Shaikh Sk Sameer 1, Dr Rajendra B. Magar 2, Fauwaz Parkar 3 1 M. E. Construction Engg. & Management, Kalsekar Technical Campus, New Mumbai, India

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1 Claims and Disputes in Construction Projects Shaikh Sk Sameer 1, Dr Rajendra B. Magar 2, Fauwaz Parkar 3 1 M. E. Construction Engg. & Management, Kalsekar Technical Campus, New Mumbai, India 2 Head & Associate Professor, Civil Engineering Department, Kalsekar Technical Campus, New Mumbai, India 3 Associate Professor, Civil Engineering Department, Kalsekar Technical Campus, New Mumbai, India Abstract Complex construction can likewise result in complex claims and disputes. Disputes arising out of several types of claims have become an inherent feature of the construction industry. An overabundance of studies have been undertaken to identify the causes of disputes so as to determine the most appropriate prevention and resolution strategies because construction claims are considered to be one of the most disruptive and unpleasant events of a project which contribute to delaying a project and / or increasing its costs. In such a cases, finishing a pro1ject on schedule becomes a difficult task to accomplish in already uncertain, complex, multiparty and dynamic environment of construction projects. This study provides an introduction to the claim management and dispute resolution techniques that are frequently encountered in the construction industry. Because of the substantially increasing number of construction claims nowadays, the implementation of the effective construction claim and dispute management is needed. Disputes between the parties to construction projects are of great concern to the industry. Both the study of construction industry disputes, and the causes of those disputes, is essential. It can be concluded that construction disputes are a cause of concern in every construction project and the solution to this problem is to avoid and cautiously manage them for smooth running of construction process. The fundamental conclusion from1 this study is that "people" hold the key to avoiding contract disputes. I. INTRODUCTION The construction industry is a complex and competitive environment in which participants with different views, talents and levels of knowledge of the construction process work together. In this complex environment, participants from various professions, each has its own goals and each expects to make the most of its own benefits. In the construction industry, since differences in perceptions among the participants of the projects, conflicts are inevitable. If conflicts are not well managed, they quickly turn into disputes. Disputes are one of the main factors which prevent the successfully completion of the construction project. Thus, it is important to be aware of the causes of disputes in order to complete the construction project in the desired time, budget and quality. Construction claims are also found in almost every construction project. It is the seeking of consideration or change by one of the parties involved in the construction process. Nowadays, the substantially increasing volume of claims are the result of the rising complexity of the projects, the price structure of the construction industry and the legal approach taken by a lot of owners and contractors. There are several researches that show the order of magnitude of the effects from construction claims on cost and time of the projects. During the past two decades, serious disputes concerning construction contracts have become increasingly common in construction projects. It is common practice for designers, contractors and owners to negotiate small and uncomplicated disputes, but larger and more complex ones frequently hinder the project through involvement with lengthy legal issues. Typically, if the parties cannot reach a resolution themselves, expensive, time-consuming legal procedures begin, which severely affects all the participants. Disputes are a reality in every construction project. Without the means to address them, minor issues can fester and grow, with crippling consequences for project participants. The rising cost, delay and risk of litigation in construction disputes has prompted the construction industry to look for new and more efficient ways to resolve these disputes outside the courts. It has been found that when resolution occurs sooner rather than later and when this resolution is relatively confrontational, there is a much better chance that litigation can be avoided. Waiting until the end of a project to address a dispute inevitably makes it harder and more expensive to resolve. Parties involved in a construction dispute, or indeed any commercial dispute, generally prefer to retain control over the outcome and maintain a working business relationship. II. LITERATURE REVIEW A. NEED FOR LITERATURE REVIEW Literature review is absolutely essential for any work, as it gives guidance and direction to it. Apart from this, the present state of the field, any difficulties in its implementation, success stories can be highlighted based on a proper literature review. 251

