7 Delay and Disputes in the project management

7 Delay and Disputes in the project management

1. Purbanchal University, M.Sc. Engg Mgmt, Construction Management 1

2. Unit 7 Construction Delay, Disputes and Claims Introduction to construction delay Causes of Construction Delay Classification of Construction Project Delay Introduction to construction Claims and its causes Mitigation of construction claims.

3. Introduction to construction delay Delay as referred in construction is prolonged construction period In construction claims, a “Delay” is the time during which some part of the construction projects has been extended or not performed due to an unanticipated circumstance Disruptions are events that disturb the construction programme or it is an interruption in the planned work sequence or flow of work. Disruption is distinguished from delay in that the duration of work activities or the overall project completion may not be extended Delays and disruptions are among the challenges faced in the course of executing construction projects. Delays as well as disruptions are sources of potential risks 3

4. Introduction to construction delay A construction delay occurs when: The construction of a project or a part of the project is not completed within the time that was specified and agreed to in the contract; or The scope of the work increases to the extent that more work is to be completed within the original contract time 4

5. Introduction to construction delay Parties Responsible for Delay Contractor Owner Subcontractors Suppliers Labor unions Utility companies Nature 5

6. Causes of Construction Delay Most common causes of Delay Differing site conditions Change in requirements or design Inclement weather Unavailability of labor, material, or equipment Defective plans or specifications, or Owner caused delay: permits, owner-supplied, equipment, materials, ..etc. 6

7. Classification of Construction Project Delay Excusable and Non Excusable Delays Excusable Delay Compensable Delay (EC), time+$ Non-compensable Delay (EN) time Non-excusable Delay (NE) Critical and Noncritical Delays Concurrent Delay 7

8. Classification of Construction Project Delay Excusable Delay A non-compensable delay that excuses the parties from meeting a contractual deadline Where excusable delays occur, the owner must provide an extension of time to the contractor to complete the work Excusable delays: Site conditions Weather conditions (in some cases) Strikes Acts of municipal and governmental authorities Acts of God 8

9. Classification of Construction Project Delay Nonexcusable Delay The party causing the delay assumes the associated costs Inexcusable delays are delays that could have been avoided by due care of the party Where inexcusable delays are caused by the owner - the owner must provide an extension of time to the contractor and compensate for the costs that arise from the delay Where inexcusable delays are caused by the contractor - the owner does not have to provide an extension of time. The owner is entitled to make a claim against the contractor to recover costs resulting from the delay To mitigate the risk of an inexcusable delay claim an owner or contractor can use a “float”, which is slack time built into a construction schedule 9

10. Nonexcusable Delays Caused By The Owner Excessive changes in requirement or design Defective or insufficient plans and specifications Owner interference Failure to provide adequate access to the site Failure to obtain necessary permits for the work Failure to coordinate the job when there are separate contracts awarded Failure of the consultant to provide or approve drawings in a reasonable time

11. Nonexcusable Delays Caused By The Contractor Contractor management and performance problems Failure to properly staff the job Poor workmanship Failure to order materials and equipment in a timely fashion Unavailability of labour, materials or equipment

12. Acceleration Acceleration occurs when: A contractor must complete its work faster than it had originally planned in the construction schedule ; OR Despite excusable delay meriting an extension of time, the owner requires the contractor to complete the construction as originally scheduled

13. 7 Requirements of Acceleration The contractor encounters one or more excusable delays, which would entitle it to an extension of time Timely notice by the contractor of such delay The contractor requests a time extension (in a timely way ) The owner fails or refuses to grant a time extension without reasonable delay The owner requires the contractor to complete within the original contract period (either expressly or impliedly by the owners actions ) The contractor reasonably attempts to accelerate its rate of performance The contractor incurs additional costs as a result of the acceleration

14. Classification of Construction Project Delay Critical and Noncritical Delays Delays that result in extended project completion are known as “critical delays,” and Delays that do not extend the project completion date are called “noncritical delays.” 14

15. Classification of Construction Project Delay Concurrent Delay Delays that occur in parallel path activities in the same time period are classified as concurrent delays. The concurrent delays may be: all on critical paths, all on noncritical paths, or distributed between critical paths and noncritical paths. 15

16. 16 Concurrent Delay Activity A EC Delay Activity B Activity C Activity D NE Delay Activity E Activity F Delay

17. Introduction to construction Claims Claim To demand, ask for, or take as one's own or one's due A demand for something as rightful or due. A basis for demanding something; a title or right. Something claimed in a formal or legal manner A claim is defined by the Canadian Law Dictionary , as an “assertion to the right to remedy, relief, or property” or a “failure to fulfill obligations under the contract.” 17

