Best practice in construction disputes : avoidance, management and resolution [1 ed.] 9780409333077, 0409333077

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Best Practice in Construction Disputes: Avoidance, Management and Resolution Dr Paula Gerber LLB (QUT), MSC (Distinction) (King’s College, London), LLM (Mon), PhD (Melb) Associate Professor, Law School, Monash University Admitted as a Legal Practitioner in Queensland, New South Wales and Victoria, as a solicitor in England and Wales and as an attorney in California.

Brennan Ong LLB, BCom (Mon) Research Assistant and PhD Candidate, Law School, Monash University Admitted as a Legal Practitioner in Victoria.

LexisNexis Butterworths Australia 2013

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LexisNexis, Miamisburg, OHIO National Library of Australia Cataloguing-in-Publication entry Author: Title: Edition: ISBN: Notes: Subjects: Other Authors/Contributors: Dewey Number:

Gerber, Paula. Best practice in construction disputes: avoidance, management and resolution. 1st ed. 9780409333077 (pbk). 9780409333084 (ebk). Includes index. Dispute resolution (Law) — Australia. Ong, Brennan. 347.9409.

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Foreword It is a privilege to write a foreword to this important work: Best Practice in Construction Disputes: Avoidance, Management and Resolution. Ranging over its 19 chapters, Dr Paula Gerber and Brennan Ong comprehensively analyse the issues in this critical area. They do so in a penetrating and lucid style, supported and animated by a depth of scholarly research which is unparalleled in the field. This book is the first to take a holistic approach to the role of construction lawyers and industry professionals in the avoidance, management and resolution of conflicts which arise in this battle-scarred field of endeavour. Indeed, after considering the concepts described in this work, it is hard to avoid the conclusion that both construction and legal professionals have a duty to actively promote the implementation of the dispute avoidance, management and resolution methodologies described in this book. The Dalai Lama gives moral force to this suggested duty in the quotation selected by the authors which they include in Chapter 1: As long as human beings have a conscience and intellect to think about the future, definitely there will be conflicts. Conflicts are made by human beings and methods to solve them must be created through human intelligence. It is wise to solve the conflicts through dialogue, not through weapons.

While standard texts in construction law may devote one, or perhaps two, chapters to disputes, to the extent that they do address the issue, the focus tends to be on dispute resolution through alternative/appropriate dispute resolution processes (ADR), arbitration and litigation. What is all too often ignored is the emergent trend towards dispute avoidance and dispute management. This gap is admirably filled by this work. It provides perhaps the first in-depth and scholarly analysis ever devoted to the life cycle of construction disputes, covering both theoretical and practical aspects. The authors catalogue, describe and analyse best practice in the avoidance and management of disputes, including the very latest techniques, set alongside and compared with the more traditional methods of dispute resolution, such as the various ADR methods, and the processes of adjudication, arbitration and litigation. They achieve this in a manner which has never before been attempted.

The book is nothing less than cutting-edge in its approach. A good example is provided in Chapter 4 which describes Dispute Avoidance Processes (DAPs). These are described by the authors as involving a relatively recent innovation: … designed to change the culture on construction projects from one that facilitates and fosters disputes to one that enables the proactive prevention of disputes, and the ‘real time’ resolution of those disputes that the parties have not been able to successfully avoid. DAPs enable parties to respond to problems with sustained thinking rather than finger pointing, thus facilitating resolution rather than escalation of conflicts.

The authors astutely liken this groundbreaking process in the construction industry to the holistic approach adopted by the medical profession to developing strategies for preventive medicine. The importance of approaches such as these cannot be overstated. As Gerber and Ong observe in Chapter 1, it has been estimated that the direct costs of resolving construction disputes in Australia amount to between AUD$560–840 million per year, and when added to the avoidable costs of disputes (such as delay and opportunity costs), total waste exceeds AUD$7 billion annually. A similar level of wastage has been reported in both the United Kingdom and the United States. To these ‘hard dollar costs’ must be added other incalculable costs such as strained commercial relationships, and the drain of time, energy and resources away from other potentially profitable ventures. The practical utility of the work springs from the page. This is no treatise in experimental dispute management theory. Guidance is given throughout on implementation of the principles in practice, ranging from observations on inappropriate pleadings in litigation (Chapter 18), to contact points for the two Australian organisations dedicated to promoting the use of Dispute Resolution Boards (DRBs). The authors point out that despite a slow start in Australia, a number of construction projects are now successfully using DRBs, underscoring a growing recognition of the practical value of dispute avoidance mechanisms. The techniques for the management and resolution of construction disputes, which are examined in this work, have application throughout the world. This book will continue to provide insights of great value and set the benchmarks for contemporary reform and further development in this field for many years to come. Paula Gerber and Brennan Ong are to be congratulated for their foresight in

conceiving of the concepts behind this reference work, and for their tenacity and skill in bringing alive and imprinting on paper their ideas and strategies for the avoidance, management and resolution of construction disputes for the practical use, stimulation and enjoyment of us all. Justice Peter Vickery Judge-in-Charge, Technology, Engineering and Construction List, Supreme Court of Victoria. 13 March 2013

Preface This book emerged from our commitment to the construction industry and our deep-seeded belief that the adversarial culture which plagues many projects significantly reduces the prospect of a job being finished on time, within budget and with no disputes. We are convinced that there is a better way of managing construction contracts and projects so as to facilitate the efficient management of conflicts and reduce the risk of disputes. We hope this book can play a modest role in helping to bring about the change that is necessary if the construction industry is to achieve greater productivity, profitability and prosperity. We would like to thank the wonderful team that greatly assisted us with this book. A number of research assistants provided invaluable help, namely, Natasha Burns, Jacqueline Chan, Tom Denehy, Daniel Nguyen and Diana Serra. Their hard work was instrumental in completing this contemporary analysis of best practice in the avoidance, management and resolution of construction disputes. We would like to particularly thank Dr Paul Gerber for his careful proof reading of the manuscript. He provided much inspiration and guidance, but sadly passed away before this book was published. This tome was produced within the Monash University Law School, which provided the intellectual environment, funding and support that ensured its successful completion. The LexisNexis Butterworths team provided valuable professional support and guidance, particularly the wonderful Catherine Britton and Hayley Moore. Their expertise and patience was much appreciated. Justice Peter Vickery, Judge in Charge of the Technology, Construction and Engineering List of the Supreme Court of Victoria has always been a great advocate of construction law scholarship and a wonderful mentor to aspiring construction lawyers. His Foreword to this book reflects his commitment to the discipline of construction law and those working in this vibrant field. Finally, we would like to acknowledge our families, Vanessa, Benjamin and Jasmin, and Lauren, Alex, Ethan and Oliver. We are grateful for the space they

gave us to work on this labour of love. Without their devotion, good humour and encouragement this book would never have seen the light of day. Paula Gerber Brennan Ong August 2013

Table of Cases References are to paragraphs

A Absolute Rentals Ltd v Glencor Enterprises Ltd (2000) CILL 1637 …. 16.1 Adami v Ethical Standards Officer [2005] EWCA Civ 1754; [2006] BLGR 397 …. 16.53 Age Old Builders Pty Ltd v Swintons Pty Ltd [2003] VSC 307 …. 13.12 Amaltal Corp Ltd v Maruha (NZ) Corp Ltd [2004] 2 NZLR 614 …. 17.42 AMCI (IO) Pty Ltd v Aquila Steel Pty Ltd [2009] QSC 139 …. 3.19 AMEC Civil Engineering Ltd v Secretary of State for Transport [2005] ECWA Civ 291 …. 1.15 Anaconda Operations Pty Ltd v Fluor Australia Ltd …. 17.30 Aon Risk Services Australia Ltd v Australian National University (2009) 236 CLR 175 …. 18.21 Arcadis UK Ltd v May and Baker Ltd (t/a Sanofi) [2013] EWHC 87 …. 15.3, 15.9 Australian Granites Ltd v Eisenwerk Hensel Bayreuth Dipl-Ing Burkhardts GmbH [2001] 1 Qd R 461 …. 17.42

B Badgin Nominees Pty Ltd v Oneida Ltd [1998] VSC 188 …. 13.12 Balfour Beatty Construction Ltd v Mayor & Burgesses of the London Borough of Lambeth [2002] EWHC 597 …. 15.3, 15.9, 15.10, 16.63 Banner Holdings Ltd v Colchester Borough Council [2010] EWHC 139 (TCC) …. 16.30 Baulderstone Hornibrook Engineering Pty Ltd v Kayah Holdings Pty Ltd (1997) 14 BCL 277 …. 13.9, 15.1 Beale v Government Insurance Office of NSW (1997) 48 NSWLR 430 …. 15.12, 16.53 Beaufort Developments (NI) Ltd v Gilbert-Ash NI Ltd [1998] UKHL 19 …. 1.43 Bedfordshire County Council v Fitzpatrick Contractors Ltd (2001) 62 Con LR 64 …. 3.19 Bernhard’s Rugby Landscapes Ltd v Stockley Park Consortium (No 2) [1998] BLR 715 …. 1.45 Blake Construction Co v C J Coakley Co, 431 A2d 569 (DC 1981) …. 1.26 Bottoms v York Corporation (1892) 2 HBC 208 …. 1.24 Bouygues UK Ltd v Dahl-Jensen UK Ltd [1999] EWHC 182 …. 16.59 —v— [2001] 1 All ER (Comm) 1041 …. 16.60 Brodyn Pty Ltd v Davenport [2004] 61 NSWLR 421 …. 15.11, 16.65, 16.66 Burger King Corporation v Hungry Jacks Pty Ltd [2001] NSWCA 187 …. 3.18, 3.19

C C & B Scene Concept Design Ltd v Isobars Ltd [2002] BLR 93 …. 15.10, 16.60 —v— [2002] EWCA Civ 46 …. 16.60 Campagnie Financière et Commerciale du Pacifique v Peruvian Guano Co (1882) 11 QBD 44 …. 18.26 Capricorn Inks Pty v Lawter International (Australasia) [1989] 1 Qd R 8 …. 13.12 Carillion Construction Ltd v Devonport Royal Dockyard Ltd [2005] EWCA Civ 1358 …. 15.3, 15.9, 16.64 Carus-Wilson and Greene (1886) 18 QBD 7 …. 13.11 Charles Church Developments Ltd v Stent Foundations Ltd [2007] EWHC 855 …. 18.11 Chase Oyster Bar v Hamo Industries Pty Ltd [2010] NSWCA 190 …. 16.66 Comandate Marine Corp v Pan Australia Shipping Pty Ltd (2006) 157 FCR 45 …. 17.42, 17.43 Commonwealth v Jennings Constructions Pty Ltd [1985] VR 586 …. 1.13 Compass Group UK and Ireland v Mid Essex Hospital Services NHS Trust [2012] EWHC 781 …. 3.19 Concrete Developments Pty Ltd v Queensland Housing Commission [1961] Qd R 356, 360 …. 1.13 Cott UK Ltd v FE Barber Ltd [1997] 3 All ER 540 …. 13.12 Cowlin Construction Ltd v CFW Architects (A Firm) [2003] EWHC 50 (TCC) …. 1.15 CRW Joint Operation v PT Perusahaan Gas Negara (Persero) TBK [2011] SGCA 33 …. 6.22, 6.23