2 In this study, the website has been extensively surfed, and journal papers related to use of statistics in construction in different parts of the globe have been mostly referred to. Kulkarni and Pipmlikar 8 (2015) in their work, Comparison of Arbitration and Dispute Resolution Board Mechanisms on Infrastructure Projects stresses on a point that disputes are taking longer to resolve and so dispute values increasing. The disputes arise due to the various reasons and the choice of resolution mechanisms in India depends mainly on arbitration. Although dispute resolution board seems promising as a method for dispute resolution, it is less opted. The specific objective of this study is to compare the arbitration process as a method of dispute resolution with the DRB particularly in the context of infrastructure projects. The maximum time required to resolve the disputes is 9 years for the arbitration and 6 years for the DRB. The microanalysis presented in this paper clearly indicates that the process of dispute resolution based on DRB is far more effective than the Arbitration. Khekale and Futane 2 (2015) in their paper Management of claims and disputes in construction industry tries to explain the different types of claims and disputes arises in construction industry and the different methods for their prevention and resolution. Their work provides an introduction to claim management and dispute resolution techniques that are frequently encountered in the construction industry. Because of substantially increasing number of construction claim nowadays, the implementation of the effective construction claim and management is needed. It can be concluded from the paper that the construction disputes are a cause of concern in every construction projects and the solution to this problem is to avoid and cautiously manage them for smooth running of construction process. Pawar and Patil 7 (2014) in their work Conflicts and disputes in construction projects tries to answer the question, are some construction project are more prone to contract disputes than the others? If so, can these projects be identified before construction begins? This paper analyzed the effect of different project characteristics on the occurrence of contract disputes. Their paper covers various definitions of conflicts and disputes. The attempt has been made to differentiate between conflicts and disputes. It is difficult, if not possible to completely avoid contractual problems, educating and training construction personnel to increase their ability to resolve problems, and establishing alternative dispute resolution mechanism. The fundamental conclusion from their research is that people hold the key to avoiding contract disputes. Mane and Pimplikar 1 (2012) in their work Dispute A Case Study, carry out the detailed case study on construction disputes. One of the greatest challenges facing the construction industry during the last couple of decades has been how to resolve disputes arising in construction contracts in a timely and efficient manner with minimum financial costs. III. CONFLICT, CLAIM AND DISPUTE A. CONFLICT It would look as if that the word conflict is infrequently used in the construction industry (at least in communications between parties). This is most probably due to the controversial nature of the word. The word conflict and the idea of conflict is still central to many of the academic publications and critiques on disputes and the resolution of disputes. It is simply Serious disagreement and agreement about something important conflict is inevitable in any society and more mostly that conflict can be viewed as either positive or negative. B. CLAIM Claim is defined as a request for compensation for damages incurred by any party to a contract. During the execution of a project, several issues arise that cannot be resolved among project participants. Such issues typically involve contractor requesting for either time extension or reimbursement of an additional cost, or sometimes both. Such requests by the contractor are referred to as claim. If the owner accedes to the claim of contractor and grants him extension of time or reimbursement of additional cost, or both, the issue is sorted out. However, if the owner does not agree to the claim put out by contractor and there are differences in the interpretations, the issue takes the form of a dispute C. Dispute It is any contract question or controversy that must be settled beyond the jobsite management 252

3 Fig 3 conceptual model of conflict, claim and dispute D. Types of construction claims 1) Contractual Claim: Contractual claims are the claims that fall within the specific clauses of the contract. In well-accepted standard contracts, there are a lot of provisions which entitle both the contractors and the employers to claim for the appropriate compensation such as ground conditions, valuation, variations, late issue of information, and delay in inspecting finished work 2) Extra-contractual Claim: This type of claims has no specific grounds within contract but results from breach of contract that may be expressed or implied, i.e. the extra work incurred as a result of defective material supplied by the client. 3) Ex-Gratia Claim: Ex-gratia claims are the claims that there is no ground existing in the contract or the law, but the contractor believes that he has the rights on the moral grounds, e.g. additional costs incurred as a result of rapidly increased prices. 4) Extension of Time Claim: Each construction contract clearly stipulates the date (or period) for the contractor to complete work. The purpose of specifying a date of completion is to facilitate claims for damages by the Employer for any delays created by the contractor in performing their work. The date for completing the project will be specified, either in the tender documents, or otherwise agreed to by the contractor, before the contract is awarded. In the case of no specific date for completion being mentioned in the contract, the law implies that the contractor must complete work within a reasonable time. E. Disputes in construction industry Given the uncertainties involved in a construction project and the magnitude of funds involved, it is only natural to have disagreement between parties, but these need to be resolved. While most of such day-to-day differences are resolved in an amicable manner, without having to resort to a more formal mechanism, the parties at times agree to disagree and seek redressal through independent intervention. Although, in principle, the discussion falls