18. Introduction to construction Claims Definition of Construction Claim A simplistic definition of a claim may be- “A request, demand, or assertion of rights by a seller against a buyer, or vice versa, for consideration, compensation, or payment under the terms of a legally binding contract, such as for a disputed change.”  This definition can be viewed as a starting point for discussion.  A construction claim is more specifically a claim under the construction contract. 18

19. Introduction to construction Claims A claim is a request for compensation not anticipated in the terms of the original contract. A change order that is written, negotiated, and accepted without going outside the project team is not a claim. A  disputed  change order is a claim. Disputes can arise over schedule targets, performance guarantees, or any deviation from the original contract terms that has significant commercial consequences. Claims also include owner requests for compensation for the contractor’s failure to meet contractual terms. 19

20. Contract Claim An extra contractual payment, not legally due under the original contract or subsequent amendments An ex-gratia payment to the contractor It represents compensation paid to the contractor on grounds of hardship Becomes legal after the court upheld 20

21. Construction Claim “A construction claim consists of two major parts: (1) the entitlement section, which typically includes a detailed description of the actions or inactions of the party from whom relief is sought, entitling the claimant to compensation; and (2) the damages section, which sets forth the calculations and support for the compensation claimed.” Discussions on engineering and construction claims and disputes are quite complicated. 21

22. Disputes Disputes begins with grievances The grievances may be registered as CLAIM to communicate the sense of entitlement to the most proximate source of redress, the party perceived to be responsible A DISPUTE exists when a claim based on grievance is rejected either in whole or in part When a claim is made, the allegedly offending party may accept responsibility and accede to demand for redress. If this happens there is no dispute 22

23. Disputes Dispute may be defined as an assertion of right, claim or demand on one side, met by contrary claim or allegation or repudiation on the other. Dispute exists when one party makes a decision and the other party does not agree to it. When either party in contract makes certain issue or claim against other party or the later does not accept the claim raised by the first party. It is an assertion of a right, claim or demand on one side, It may be contradicted by the other side or made a contrary claim or allegation or repudiation from the other side 23

24. Claim and Dispute A claim is just an unresolved change or dispute. It may be either demand for money, time or an adjustment in contract terms. Claim exists generally when contractor believes that a change exists but the employer disagrees and/ or both parties agree that change exists but not agree on the impact and cost of the change. Claims not entertained lead to disputes. More simply, a claim is a request for compensation for damages incurred by any party to the contract. Claim is a disagreement that can not be resolved by mutual agreement and become construction disputes, which must be resolved by arbitration, litigation or other alternative dispute resolution methods as set forth in the contract. 24

25. Reasons for Arising Claim Competitive market resulting in low bids. Plans and specifications are incomplete. Contradictory statements in the contract documents. Inexperienced contractors: less familiar with contract documents and procedures. Contractors more aware of claims. Inability to recognize risks and failure to deal adequately with those including their sharing amongst the contracting parties 25

26. Reasons for Arising Claim& Dispute Risks being either ignored or dealt with arbitrarily Employer’s tendency to own all the rights and shift obligations to the contractor Contractor’s tendency to seek the weakness of contract clause only to make profit Lack of contractual obligation on the part of both parties Inability to define contract terms clearly 26

27. Sources or Causes of Claim and Disputes in Construction Contract Contract Document Contractor Consultant Employer Project Team External Factors Other reasons 27

28. Sources or Causes of Claim and Disputes in Construction Contract Contract Document is one of the main sources of disputes among the contracting parties. Other sources are: Employer, Contractor, Consultant, Organizations related to the projects and other environment. Contractors and consultants have separate contractual relations with the employer. Therefore, there is possibility of dispute raised by the contractor and/ or consultants against the employer 28

29. Sources or Causes of Claim and Disputes in Construction Contract Contract (Contract Documents): the main source of dispute because parties in contract want to interpret the contract documents for their own interest. Contract document mainly consists of: BoQ and Method of Measurement Drawing Specification Condition of Contract ( CoC ) 29

30. Sources or Causes of Claim and Disputes in Construction Contract Contractors and Dispute There may be the dispute between employer and contractor because, Contractor wants to maximize the profit but the employer wants to get high quality work accomplished in minimum cost, There is tendency of the contractor to increase quantities with higher rates, In many cases the contractor inflates the claims, Contractor generally tries to justify his/ her fault and shortcomings on to the employer, Misinterpretation of the clauses of the Agreement on his own interest, 30

