Print Page | Contact Us | Sign In | Register
News & Press: Opinion Pieces

Contractual Disputes 101

06 December 2016   (0 Comments)
Posted by: SAFCEC Communications
SAFCEC Continuity Advisor, Norman Milne, writes about contractual disputes, their trends and resolution.

Arcadis Contract Solutions conduct an annual global survey into the most common causes of disputes in the engineering and construction industry, the overall value and the average time taken to resolve. Although neither sub Saharan Africa nor South Africa were part of the survey the findings and conclusions are representative of our own situation in relation to disputes.

A dispute is defined as “a situation where the parties typically differ in the assertion of a contract right, which results in a decision being given under the contract, which in turn then becomes a formal dispute.


Causes of Disputes


2014 Rank Cause 2013 Rank
1 Failure to administer the contract 1
2 Poorly drafted or incomplete and unsubstantiated claims 5
3 Poorly drafted or incomplete and unsubstantiated claims new
4 Failure to understand and/or comply with its contractual obligations by the employer/contractor/subcontractor 2
5 Failure to make interim awards on extensions of time and compensation 4













2015 Rank Cause 2014 Rank
1 Failure to administer the contract 1
2 Poorly drafted or incomplete and unsubstantiated claims 2
3 Errors and/or omissions in the contract document 3
4 Incomplete design information or employer requirements (for Design & Build) new
5 Failure to understand and/or comply with its contractual obligations by the employer/contractor/subcontractor 4


 

 

 





 

 

The number 1 ranking – failure to administer the contract – applies equally to the Employer, Engineer and Contractor. Contracts define rights and obligations. Whenever we fail to comply with our obligations we place our rights in jeopardy. Equally whenever we step outside the four corners of the contract we cannot insist on strict compliance by the other side.

The number 2 ranked cause lies squarely at the door of the Contractor. Our inability to manage and record change results in poorly drafted or incomplete and unsubstantiated claims which become disputes. If our claim was fully substantiated at the time of submission there would be no reason to escalate it further and, even if the Employer chose to do so, we would have full confidence in our claim and our entitlement.

In any claim situation the burden of proof lies with the party submitting the claim, which is invariably the contractor. All the other party has to do is to poke enough holes in the claim to raise sufficient doubt as to its veracity.


Average Dispute Values
(US$ Millions)


Region 2010 2011 2012 2013 2014 2015
Middle East 56.3 112.5 65 40.9 76.7 82
Asia 64.5 53.1 39.7 41.9 85.6 67
North America 64.5 10.5 9 34.3 29.6 25
United Kingdom 7.5 10.2 27 27.9 27 25
Europe 33.3 35.1 25 27.5 38.3 25
GLOBAL AVERAGE 35.1 32.2 31.7 32.1 51 46










Average Length of Disputes Values
(Months)

Region 2010 2011 2012 2013 2014 2015
Middle East 8.3 9 14.6 13.9 15.1 15.2
Asia 11.4 12.4 14.3 14 12 19.5
North America 11.4 14.4 11.9 13.7 16.2 13.5
United Kingdom 6.8 8.7 12.9 7.9 10 10.7
Europe 10 11.7 6 6.5 18 18.5
GLOBAL AVERAGE 9.1 10.6 12.8 11.8 13.2 15.5










A continuing trend is that while the average value of a dispute has increased marginally there has been a marked increase in the amount of time taken to reach resolution.   This increase can be attributed to a mix of the following factors: ·
  1. An increase in the size of the disputes
  2. An increase in the number of large and complex EPC disputes
  3. The global commodity and currency volatility
  4. The disputes that are formalized include multiple or whole contract issues as opposed to single events
  5. The reliance of public and quasi-public bodies on third party decisions to demonstrate “arm’s length” decision making

A speedy settlement of any dispute is the ultimate goal for many reasons:

  • It allows the use of current personnel and documents which are directly relevant
  • To maintain cash flow
  • To maintain relationships
  • To keep the respective teams focused on delivering the project
  • To avoid the cumulative effect of minor issues being aggregated into larger disputes (see bullet 4 above)
Resolving Disputes

2014 Rank/td> Preferred Method 2013 Rank
1 Party to party negotiation 1
2 Mediation new
3 Arbitration 2






2015 Rank Preferred Method 2014 Rank
1 Party to party negotiation 1
2 Mediation 2
3 Arbitration 33







This ranking is no surprise. Early communication and negotiation is the key to dispute avoidance. Talk first, write later, but keep on talking. Mediation can assist the parties to find and agree a solution that meets their needs, concerns and interests. In both these approaches the relationship between contractor and employer remains intact.

The issues that have the largest impact in avoiding disputes were identified as:
  1. Proper contract administration/li>
  2. Accurate contract documents
  3. Fair and appropriate risk and balances in the contract

CONCLUSION

It is improbable to think that all disagreements or differences can be resolved before they escalate into disputes.  Disputes will always be a part of the construction industry; the trick is therefore to resolve them in the speediest time possible.  Proper detailed contemporary records prepared at the time of the event or occurrence will greatly reduce the time needed to resolve the dispute.br />
Project managers cannot efficiently implement the contract if they do not fully understand the terms, conditions and specifications, and the rights and obligations that flow from them. They need to know them so well that they know immediately where to look in any given situation.

Human emotion is a big obstacle in resolving disputes. Do not leave the matter in the hands of the manager or project director who has been driving it. Understand the shortcomings. Provide assistance, which could include external expertise if necessary.

Lay your cards on the table, without prejudice. Know your contract, stick to being objective. Preserve the relationship, foster mutual goodwill. 


Norman Milne
SAFCEC Continuity Advisor


Contact Us

12 Skeen Boulevard | Bedfordview | Johannesburg
PO Box 644 | Bedfordview | Johannesburg | 2008
Phone: +2711 409 0900
E-Mail: info@safcec.org.za

Connect

Quick Links

Home About News Register