By: O. S. Oyediran, A. O. Onososen, R. K. Fagbenro, Philip Folarin
INTRODUCTION
The socio-economic importance of the construction industry to the overall wellbeing of every economy across the globe has been well established in literatures. Several research efforts have been and, are still being geared towards the study of the industry’s relationship with and, its relevance to national economy. The industry’s importance was not restricted to its supply of construction products like buildings, roads, airports, refineries, among others but also, contributes significantly to global gross national product (GNP). The worldwide output and employment records of the construction industry in 1998 was reported to be over three trillion US Dollar (($3,000 billion) and over one hundred and eleven (111) million workers respectively.
Several studies on disputes have identified the unavoidability of disputes in construction projects. Some scholars have attributed the inevitability to the nature of construction contracts, number of parties and participants involved and, risks and pressure associated with time constraints in preparation of contract documents. Others described the lead causes of disputes as design-related causes and they are Design errors, incomplete or inadequate specifications and, quality of design.
Also, efforts have been put into studying and proposing various means of resolving or managing construction disputes. Products of such efforts are the alternative dispute resolution methods to litigation such as mediation and conciliation, negotiation, arbitration, adjudication, among others. The development of these dispute resolution methods is an indication that the industry appreciates the inevitability of disputes.
However, there is dearth of research works on disposition of parties in the construction industry to the adoption of these alternative dispute management techniques.
Previous Studies
It is neither uncommon nor out of place to seek for resolution of disputes from construction contracts in courts of law. However, the unwanted publicity, high cost, uncertainty, time consuming and the possibility of straining relationships had been the reasons why the industry has been looking for other methods of dispute resolution. The authors classified litigation, together with adjudication and arbitration as adversarial resolution methods. Other methods that are regarded as non-adversarial in nature are conciliation, quasi-conciliation, mediation, private enquiry and, mini-trial. On the contrary, Royal Institution of Chartered Surveyors (RICS 2012a) categorized dispute resolution procedures into three (3) namely: negotiation, mediation or conciliation and, adjudication. This classification was broadly based on the extent of third-party interference in the dispute resolution processes. The three (3) divisions encompass both adversarial and non-adversarial methods. Below are popular means of dispute resolution in the construction industry:
- Negotiation: this process involves the coming together of the parties to the contract to chart a way by which disputes are resolved amicably between them without the involvement of a third party (RICS, 2012b). Negotiation is centered on achievement of agreement between disputing parties in a contract with the adoption of discussion and compromise. Before conflicts degenerate into disputes, negotiation can be employed to resolve the causes of the conflict Negotiation was described as a process by which agreement is worked out between parties in a contract by direct communication. The author further described it as voluntary and non-binding on the parties and, may be either bilateral (between two parties) or multilateral (among many parties) in nature with the option of involvement external expertise considered appropriate by the parties.
- Mediation and Conciliation: an independent, third party selected based on the agreement of the parties to a contract facilitates the discussions and reconciliations between the parties to the contract in a bid to reach a settlement. Agreement is reached through the persuasion and suggestion of the impartial conciliator. However, agreement reached through mediation and conciliation does not become binding on the parties to the contract (RICS, 2012b). In addition to the knowledge of construction disputes management, the conciliator is expected to maintain confidentiality with issues discussed with both parties in private. The neutral third party does not however, decides the outcome of the process rather, he either facilitate recommencement of communication between disputing parties (facilitative mediation) or express his opinion on the issues presented to him by the parties (evaluative mediation). Irrespective of the two approaches of mediation adopted, the settlement and decision on the outcome of the process ultimately lie with the parties.
- Expert determination: parties to the contract agreed to engage a knowledgeable third party who, in accordance with the prevailing conditions of contract, makes a final and binding decision on them (RICS, 2012b). In most cases the decision of the expert determines the dispute without further recourse or appeal. The determination of the expert can only be challenged on exceptional circumstances such as frauds and impartiality. The use of expert determination in construction contracts is usually well pronounced in resolving technical issues such as unpaid certificates, valued and certified sums, defective works, materials, etc., emanating from complex disputes.