31. Sources or Causes of Claim and Disputes in Construction Contract Consultants and Dispute There may also be the dispute in projects due to the consultants because, More authority vested on consultants by the contract document but are less accountable, Employer has to bear the cost resulting from the Consultant's decision, but consultants want to exercise their independent power, Consultant gets benefit of his job extended by any extension of time for completion but employer want to early completion, Variation Order claims and disputes as a result of inappropriate design and drawing, insufficient field survey, Lack of experience, skill, efficiency of the consultant who prepare these documents 31

32. Sources or Causes of Claim and Disputes in Construction Contract Project Team: Generally there are four components in a project team. If all components form a team and works as a single team, project can be run smoothly without dispute. Client: owner of the project and considered as the drafter of the contract. Consultant: FIDIC envisaged the impartial role of the consultant in contract administration. Contractor: the party who implement the contract. Dispute in contract basically depends on the contractor who generally initiates the dispute. Project Manager : the representative of the client on the work site who should fulfill the obligation of the client on the work site. 32

33. Sources or Causes of Claim and Disputes in Construction Contract tract External Factors: External factors such as Force Majeure, political factors, market factors, weather and social factor also have the important role in disputes in a contract. External factors can be grouped as: Political factors: Political Factors like Strike, Bands, disruption of work site are also important source of dispute. Weather : Weather factors e.g. unsuitable weather, heavy rain, flood etc influence the work progress and lead to the dispute . Market: Availability of construction materials, price fluctuations etc are another major source of dispute. Social factor: Social and cultural factor also influences the work progress and leads to the dispute. 33

34. Sources or Causes of Claim and Disputes in Construction Contract Other reasons: Inability to recognize risks and failure to deal adequately with those including their sharing amongst the contracting parties Risks being either ignored or dealt with arbitrarily Employer’s tendency to own all the rights and shift obligations to the contractor Lack of contractual obligation on the part of both parties Inability to define contract terms clearly Excessive high or low quoting of bill of quantities items by the Contractors Absence of timely and proper response by the Employer Absence of proper documentation regarding reason of delay and deviation in the contract 34

35. Management of Construction Disputes In the engineering and construction industry, contract claims and disputes are common issues.  They occur between: owners and contractors (prime), contractors and their subcontractors, contractors and (their) vendors, and at other contractual interfaces.  Resolution of the claims and disputes can be a costly, disruptive and aggravating process for all parties. If possible, claims and disputes should be avoided. But it is not always possible to avoid claims and dispute in construction contracts. Dispute may not be completely avoided but it can be minimized 35

36. Management of Construction Disputes Proper documentation and effective contract management/ administration will facilitate performance of work, assist in closeout and acceptance, and help to reduce the possibility of claims. Therefore, the parties involve should realize that the contract administration and documentation are the most important factors to reduce the dispute and the success of construction project. Dispute management issue may be, at least, as important as having a clear understanding of contractual terms and equitable risk allocation. 36

37. Management of Construction Disputes The dispute management process can be understood as: Recognition and identification of changes or the causes of claims; Notification to the engineer and the client; Systematic and accurate documentation; Analysis of time and cost impacts; Pricing; Negotiation; Dispute resolution and settlement. 37

38. Prepare Contract Documents well Understand your contract Formulate contract document on an risk sharing basis Communicate in time – timely issues of contractual notices Maintain complete project records in written to ensure a sound basis for supporting or safeguarding against claim or damages Make demand under Contractor’s default (e.g. daily logs, change order logs, cost accounting) Cash in on contractor’s weakness Work out the problems with your contractor at an early stage 38 Avoiding Claims and Disputes

39. Dispute Resolution The best way to settle disputes is to avoid them. Other way is to have amicable settlement or direct negotiations between the parties at an early stage. If no resolution is found establish in writing the fact which constitute the basis of dispute. Beyond this adjudication or dispute resolution board could be the solution for the resolution of disputes. Further way out is arbitration and the final settlement may be in the court. Dispute resolution can be broadly classified in two categories Litigation Alternative Dispute Resolution (ADR) 39

40. Dispute Resolution If a construction dispute cannot be resolved through negotiation and compromise between the owner and contractor. It will become necessary for an impartial third party to resolve the disagreement. The same is true, of course for disputes involving architect/engineers, subcontractors, and other parties on a construction projects. Dispute resolution process can also be classified as: Administrative remedy, Arbitration, Mediation and Litigation. Amicable settlement or Negotiation is also effective form of dispute resolution and also stated in Nepal Arbitration Act, 2055. 40

41. Alternative Dispute Resolution (ADR) Dispute settlement in the court is time consuming, formal and costly. A contract therefore has an Alternate Dispute Resolution Mechanism (ADR). It is a Third Party intervention for resolving the dispute between two parties. The forms of ADR are: Negotiation or Amicable Settlement Adjudication or Mediation Dispute Review Experts (DRE) Dispute Review Board (DRB) 41