D Darrell Lea (Vic) Pty Ltd v Union Assurance Society of Australia Ltd [1969] VR 401 …. 15.22 Davies v Eli Lilly & Co [1987] 1 All ER 801 …. 18.25 Dawnays Ltd v FG Minter Ltd (1973) 71 LGR 162 …. 16.11 Discain Project Services Ltd v Opecprime Development Ltd (No 1) [2000] BLR 402 …. 15.11 —v— (No 2) [2001] BLR 287 …. 15.11

E Edmund Nuttall Ltd v R G Carter Ltd [2002] EWHC 400 (TCC) …. 1.15 Edward Campbell v OCE (UK) Ltd [2005] EWHC 458 …. 13.9 Ertech Pty Ltd v GFWA Construction Pty Ltd [2010] WASC 181 …. 16.69 Esso Australia Resources Ltd v Plowman (1995) 183 CLR 10 …. 17.42

F Far Horizons Pty Ltd v McDonald’s Australia Ltd [2000] VSC 310 …. 3.18 Fastrack Contractors Ltd v Morrison Construction Ltd [2000] BLR 168 …. 1.15 Fileturn Ltd v Royal Garden Hotel Ltd [2010] EWHC 1736 …. 16.62

500 Burwood Highway Pty Ltd v Australian Unity Ltd [2012] VSC 596 …. 13.9, 13.16 Fletcher Construction Australia Pty Ltd v MPN Group Pty Ltd (unreported, SC (NSW), 14 July 1997) …. 13.9 470 St Kilda Road Pty Ltd v Reed Constructions Australia Pty Ltd [2012] VSC 235 …. 15.3, 15.9

G Garofalo Elee (F) Co Inc v New York Univ 270 AD 2d 76 at 78; 705 NYS 2d 327 (NY App Div 2000) …. 1.45 Gaymark Investments Pty Ltd v Walter Construction Group Ltd [1999] NTSC 143 …. 1.45 Gilbert-Ash (Northern) v Modern Engineering (Bristol) Ltd (1974) AC 689 …. 16.6, 16.11 Gohman v City of St Bernard (1924) 111 Ohio St 726 …. 15.17 Gold and Resource Developments (NZ) Ltd v Doug Hood Ltd [2000] 3 NZLR 318 …. 17.42 Grocon Constructors v Planit Cocciardi Joint Venture (No 2) [2009] VSC 426 …. 16.67

H Halki Shipping Corporation v Sopex Oils Ltd [1998] 1 WLR 726 …. 1.14 Hamishmar Insurance Agency Ltd v First City Partnership [2010] Lloyd’s Rep IR 215 …. 13.9 Heart Research Institute Ltd v Psiron Ltd [2002] NSWSC 646 …. 13.5, 13.9 Hickory Developments Pty Ltd v Schiavello (Vic) Pty Ltd [2009] VSC 156 …. 16.67 Highlands and Islands Authority Ltd v Shetland Islands Council [2012] ScotCS CSOH12 …. 15.3, 15.9 Ho Pak Kim Realty Co Pte Ltd v Revitech Pte Ltd [2010] SGHC 106 …. 1.45 Holt v Cox [1997] NSWSC 144 …. 13.9 Honeywood (as executrix of the estate of the late Neville Honeywood) v Munnings (2006) 67 NSWLR 466 …. 15.26 House v R [1936] 55 CLR 499 …. 15.22

I IMC Aviation Solutions Pty Ltd v Altain Khuder LLC [2011] VSCA 248 …. 17.42 Imperial Chemical Industries Pty Ltd v Bovis Construction Ltd (1992) 32 Con LR 90 …. 18.24 Ipoh v TPS [2004] NSWSC 289 …. 13.9, 15.1

J JAR Developments Pty Ltd v Castleplex Pty Ltd [2007] NSWSC 737 …. 16.66 JBW Group Ltd v Ministry of Justice [2012] EWCA Civ 8 …. 3.19 John Barker Construction Ltd v London Portman Hotel Ltd [1996] 83 BLR 35 …. 1.45 John Holland Construction & Engineering Pty Ltd v Majorca Projects Pty Ltd & Bruche Henderson Pty Ltd

[1997] 13 BCL 235 …. 1.41

K Kane Constructions Pty Ltd v Cole Sopov [2005] VSC 237 …. 1.41 Kham & Nate’s Shoes No 2 Inc v First Bank of Whiting 908 F 2d 1351, 1357 (7th Cir 1990) …. 3.18 Kioa v West (1985) 159 CLR 550 …. 15.2 Kirk v Industrial Court of New South Wales (2010) 239 CLR 531 …. 16.66

L Larsen Oil and Gas Pte Ltd v Petroprod Ltd [2011] 3 SLR 414 …. 17.43 Legal & General Life of Australia Ltd v A Hudson Pty Ltd (1985) 1 NSWLR 314 …. 13.9 Lesotho Highlands Development Authority v Impregilo SpA [2006] 1 AC 221 …. 17.42 Lipman Pty Ltd v Emergency Services Superannuation Board [2011] NSWCA 163 …. 13.9 London Amsterdam Properties Ltd v Waterman Partnership Ltd [2003] EWHC 3059 …. 16.31 Los Angeles County Metropolitan Transportation Authority v Shea-Kiewit-Kenny (1997) 59 Cal App 4th 676 …. 5.14, 5.19

M McCloskey v Carlton Builders (1985) 165 Cal App 3d 692 …. 15.26 Macob Civil Engineering Ltd v Morrison Construction Ltd [1999] BLR 93 …. 15.10, 16.71 Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service (2010) 15 BPR 28,563 …. 3.19 Metacorp Australia Pty Ltd v Andeco Construction Group Pty Ltd [2010] VSC 199 …. 15.3, 15.9 —v— (No 2) [2010] VSC 255 …. 15.3, 15.9 Mid-America Real Estate v Iowa Realty [2005] 406 F 3d 969 …. 3.18 Minister for Immigration and Multicultural Affairs, Re Ex parte Lam [2003] HCA 6 …. 15.2 Mobil Chemical Co v Blount Brothers Corp 809 F 2d 1175 (5th Cir 1987) …. 1.46 Monmouthshire County City Council v Costellow & Kemple Ltd [1966] 63 LGR 429 …. 1.15 Muin v Refugee Review Tribunal (2002) 76 ALJR 966 …. 15.6 Multicon Engineering Pty Ltd v Federal Airport Corporation Leighton Contractors Pty Ltd v Pty Ltd v Kinder Investments Pty Ltd (unreported, SC(NSW), Cole J, 7 July 1992) …. 15.18 Multiplex Constructions (UK) Ltd v Cleveland Bridge (No 6) [2008] EWHC 2220 …. 15.16

N Network Ltd v Speck [2009] VSC 235 …. 3.19 Nicholson v Knaggs [2009] VSC 64 …. 18.15

Niderost-Huber v Switzerland [1997] ECHR 18990/91 …. 15.8 Niemann v Electronic Industries Ltd [1978] VR 431 …. 15.22 Nikko Hotels (UK) Ltd v MEPC plc [1991] 2 EGLR 103 …. 16.60 Northbuild Construction Pty Ltd v Central Interior Linings Pty Ltd [2011] QCA 22 …. 16.67 Northern Regional Health Authority v Derek Crouch Construction Company Ltd [1984] 1 QB 644 …. 17.6 Norwest Holst Ltd v Secretary of State for Trade [1978] Ch 201 …. 15.2

O O’Reilly v Mackman [1983] 2 AC 237 …. 15.7 OceanPark v Proud Sky [2007] HKCFI 1221 …. 17.42 Oil Basins Ltd v BHP Billiton Ltd [2007] 18 VR 346 …. 17.42 Onerati v Phillips Constructions Pty Ltd (in liq) (1989) 16 NSWLR 730 …. 15.26

P Pacific Brands Sports & Leisure Pty Ltd v Underworks Pty Ltd [2005] FCA …. 3.18 —v— [2006] 149 FCR 395 …. 3.18 Palacath v Flannagan [1985] 2 All ER 161 …. 13.12 PCCW Global v Interactive Communications [2007] 1 HKC 327 …. 17.42 Perini Corp v Commonwealth of Australia [1969] 2 NSWR 530 …. 1.41 Perrinepod Pty Ltd v Georgiou Building Pty Ltd [2011] WASCA 217 …. 16.69 Perry v Smith (1901) 27 VLR 66 …. 15.22 Pioneer Shipping Ltd v BTP Tioxide Ltd (The Nema) [1982] AC 724 …. 15.24 Primus Build v Pompey [2009] EWHC 1487 …. 15.3, 15.9 Printing and Numerical Registering Co v Simpson (1875) LR 19 Eq 462 …. 3.10

Q Queensland v JL Holdings Pty Ltd (1997) 189 CLR 146 …. 18.21

R R v Bow Street Metropolitan Stipendiary Magistrate; Ex parte Pinochet Ugarte (No 2) [1999] 2 WLR 272 …. 15.5 —v Local Government Board [1914] 1 KB 160 …. 15.2 —v Sussex Justices; Ex parte McCarthy [1924] 1KB 256 …. 15.4 —v University of Cambridge (1723) 93 ER 698 …. 15.3

Ragg v Magistrates’ Court of Victoria and Corcoris [2008] VSC 1 …. 15.8 Renard Constructions v Minister of Public Works (1992) 26 NSWLR 234 …. 3.19 RSL (Southwest) Ltd v Stansell Ltd [2003] EWHC 1390 …. 16.58 Russell v Duke of Norfolk [1949] 1 All ER 109 …. 15.6 Ryde City Tunnel v Transfield Pty Ltd [2002] NSWSC 1037 …. 1.23

S S & W Process Engineering Ltd v Cauldron Foods [2005] EWHC 153 (TCC) …. 1.27 Sali v SPC Ltd (1993) 67 ALJR 841 …. 18.21 Seabay Properties Pty Ltd v Galvin Construction Pty Ltd [2011] VSC 183 …. 16.33 Secretary of State for the Home Department v AF (No 3) [2010] 2 AC 269 …. 15.7 Shoalhaven City Council v Firedam Civil Engineering Pty Ltd (2011) 281 ALR 635; [2011] HCA 38 …. 13.9, 13.17, 15.1 Sidey Ltd v Clackmannanshire Council 2012 SLT 334 …. 3.19 SMEC Australia Pty Ltd v McConnell Dowell Constructors (Aust) Pty Ltd (No 2) [2011] VSC 492 …. 18.22 SMK Cabinets v Hili Modern Electrics Pty Ltd [1984] VR 391 …. 18.2, 18.21 Sopov v Kane Constructions Pty Ltd (No 2) [2009] VSCA 141 …. 1.27, 15.17, 18.2, 18.21 Soulemezis v Dudley (Holdings) Pty Ltd (1987) 10 NSWLR 247 …. 15.12 Straits Exploration (Australia) Pty Ltd v Murchison United Nl [2005] WASCA 241 …. 13.9 Strzelecki Holdings Pty Ltd v Cable Sands Pty Ltd [2010] WASCA 222 …. 3.19

T TCL Air Conditioner (Zhongshan) Co Ltd v The Judges of the Federal Court of Australia [2013] HCA 5 …. 17.42 Thiess Services Pty Ltd v Mirvac Queensland Pty Ltd (2006) 22(6) BCL 437 …. 1.24 Thorn v City of London [1976] 1 AC 120 …. 1.24 Tjong Very Sumito v Antig Investments [2009] 4 SLR(R) 732 …. 17.42, 17.46 Torrens Aloha Pty Ltd v San Modern Painting Pty Ltd [2011] NSWSC 227 …. 16.7 Trimis v Mina [2000] 2 TCLR 346 …. 1.27