under the purview of construction law, effort has been made to discuss some of the aspects related to disputes and dispute resolution with as little legalese as possible. Technically, a dispute implies assertion of a claim by one party and repudiation thereof by another. Thus, neither a mere claim without repudiation, nor a pair of claim and counterclaim, can be called a dispute. It is any contract question or controversy that must be settled beyond the jobsite management staff. Construction Industry Institute (CII) defines a dispute as, a problem or disagreement between the parties that cannot be resolved by on-site project managers. IV. METHODOLOGY A. Dispute settlement Human conflicts ere inevitable. Disputes are equally inevitable. It is difficult to imagine a human society without conflict of interests. Disputes must be resolved at minimum possible coat both in terms of money and time, so that more time and resources are spared for constructive pursuits. For resolution of disputes there is a legal system in every human society. Every injured person is supposed to go to courts for his redressal. All the legal systems are trying to attain the legal ideal and whatever there is a wrong there must be a remedy so that nobody shall have to take law into his own hands. Courts have become over crowded with litigants. 253

4 According to an official report of the year 2000, there is a pendency of over 2 CRORE cases in our District Courts. Naturally, litigants have to face so much loss of time and money that at long last when a relief is obtained; it may not be worth the cost. B. Methods Of Dispute Resolution Fig Procedure of claim and dispute settlement 1) Dispute Resolution Board: As is well known, the procedure for the settlement of disputes in Clause 20 of the New Red Book provides that disputes must be submitted initially to the Engineer for decision before they may be referred to arbitration. The limitations of this procedure are also well known. As the Engineer is hired and paid by, and administers the contract on behalf of, the Employer, he is not independent of the parties and cannot reasonably be expected to be always impartial in the settlement of disputes. The significance of the new procedure for resolving disputes before arbitration which FIDIC proposes is that it provides for a decision maker who is completely independent of the parties and who should be able always to act impartially. Under this new alternative, instead of having disputes submitted to the Engineer for settlement before arbitration, they would be submitted to the Board. Where this alternative procedure is adopted, the Engineer would no longer have any involvement in deciding disputes under Clause

5 How will the Board be constituted and how will it function. Essentially, it is proposed that the Board be constituted and function as described below. 2) Constitution of Board : Under the FIDIC scheme, the Board is to be formed at the beginning of the construction contract. Thus, the members of the Board would either be named in the contract itself or be selected by the parties within 28 days of the Commencement Date (as defined). The number of members may be one or three. FIDIC states that the main factors which should be taken into account in deciding whether to have one or three are the estimated Contract Price (if it exceeds US$ 25 million, FIDIC suggests three members) and the types of activities to be carried out. As a general rule, the members should be engineers or other construction professionals with experience in the type of work involved and in the interpretation of contract documents. Exceptionally, a member may be a lawyer. Thus, in the case of the "Panel" which settles disputes under the Channel Tunnel contract (which is similar to the Board), the Chairman is a lawyer. The particular qualifications of the members should depend; it is suggested, on the anticipated nature of the issues that they are likely to be called upon to decide. If there is to be only one member of the Board, then he or she is to be chosen by mutual agreement of the parties. If there are to be three members, then each party should nominate one for approval of the other party, and the parties should mutually agree on the third. As in the case of the single member Board, all members are to be agreed upon by both parties. The purpose of this requirement is to ensure that the entire Board has the confidence of the parties. In the case of a one-member Board or the chairman of a three-member Board, it is accepted that the Employer may propose candidates in die invitation to tender documents for tenderers to accept. However, FIDIC rightly emphasizes that tenderers should not be placed under pressure to accept candidates proposed by the Employer, and neither the candidate for a one-member Board nor the Chairman of a threemember Board should ordinarily have the nationality of either party. If the parties cannot agree on any appointment, then the position is to be filled by the appointing body or official (who may be the President of FIDIC) named in the invitation to tender. Each member must be, and remain throughout the contract period, independent of the parties. He must have no interest, financial or otherwise, in either of fee parties and must not have been employed by either of them or the Engineer (unless this has been disclosed). Thus, each party-appointed member is not a representative of the party naming him although he can be of the same nationality as that party. When making a decision, each member is required to act impartially, as is true of the Engineer under the Red Book. The Employer and the Contractor are each responsible for one-half of the Board's remuneration. If one party fails to pay its share, then the other party may pay on its behalf and recover the amount not paid, together with damages, from the parties in default. If a Board member's invoices are not paid in due time then he may either suspend his services until his invoices ate discharged or resign his appointment. 