Commercial Management and Dispute Resolution: Conflicts and Dispute Avoidance
Conflicts and Dispute Avoidance
Outline and Learning Outcomes
This workshop aims to help you understand the difference between conflict and disputes, describe how conflict arises in construction contracts, discuss the positive and negative aspects of conflict, and describe its common causes in construction. The session includes workshop activities and an online feedback quiz.
The Difference Between Conflict and Disputes
The distinction between "conflicts" and "disputes" is nuanced and significant, though often misunderstood. John Burton's article, referenced from Beyond Intractability, offers an explanation based on the duration and nature of the issues involved. While the terms are sometimes used interchangeably, they hold different meanings, especially in professional contexts like mediation. Generally, a disagreement between parties can escalate from a conflict to a dispute.
Definition of Disputes
Disputes are typically short-term disagreements that are easier to resolve. They generally involve negotiable interests, such as price negotiations or task assignments. A dispute usually involves a specific grievance or claim, like a disagreement over contract terms. Solutions to disputes can often be found that partially satisfy both parties' interests, frequently through negotiation and compromise. They often require resolution mechanisms like mediation or arbitration, where a neutral third party assists in resolving the issue.
In construction, disputes can significantly impact a project's cost, quality, and progress. They can arise from various sources, including delays, scope changes, cost overruns, contract misunderstandings, and payment issues.
Why Do Disputes Happen?
Often, disputes arise because of claims. A claim occurs when one party to a contract asserts a right to something, such as:
Payment
Deduction of a payable amount
Enforcement of rights to repair defects
Costs for accelerations
Variation work
It is common for the other party to scrutinize and often partly or wholly refuse the claim. Due to differing views, justifications, and facts, a neutral third party is typically appointed to hear the disagreements and facilitate a resolution.
Definitions of Conflict
Conflicts are more profound and long-term issues compared to disputes. Several definitions highlight this nature:
Tedeschi et al. (1973): "an interactive state in which the behaviours or goals of one actor are to some degree incompatible with the behaviours or goals of some other actor or actors."
Dictionary definition: Includes "a struggle between opposing forces, battle," "opposition between ideas, interests, etc.; controversy," and "Psychol. opposition between two simultaneous but incompatible wishes or impulses, sometimes leading to emotional tension."
De Bono (1985): "a clash of interests, values, actions or directions."
Conflicts are characterized by deep-rooted problems involving non-negotiable issues, often tied to fundamental values, needs, identity, security, and recognition. Examples include moral or value differences, high-stakes distributional issues, and power dynamics. These issues are highly resistant to resolution and tend to persist over time. Mediators who understand this distinction can better identify the underlying causes of issues and address them appropriately, ensuring they do not oversimplify complex conflicts or fail to see the bigger picture when dealing with disputes.
Conflict in Construction
His Honour Judge John Newey QC (1992) noted that the very organization of the construction process inherently leads to conflict. Given the industry's scale, the multitude of individuals, companies, partnerships, and authorities involved, the open-site conditions, the impact of one party's failures on others, and the long project durations susceptible to economic changes, disputes are inevitable. Conflict, if properly managed, can sometimes act as a catalyst for change.
Positive Effects of Conflict
Conflict is not always negative; it can have functional aspects. Schmidt (1974) identified several positive outcomes:
Better ideas are produced.
People are forced to search for new approaches.
Long-standing problems are dealt with.
People are forced to clarify their ideas.
The tension stimulates interest and creativity.
People’s capacities are tested.
Negative Effects of Conflict
Conversely, conflict also has dysfunctional aspects, according to Schmidt (1974), which can be detrimental:
Some people may feel defeated.
Distance between people can be increased.
A climate of distrust and suspicion can be developed.
Where cooperation is needed, there may be an introspective withdrawal.
Resistance to teamwork can develop.
People may leave because of turmoil.
At an organizational level within construction, conflict can lead to increased costs, delays, customer dissatisfaction, and breakdowns in working relationships, which could hinder future cooperation.
Classical Types of Conflict
Conflict is a broader term encompassing ongoing or underlying tensions between individuals or groups. It may not always focus on specific issues and often requires a comprehensive approach to resolution, including conflict management. Resolving a conflict typically involves addressing underlying causes rather than just specific grievances. Classical types of conflict include:
Intrapersonal
Interpersonal
Intragroup
Intergroup
Interorganizational
Key Thoughts on Conflict
Conflict can be positive, sometimes being necessary for the creative process and driving better ideas, productivity, and value for money. However, it can also be negative, destroying relationships, causing delays, and increasing costs, leading to dissatisfied clients and potentially satisfied lawyers. Research into conflict is challenging due to a lack of agreement on its definition and scope, and the confidentiality surrounding many proceedings. The principal sources of conflict typically involve the Contractor, Architect, Client, and Subcontractors, with wide-ranging causes and considerable impact on cost and duration. While a small percentage of claims and a very small number develop into court actions, many individuals knowledgeable about the reasons for conflict are bound by confidentiality codes, limiting disclosure.
Common Causes of Construction Disputes
Disputes in construction commonly stem from:
Contractual Issues
Contract terms: Ambiguous contract language often leads to different interpretations among parties.