U United Group Rail Services Ltd v Rail Corporations New South Wales (2009) NSWLR 618 …. 3.19 —v— [2009] NSWCA 177 …. 3.19 United States v Spearin [1918] 248 US 132 …. 1.24

V Vee Networks Ltd v Econet Wireless International Ltd [2005] 1 Lloyd’s Rep 192 …. 17.42

W Walford v Miles [1992] 2 AC 128 …. 3.19 Weldon Plant Ltd v The Commission for the New Towns [2001] 1 All ER (Comm) 264 …. 17.42 William Verry (Glazing Systems) Ltd v Furlong Homes Ltd [2005] EWHC 138 …. 16.31 Williams v Commonwealth Bank of Australia [1999] NSWCA 345 …. 9.19 Workshop Tarmacadam Co Ltd v Hannaby [1995] 66 Con LR 105 …. 1.24

Z Zeke Services Pty Ltd v Traffic Technologies Ltd [2005] 2 Qd R 563 …. 13.9, 13.16

Table of Statutes References are to paragraphs

Commonwealth Civil Dispute Resolution Act 2011 …. 9.16 Pt 2 …. 18.9 Commonwealth of Australia Constitution Act s 72 …. 5.17 International Arbitration Act 1974 …. 15.19 s 23 …. 17.44 International Arbitration Amendment Act 2010 …. 15.19 Judiciary Act 1903 s 21 …. 15.22 National Construction Code 2012 …. 1.28 Uniform Commercial Arbitration Acts s 27 …. 14.3

Australian Capital Territory Building Act 2004 s 141 …. 18.4 Building and Construction Industry Security of Payment Act 2009 …. 16.19 s 31(1) …. 16.42 Civil Law (Wrongs) Act 2002 s 195 …. 13.21 Court Procedure Rules 2006 Ch 2 Pt 2.8 …. 18.26 Human Rights Act 2004 s 21 …. 15.6

New South Wales Building and Construction Industry Security of Payment Act 1999 …. 16.13, 16.19, 16.66, 16.68

s 8(1) …. 16.32 s 17(3)(b) …. 16.39 s 21(4A) …. 16.48 s 22 …. 16.49 s 22(3) …. 16.53 s 24(1)(a) …. 16.56 s 25(4)(a) …. 16.56 s 28(1) …. 16.42 Building and Construction Industry Security of Payment Act 2002 s 22(4)(a) …. 15.19 Civil Liability Act 2002 Pt 4 …. 18.4 Civil Procedure Act 2005 s 31 …. 9.19 Civil Procedure Rules 2005 r 431 …. 18.24 Pt 21 Div 2 …. 18.26 Land and Environment Court Rules 2007 Pt 6 …. 13.21

Northern Territory Construction Contracts (Security of Payments) Act 2004 …. 16.19 s 34(1)(b) …. 16.48 Proportionate Liability Act 2005 …. 18.4 Rules of the Supreme Court O 29 …. 18.26

Queensland Building and Construction Industry Payments Act 2004 …. 16.19, 16.68 s 22(1) …. 16.44 Building and Construction Industry Security of Payment Act 2004 s 21(3)(c)(i) …. 15.19 Civil Liability Act 2003 Ch 2 Pt 2 …. 18.4 Civil Proceedings Act 2011

s 41 …. 13.38 s 45 …. 13.21 s 45(1)(c) …. 13.37 Judicial Review Act 1991 …. 16.67 Uniform Civil Procedure Rules 1999 r 341(2) …. 13.38 r 343 …. 13.38 r 344(1) …. 13.38

South Australia Building and Construction Industry Security of Payment Act 2009 …. 16.19 s 29(1) …. 16.42 Development Act 1993 s 72 …. 18.4 Statutes Amendment (New Rules of Civil Procedure) Act 2006 r 117 …. 18.24

Tasmania Building and Construction Industry Security of Payment Act 2009 …. 16.19 Civil Liability Act 2002 Pt 9A …. 18.4 Supreme Court Rules 2000 r 261 …. 18.24 r 383(4)(c) …. 18.26 Pt 13 …. 18.26

Victoria Building and Construction Industry Security of Payment Act 1999 s 21(3)(a) …. 15.19 Building and Construction Industry Security of Payment Act 2002 …. 16.19, 16.35, 16.67 s 10A …. 16.33 s 10B …. 16.33 s 42(1) …. 16.42 Charter of Human Rights and Responsibilities Act 2006 …. 15.6 Civil Procedure Act 2010

s 7 …. 15.20 s 22 …. 18.9 Commercial Arbitration Act 2011 s 11 …. 17.41 s 27D …. 14.8 s 27D(4) …. 14.6 s 27D(7) …. 14.6 s 31(3) …. 15.12 Domestic Building Contracts Act 1995 s 14 …. 13.12 Retail Leases Act 2003 s 87 …. 18.10 Supreme Court Act 1986 s 17A …. 15.22 Supreme Court (General Civil Procedure) Rules 2005 r 29.02 …. 18.26 Wrongs Act 1958 Pt IVAA …. 18.4

Western Australia Civil Liability Act 2002 Pt IF …. 18.4 Construction Contracts Act 2004 …. 16.19 s 3 …. 16.39 s 25 …. 16.32 s 26(1)(c)(i) …. 16.39 s 30 …. 16.50 s 32(1)(b) …. 16.48 s 36(a) …. 16.53 s 36(d) …. 16.53 s 46(3) …. 16.69 Construction Contracts Bill 2004 …. 16.6 Rules of the Supreme Court 1971 O 26 …. 18.26 Supreme Court Rules 2005

r 45D …. 18.24

United Kingdom Arbitration Act 1996 s 9 …. 17.43 s 68 …. 17.46 Construction Contracts (Northern Ireland) Order 1997 …. 16.15, 16.16 Construction Contracts Regulations 2004 reg 9 …. 16.44 Housing Grants, Construction and Regeneration Act 1996 …. 16.19 s 48(1) …. 16.44 ss 104–107 …. 16.17 s 108 …. 16.29 s 108(3) …. 16.54 Pt II …. 16.13, 16.15, 16.16 Housing Grants, Construction and Regeneration Act 1996 (Scotland) (Commencement No 5) Order 1998 …. 16.15, 16.16 Magna Carta 1215 …. 15.13 Supreme Court Rules 2009 r 10 …. 15.22 The Scheme for Construction Contracts (England and Wales) Regulations 1998 …. 16.53 s 2(1) …. 16.39 s 2(1)(c) …. 16.39 s 2(3) …. 16.42 s 13 …. 16.48 Pt 1 …. 16.39

New Zealand Arbitration Act 1996 Sch, Art 3 …. 17.44 Building Act 2004 …. 1.28 Construction Contracts Act 2002 …. 16.25

United States Of America Alternative Dispute Resolution Act 1998 …. 9.16

Arbitration Bill 1996 …. 17.42 California Code of Civil Procedure s 1281.3 …. 17.38 Constitution …. 15.13 Art III …. 5.17 Construction Quality Assurance Act 2009 …. 1.28 Federal Rules of Civil Procedure 2009 r 16(b) …. 18.29 r 16(b)(3) …. 18.29 r 26(f) …. 18.28 r 26(f)(2) …. 18.29 r 26(f)(3) …. 18.29 Federal Rules of Civil Procedure Amendments 2006 …. 18.29 Municipal Employment Relations Act (Wisconsin) …. 14.3 Uniform Commercial Code s 3-104 …. 3.19

International New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention) …. 17.15, 17.16, 17.45, 17.46 Art III …. 17.16 Art V …. 17.46 UNCITRAL Model Law on International Commercial Arbitration (Model Law) …. 17.35, 17.37, 17.45, 17.46 Art 8 …. 17.43 Art 11(3) …. 17.44 Art 11(4) …. 17.44 Art 13(3) …. 17.44 Art 14 …. 17.44 Art 16(3) …. 17.44 Art 20(1) …. 17.35 Art 27 …. 17.44 Art 30 …. 17.35 Art 31 …. 17.35 Art 34(2)(a)(iii) …. 6.22 Art 35 …. 17.46

Art 36 …. 17.46

China International Economic and Trade Arbitration Commission (CIETAC) Arbitration Rules …. 14.3

Hong Kong Arbitration Ordinance (Cap 609) …. 14.3

Isle of Man Construction Contracts Act 2004 …. 16.25

Malaysia Construction Industry Payment and Adjudication Act 2012 …. 16.25

Philippines Civil Code Art 1306 …. 3.10

Singapore Building and Construction Industry Security of Payment Act 2004 …. 16.25

Table of Practice Directions References are to paragraphs

Practice Direction PD SC 76 of 2000 (Qld) …. 18.12, 18.13, 18.24 Practice Direction No 4 of 2009 …. 18.32 Practice Direction No 4 of 2010 …. 13.37 Practice Note 2(16)(b) …. 18.9 Practice Note 2(16)(e) …. 18.20 Practice Note 2(43)(f) …. 18.33 Practice Note 10 of 2011 …. 13.37 Practice Note 25 …. 18.20 Practice Note 29(b)–(c) …. 18.20 Practice Note 29(c) …. 18.20 Practice Note 29(g) …. 18.20 Practice Note 40(g) …. 18.20

