School of Architecture and Built Environment

Faculty of Engineering, Technology and Built Environment

Bachelor Of Quantity Surveying (Hons)

Course Name:
BEQ2083 Construction Law & Dispute Resolution 2

Assignment Title:
Assignment 2

Student Name & Matric Number:

Lim Qian Wei (1002058134)
Soo Wei Zhe (1002058129)

Lecturer:
Ts Muhammad Ariffudin bin Arifin

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 Table of Contents

Introduction ............................................................................................................................................. 3
Dispute Avoidance .................................................................................................................................. 4
Comparison between in Malaysian Construction Contracts and International Construction Contracts
on dispute related mechanisms. .............................................................................................................. 5
Analysis of Why Dispute Avoidance is not Incorporated in Malaysia.................................................... 6
Recommended Methods of Dispute Avoidance that can be introduced to Malaysian construction ....... 8
1. Dispute Avoidance Panel ............................................................................................................ 8
2. Project Mediation ........................................................................................................................ 9
References ............................................................................................................................................. 11
Appendix ............................................................................................................................................... 12

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Introduction

Disputes are an inevitable part of the construction industry, and they can arise at any
stage of a project, from the design phase to the final delivery of the completed project. These
disputes can have a significant impact on project costs, timelines, and relationships between
parties.

Since conflicts are bound to arise in the construction industry and can have adverse
effects on a project, it is crucial to identify and handle them at the earliest to prevent them from
developing into full-blown disputes. To this end, the construction industry should prioritize the
use of dispute avoidance procedures (DAP) in managing construction contracts, and their
effective implementation can significantly reduce the likelihood of disputes and enhance
project outcomes. However, it’s become unavoidably noticeable that dispute avoidance clauses
aren’t typically integrated into Malaysian construction contract. While it is true that such
clauses have become more common in recent years, some industry experts still believe that
construction contracts in Malaysia do not include adequate dispute avoidance provisions. This
can result in disputes that are more likely to escalate, leading to lengthy and costly litigation or
other forms of dispute resolution. Without effective dispute avoidance measures, parties may
struggle to maintain positive working relationships, and project outcomes may suffer as a
result.

Therefore, it is important for construction professionals in Malaysia to recognize the

importance of dispute avoidance clauses and to take steps to ensure that contracts include such
provisions to promote collaborative and productive working relationships between parties.
Thus, this assignment discusses on why clauses of dispute avoidance isn’t effectively
implemented in various construction contracts and a few types of effective dispute avoidance
methods that could be implemented as well.

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Dispute Avoidance

Dispute avoidance are not to be confused with dispute resolution. Dispute resolution
procedures, such as litigation, arbitration, and alternative dispute resolution (ADR), are only
activated when there is an actual dispute. In contrast, dispute avoidance procedures (DAP) are
mechanisms established at the outset of a project to prevent conflicts from escalating into
disputes. DAP involves the intervention of an independent third party, who is usually appointed
at the time the parties enter into a contract. This third party is involved throughout the project,
attending meetings and becoming familiar with the project's nature and contractual issues. By
doing so, they can identify and address conflicts as they arise and prevent them from becoming
major disputes that could cause delays and additional costs. Three common types of DAP
mechanisms are dispute review boards (DRB), dispute adjudication boards (DAB), and
combined dispute boards (CDB). These mechanisms have been widely accepted and
incorporated into standard forms of contracts, such as FIDIC and NEC.

For DAP mechanisms to be effective, they need to be established as early as possible,

ideally before any physical work on the project commences. In addition, the board should be
actively involved in the project right from the beginning, typically by attending pre-arranged
site meetings to familiarize themselves with the project's nature and contractual issues relevant
to the project. DAP is an essential aspect of efficient project management, and its
implementation can lead to savings in time, money, and reputational damage for all parties
concerned. By preventing disputes from occurring in the first place, DAP mechanisms can
ensure that projects are completed on time, within budget, and to the satisfaction of all involved
parties.