3) Appointment of DAB/DRB: Most standard form contracts in use for major projects incorporate provisions for avoiding timeconsuming and expensive disputes, in the first place and to resolve them amicably and quickly in the second place. To this end project ongoing dispute resolution or adjudication process is embodied in the conditions of the contract right at the time of signing of the contract. The parties agree to jointly appoint an expert in the field of contract works as Dispute Review Expert, or three Members forming Disputes Review Board called DRB, who are mutually agreed by the parties within the time specified to do so after signing of the contract and preferably soon after commencement of the work under the contract. The contract also provides for fees and expenses payable to the Members which are equally shared as also filling of the vacancy due to failure by any party to appoint its nominee Member. The contract generally names an independent body or organization as appointing authority who is to appoint Members for and on behalf of the erring part. The duties of the DRE or DRB include periodical visits (generally one in three month at least) to the site and inspection of the project and holding joint meetings with the representatives of the parties to identity problem areas, if any, and suggest measures to remedy the situation before it turns into a dispute. Also, any party can refer a decision of the engineer not acceptable to it to the DRE or DRB. The DRB or DRB will conduct arbitral-like proceedings and after hearing the parties give recommendations to the patties within a stipulated time limit generally of not more than eight weeks. The parties are bound to follow the recommendations given by the DRE or DRB pending resolution of the dispute, if any, by the mode suggested in the contract. The conditions of the contract do not make the decision of the DRE or DRB final and binding on the parties, if any party dissatisfied with the decision serves notice on the other party, within 28 days after receiving the recommendation / decision of the DRE or DRB, of its intention to refer the matter to arbitration. If no such notice is given the decision attains finality. Again in such a case a party may not have lost its right to challenge the decision in a Court of law, it is respectfully submitted, though the remedy by arbitration may not be available to the party under the terms of the contract and the Court is satisfied that the matter deserves its consideration. 255

6 If a dispute of any kind whatsoever arises between the Employer and the Contractor in connection with, or arising out of, the Contract or the execution of the Works, including any dispute as to any opinion, instruction, determination, certificate or valuation of the Engineer, the dispute shall initially be referred in writing to the Dispute Adjudication Board (the "Board") for its decision. Such reference shall state that it is made under this Sub-Clause. Unless the member or members of the Board have been previously mutually agreed upon by the parties and named in the Contract, the parties shall, within 28 days of the Commencement Date, jointly ensure the appointment of the Board. The Board shall comprise suitably qualified persons as members, the number of members being either one or three as stated in the Appendix to Tender. If the Board is to comprise three members each party shall nominate one member for the approval of the other party, and the parties shall mutually agree upon and appoint the third member (who shall act as chairman). 4) Arbitration: Arbitration is perhaps the most commonly used mechanism for settlement of technical disputes in a construction project. It is a quasi-judicial process to the extent that legal protocol is largely observed, and it is important that the arbitrator, who basically acts as a judge, understands legal procedures. In India, the Arbitration and Conciliation Act, 1996, provides the legal framework for the arbitration process. In principle, collection and interpretation of evidence, examination and crossexamination of witnesses, etc., are some examples of essentially legal matters, which an arbitrator needs to have a sound understanding of. However, a basic belief in principles of natural justice and a practical approach are a hallmark of a successful arbitrator. He should be able to guide and provide a direction to the proceedings, which could be quite tough, especially when the parties to the dispute are represented by professional lawyers. In fact, the law has now added a new dimension to the arbitration process by empowering the arbitrators to conciliate and help the parties in arriving at a fair compromise or an equitable settlement of the case before him. As far as the number of arbitrators is concerned, much like the judicial system, technical disputes can also be resolved by single arbitrators, or a panel of several arbitrators, and though the parties are free to determine the number of arbitrators, it should be ensured that the number is odd, so that a situation of a tie in an award is preempted. Often, one arbitrator each is nominated by the contractor and the owner, and these individuals together choose a third colleague arbitrator, to complete the constitution of a bench of arbitrators. 