Table of Abbreviations AAA

American Arbitration Association

ABA J

American Bar Association Journal

ACA

Australian Constructors Association

Acad Manage Exec

Academy of Management Executive

Acad Manage Rev

Academy of Management Review

ACLB

Australian Construction Law Bulletin

ACLN

Australian Construction Law Newsletter

Admin Sci Quart

Administrative Science Quarterly

ADR

Alternative/Appropriate Dispute Resolution

ADR Bulletin

Alternative Dispute Resolution Bulletin

ADRJ

Alternative Dispute Resolution Journal

AIA

American Institute of Architects

AJCEB

Australasian Journal of Construction, Economics and Building

Am Ethnol

American Ethnologist

AMJ

Academy of Management Journal

ANB

Adjudicator Nominating Body

Arbitration J

Arbitration Journal

ArchSD

Architectural Services Department

ASA Bulletin

Association Suisse de L’Arbitrage Bulletin

ASCE

American Society of Civil Engineers

BATNA

Best Alternatives to a Negotiated Settlement

BCL

Building and Construction Law Journal

BJLS

British Journal of Law and Society

Bond LR

Bond Law Review

Brit J Soc Psychol

British Journal of Social Psychology

Build Environ

Building and Environment

Calif Manage Rev

California Management Review

Caltrans

California Department of Transport

Can J Civil Eng

Canadian Journal of Civil Engineering

Cardozo J Conflict Resol

Carozo Journal of Conflict Resolution

CDB

Combined Dispute Board

CDOT

Colorado Department of Transport

CDRJ

Commerical Dispute Resolution Journal

Clinical L Rev

Clinical Law Review

CMC

Case management conference

Colo Law

Colorado Lawyer

Con LJ

Construction Law Journal

Conflict Resol Q

Conflict Resolution Quarterly

Cons LI

Construction Law International

Constr Manag Econ

Construction Management and Economics

CSP

Collaborative Settlement Process

DAB

Dispute Adjudication Board

DAP

Dispute Avoidance Process

DB

Dispute Board

DBF

Dispute Board Federation

Def Couns J

Defence Counsel Journal

Dispute Resolut J

Dispute Resolution Journal

DRA

Dispute Resolution Adviser

DRB

Dispute Review Board

DRBA

Dispute Resolution Board Australasia

DRBF

Dispute Resolution Board Foundation

ED

Expert determination

ENE

Early neutral evaluation

Eng Constr Arch Manage

Engineering Construction and Architectural Management

Eng News Rec

Engineering News Record

ETWB

Environment, Transport and Works Bureau

FDOT

Florida Department of Transport

FIDIC

Fédération Internationale des Ingénieurs-Conseils

Fla St U L Rev

Florida State University Law Review

Fordham L Rev

Fordham Law Review

GDP

Gross Domestic Product

Group Dyn

Group Dynamics

HKHA

Hong Kong Housing Authority

HNLR

Harvard Negotiation Law Review

ICC

International Chamber of Commerce

ICE

Institution of Civil Engineers

ICLR

International Construction Law Review

IDAP

Independent Dispute Avoidance Panel

IEEE T Eng Manage

IEEE Transactions on Engineering Management

IJBHT

International Journal of Business, Humanities and Technology

ILJ

Insurance Law Journal

Int J Confl Manage

International Journal of Conflict Management

Int J Proj Manage

International Journal of Project Management

J Acad Market Sci

Journal of the Academy of Marketing Science

J Am Med Assoc

Journal of the American Medical Association

J Appl Psychol

Journal of Applied Psychology

J Civ Eng Manage

Journal of Civil Engineering and Management

J Constr Eng Manage

Journal of Construction, Engineering and Management

J Exp Soc Psychol

Journal of Experimental Social Psychology

J Int’l Arb

Journal of International Arbitration

J Law & Soc

Journal of Law and Society

J Leg Aff Dispute Resolut Eng Constr

Journal of Legal Affairs and Dispute Resolution in Engineering and Construction

J Manage

Journal of Management

J Manage Eng

Journal of Management in Engineering

J Pers Soc Psychol

Journal of Personality and Social Psychology

J Prof Iss Eng Ed Pr

Journal of Professional Issues in Engineering, Education and Practice

JCT

Joint Contracts Tribunal

JICA

Japan International Cooperation Agency

JJA

Journal of Judicial Administration

Legal Educ Rev

Legal Education Review

LIJ

Law Institute Journal

Lincoln L Rev

Lincoln Law Review

LQR

Law Quarterly Review

Mediation Q

Mediation Quarterly

Mon LR

Monash University Law Review

MTA

Los Angeles Metropolitan Transport Authority

MULR

Melbourne University Law Review

NADRAC

National Alternative Dispute Resolution Advisory Council

NCTT

National Committee on Tunneling Technology

NDL Rev

North Dakota Law Review

Neb L Rev

Nebraska Law Review

NEC

New Engineering Contract

Negotiation J

Negotiation Journal

NOD

Notice of Dissatisfaction

NSW LRC

New South Wales Law Reform Commission

ODA

Olympic Delivery Authority

Ohio St J Disp Resol

Ohio State Journal on Dispute Resolution

Organ Behav Hum Dec

Organizational Behavior and Human Decision Processes

Organ Dyn

Organizational Dynamics

PAP

Pre-action protocol

PATNA

Probable Alternatives to a Negotiated Settlement

Penn St L Rev

Pennsylvania State Law Review

Pepp Disp Resol LJ

Pepperdine Dispute Resolution Law Journal

Pub Cont LJ

Public Contract Law Journal

QLDMR

Queensland Department of Transport and Main Roads

QUTLJJ

QUT Law and Justice Journal

Res Organ Behav

Research in Organisational Behaviour

RICS

Royal Institution of Chartered Surveyors

SBD

Standard Bidding Document

SEA

Senior Executive Appraisal

SKK

Shea-Kiewit-Kennt

SOP 3

Standard Operating Procedure No 3 of 2009

St John’s L Rev

St John’s Law Review

Strategic Manage J

Strategic Management Journal

Syd Law Rev

Sydney Law Review

TCA

Transport Construction Authority

TCC

Technology and Construction Court

TEC List

Technology and Construction List

Tex BJ

Texas Bar Journal

UNCITRAL

United Nations Commission on International Trade Law

Utah BJ

Utah Bar Journal

Vand L Rev

Vanderbilt Law Review

VCAT

Victorian Civil and Administrative Tribunal

WA LRC

Western Australia LRC

Wake Forest L Rev

Wake Forest Law Review

Wash U JL and Pol’y

Washington University Journal of Law and Policy

WATNA

Worst Alternatives to a Negotiated Settlement

Willamette L Rev

Willamette Law Review

Wm Mitchell L Rev

William Mitchell Law Review

WRLSI

Windsor Review of Legal and Social Issues

Contents Foreword Detailed Contents Preface Table of Cases Table of Statutes Table of Practice Directions Table of Abbreviations PART 1

Avoidance and Management of Disputes

Chapter 1

Causes and Nature of Construction Conflicts and Disputes

Chapter 2

Theory of Conflict

Chapter 3

Role of the Construction Contract in the Avoidance, Management and Resolution of Construction Disputes

Chapter 4

Introduction to the Concept and Philosophy of DAPs

Chapter 5

Dispute Resolution Boards (DRBs)

Chapter 6

Dispute Adjudication Boards (DABs)

Chapter 7

Dispute Resolution Adviser (DRA)

Chapter 8

Evolution of DAPs

PART 2

Alternative Dispute Resolution (ADR)

Chapter 9

Introduction to the Concept and Philosophy of ADR

Chapter 10

Negotiation

Chapter 11

Mediation

Chapter 12

Senior Executive Appraisal/Mini-trials

Chapter 13

Expert Determination and Early Neutral Evaluation

Chapter 14

ADR Hybrids

PART 3

Binding Dispute Resolution

Chapter 15

Key Elements of a Successful System of Binding Dispute Resolution

Chapter 16

Adjudication

Chapter 17

Arbitration

Chapter 18

Litigation

PART 4

Best Practice

Chapter 19

Best Practice in the Avoidance, Management and Resolution of Construction Disputes

Index

Detailed Contents Foreword Preface Table of Cases Table of Statutes Table of Practice Directions Table of Abbreviations PART 1 Chapter 1

Avoidance and Management of Disputes Causes and Nature of Construction Conflicts and Disputes

Construction: A Breeding Ground for Conflicts and Disputes Differentiating between ‘conflicts’ and ‘disputes’ The escalation of conflicts into claims and disputes Conclusion Causes of Construction Conflict Latent conditions Variations/change in scope Quality of the works Conclusion Causes of Construction Disputes Competitive tendering Lopsided risk allocation Perceived bias of the superintendent Failure to comply with the construction contract Conclusion Chapter 2

Theory of Conflict

Should Conflict be Avoided? Task conflict Relationship conflict Conclusion Trust and Communication on Construction Projects Trust Communication Conclusion Conflict Management Integrating Dominating Obliging Avoiding Compromising Conclusion Chapter 3

Role of the Construction Contract in the Avoidance, Management and Resolution of Construction Disputes

Standard Form Construction Contracts Purpose of standard form construction contracts Can Construction Contracts Facilitate Project Management? Traditional contract theory Relational contract theory Contracting for Dispute Avoidance Contractual duty to act in good faith and cooperate Risk management during construction Conflict management and on-site dispute resolution Conclusion Chapter 4

Introduction to the Concept and Philosophy of DAPs

What are DAPs? How do DAPs Work? Primary prevention Secondary prevention Tertiary prevention Conclusion Chapter 5

Dispute Resolution Boards (DRBs)

History of DRBs Development and Growth of DRB Use DRB guides and specifications Dedicated industry organisation to promote DRBs Embedded DRB provisions in standard form contracts International adoption Best Practice Drafting a DRB specification How DRBs stop conflicts escalating into disputes How DRBs resolve disputes Managing the cost of a DRB Conclusion Chapter 6

Dispute Adjudication Boards (DABs)

History of DABs The dual role of the engineer and the inefficiencies of arbitration The World Bank’s interest in DRBs The operation of DABs Under the Microscope: The Dispute Avoidance, Management and Resolution Role of the DAB Capacity of DABs to avoid disputes

Capacity of DABs to resolve disputes The Efficacy of DABs The Future of the DAB The Way Forward Dispute avoidance guidelines in FIDIC contracts Accreditation and certification of DAB members Conclusion Chapter 7

Dispute Resolution Adviser (DRA)

The Development of the DRA The independent intervenor The dispute adviser The birth of the DRA Dispute avoidance during the course of construction The DRA’s approach to dispute resolution Evaluation v Facilitation The Increasing Use of DRAs in Hong Kong Hong Kong’s commitment to DRAs International Adoption Conclusion Chapter 8

Evolution of DAPs

The Combined Dispute Board (CDB) The development of the CDB: The ICC’s Dispute Board Rules What is a CDB? The CDB: A flash in the pan or here to stay? Conclusion The Independent Dispute Avoidance Panel (IDAP) Composition of the IDAP General dispute avoidance

How the IDAP helps parties prevent conflicts escalating into disputes Contemporaneous resolution of disputes The IDAP as a Dispute Avoidance Process: Gold, silver or bronze? Conclusion PART 2 Chapter 9

Alternative Dispute Resolution (ADR) Introduction to the Concept and Philosophy of ADR

Defining ADR The Provenance of ADR ADR in the construction industry The Philosophy of ADR Willingness to resolve dispute Direct or facilitated negotiations Confidentiality Parties control the outcome How to Decide which ADR Model is Most Appropriate Facilitative model Advisory model Determinative model Hybrid model Conclusion Chapter 10

Negotiation

Negotiation Styles Negotiating to Resolve Construction Conflicts and Disputes Negotiators Preparation Negotiation phase Best Practice

Conclusion Chapter 11

Mediation

Provenance of Mediation Different Models of Mediation and the Pros and Cons of Each Facilitative v evaluative models Transformative v settlement models Expert advisory mediation The most appropriate mediation model for construction disputes Preparing for a Mediation Participating in a Mediation Deal Mediation Conclusion Chapter 12

Senior Executive Appraisal/Mini-trials

What is SEA? Appointment of panel Preparation Presentations Negotiation Provenance of SEA Advantages and disadvantages of SEA Advantages Disadvantages Role of Lawyers in SEA Conclusion Chapter 13

Expert Determination and Early Neutral Evaluation

What Disputes are Appropriate for expert Determination and Early Neutral Evaluation?