Figure 1: Interception of dispute (Danuri et al., 2010, p.353)

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Comparison between in Malaysian Construction Contracts and International Construction
Contracts on dispute related mechanisms.

In Malaysia, some common forms of construction contracts used in the construction

industry would include the PAM Contract 2018, PWD203A Form, CIDB Standard Form of
Contract, AIAC Contract FIDIC Contract. When we analyse and observe all clauses in relation
with disputes the below table can be drafted.

Table 1: Clauses in relation to disputes from various contracts

As according to Table 1, we can visually observe that most dispute related clauses are
of a dispute resolution element and not of a dispute avoidance element. In fact, only FIDIC
Contract which is a technically an international contract utilises the only dispute avoidance
element in the 4 contracts which is the Dispute Avoidance Board. The other 3 Malaysian-born
construction contract do not utilise any dispute avoidance methods at all.

Alternatively, as we take a look at foreign and international contract such as the FIDIC
form of contract and the NEC3 Contract (utilised in UK), the Dispute Adjudication Board
(DAB) is used. DAB is primarily introduced by the FIDIC Contract (Geber, 2013). Compared
to DRB and other dispute avoidance and resolution mechanisms, DAB is promoted by FIDIC
forms of contract and has gained international recognition, as it is mandatory for all project
financing by the World Bank.

DAB differs from DRB in its decision aspect, where DAB's decision is immediately
binding on both parties. The DAB procedure is also more structured and formal compared to
DRB. “A matter cannot be referred to DAB unless it is in dispute, and any decisions made by
DAB are admissible in evidence in any subsequent proceeding” (Danuri et al., 2010). The
International Chamber of Commerce (ICC) Dispute Board offers services to administer DRB
and DAB in relation to matters regarding the Dispute Board (DB). Additionally, the Combined
Dispute Board (CDB) was introduced to provide an intermediate approach between DRB and
DAB.

Danuri et al. (2010) reported that Dispute Review Board (DRB) has been used in
various countries, including “Australia, Bangladesh, China, France, Hong Kong, India, New
Zealand, South Africa, Sweden, Uganda, the United Kingdom, and the United States”.
According to Ismail et al. (2010), adjudication and mediation has gained huge popularity in the
UK due to their non-adverserial nature and acts as a cheaper alternative compared to litigation.

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Big scale construction projects also adopted dispute boards as a dispute avoidance mechanism
to minimize risks and prevent huge financial losses in the future (Chapman, 2004; Ndekugri &
Russell, 2006; Ismail et al., 2010). Despite the increasing interest in DRB since its initial
introduction in 1993, ASEAN countries, including Malaysia, have not widely adopted Dispute
Review Board (DRB) or other dispute avoidance mechanism due to the availability of multi-
tiered dispute resolution in domestic construction contracts. Therefore, it has to be addressed
why Malaysian construction contracts aren’t utilising dispute avoidance techniques.

Analysis of Why Dispute Avoidance is not Incorporated in Malaysia.

Among the reasons that could lead to the lack of utilisation of dispute avoidance
methods would include the lack of awareness among the stakeholders about the benefits of
these methods. Many organizations and individuals may not be familiar with these methods or
may not know how to incorporate them into their projects. “Research on dispute avoidance
procedure (DAP) particularly in Malaysia is lacking as most of the current research and
development deals with various issues within the dispute resolution procedure and
management field” (Danuri et al., 2016). Thus, a good way to counter this problem would be
for companies, universities, educational institutions, and even training centres to properly lay
down the required knowledge regarding Dispute Avoidance methods to inquiring junior
workers, students and learners. This would in turn help spread the awareness of such dispute
avoidance methods that are viable for a construction contract.

