually agreeable resolution. In contrast to mediation, where the
mediator just helps the parties reach a resolution, arbitration determines the final outcome of the dispute. Arbitration has much
higher expenses, and in some places, the results are also legally binding.

Litigation
Trials that are enforceable and legally binding are a part of litigation. It is the most exhaustive, intricate, and expensive dispute
resolution procedure. The majority of parties use alternative dispute resolution procedures since they are also very slow.

PREVENTING DISPUTES
Construction disputes are common, and it is better to avoid a disagreement than to deal with it after it arises. If participants
are unable to resolve issues through effective deliberation, they can end up abandoning the entire project. Here are a few of
the most effective techniques to avoid disagreements:

Clear payment terms

The majority of construction projects operate with periodic interim payments. Dates for submission of payment requests,
sending of associated payment notifications, and the actual payment release should all have been specified in a contract.
The possibility of disagreements is decreased by this system of predetermined payment dates and terms.

Communication
Disputes can also develop when the parties limit communication. When a project starts, most developers and contractors will
communicate, and they anticipate everything will go according to schedule. This is frequently the case, and parties should
communicate at every stage of the project to resolve any issues that arise during the building process.

Keep Records
Make sure to document everything at all times. Notices, letters, emails, images, and diaries should all be included in records.

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Follow the Contract
The parties concerned should make sure they understand the contract in its entirety, including all of its provisions, terms, and
modifications. Once both parties are aware of the terms of the agreement, they should strictly adhere to them for the duration
of the project.

The success of a project depends on how quickly you can identify significant problems and communicate with the right people
to address them. Implementing building contracts enables success and avoids the endless disagreements that are likely to
sink your project.

References

(2020, March 1). Retrieved from https://www.slideshare.net/gayathrysatheesan1/construction-disputes

CONSTRUCTION DISPUTES: HOW TO RESOLVE THEM? (2021, August 19). Retrieved from
https://proest.com/construction/tips/resolving-disputes/
Construction Management by Max Fajardo