Expert Determination What is expert determination? Binding v Non-binding expert determination Best practice in expert determination Early Neutral Evaluation Provenance of ENE What is ENE? What cases are suitable for ENE? Best practice in ENE Conclusion Chapter 14

ADR Hybrids

Med–ARB Provenance of med–arb The process Strengths and weaknesses of med–arb Conclusion ARB–MED Arbitration phase Mediation phase Ruling phase Strengths and weaknesses of arb–med Collaborative Settlement Process Document disclosure Lawyers meeting Confidential memorandum Settlement negotiations Conclusion Conclusion

PART 3

Binding Dispute Resolution

Chapter 15

Key Elements of a Successful System of Binding Dispute Resolution

Natural Justice/Procedural Fairness The components of procedural fairness The no-bias rule The fair hearing rule Accessibility Costs of binding dispute resolution Speed of the process Increasing the accessibility of binding dispute resolution processes Finality Appealing final and binding determinations Commencing ‘fresh’ proceedings Conclusion Chapter 16

Adjudication

What is Adjudication? Provenance of Adjudication The security of payment problem The Latham Report Statutory Adjudication Regimes The objectives of statutory adjudication Best practice in Construction Adjudication Nature of disputes that can be referred to adjudication The adjudication procedure Challenging an adjudicator’s determination Conclusion

Chapter 17

Arbitration

What is Arbitration? The Evolution of Arbitration Early history of arbitration The use of arbitration by the construction industry A glimmer of hope — The success of international arbitration Best Practice in Construction Arbitration Agreement to arbitrate Arbitration procedure The role of the courts, legislature and arbitral institutions Conclusion Chapter 18

Litigation

Nature of Construction Litigation Highly technical disputes Number of parties Document intensive Pre-action Requirements Specialist Courts and Lists Case Management Appropriate Pleadings Rationalisation of Discovery Limiting discovery Discovery conference Electronic transfer of documents Efficient Use of Expert Witnesses Expert conclaves Hot-tubbing

Limiting the number of experts called — Appointing a single expert Conclusion PART 4

Best Practice

Chapter 19

Best Practice in the Avoidance, Management and Resolution of Construction Disputes

Identifying Best Practice: A Futile or Fruitful Exercise? Striving for best practice Challenges to the Implementation of Best Practices Adversarial culture of construction Resistance to/fear of change Resistance from the construction industry Resistance from the legal profession The Way Forward: Overcoming Barriers to Change Expanding education and training programs Transforming the role of construction lawyers Reforming standard form construction contracts Conclusion Index

[page 1]

Avoidance and Management of Disputes

PART 1

[page 3]

Causes and Nature of Construction Conflicts and Disputes

1

Construction: A Breeding Ground for Conflicts and Disputes Differentiating between ‘conflicts’ and ‘disputes’ The escalation of conflicts into claims and disputes Conclusion Causes of Construction Conflict Latent conditions Variations/change in scope Quality of the works Conclusion Causes of Construction Disputes Competitive tendering

Lopsided risk allocation Perceived bias of the superintendent Failure to comply with the construction contract Conclusion

[page 4]

Introduction It is inevitable that the commercial activities of those engaged in the construction industry will always produce disputes.1 1.1 The construction industry continues to be a leading economic indicator for many jurisdictions around the world. For example, the construction industries of Australia, the United Kingdom and the United States have historically been one of the largest individual contributors to each nation’s gross domestic product (GDP), and accordingly also a major source of employment.2 Indeed, the World Trade Organization reported in 2008, that the construction industry accounts for close to one-tenth of global GDP and seven per cent of total global employment.3 However, along with its significant contribution to a nation’s economic growth and prosperity, the construction industry has also been a significant source of business for lawyers who are afforded an opportunity to make a small fortune from the countless disputes that plague construction projects, and which often end up in litigation or some other form of dispute resolution.4 It is therefore no surprise that the view expressed in the above quote is widely held, with many believing that disputes on construction projects are inevitable. 1.2 A construction project is an integrated process that typically involves a multitude of parties who possess unique expertise and responsibilities. Parties to a construction project generally include, but are not limited to, an owner, an architect, engineers (structural, mechanical, electrical, etc), a contractor, numerous subcontractors, labourers, suppliers and other professionals who may be involved in the planning, design, management and administration of a project.5

A successful construction project — one that is constructed in accordance with the plans and specifications, and is completed on time, within budget and with no outstanding disputes — requires the parties to a construction contract to cooperate and communicate openly so as to effectively coordinate their efforts and resources.

[page 5]

In practice, however, such collaboration and open communication has proven difficult to achieve, due in part to the parties’ conflicting objectives. A simplistic illustration of these conflicting objectives is that an owner wants its project completed at the lowest possible cost, and the contractor wants to maximise its profit. When problems surface during the course of construction that threaten each party’s goals, the parties tend to adopt adversarial attitudes which creates an ‘us versus them’ environment that is conducive to costly and drawn-out disputes.6 1.3 It has been estimated that the direct costs of resolving construction disputes in Australia amount to between AUD$560– $840 million per year, and when added to the avoidable costs of disputes (such as delay and opportunity costs), total waste exceeds AUD$7 billion annually.7 Similar wastage has been reported in the United Kingdom and the United States, where AUD$6 billion and AUD$11 billion respectively is expended annually in connection with resolving construction disputes.8 While the hard dollar costs of disputes are easy to calculate, disputes also strain relationships between parties and drain time, energy and resources away from other business pursuits.9 1.4 Disputes have become ‘endemic features’10 of the global construction industry. It has been noted that the ‘complex, relational and lengthy process of designing and building makes construction a

process in which disputes are virtually ensured’.11 While such a statement is echoed throughout the literature pertaining to construction disputes,12 there is cause to be optimistic. For although conflicts are inherent in all construction projects,13 disputes and their protracted resolutions are optional.14 1.5 This chapter begins by examining why construction projects are such a fertile ground for conflicts and disputes. This is followed by an analysis of the meaning of the terms ‘conflict’ and ‘dispute’, which are often erroneously used interchangeably.

[page 6]

It explores the sources of conflicts that arise during construction projects and the factors that contribute to such conflicts escalating into disputes. Understanding how these factors can be mitigated will assist parties to avoid cost overruns, delays and damage to commercial relationships that are typically associated with disputes.

CONSTRUCTION: A BREEDING GROUND FOR CONFLICTS AND DISPUTES 1.6 Construction is a diverse industry with projects ranging from small residential jobs, such as the renovation of a kitchen, to engineering feats such as the Palm Jumeirah (an artificial archipelago in Dubai), see Image 1 below, the Big Dig (a Central Artery/Tunnel Project in Boston) and the Channel Tunnel which links England and France.15

IMAGE 1.1

The Palm Jumeirah16

Notwithstanding the differing size and scale of construction projects, it is widely accepted that each construction project is unique because: [page 7] … [t]he construction of every capital asset involves unique design, procurement and construction challenges. Different location and site conditions, construction methods, equipment and materials, and the assembly and management of a team of people to design, procure and construct each asset invariably mean the construction process is one of creating a prototype.17

1.7 Regardless of whether a construction project is small or large and whether it is relatively straightforward or highly complex, it is a risky venture owing largely to the unique nature of each project and the number of factors that can impede its successful completion.18 While such factors can be predicted through meticulous preparation, there are many unknown factors that inevitably emerge throughout the life of a project. For example, although a geotechnical engineer can investigate subsurface conditions and materials that are likely to be encountered on the construction site, it is not until excavation begins that the actual ground conditions can be known. What if hard rock is discovered when soft clay was expected? Such a discovery can put the parties under severe time and cost pressures.19 It is therefore not surprising that construction is one of the most dynamic, risky and

challenging businesses, and one in which conflict is pervasive.20

Differentiating between ‘conflicts’ and ‘disputes’ 1.8 The Dalai Lama once explained that: As long as human beings have a conscience and intellect to think about the future, definitely there will be conflicts. Conflicts are made by human beings and methods to solve them must be created through human intelligence. It is wise to solve the conflicts through dialogue, not through weapons.21

The fact that people are the principal resource on every construction project22 makes conflicts in construction inevitable. As with any commercial endeavour, parties’ thinking tends to focus on profitability. Notwithstanding that parties [page 8] may enter a construction contract with the best of intentions, they ‘all walk a tightrope in trying to get the work completed in the agreed time and as cheaply as possible’.23 Against this backdrop, when a problem is encountered that may negatively impact on the profit margin of either party, the problem immediately transforms into a conflict. A ‘problem’ in this context can be defined as ‘an unexpected situation that may result in reduced performance’.24 As an industry that encapsulates the battle cry of ‘time is money’, it is clear that when problems are encountered on a construction project, profit margins are threatened, and this increases a project’s propensity for conflict. As demonstrated in Figure 1.1 below, conflict left unchecked will culminate in a claim being made, and this can quickly escalate into a dispute, which all too often requires resolution through the courts or arbitration.

FIGURE 1.1

Construction Conflict–Dispute–Litigation Continuum25

1.9 Conflicts are the underlying causes of disputes.26 Although construction dispute resolution literature is littered with the interchangeable use of the terms ‘conflict’ and ‘dispute’,27 they have very distinct meanings. Many definitions of ‘conflict’ exist.28 However, due to the multitude of interpersonal relationships present on all construction projects, the most appropriate definition of ‘conflict’ is the situation that arises when individuals are faced with competing goals or ideas.29 The multiplicity of people involved in any construction project, all of whom have differing responsibilities and priorities, make conflicts rife in the construction industry. [page 9] 1.10 Conflict should not always be perceived as negative. Conflicts can play a constructive role in stimulating original and divergent viewpoints.30 Conflict can be positive, by motivating parties to develop innovative solutions to problems which benefit both the parties and the project.31 For example, a study of 12 technology-based companies revealed that arguments that were based on facts and issues, rather than on personalities and interpersonal dislikes, led to a deeper understanding of the conflicting issues and the development of a greater number of innovative responses to problems.32 On the other hand, when arguments involved negative emotions induced by personality clashes, communication was less open, and this resulted in reduced performance.33 This is consistent with a number of other studies which have found that there is typically always a positive relationship between trust and team performance, especially when the work requires high interdependence among parties.34 In short, where parties trust each other, relationships are likely to be cooperative and positive, and there is a greater propensity for innovative responses to conflict. Unfortunately, trust is something that is all too often absent from the relationship between parties on a construction project. Indeed, it has been opined that such is the adversarial culture of Australian construction projects that parties tend to believe that ‘a man’s word is given but not trusted’.35 In the absence of trust between parties to a project, conflict readily induces negative behavioural reactions.36 Negative feelings such as tension, annoyance, frustration and irritation can readily surface, and such responses can ‘distract

attention from high-quality knowledge exchanges and decision making’, leading to a greater propensity for a conflict to escalate into a dispute.37 Escalating [page 10] negative emotions among the parties make ‘constructive interaction impossible’,38 and may explain why construction disputes so commonly escape the parties’ control and require the intervention of third parties to resolve.