Secondly, is the indirect costs and time restraints that arises from dispute avoidance.
Dispute avoidance is a procedure that is implemented from the start of a project, as it’s role is
to avoid any rising disputes. Therefore, the indirect and hidden costs that stems from dispute
avoidance procedures varies for each project, and these costs have not been studied and
potentially listed or identified for stakeholders to be guided upon. “One of the indirect costs of
dispute avoidance is the cost arising from the loss of quality. Other indirect costs may include
costs arising from rework, reduced onsite productivity, firm organizational costs to resource
senior level management time allocated to resolving conflicts, cost to reputation, and cost due
to delays and inefficiencies” (McGeorge et al, 2007). Regardless, it cannot be denied that the
indirect and direct costs as well as the time restraints are potentially much less than compared
to the dispute “resolution” processes. In the findings of a mass survey by McGeorge et al.
(2007), fewer than 50% of the respondents expressed satisfaction with the effectiveness of the
dispute resolution methods used, in terms of cost, outcome, time, and process.. Thus, in the
perspective of a inferential deduction, the unknown costs of dispute avoidance is a potentially
huge reason why stakeholders in Malaysia are reluctant to adopt the dispute avoidance
mechanisms. Ultimately, this is a direct cause of lack of awareness factor that was explained
as before.

Thirdly, Cultural and societal factors can also play a role in the adoption of dispute
avoidance methods such as project mediation or dispute avoidance panels in Malaysia. For
example, in some cultures, there may be a preference for resolving disputes through traditional
methods, such as negotiation or arbitration. This may be because these methods are seen as

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more familiar or more culturally appropriate, or because they are perceived as being more
effective or more likely to preserve relationships between the parties. Moreover, in some
societies, there may be a stigma attached to disputes and conflict, which may make it difficult
for parties to openly acknowledge and address them. This may be particularly true in
hierarchical cultures where power dynamics are strongly emphasized and individuals may be
reluctant to challenge those in authority. In addition, language and communication barriers can
also be a cultural factor that affects the adoption of dispute avoidance methods. For example,
if parties have difficulty communicating with each other or with a mediator or panel member
due to language differences, this may make it difficult to effectively use dispute avoidance
methods. Finally, cultural and societal factors can also impact the perception of the legitimacy
and authority of dispute avoidance methods. In some societies, these methods may be seen as
less legitimate or less authoritative than traditional legal processes, which may make it difficult
to convince parties to adopt them. According to Danuri et al. (2015), the law acknowledges the
significance of cultural factors in a contract through trade usage and custom, which are implied
terms. Despite being introduced in Malaysia through standard form contracts published by the
Malaysian Institute of Architects since 1998, mediation in Malaysia is not as effective as it is
in the U.K. and Australia, this may be due to cultural differences between countries (Danuri et
al. 2015; Zulhabri et al., 2008).

In addition to that, there are some more factors that could cause Malaysia to under
utilize dispute avoidance mechanisms but have not been brought up by any recent studies. From
a logical deduction, lack of legal expertise is one of the reasons. Mediators that are for dispute
resolution procedures are common in Malaysia, but little to few are trained for Project Mediator
roles that stem from a project “Avoidance” role. Similarly to adjudicators, most of adjudicators
in Malaysia are more prepared for a form of adjudication directed for resolving dispute rather
than avoidance. The potential key solution to this factor lies ultimately again with the
awareness factor. Spread of awareness and proper guide and training to learning adjudicators
and mediators are required to boost Malaysia’s dispute avoidance practices in the future.

The solution is plain simple. Addressing these factors may require education and
awareness-raising efforts to help stakeholders understand the benefits and importance of
dispute avoidance methods, as well as efforts to build trust and rapport between parties and
mediators or panel members. It may also require adapting dispute avoidance methods.