5) Alternate Dispute Resolution Methods: Although Arbitration does provide a better way for settlement of the disputes compared to the litigation yet it was not able to come up to the expectations of the parties. They felt that a quicker and cheaper method could be evolved. This led to resolution of alternate dispute resolution methods like mediation, conciliation, negations, etc. However in this methods in resolution of dispute are by basically mutual agreement and no judgment it passed. If the parties are not satisfied then they can go in for Arbitration or litigation as the case may be. As already mentioned no understanding between the parties can be so perfect so as to avoid of disputes. However with the changing scenario the parties involved have realized that it in their best interests for settling the claims in the earlier stage itself. This is one of the major reasons for increasing popularity of the ADR methods. They have opened up a new avenue for economic and fast settlement of disputes outside the judicial system. The ADR methods include: a) Negotiation: Negotiation is the process by which one or more parties come to a mutually beneficial agreement. This is a quick, economic and efficient method as the parties settle the claim by direct communication. It is a sort of approach in which each party tells the other one, what it can give to the other party and what does it expects in return. All negations share one common goal of having both parties coming out better than what they started. This requires a great deal of mutual trust, confidence and belief that problems can be sorted out through mutual discussions and meetings b) Conciliation: The term "arbitration" is used in several senses. It may refer either to a judicial process or to a non-judicial process. A judicial process is concerned with the ascertainment, declaration and enforcement of rights and liabilities as they exist, in accordance with some recognized system of law. An industrial arbitration may well have for its function to ascertain and declare, but not to enforce, what in the arbitrator's opinion ought to be the respective rights and liabilities of the parties, and such a function is non-judicial. Conciliation is a process of persuading parties to reach agreement, and is plainly not arbitration; nor is the chairman of conciliation boards an arbitrator. c) Mediation: Mediation is a method of seeking passive help of a third party to resolving the dispute. Essentially, the parties sit down for negotiation. However they do so in presence of a mediator. The mediator tries to give the discussion a meaningful and positive turn. He however intervenes only when necessary. The role of the mediator is basically to clarify the issues involved. He has to do the following things: i) Clarify the issues which are to be discussed. 256

7 ii) Keep the subsequent discussion and negotiation on track. iii) Helping the parties to come to a decision such that the parties are in a win-win situation as far as possible. iv) Cool down the tempers which are bound to go up in the course of the discussion. Even though the process seems quiet informal on the surface it is a very effective method, the process has proved itself in settling various disputes and time and again proved itself efficient method of dispute resolution and claim settlement. IV. CONCLUSION A. Disputes between the parties to construction projects are of great concern to the industry. B. An effective claim management process is essential to ensure that any contractual claims arising are dealt with in a way that is fair to each involved party. C. Better training in the area of contract management to the professionals can be said to be of a great help for better understanding of the contract. D. The requirement of contractor involvement during the design process can improve constructability and reduce the probability of design changes. E. The evolution of dispute resolution processes has led to the development of a range of alternative dispute resolution opportunities. F. Both ADR and DRB are the most efficient methods of solving the disputes because they give less time to give award and also the procedures filled by them are in interest of both parties. G. Whereas the decisions through court cases are more time consuming as well as money consuming. For amicable and earlier solution of claims ADR and DRB are the best. V. ACKNOWLEDGMENT The successful completion of any task will be incomplete without complimenting those who made it possible and whose guidance and encouragement has made our efforts successful. We express our deepest appreciation and sincere gratitude to Dr Sunil S. Pimplikar for their valuable guidance, constructive criticism and timely suggestions without which this work would not have been possible. REFERENCES [1] Alaknanda Mane and S.S. Pimplikar, Dispute A Case Study, International Journal of Engineering and Advanced Technology (IJEAT) ISSN: , Volume-1, Issue-5, June 2012, pp [2] Chaitanya Khekale, Nityanand Futane, Management of claims and disputes in construction industry, International Journal of Science and Research Volume 4 Issue 5, May 2015 pp [3] Manvendra Sinha, Dr. A. S. Wayal, Dispute Causation in Construction Projects, IOSR Journal of Mechanical and Civil Engineering, (IOSR-JMCE) ISSN: , pp [4] M. Osama Jannadia, Sadi Assaf, A. A. Bubshait, Allam Naji, Contractual Methods for Dispute Avoidance and Resolution (DAR), International Journal of Project Management, 18 (2000), pp [5] N. Jaffar, A. H. Abdul Tharim, M. N. Shuib, Factors of Conflict in Construction Industry: A Literature Review, The 2nd International Building Control Conference 2011, Proceedings of Engineering 20 (2011), pp [6] Nicholas Gould, Dispute Resolution in the Construction Industry: An Overview, Construction Law Seminar: Introduction to the Basics, Fenwick Elliott LLP, 9 Sept [7] Omkar Pawar, Rahul Patil, Conflicts and disputes in construction projects, International Journal of Innovation in Engineering and technology Volume 3 Issue 3, Feb 2014 pp [8] Purva S Kulkarni and S.S. Pimplikar, Comparison of Arbitration and Dispute Resolution Board Mechanisms on Infrastructure Projects, Journal of Civil Engineering and Architectural Research, ISSN: , Volume 1, Number 10, Oct 2015, pp