The escalation of conflicts into claims and disputes 1.11 While conflicts are caused by a host of factors examined in the next section of this chapter, they often contractually materialise into claims, which left untreated can rapidly escalate into disputes. A claim has been defined as: A Contractor’s submission of a formal request to the Engineer (or the Employer) under the provisions of the Contract or under the common law, for additional time or money arising out of circumstances or events concerning the execution of the contract.39

Claims are generally the result of a contractor believing that it has expended extra resources on activities which fall outside the scope of work specified in the contract. Thus, it can be said that a party will assert a claim when its profit position changes as a result of another party’s action, or circumstances that are outside the parties’ control.40 While both positive and negative conflict may result in a claim (due to the need to expend extra resources to resolve problems encountered by the project) negative conflict will generally result in a contentious claim. This is because parties may be at odds as to the best approach to the problem, or at odds as to the validity of the claim. It is important to note, however, that a claim, in and of itself, does not constitute a dispute. 1.12 The transformation of a construction claim into a dispute has attracted much discussion.41 It is therefore important to define precisely what constitutes a dispute, as the existence of a dispute is a precondition to activating the dispute resolution processes under most standard form contracts and also often a condition precedent to being able to access many statutory regimes, such as

adjudication.42 Indeed, there has been significant litigation in the United Kingdom on exactly what amounts to a dispute, which epitomises just how disputatious the construction industry has become.43 [page 11] 1.13 Australian courts have considered the meaning of the term ‘dispute’ when deciding whether parties had the right to commence arbitration proceedings.44 In Commonwealth of Australia v Jennings Constructions Pty Ltd,45 it was held that a dispute arises ‘when one party claims something and another notifies the other that he [sic] rejects the claim’.46 However, it has also been noted that a dispute may arise in ‘a situation where the other party simply ignored a claim made upon him [sic], that is without either admitting or denying it’.47 However, as already noted, a claim in and of itself does not constitute a dispute. 1.14 In contrast, what amounts to a ‘dispute’ in the United Kingdom is less clear in light of a series of cases concerning its precise meaning.48 In the context of arbitration agreements, the most commonly accepted definition is that propounded by the Court of Appeal in Halki Shipping Corporation v Sopex Oils Ltd49 that ‘there is a dispute once money is claimed unless and until the defendants admit that the sum is due and payable’. The ‘Halki principle’ is known as the ‘wide definition’ because it effectively deems that the issuance of a claim is a dispute.50 The primary advantage of this approach is that it negates delaying manoeuvres by reluctant parties. For example, in order to delay there being a ‘dispute’ that triggers the dispute resolution clause of a construction contract, a reluctant party may resort to time-wasting tactics such as serial requests for further and better particulars of the claim, or participating in numerous meetings without a bona fide intention of achieving an amicable settlement.51 For these reasons, the Halki approach allows for the appointment of an adjudicator or an arbitrator ‘even before the nature of the dispute and the issues in it are made known to the responding party’.52 1.15 The Halki principle conflicts with an earlier ‘narrow definition’ provided by the Court of Appeal in Monmouthshire County City Council v Costelloe & Kemple Ltd,53 where it was held that ‘there must be both a claim and a rejection of it in

order to constitute a dispute’.54 This approach promotes settlement by negotiation, as it affords the other party an opportunity to consider the claim and assess its validity. For example, if there are concerns [page 12] over the quantum of the claim, the owner can continue discussions with the contractor with a view to reaching a negotiated outcome. The conduct of amicable negotiations is preferable to the adversarial attitudes that typically materialise during the course of binding dispute resolution mechanisms, such as adjudication, arbitration and litigation. While the definition of a dispute continues to be a contentious issue,55 it appears that there is now general endorsement of the narrow definition — that the mere making of a claim does not amount to a dispute — and that a dispute does not arise until negotiation and discussion have concluded.56 1.16 Claims should be distinguished from disputes, and thus the narrow definition of dispute is preferable. Given that construction projects are exposed to limitless risks and uncertainties, claims should be observed as a normal part of any construction process. However, claims are far too often perceived in a negative light, and interpreted as an opportunistic attempt by the contractor to increase its profits.57 Parties should be given the opportunity to respond to claims cooperatively and honestly in an amicable environment by way of negotiation. Indeed, it is widely accepted that parties prefer to negotiate and agree on an outcome to claims, rather than have a ‘third party impose a decision with considerable time and cost implications’.58 Only when parties have exhausted all means of reaching an amicable settlement of a claim, should they be regarded as being in dispute. The term dispute should thus be defined as a difference of opinion over the existence of rights or legal duties, and over the extent and kind of compensation that may be claimed by a party for an alleged breach.59

Conclusion 1.17 The construction industry has historically been prone to many disputes not

only because of the infinite number of unknown problems that may plague a project, but also because parties have adopted a combative approach when confronted with conflict. Such an environment readily generates claims which rapidly escalate into disputes. Figure 1.2 below provides a glossary and an explanation of the relationship between these key terms. [page 13]

FIGURE 1.2

Glossary of Key Terminology Used in Relation to Construction Conflicts and Disputes

1.18 The practice of dealing with conflicts in a hostile manner can be traced back to Babylon in about 1760 BCE, when the eye-for-an-eye system of justice

prevailed.60 Under the Code of Hammurabi, a builder ‘shall be put to death’ should [page 14] the house which he constructed ‘fall in and kill its owner’.61 Sir Michael Latham provides a more recent assessment of the disputatious nature of the industry: It is widely acknowledged that the industry has deeply ingrained adversarial attitudes. Many believe that they have intensified in recent years. There is also general agreement that the route of seeking advice and action from lawyers is embarked upon too readily… the tendency towards litigiousness is growing.62

1.19 The litigious nature of the construction industry is well documented and it appears that there is no sign of this changing. Indeed, according to the 2011 Annual Litigation Trends Report, 75 per cent of all engineering/construction companies involved in the survey had referred a dispute to litigation.63 This can be contrasted to the results in the 2010 survey, where only 67 per cent of all engineering/construction companies required the courts to resolve their disputes.64 As depicted in Figure 1.3 below, the other sectors of the economy that were most likely to initiate a lawsuit include insurance, retail/wholesale, manufacturing and energy industries.

FIGURE 1.3

Percentage of Companies by Industry who Commenced Litigation65

[page 15] 1.20 Concerns about the adversarial and destructive culture of the construction industry are not a new phenomenon or unique to a particular jurisdiction. In 1994, it was noted that: … much of the United States construction environment has been degraded from one of a positive relationship between all members of the project team to a contest consumed in fault finding and defensiveness which results in litigation. The industry has become extremely adversarial and we are paying the price … Disputes will continue as long as people fail to trust one another.66

Similarly, in the same year, it was opined that the disputatious nature of the Australian construction industry was a result of the: … venality of the Australian character and lack of ethics in the building industry … Claims/disputation largely reflect greed, lack of commitment and lack of responsibility.67

Similar sentiments have been expressed about the construction industries of the United Kingdom, Canada, India and Malaysia.68 This level of distrust is not surprising given that traditional construction contracts are structured so that one party’s profit comes at the other party’s expense.69 Traditional contracts encourage self-interest and the protection of individual positions, which tend to promote

the adoption of adversarial attitudes by the parties. Thus, when problems inevitably arise, and set against this ‘culture of defensiveness’, parties tend to focus on blame allocation rather than a collaborative search for solutions.70 In such an environment, differences of opinion readily escalate into disputes. 1.21 Although construction projects undoubtedly experience a spate of conflicts, there is no inherent reason for the adversarial culture that has caused these conflicts to proliferate into disputes. Conflicts may be an innate part of construction projects, but they can be managed in a way that leads to the avoidance, or at least minimisation, of disputes. Disputes will inevitably arise only if parties do not have the skills to resolve conflicts and prevent their escalation into disputes. [page 16]

CAUSES OF CONSTRUCTION CONFLICT 1.22 Over the past two decades there have been a number of studies undertaken to identify the root causes of construction conflicts.71 While these studies have identified a plethora of causes,72 exemplifying the high risks associated with construction projects, this chapter concentrates on three of the more commonly cited causes of conflict on construction projects, as set out in Figure 1.4 below. This analysis aims to increase understanding as to why these areas produce a high incidence of conflicts. This is followed by a discussion on why conflicts rapidly escalate into disputes and what parties can do to minimise the risk of this occurring.73

FIGURE 1.4

High Conflict Areas During Construction

[page 17]

Latent conditions The ground is the place where things are most likely to go wrong during a construction project, and the worse the ground, the greater the risk.74

1.23 Latent conditions — also referred to as differing site conditions — relate to the discovery of physical obstructions or conditions on and under the construction site which were not foreseen by the contractor at the time of tender.75 For example, a contractor may discover hazardous substances, such as asbestos or gas emissions, or ground conditions may be considerably harder or softer than anticipated. An apt example of a major dispute arising from the discovery of a latent condition is the Australian Newcastle Harbour project, where disused coal

workings under the harbour were discovered, costing the project an extra AUD$6 million.76 Latent conditions are therefore a significant source of conflict between parties on a construction project because they invariably involve delays while the condition is dealt with, with time and money implications. 1.24 The tension that arises between the parties regarding latent conditions tends to revolve around the establishment of liability, that is, which party bears the costs of overcoming the adverse conditions, and whether the contractor is entitled to extra time. Indeed, an adverse decision for either party ‘can mean insolvency and job losses for contractors, and for owners, serious financial embarrassment’.77 The position at common law is that in the absence of a contractual entitlement to extra time or costs, the risk of latent conditions is borne by the contractor.78 However, virtually all standard form construction contracts contain latent condition clauses which alter the common law position.79 These clauses permit the contractor to make claims for extension of time and costs when encountering conditions that materially differ from those which should have been anticipated by a competent and experienced contractor.80 1.25 The operation of latent condition clauses have proven a hotbed for contentious claims which rapidly escalate into disputes. Indeed, it has been [page 18] reported that claims based on latent conditions in Australia are ‘second only to delay and disruption’ claims.81 Similar reports have emerged from Canada and Hong Kong.82 The key conflicts that arise regarding the operation of these clauses concern what the contractor ought to have known, and therefore reasonably have expected. This is compounded by the fact that most standard form construction contracts from around the world provide very little incentive for the parties to collaboratively identify how best to minimise the effect of the latent condition, and fashion creative solutions to such problems.83

Variations/change in scope 1.26 It is a rare for a construction project to be completed strictly in accordance

with the contract drawings and specifications. Indeed, it has been said that change ‘is the only constant on construction projects’.84 These changes are necessary for a variety of reasons, including, for example, that a latent condition was encountered that required a slight or total redesign of the works, the original design may have proven to be incomplete or impractical, or the owner simply changed his/her mind regarding an aspect of the design. As one judge noted: … except in the middle of a battlefield, nowhere must men coordinate the movement of other men and all materials in the midst of such chaos and with such limited certainty of present facts and future occurrences as in a huge construction project … Even the most painstaking planning frequently turns out to be mere conjecture and accommodation to changes must necessarily be of the rough, quick and ad hoc sort, analogous to ever-changing commands on the battlefield.85

1.27 As with latent condition clauses, construction contracts invariably contain variation clauses that permit the owner to change aspects of the work as building progresses, and for the contractor to claim extensions of time and costs. Indeed, absent a variation clause, the owner is not permitted to instruct the contractor to perform any work that is different from the scope of work as specified in the contract documents because there is no common law right to vary.86 By way of example, Australia’s most commonly used standard form construction contract, AS 4000, allows the Superintendent (acting as the owner’s agent) to instruct the contractor to vary work by way of: [page 19] an increase, decrease or omission of any of the works; a change to the character or quality of the works; a change to the levels, lines, position or dimensions of the works; any additional work; or the removal of any work no longer required by the owner.87 Notwithstanding that all parties anticipate that there will be changes during a construction project, variations are still a frequent cause of conflicts. The conflicts that arise between the parties generally relate to the interpretation of the variation clause: whether the component of the work is a variation or part of the original

scope of works; whether it is a reasonable variation; whether a variation clause can be used to delete work to give to others; the value of the variation; whether the procedural requirements for the variation have been complied with; and whether the contractor is entitled to an extension of time to complete the project because of the additional work.88 The answers to these questions directly impact on the contractor’s profitability and/or the owner’s return on investment, typifying why variations are such a source of potential conflicts throughout the life of a construction project.