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Recommended Methods of Dispute Avoidance that can be introduced to Malaysian
construction

1. Dispute Avoidance Panel

Dispute avoidance panels (DAPs) are independent, impartial, and objective third-party
panels that provide advice and assistance to parties in resolving disputes that arise during the
course of a project or contractual relationship. DAPs are a form of dispute avoidance
mechanism, which means that they focus on preventing disputes from escalating into more
serious and costly disputes. DAPs are typically established at the outset of a project or
contractual relationship and can be used to help parties resolve disputes at any stage of the
project. Its purpose is to provide parties with an independent and neutral forum in which to
raise and discuss issues, and to provide guidance on how to resolve them (Gerber, 2001). This
can include providing advice on legal, technical, or commercial matters, as well as guidance
on dispute resolution processes.

The composition of a DAP typically consists of experts in the relevant field, such as
lawyers, engineers, or business professionals, who are selected for their expertise and
impartiality. The DAP members are appointed jointly by the parties or by an independent
appointing authority, and are bound by strict confidentiality and conflict of interest rules. Once
appointed, the DAP members will typically engage with the parties to identify and resolve
issues as they arise. This can involve conducting site visits, reviewing project documents, and
meeting with the parties to discuss their concerns. The DAP members will then provide the
parties with advice and guidance on how to resolve the issues, and may make recommendations
on dispute resolution processes, such as mediation or arbitration (Danuri et al., 2016).

One of the key advantages of DAPs is that they provide parties with an independent
and impartial forum in which to raise and discuss issues. This can help to build trust and rapport
between parties, and can facilitate early intervention and resolution of disputes. In addition,
DAPs can be more cost-effective and time-efficient than traditional dispute resolution
processes, such as litigation or arbitration. However, it is important to note that DAPs are not
a substitute for effective project management, and parties should still take steps to manage risks
and prevent disputes from arising. Moreover, DAPs are not appropriate for all types of disputes,
and parties should carefully consider the nature and complexity of the dispute before deciding
to use a DAP.

According to Danuri et al. (2016), the proposed DAP mechanism is “beneficial to be

established at the earlier stage of a project through contract rather than on an ad-hoc basis
because the increase in management cost should be very minimal without the involvement of
an outside third party”. In a research study carried out by Danuri et al. (2016), the participants
suggested that the construction contract should contain a clause that provides for DAP (Dispute
Avoidance Procedure) to enable a prompt and amicable resolution of construction-related
disputes. Under this clause, the involved parties would agree to designate their senior
management personnel, who have the power to make decisions on both technical and financial
aspects of the project. The subcontracting parties would also designate senior management
personnel with financial authority to represent them, and any settlement reached would be

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legally binding on both parties. Such a contractual agreement would encourage the parties to
prevent any disagreements from escalating into a full-fledged dispute.

2. Project Mediation

Project mediation is a dispute avoidance mechanism that involves the assistance of

experienced mediators appointed at the outset of a construction project. Compared to a normal
mediator, a project mediator is hired by both parties of the contract and will be involved and
giving their vested interest on the course of the project. The project mediator has a deeper
understanding of the construction industry and the various stakeholders involved in a
construction project, such as contractors, subcontractors, owners, architects, and engineers
(APCAM, n.d.). These mediators possess specialized knowledge of the technical and legal
complexities of construction projects, such as building codes, zoning laws, and contract
provisions. With this expertise, they are able to help the parties involved in a construction
project identify and resolve disputes in a manner that is consistent with industry practices and
legal requirements before the dispute escalates.

Additionally, a project mediator may have specific training or certification in construction

mediation, which demonstrates their expertise and commitment to the construction industry,
therefore they will be familiar with the industry concerned and the contractual framework in
place. This specialized training and expertise allows project mediators to facilitate the
resolution of construction disputes in a more effective and efficient manner than a normal
mediator who may lack this specialized knowledge (LexisNexis, 2022). The unbiased project
mediation team usually comprises a lawyer and a commercial expert who are both skilled
mediators. They are responsible for helping to arrange and participate in an introductory
meeting at the project's outset, as well as conducting workshops when needed to clarify the
project mediation process. Additionally, they may periodically visit the construction site to
familiarize themselves with the project and the individuals involved. By doing so, they can
facilitate a resolution to construction disputes in a more effective and efficient manner than a
normal mediator who may lack the same level of specialized knowledge.