42. Negotiation or Amicable Settlement Most disputes begin with negotiation, even if this phase is only the presentation and rejection of a change order request. With few exceptions, the best interests of both parties are served by resolving the dispute through negotiation. Negotiation is the least costly and the most flexible method of dispute resolution, allowing a high degree of control over issues and time factors. The matter in question can remain confidential, and the differing parties can focus on the specific technical issues while avoiding legal technicalities. Negotiation is also the method most likely to preserve the ongoing business relationship of the parties 42

43. Adjudication or Mediation Adjudication or mediation is a form of dispute resolution which is created by contract. The parties agree in advance that any dispute arising under the contract will be submitted to the mediation Adjudication has becoming popular ADR method in these days because of the following reasons: Unbiased person empowered to give decision also on legal issues. Not binding, and final subject to limitation of time. Provision in the contract but starts after dispute arises More informal and flexible Cheaper as expenditure starts only after dispute Time consuming as they have to know the past details Decision does not have legal backing Commonly provisioned with NEPCA as appointing authority 43

44. Dispute Review Experts (DRE) DRE is the contractual measure adopted to minimize dispute situation and to resolve disputes. It has the following features- One member, experienced with the type of construction. Issues recommendation to the Employer. Not binding, and final subject to limitation of time. Party can proceed to arbitration if decision is not acceptable Used in large contracts (PWD) 44

45. Dispute Review Board (DRB) DRB is like DRE in other aspect but it has three member panels. Other features are- One member selected by each of the disputing party. The third member selected by the other two. Decision is not legally binding, and final subject to limitation of time. DRB is organized before construction starts. They meet at the job site periodically Familiar with project procedures, contracting parties, progress, and site conditions etc. Help the parties to solve the problems before they escalate into major disputes Party can proceed to arbitration if decision is not acceptable 45

46. Arbitration method of disputes resolution which is created by contract. The parties to the contract agree to submit any dispute arising under the contract to arbitration. The parties to the contract are free to designate any arbitrator or arbitrators they choose, as well as the rules which will govern the arbitration proceeding. It is a method of dispute resolution where by the parties to a contract agrees to submit any disputes arising out of the contract. Arbitration awards are enforceable in court and may be appealed only on narrow grounds involving fraud or conflict of interest. 46

47. Benefits of ADR in Contract ADR is applied in construction contract because of the following advantages against litigation: Judges of parties choice Expertise Convenience of law language, venue and procedure Expeditious adjudication less expensive Privacy Finality No strict legal rigor 47

48. World Bank Contract value more than US$ 25 million – DRB Contract value less than US$ 25 million - DRP/Adjudicator ADB For any value of contract – Adjudicator FIDIC Arbitration as specified or as per the rules of International Chamber of Commerce (ICC) 48 ADR Provisions

49. PPMO Large contract FIDIC proceedings or Single Disputes Expert or Dispute Review Board of three members PPMO Medium Contract Provision of Adjudicator PPMO Small Contract Provision of Adjudicator 49 ADR Provisions

50. Act. Incorporates basic principles of UNCITRAL Model law. Provides supremacy of the contracting parties in the appointment of arbitrators, applicable law, venue of arbitration, language and procedure followed by the arbitrators. Provide time frame to reduce delay in court procedures. Arbitration is guided as per the conditions of contract. The no. of arbitrators, unless otherwise stated in the contract, will be three. Unless and otherwise stated in the contract two arbitrators will be appointed by each party and third will be appointed by both appointed members, the third member will work as the principal arbitrator. 50 Arbitration Act, 2005

51. If there is no provision regarding the appointment of arbitrators in the contract or failed to appoint arbitrator, either party may apply to Appellate Court for the appointment of the arbitrator. Arbitrator has to take oath before starting his work. Unless otherwise stated in the contract agreement the arbitrator should give his Arbitral Award within 120 days after the receipt of all the necessary documents. If either party is dissatisfied with the award, can to go the court within 35 days of the notice of the award. In case of difference of opinion among the arbitrators and fail to enter into decision by majority the opinion of the Principal arbitrator will prevail. 51 Arbitration Act, 2005

52. Respondent normally tend to be passive. Decisions normally tend to be awarded to Contractors. Documentation and presentation of statements of claims and defense are weak. Heavy representation by lawyers dominates the proceedings and prolong the process. Very few experienced arbitrators in the country. Post award litigation through petition has been common and is extremely time consuming 52 Arbitration Experience in Nepal

53. THANK YOU 53