Quality of the works 1.28 Quality can be described as ‘the degree to which a set of inherent characteristics fulfils requirements’.89 Quality is a key objective pursued by all parties to a construction project. However, questions concerning the quality of work both during and post construction, have proven to be a fertile ground for conflicts that escalate into high value disputes. This is because not only is the concept of quality a ‘very complex and often subjective issue’,90 but construction projects are often procured on the basis of time and cost objectives, to the detriment of project quality.91 Indeed, in order to save costs and protect profit margin, contractors often risk not being able to produce construction work which fulfils the design specifications or meets sustainable standards, such as those required by legislation.92 Owners too, in protecting their return on investment, have been known to reduce construction supervision, and thus their ability to monitor and identify any defects or quality [page 20] issues as construction progresses.93 While a project that is completed on time, within budget, and to the standard of quality as prescribed in the contract specifications are the principle objectives of the parties to a construction contract, there is a concern that for a great many projects, contractors and owners tend to concentrate their efforts on cost and time factors, at the expense of quality

considerations. 1.29 The inability to balance the three factors of time, cost and quality is a global problem that has far reaching ramifications. As noted by the Féderation Internationale des Ingénieures-Conseils or the International Federation of Consulting Engineers (FIDIC): Quality of Construction or rather, the lack of quality, is increasingly being identified by consulting engineers as a serious concern worldwide. A lack of sustainability as well as potential health and safety problems in completed projects, an increase in the number of disputes and a failure to provide value for money in completed contracts are obvious outcomes of the lack of Quality of Construction.94

Notwithstanding that enhancing construction quality has been at the core of a number of studies and initiatives in various jurisdictions, such as the United Kingdom, Singapore, Hong Kong and Australia, allegations of defective work continue to be a source of high incidences of construction conflicts and disputes.95

Conclusion 1.30 The time and cost implications generated by the vast number of problems that may be encountered during construction is the reason why conflict between parties to a construction project is inevitable. However, these conflicts only escalate into disputes if parties fail to respond positively to the conflict by collaboratively fashioning innovative and constructive solutions to problems. A positive response to conflict requires: a high degree of trust and confidence between the parties; that all parties have a vested interest in mutual cooperation to successfully achieve the requirements of the construction project; and that the individual goals of each party are met. It is an unfortunate reality that problems encountered during construction projects all too often culminate in negative conflict, with parties adopting adversarial

[page 21] ‘us versus them’ attitudes. Why construction projects have become this way is analysed in the next section.

CAUSES OF CONSTRUCTION DISPUTES 1.31 It is by no means inevitable that conflicts on construction projects escalate into disputes. As set out in Figure 1.5 below, there are four factors which play a causal role in conflicts escalating into disputes. This section highlights how these four factors lay the foundations for the adversarial construction culture which strains the relationships and limits effective communication and cooperation between the parties throughout the life of a construction project.96 The avoidance of disputes on construction projects requires parties to move away from this culture of confrontation, and towards relationships that are characterised by mutual trust, open communication and confidence.

FIGURE 1.5

Causes of Conflicts Escalating into Disputes on Construction Projects

[page 22] Although there will continue to be conflict arising from latent conditions, variations, defective work and other causes, if parties address the four factors analysed in this section they will be well placed to ensure that those conflicts do not escalate into disputes.

Competitive tendering 1.32 It is common for a construction contract to be awarded to a contractor following a competitive bidding process where price is often the most decisive criterion. Indeed, owners have been accused of encouraging too many contractors

to tender for a project in order to increase price competitiveness.97 This is particularly true for government projects due to the requirement to account for public funds.98 Against this backdrop, contractors are often motivated to win a tender by submitting an abnormally low bid notwithstanding any inherent complexities the project may face.99 Indeed, particularly in the case of public procurement processes, a full appreciation of a project’s requirements and its inherent difficulties is seldom achieved. This is because tenderers are rarely permitted to engage in dialogue with the public authority to clarify expectations and to fully assess a project’s risks.100 Industry practice in Australia, for example, is to strongly discourage communication during the bidding process, with the Australian Government Solicitor advising that ‘there should be strict limits about what can be said in response to tenderers’ inquiries’.101 1.33 These limitations on communication are problematic as they make it more difficult for a contractor to assess the time, costs and risks associated with undertaking the project. When a contractor encounters risks that were not anticipated, it may become motivated to engage in opportunistic practices in the hope of recouping lost profits.102 This is because: … the lowest tendering contractor is also the one faced with the highest danger of loss. Only the very naïve developer can be unaware of how much time is spent by the lowest tendering contractor in search of ways to cut losses and redress the balance after the contract has been let.103

[page 23] Indeed, as construction projects have grown in both complexity and costs, the parties’ focus has, over the decades, shifted away from the quality design and build of a project for the mutual benefit of all parties, to that of ‘claimsmanship’ — an environment where claims for adjustments to the contract price and time have become commonplace.104 The increasing number of persons working as claims consultants in the modern construction industry landscape is testament to the level of claimsmanship that occurs in the construction industry.105 In these circumstances, claims are often contentious, met with suspicion and are highly scrutinised, notwithstanding that the claim may be genuinely valid.106 The fact that many claims immediately escalate into disputes, perhaps explains why the terms ‘claims’ and ‘disputes’ are often used interchangeably in the literature

concerning construction dispute resolution. 1.34 The competitive tendering process also significantly curtails innovative approaches to the project. Contractors faced with low profit margins have little incentive to do more than the minimum required by the contract. This is in spite of the contractor perhaps being aware of technology enhancements or valueengineering alternatives that have not been specified in the contract documents, but which could improve construction quality and performance.107 The lack of dialogue during the tender process exacerbates this problem. Further, it may also discourage the submission of tenders by responsible contractors and attract tenders from contractors who are prepared to take on any project notwithstanding the risks, in the hope that they can recoup their losses via claims.108 Notwithstanding that the competitive bidding process can help attract the lowest price possible for the delivery of a construction project, once the project is underway it also strains the relationship among the parties due to the greater potential for contentious claims that readily morph into disputes. Further, it restricts improvements and innovations to the detriment of a project, and risks attracting contractors that are not best suited for a particular project. [page 24]

An alternative to tendering: Competitive dialogue 1.35 In recognition of the problems created by the competitive tender process, there has been a focus on developing alternative systems that embrace flexibility and innovation, particularly for major, complex projects. An example of such an alternative system is competitive dialogue, which was first used in the European Union in 2004.109 In essence, competitive dialogue allows an owner and the contractors wishing to tender for a project to engage in ongoing dialogue to discuss all aspects of the contract and project.110 This allows the parties to ‘identify and define the means best suited to satisfying [the owner’s] needs’ prior to final tenders being submitted.111 Such an approach to tendering permits contractors to clarify the owner’s expectations for the project, discuss the risks the project may face, and utilise their years of construction experience to explore

innovative ways to address the owner’s requirements. These ongoing discussions can also develop positive working relationships between the parties and lay the foundations for open communication throughout the life of a project. 1.36 The delivery of the venues and infrastructure for the London 2012 Olympics and Paralympics Games was one of the first major projects in the United Kingdom to trial competitive dialogue, and provides a useful illustration of how it can mitigate the problems of traditional competitive tendering.112 As is often the case with major projects, the Olympic Delivery Authority (ODA) — the statutory corporation responsible for ensuring delivery of venues and infrastructure for the 2012 Olympic and Paralympic Games — was unable to provide full project specifications to potential bidders and was under significant time pressures due to immovable deadlines for completion.113 For a period of three weeks, the ODA made a concerted effort to engage in the competitive dialogue process with all [page 25] four of its shortlisted tenderers on various aspects of the project.114 The ODA made available to the four tenderers information surrounding the project’s key requirements and its areas of greatest concern.115 Tenderers were required to address these issues in written submissions as well as by oral presentations to the ODA, which gave the ODA ‘the opportunity to question bidders on elements of their submission’.116 Further, given that a positive working relationship between the parties was of ‘absolutely critical importance’,117 in addition to the submissions and oral presentations, the ODA also required each of the tenderers to participate in team exercises with various ODA representatives, during which they were presented with simulated challenges.118 This gave the ODA the opportunity to experience working with all tenderers and to evaluate the ‘cultural fit, openness to change, ability of the parties to work together and the ability to demonstrate “innovative and creative solutions”’.119 In spite of the scale and complexity of the 2012 Olympics Games project, it was delivered on time, within budget, and with no outstanding disputes.120 Competitive dialogue has been praised as one of the factors contributing to this

result.121 The free-flow of communication between the ODA and the contractor permitted the parties to arrive at the most appropriate solutions to successfully and innovatively achieve the requirements of the project. Indeed, in its posttender evaluation report, the ODA noted that the chief benefit of the competitive dialogue process is that ‘it encourages bidders to propose a different number of solutions’. It is therefore no surprise that industry groups are now advocating that ‘competitive [page 26] dialogue encourages creativity, enabling bidders to explore fully the possible ways of meeting the authority’s requirements’.122 It is clear that such a system may alleviate the problems associated with the traditional hard-dollar competitive bidding system. Indeed, this approach seems well placed to provide a solid foundation for positive working relationships for the life of a construction project, given its focus on early communication and mutual problem-solving even before the project is underway.

Lopsided risk allocation 1.37 The Macquarie Dictionary defines risk as ‘exposure to the chance of injury or loss’.123 The distinctiveness of each construction project and the sheer number of risks that arise during the construction process make it clear why construction is regarded as an inherently risky business. Construction projects often proceed notwithstanding the potential to encounter highly unpredictable risks that may cause disruption and increased costs to the project such as latent conditions and economic and political conditions. What is predictable, however, is that the failure to identify and make appropriate allowances for risks can have dire and costly consequences. These consequences can extend beyond the profitability of the parties to encompass political and social impacts extending from: … public hostility to future projects right through to the burden placed upon judicial resources, as a result of the inevitable disputation that can arise as a result of risks and projects spiralling out of control.124

1.38 Notwithstanding that it is difficult to accurately predict the risks that may be encountered on a particular project, one of the fundamental functions of a construction contract is to manage risks by allocating certain categories of risk to a particular party.125 It is generally accepted that the Abrahamson Principle, which was developed in the 1970s, is the most equitable manner of allocating project risks.126 In essence, the Abrahamson Principle holds that a party should bear a risk where: the risk is within the party’s control; the party can transfer the risk, for example, through insurance, and it is most economically beneficial to deal with the risk in this fashion; [page 27] the preponderant economic benefit of controlling the risk lies with the party in question; to place the risk upon the party in question is in the interests of efficiency, including planning, incentive and innovation; and if the risk eventuates, the loss falls on that party in the first instance and it is not practicable, or there is no reason under the above principles to cause expense and uncertainty by attempting to transfer the loss to another.127 1.39 Although the Abrahamson Principle provides a solid risk management strategy, risk allocation far too commonly remains lopsided.128 Generally, which party bears a risk, and at what cost, is a matter of commercial negotiation. However, owners are often in a stronger bargaining position, and because of this feel entitled to pass a bulk of project risks to the contractor. While standard form construction contracts have attempted to redress the risk imbalance, in practice they are often heavily amended in favour of the owner.129 For example, a survey completed by the Australian Constructors Association (ACA) in 1998, found that: … the traditional risk management strategy adopted by clients has been to transfer as much of this risk as possible to others … This strategy is often pursued on the assumption that the extremely competitive nature of the Australian construction market will allow these risks to be transferred without paying any premium.130

Furthermore, the competitive tendering process discourages contractors from fully evaluating or pricing the risks that they have been allocated, further exacerbating the inequity.131 For example, a 2001 survey of 400 contractors in the United States found that in ‘setting their bid offer, most contractors rely on their intuition after subjectively assessing the competition’ rather than undertaking a stringent assessment and pricing of project requirements and risks. The outcome of inequitable risk allocation is that a party either pays too much for a project or will not be able to recover any losses, which could mean insolvency and job losses. It could also result in the complete abandonment of a project due to financial pressures. Thus, unfair risk allocation creates an ‘adversarial climate, a high level of commercial disputation, time and cost overruns and overall poor performance’.132 [page 28] 1.40 In order to minimise disputes, parties to a construction contract should place greater focus on risk management, not only at the outset of a project but throughout the life of the project because ‘more successful projects use more risk management’.133 Competitive dialogue, discussed above, provides a process that encourages parties to engage in a full and frank discussion of project risk and to come to compromise solutions prior to entering into a construction contract. Indeed, the problems associated with ‘risk aversion is one reason for the upsurge in Competitive Dialogue’ in the European Union.134 Competitive dialogue, however, is not suited to all construction projects due to obvious cost and time implications. The principles it espouses, however, such as open communication between the parties during the early stages of the project regarding project requirements and risks should be embraced on every construction project. By comprehensively considering project risks at an early stage, both parties can more accurately predict the resources and time needed for project completion and have this reflected in the construction contract.