The concept of project mediation is to resolve disputes before they escalate, and the project
mediation panel is specifically appointed to provide an “immediate forum for confidential
discussion and potential mediation of differences or dispute (Gould, 2004). Since the panel
members have sufficient knowledge and are well-informed about the details of the project, they
will know the root cause whenever there is a dispute, and suggest effective solutions towards
the problem. Additionally, the parties have the right to contact the mediators informally and
consult with them privately at any time. According to APCAM (n.d.), it is also possible for a
construction party or multiple construction parties “initiate emergency mediation, in case of
exceptional urgency, to resolve a dispute and the Digital Administrator and Mediator, shall
strive to commence mediation as soon as possible at any rate within a period of 24 hours”.

Compared to dispute boards, project mediation is a much more cost-effective solution. When
a disagreement arises, the involved parties share their stances and relevant documents. This is
then followed by a mediation session that typically lasts for a day, during which there is a high
probability of resolving the conflict. The mediators involved in the project possess valuable

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insights about the project and the people working on it, which enables them to provide effective
assistance in resolving issues during the course of the project. The project mediation process
takes into account previous experiences but is customized to suit the specific requirements of
the construction industry. The focus is on preventing and resolving disputes. Although project
mediators do not have decision-making powers, they offer a realistic perspective that may have
otherwise been overlooked, and the parties retain the ability to address issues. Ultimately,
project mediation helps the parties concentrate on the project instead of the disagreement, with
the aim of preventing conflicts altogether.

In summary, project mediation is a valuable tool for managing disputes and risks in
construction projects. By incorporating project mediation as a dispute avoidance mechanism
into Malaysian construction contracts, the construction projects in Malaysia can promote
efficient project delivery, reduce project risks, and support collaborative contracting, while also
increasing confidence for investors and funders.

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References

APCAM (Asia Pacific Centre for Arbitration & Mediation). (n.d.). PROJECT MEDIATION.
Retrieved from PROJECT MEDIATION.

Danuri, M. S. M., Ishan, Z. M., Mustaffa, N. E., Abd-Karim, S. B., Mohamed, O., & Hanid,
M. (2016). Dispute avoidance procedure: Formulating a workable legal system in the
Malaysian construction industry. Journal of Design and Built Environment, 16(1).

Danuri, M. S., Ishan, Z. M., Mustaffa, N. E., Abd-Karim, S. B., & Mohamed, O. (2015).
Dispute Avoidance Procedure: Observing the Influence of Legal Culture towards a Workable
Legal System. Pertanika Journal of Social Sciences & Humanities, 23(2).

Danuri, M., MS, S. M. H., SMN, A., Mustaffa, N. E., & Jaafar, M. S. (2010). Growth of dispute
avoidance procedure in the construction industry: A revisit and new perspectives. Const.
LJ, 26(5), 347-361.

Gerber, P. (2001). Dispute avoidance procedures (“DAPs”) - The changing face of construction
dispute management. International Construction Law Review, 18(1), 122-129.

Ismail, Z., Abdullah, J., Hassan, P. F., & Zin, R. M. (2010). Mediation in construction
industry?. Journal of Surveying, Construction and Property, 1(1).

LexisNexis. (17 November, 2022). Project mediation. Retrieved from Project mediation:
https://www.lexisnexis.co.uk/legal/guidance/project-mediation

McGeorge, D., London, K., Love, P., Davis, P., Jefferies, M., Ward, P., & Chesworth, B. (2007).
Dispute avoidance and resolution a literature review. CRC for construction innovation rep, 1.\

Gerber, P. (2013). Dispute Avoidance Procedures ('DAPs')-The Changing Face of Construction

Dispute Management. Gerber, Paula ‘Dispute Avoidance Procedures (“DAPs”)–The
Changing Face of Construction Dispute Management’(2001), 1, 122-129.

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Appendix

Turnitin report

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13