While all parties on a project should have the common goal of successful project delivery, particularly being on time, on budget, and to the specified quality, conflicting priorities lead to complex relationships between contractors and employers, which often result in disputes.
With the construction sector in the Middle East poised for accelerated growth, and with many projects on defined and fixed completion dates, it is almost inevitable that we will continue to see a rise in construction disputes with the current adversarial contracting climate. When cash stops flowing, and key personnel are occupied for significant periods of time dealing with conflict, disputes become a major distraction.
According to the 2017 Middle East Construction Disputes Report by Arcadis, $56mn were tied up in disputes last year in the region, primarily in the social infrastructure and public sectors, presenting a significant risk to the capability of the projects while putting a strain in government and corporate budgets. One of the contributing factors to escalating numbers of disputes in the region is the impact continued low oil prices are having on project funding, particularly in the public sector, which in turn, has led to project scope changes, project deferrals or even project cancellations.
Major causes of disputes
A standard practice that results in formal disputes materialising, according to John Fletcher, the RICS product group director ADR, is when employers encourage contractors to submit compliant bids for the best price, while contractors, on the other hand, apply a commercial strategy to win the bid. Both sides then seek to manage contracts to their terms. The result is a recipe for disputes, which is built into contracts before they even start. It is only when the industry unites to tackle these all too common issues that we can deliver real change.
On an average, construction projects end up costing 30-40% higher than the original contract target price, which results in both parties being distracted from successful delivery of the project but instead arguing over the overall cost escalation. The way contracts are drafted, administered, and understood by the contractors or employers, also has a crucial effect on the success of the project and is the cause of adversarial relationships amongst parties. To avoid conflicts, contracts should be administered appropriately, contain accurate documentation, encompass fair and appropriate risk balances, and must also include realistic construction timeframes that have more chances of being adhered to.
Alternatives to avoiding disputes
The need to improve the way relationships are managed, and differences of opinion are handled, has brought to light different ways conflicts can be resolved. One method growing in popularity is conflict avoidance, an alternative dispute resolution mechanism, that addresses issues through early intervention before they escalate. It offers stakeholders many benefits, such as it saves time and money, allows parties to focus on the successful delivery of projects while fostering innovation, maintains confidentiality, provides an opportunity to balance and hedge against litigation or commercial risks, and preserves brand reputation.
A formal conflict avoidance process created by RICS for Transport for London (TfL) that encourages cooperation between parties and resolves disagreements early has proven to be highly successful in the UK. Mike Brown, the Commissioner of Transport for London, believes that communication and early intervention are essential for successful project deliveries.
He affirmed: The construction industry has historically been a very contentious environment, and it is practically inevitable that conflict will arise in one form or another. A strong commitment to open and honest communication, and early intervention when issues do arise, are the foundation for avoiding escalating disputes. Where conflict does arise, we are developing process such as the conflict avoidance process with RICS, which can be used to identify, capture, and resolve the conflict promptly and amicably before it becomes a full-blown dispute.
Finding global solutions
To encourage collaborative working and the use of early intervention techniques, six leading professional and institutional bodies along with two transport and infrastructure firms joined together to form a Conflict Avoidance Pledge. Professional bodies representing surveyors (RICS), engineers (ICE and ICES), architects, and others such as Chartered Institute of Arbitrators and International Chambers of Commerce, hope to make harmful and expensive disputes a rare occurrence through this pledge.
Created by the Conflict Avoidance Coalition Steering Group, the pledge is a voluntary commitment to self-assessment open to any organisation or firm, regardless of size or location. Fletcher believes that with more organisations and companies joining the campaign by signing up to the pledge, we can make the running of construction and engineering projects, hopefully, across the world, more streamlined.
Over 50 industry bodies have now signed the pledge in the UK, including leading industry stakeholders, such as CIOB, Atkins, Mott McDonald, Turner & Townsend, Siemens, and Faithful+Gould. RICS and the DIFC Courts are planning to launch conflict avoidance services for regional businesses, particularly in the construction and infrastructure sectors. As an entity operating within the DRA, the DIFC Courts are well established in the world of litigation and in 2018 are pursuing the development of other modes of Alternative Dispute Resolution (ADR). Through such global solutions and collaboration of professional bodies to support new methods of dealing with conflicts, we can see change on the horizon for the industry worldwide.