Scope of work: Disagreements over what is included or excluded from the project scope are frequent.
Variations: Issues relating to changes in project scope that add to costs and time.
Project Delays
Project timeline: Disputes over responsibility for delays when tasks exceed expected durations.
Schedule: Poor project scheduling and coordination among stakeholders can cause issues.
Regulatory compliance: Problems related to obtaining and maintaining necessary consents.
Payment Issues
Late or non-payment: Delays in or refusal to pay for completed work.
Cost overruns: Disputes over budget exceedances and extra costs incurred.
Additional work claims: Claims for work completed but not initially included in the original contract.
Quality Issues
Work quality: Problems with the quality of performed work and defects.
Material quality: Issues with the quality and suitability of materials used.
Termination and Suspension
Contract termination: Disputes arising from one party's termination of a contract.
Suspension of work: Issues related to a party, such as a main contractor or subcontractor, suspending work.
Additional resources, such as an article by Wambeti Legal (2021) and a RICS webinar (2020), highlight the importance of fixing design errors early and the financial cost of disputes in the global construction sector.
Common Client-Related Disputes
Disputes between clients and main contractors often arise from:
Poor financial management: Clients relying on third parties (e.g., banks) for finance may face delays or denial of loans, leading to an inability to pay contractors or project cancellation, causing payment disputes.
Poor project management: Clients managing their own projects and coordinating contractors can cause delays and payment disputes if scheduling is mismanaged. Delays in compliance tasks (e.g., obtaining consents, inspections) can halt projects and lead to payment disputes.
Common Contract-Related Disputes
These disputes typically involve the terms and execution of the construction contract:
Delayed payments: Leads to disputes over late or non-payment for completed work, causing cash flow problems. The Construction Contracts Act (CCA) often provides statutory rights for progress payments and debt claims.
Disputed variations: Changes or variations to the scope of work can lead to disputes over extra costs and time extensions. Contractors may claim additional payments, which clients may dispute.
Defective work: Disputes occur when work quality fails to meet contract standards or the Building Code, including issues related to weathertightness, structural integrity, or other defects.
Unclear terms: Vague or ambiguous contract terms regarding the scope of work can lead to various interpretations and disputes over original agreements versus actual delivery.
Non-compliance with contract terms: Breaches of specific contractual terms, such as failing to meet project deadlines, can result in disputes and claims.
Warranty claims: Disputes arise when one party believes the other has failed to meet warranty obligations, for example, issues related to the durability of construction work.
Common Disputes During the Design Stage
Disputes during the design phase are critical as they can ripple through the entire project:
Scope changes and variations: Occur when project scope changes after the initial design is agreed upon, either by client request or unforeseen circumstances. These lead to increased costs, delays, redesigns, and disputes between the client and design team.
Design error: Mistakes or missing information in design documents can cause issues during construction. These errors might result from oversight, inexperience, or poor coordination among the design team, leading to construction delays, correction costs, and disputes over liability.
Design misinterpretation: Different stakeholders may interpret design documents differently. For instance, a main contractor might misinterpret specifications for cladding, leading to construction errors, rework, and disputes over responsibility.
Contractual disputes: Terms and conditions in contracts between the client, designers, and other parties can be sources of disputes. Issues may arise over payment terms, deliverables, or responsibilities, potentially leading to project delays, increased costs, legal action, and strained relationships.
Regulatory and compliance issues: Conflicts can arise if the design fails to meet regulatory requirements or if changes in regulations are not accounted for. Non-compliance can result in fines, penalties, redesigns, and delays in obtaining approvals.
Cost estimation discrepancies: Significant differences between project costs estimated during the design stage and actual costs discovered during construction can lead to budget overruns and disputes over who should cover the extra costs.
Other issues: Include designs being unfeasible to build, designers taking longer than expected or producing inaccurate drawings or measurements, and incorrect specifications.
Common Disputes During the Construction Stage
Disputes during construction often relate to the execution and progress of work:
Delays: Disputes can arise over who bears the cost of delays.
Cost overruns: Cost overruns strain financial resources, leading to disputes over responsibility for extra costs. For example, unexpected poor soil conditions could increase costs, leading to a dispute between the contractor and client over payment.
Quality of work: Disputes arise when completed work does not meet contract specifications or Building Code standards. Poor quality work can lead to rework, extra costs, delays, and potential legal action.
Scope changes: Changes to a project's scope affect the schedule and budget, leading to disputes over who pays for extra costs.
Payment issues: Delays in payments, underpayments, or non-payments for completed work can impact cash flow, cause financial difficulties for contractors, and potentially lead to work stoppages or project abandonment.
Extra Resources and Workshop Activities
Additional resources providing further insights include cases like Minter Ellison's "The rules of the game: High Court finds for contractor in design dispute," and videos from ADR Centre (2023) on preventing disputes, and A Current Affair (2023) demonstrating consequences of payment disputes. Workshop activities include discussing aspects of poor planning that might cause disputes (referencing "EP05 BO2 Poor Planning" by Evolution5, 2021) and defining and explaining the differences between disputes and conflict.