- Adjudication: either party to the contract, within seven (7) days of serving a Notice of Dispute, may request for the appointment of an adjudicator. The decision of the adjudicator, which should be released within certain number of days (usually 28 days) specified in the contract conditions, becomes binding on the parties to the contract and, is readily enforceable in courts of law for construction related cases (RICS, 2012b). Adjudication was also described as the decision of a neutral party to a contract which becomes binding on the parties to the contract unless the decision is challenged at arbitration or litigation. This indicates that the decision of an adjudicator is not always final although it is always based on the conditions of contract between the parties. The main features of the adjudication in the construction industry are the neutrality of the adjudicator who is not deeply involved in the running of the project; the adjudicator is neither an arbitrator nor a judge; the adjudicator’s powers are limited to those vested on him by the agreement of the parties to the contract; the decision is binding on the parties and does not rely on the cooperation of the parties. However, the decisions of an adjudicator are binding only till the end of the contract when either of the parties not in agreement may seek review at either arbitration or through litigation.
- Arbitration: For arbitration to be applicable for dispute management, it must be clearly contained in the conditions of contract and a written agreement as a means of settling disputes (RICS, 2012b). Where it is listed as part of dispute resolution method, reference could be made to arbitration procedure such as the Arbitration and Conciliation Act 2004 of the Federal Republic of Nigeria. Private tribunals chosen by contracting parties determine formal disputes. The decision of the arbitrator, which is binding on the parties, is based on the hearing and deductions made from the parties’ presentation of opinions of parties to the contract.
- Litigation: litigation arises from unsuccessful arbitration processes or failure or absence of other dispute management procedure (RICS, 2012b). Reasons leading to litigation may include but not limited to, non-agreement of disputing parties on the choice of arbitrators, abstinence of arbitrators from the job, hindrances to proceeding with commenced arbitration processes, among others. It involves formally deciding on disputes on construction in a court of law. Litigation is usually the final stage in resolving disputes and decision or judgement passed on disputes decided in court may be final, binding on the disputing parties and unchallengeable by any of the disputing parties.
- Dispute boards or Dispute Review Boards (DRB): this process of dispute resolution is hinged on the non-binding recommendations of three (3) previously constituted independent board members. Selection of the board members is done at the commencement of the project and they are granted access to project documents, and periodic access to site through site visit (RICS, 2012b) to ensure that they are familiar with the project. A major advantage of DRB is the possibility of minimizing or outright elimination of issues that could degenerate into dispute if left unattended to in time or at all.
- Med-Arb: in med-arb, the third person appointed to the dispute management board has the capacity to act as an arbitrator in disputes that cannot be resolved using mediation (RICS, 2012b). The approach was described as a hybrid ADR two-stage process. Only disputes that failed to be resolved in forum of mediation are moved to the second stage of arbitration wherein, the mediator becomes the arbitrator and makes binding decision on the disputes at hand.
The extent to which any of the above methods of dispute resolution is adopted on construction projects determines the mind-set of the contracting parties to the occurrence of disputes on the projects. Contracts with no adequate provisions for dispute management may end up at litigation thereby leading to increased project cost, waste of time and strained relationships.
Dispute Resolution Mind-set
It is revealed that most firms adopt a proactive mind-set to dispute resolution by including dispute resolution methods in all contracts, through a shared organizational belief that disputes is best prevented or avoided and also by including dispute resolution agreement in all contracts formed.
The respondents also disagree that the organization would rather absorb the consequences of a breach than go into dispute with its contracting partner(s). This implies that most firms would rather have a dispute occur than take responsibility of the consequences of the breach of contract; this is a defensive mind-set observed from the respondents. There is however little or no reactive contingent mind-set observed amongst the respondents, as when asked if their company believes there is no need to include any dispute resolution clauses in contract conditions and only makes attempt to resolve disputes when they arise, the respondents disagreed. This indicates that most of the respondents adopt a proactive approach to dispute resolution but will however become defensive when asked to accept responsibility for breach rather than start a dispute.
Arbitration Agreement in Contract Conditions
Surprisingly, only 21 which is equivalent of 52.50% of the total responses incorporate arbitration agreement into their contract conditions. 6 of the 21 adopt a standard arbitration agreement without modification of any of the parts; 8 use standard arbitration agreement with adaptations to suit their projects while; the last 7 insert arbitration agreement or clauses in their letters of award of contract. 47.50% (19) of all the respondents do not incorporate arbitration agreement or clauses in their letter of award or contract conditions. The results above is an indication that substantial number of construction industry participants in Nigeria shy away from formal disputes management processes and will rather, opt for other less adversarial and undocumented means resolving disputes as they arise.
Frequency of Use of Dispute Resolution Methods
Results of the frequency of use of mainstream dispute resolution methods available. Mediation and conciliation are revealed to be in frequent use in the construction industry to resolve industry’s disputes among contracting parties. Compromise and litigation are found to be rarely considered for dispute resolution while arbitration and other dispute management processes (such as med-arb, multi-door, etc.) are very rarely considered by the professionals in the construction industry in Nigeria. The reason behind the frequent use of mediation and, mediation and conciliation in the industry can be associated with the less adversarial nature of these methods when compared with other methods like arbitration and litigation. Litigation has been established by researchers to be a major cause of adversarial relationship among contracting parties. Although arbitration is less confrontational in comparison with litigation however, the lack of control of decision reached through the process, from disputing parties could be a reason of its low usage in the industry.
Conclusion
The two main objectives of this study are to investigate into dispute management mind-set of parties to construction contracts and dominant dispute resolution methods in use in the Nigerian construction industry. These objectives were achieved by reviewing the literature on widespread methods of dispute resolution and collection of data using a survey questionnaire.
Results obtained from the analysis of collected data show that almost half of the industry participants have reactive mind-set to dispute management while the remaining show proactive attitude towards dispute management in construction contracts. The respondents agreed that the best way to manage dispute in construction contracts is to avoid them. Hence, the major ways of proactively preparing for disputes are to include clauses related to dispute resolution methods in all contracts they enter into. The three (3) most dominant means of incorporating arbitration agreement in contracts are through adaptation of standard arbitration agreement with modifications to suit the projects under consideration; the adoption of standard arbitration agreements without modifications and; incorporating arbitration clauses in letters of award of contract.
Mediation, mediation and conciliation are revealed to be the most used methods for resolving construction disputes. Where these two methods failed resolve the case is when compromise, litigation and, arbitration are considered as options. However, mediation and compromise are the two most used dispute resolution methods in recent disputes on construction projects.
Mediation, mediation and conciliation and, compromise was found to be devoid of too much of legal technicalities, parties-driven thereby leading to satisfaction with outcome, cost effective in the long run and, clear understanding of the processes involved by the parties. Also, the methods save time and have less chances of straining business relationships between the parties in a contract.
Recommendation
Although the attitude of contracting parties in the Nigerian construction industry towards dispute management can be deduced to be less litigious however, the industry mind-set to dispute management can still be described as a mixture of proactive and reactive. Reactive mind-set could harm the progress, productivity, budget and quality of a construction project as a dispute that is not well prepared for could hinder the progress of the project. Therefore, further research should be undertaken to investigate the causes of reactive mind-set of contracting parties in the construction industry in Nigeria.
Also, the Nigerian construction industry participants should be further educated on the need to be proactive minded in their contracting practices by incorporating clauses for dispute management such as negotiation, mediation, mediation and conciliation and, arbitration in their contract documents (conditions of contract, letter of awards and other related documents). They should further be educated on the importance of incorporating these dispute management methods into their contract documents, on project cost performance, time performance, quality performance and overall implication on the national economy.