Perceived bias of the superintendent 1.41 A large number of standard form construction contracts used in various

jurisdictions including Australia, the United Kingdom and the United States are administered by a superintendent who is appointed for the life of the construction project.135 Depending on the construction contract being used, the superintendent is also referred to as the architect136 or the engineer.137 The superintendent performs contractual duties in two separate and distinct capacities (commonly referred to as the wearing of ‘two hats’).138 First, the superintendent acts as an agent of the owner.139 This provides the superintendent the power to, for example, resolve any contract ambiguities or inconsistencies, order variations, direct the removal or replacement of material or work done not in accordance with the contract, and postpone or suspend work.140 The superintendent’s second ‘hat’ is that of an independent certifier of claims and a ‘referee’ of disputes during the course of a construction project. The standard form contracts generally specify that in performing this duty the superintendent [page 29] must ‘act reasonably and in good faith’.141 Absent these express provisions, the common law will imply a term that the superintendent will ‘act fairly and justly and with skill to both parties to the contract’.142 In John Holland Construction & Engineering Pty Ltd v Majorca Projects Pty Ltd & Bruche Henderson Pty Ltd,143 Byrne J explained that this required the superintendent to make decisions ‘which are professional, careful and even-handed, not in the interests of one party’. Notwithstanding these obligations, tensions arise in the exercise of the superintendent’s independent duties due to concerns about the procedural fairness144 of the process. There remains a perception among contractors that the certification and decision-making process is inherently unfair given that the superintendent may, consciously or subconsciously, prioritise the rights and interests of the person who pays his/her fees, that is, the owner.145 Indeed, even with a conscious effort to remain impartial in the exercise of its duties, and as noted Warren CJ of the Victorian Supreme Court in Kane Constructions Pty Ltd v Sopov,146 ‘the superintendent may lose independence without actually intending to do so or even without knowledge they have done so’. 1.42 It has long been understood that people’s response to a decision-making

process extends significantly beyond whether they achieved a favourable result, to encompass the perceived fairness of the process.147 Indeed, a 2008 empirical study examining the effects of procedural fairness in the certification of construction claims found: There was lower intensity of conflict and lower potential to dispute against unfavourable outcomes when the procedure for administering claims was perceived to be fair than when the procedure was perceived to be unfair.148

This confirms earlier studies citing the lack of procedural fairness as the fundamental reason why claims rapidly escalate into disputes that require resolution through the courts or arbitration.149 Trust between the parties is [page 30] undoubtedly difficult to promote and maintain when a party perceives that a decision-making process is procedurally unfair.150 An inequitable certification and dispute resolution process is clearly a significant impediment to the resolution of conflicts, and thus a significant source of disputes. It contributes to the adversarial environment that compels the parties to adopt animus attitudes that impact negatively on the successful completion of the project.

A need for change 1.43 The dual-role of the superintendent is an archaic tradition that is problematic in the modern construction era. As Lord Hoffman observed: … the [Superintendent] is the agent of the employer. He is a professional man but can hardly be called independent. One would not readily assume that the contractor would submit himself to be bound by his decisions … there are instances in the nineteenth century and early part of this one in which contracts were construed as doing precisely this. There are also contracts which provided that in case of dispute the [Superintendent] was to be the arbitrator. But the notion of what amounted to a conflict of interest was not then as well understood as it is now.151

To address this problem, several standard form construction contracts have introduced the concept of neutral third-party dispute adjudicators who are employed and remunerated jointly by the parties either at project commencement or when a dispute has arisen.152 When parties are in dispute over any aspect of

the contract, the superintendent’s decision can rapidly be referred to these neutral third parties for a binding decision (unless and until it is overturned by the courts or arbitration).153 While this approach has proven effective in replacing the parties’ reliance on the courts or arbitration to resolve their disputes, it has failed to strike at the heart of the problem, that is, the perception of bias that emanates from the dual-role of the superintendent.154 [page 31] 1.44 Construction claims are a natural part of a construction project, and despite best efforts disputes concerning these claims, or other aspects of the contract, will continue to flourish if the contractual certification and dispute resolution processes are perceived as unfair. A fair and unbiased system for the certification of claims and the contemporaneous resolution of disputes is therefore critical to ensuring that, regardless of the result, parties remain focused on the successful completion of the project.

Failure to comply with the construction contract 1.45 The role of the construction contract and how it can be devised to better achieve the parties’ goals is analysed in depth in Chapter 3. For present purposes it is sufficient to note that the construction contract seeks to control and regulate the construction process by defining the duties, relationships and rights of the parties to the contract. This requires the construction contract to: accurately scope the project, that is, to properly identify the fundamental objectives of the project, which includes the owner’s requirements (functional outcomes and/or technical requirements); clearly set out what each party is required to do and what it is entitled to; and set out each party’s rights in the event that the other party does not perform its contractual obligations.155

Properly constructed, the construction contract should be seen and used as a roadmap for the successful completion of a project.156 Notwithstanding the importance of the construction contract, it is far too common for parties to enter into a contract without a full commitment and understanding of its terms, in the belief that ‘who needs a contract if the job is successfully completed and the contractor gets paid?’157 Indeed, it has been said that once the contract is signed, it is best left ‘in the bottom drawer’ during the course of the construction project, only being reviewed if the parties get into a dispute situation.158 For example, in John Barker Construction Ltd v London Portman Hotel Ltd,159 despite the construction contract requiring the Superintendent, when assessing claims, to take into account the bills of quantities,160 the Superintendent admitted that he had never seen the bills of quantities until he was in the witness box. The Superintendent admitted that he had made impressionistic calculations rather than making a calculated assessment of the consequences in accordance with the procedure specified in the [page 32] contract. This is not a rare example; the courts are filled with examples of parties to a construction contract who have failed to comply with its provisions out of sheer ignorance, or not understanding its terms.161

CONCLUSION 1.46 In Mobil Chemical Co v Blount Brothers Corp,162 the United States Court of Appeals explained that: The parties to this action somehow built a chemical plant. They have been trying to figure out who should pay for it ever since. Both the owner and the general contractor have tried to escape all liability …

Despite a number of attempts to overhaul the construction process over the past several decades, construction projects continue to be completed with a large number of unresolved disputes.163 This is due, in part, to the nature of traditional construction contracting, where one party’s profit is made at the other’s expense. The result is that parties are not motivated to find innovative and creative

solutions to problems that invariably arise during the course of construction. This environment not only helps fuel an adversarial ‘us versus them’ culture, but also results in delays to completion, questionable quality and increased costs. It is therefore not surprising that the severity of disputation is higher in the construction industry than in other major sectors of the economy.164 However, it does not have to be this way. 1.47 Plato once explained that ‘the beginning is the most important part of the work’.165 To effectively minimise the occurrence of construction disputes, both parties must at the outset seek to establish positive and trusting working relationships. Such relationships are more likely to be achieved if the parties have a full understanding of not only the requirements of the project but also [page 33] its inherent risks and the contractual mechanisms for dealing with those risks should they eventuate. A full appreciation of the project risks at an early stage allows the parties to more accurately assess the resources and time needed for project completion and have this reflected in the construction contract. This can curtail the parties’ motivations to resort to opportunistic practices and engage in claimsmanship in the hope of recouping lost profits. Further, given the uncertainties surrounding any construction endeavour, it is a reality that problems will occur throughout the life of the project and conflicts will arise regarding the approach that should be taken to solving these problems. Parties should seek to address these conflicts positively, by way of open and constructive dialogue. This can ensure the development of innovative and creative responses to the problems. For this to occur, the adversarial culture that characterises many construction projects, which is a significant factor in many conflicts escalating into disputes, needs to be transformed into one that is characterised by mutual trust and confidence. [page 34]

Additional Resources Books I Bailey and M Bell, Construction Law in Australia, 3rd ed, Lawbook Co, Sydney, 2011. I Eilenberg, Dispute Resolution in Construction Management, UNSW Press, Sydney, 2003. P Loots and D Charrett, Practical Guide to Engineering and Construction Contracts, CCH Australia, Sydney, 2009. K Pickavance, Delay and Disruption in Construction Contracts, 3rd ed, LLP, London, 2005.

Journals D Byrne, ‘The Future of Litigation of Construction Law Disputes’ (2007) 23 BCL 398. J Dorter, ‘The Standards Australia Suite’ (2003) 19 BCL 320. J Hinchey, ‘Rethinking Conflict in Construction Project Delivery and Dispute Resolution’ (2012) 29(1) ICLR 29. D Jones, ‘Construction Project Dispute Resolution: Options for Effective Dispute Avoidance and Management’ (2006) 132 J Prof Iss Eng Ed Pr 225. M Kumaraswamy, ‘Conflicts, Claims and Disputes in Construction’ (1997) 4(2) Eng Constr Arch Manage 95. H Michael, ‘The Next 25 Years: The Future of the Construction Industry’ (1998) 14(5) J Manage Eng 26. J Sykes, ‘Claims and Disputes in Construction’ (1996) 12(1) Con LJ 3.

Other Blake Dawson Waldron, Scope for Improvement — A Survey of Pressure Points in Australian Construction and Infrastructure Projects, 2006. Cooperative Research Centre for Construction Innovation, Guide to Leading Practice for Dispute Avoidance and Resolution: An Overview, 2009, . [page 35] K Harmon, Dispute Review Boards and Construction Conflicts: Attitudes and Opinions of Construction Industry Members, PhD thesis, Nova Southeastern University, 2003. R Thompson, Efforts to Manage Disputes in the Construction Industry: A Comparison of the New Engineering Contract and the Dispute Review Board, Master of Science in Civil Engineering thesis, Virginia Polytechnic Institute and State University, 1998.

1

Justice D Byrne, ‘The Future of Litigation of Construction Law Disputes’ (2007) 23 BCL 398 at 405.

2

See Australian Bureau of Statistics, 1301.0 — Year Book Australia, 2012. Construction Industry, ; UK Contractors Group, Construction in the UK Economy: The Benefits of Investment, 2009, ; Centre for Economic and Policy Research, Construction as Percent of GDP, 2005– 11, ; and K Harmon, ‘Construction Conflicts and Dispute Review Boards: Attitudes and Opinions of Construction Industry Members’ (2003) 58(4) DRJ 67.

3

World Trade Organization, Construction and Related Engineering Services, .

4

See, for example, P Love et al, ‘Causal Discovery and Inference of Project Disputes’ (2011) 58(3) IEE T Eng Manage 400; D Jones, ‘Construction Project Dispute Resolution: Options for Effective Dispute Avoidance and Management’ (2006) 132 J Prof Iss Eng Ed Pr 225; and R Martin, ‘Construction Industry Disputes: How Did We Get Where We Are?’ (1989) 5 BCL 89.

5

K Harmon, ‘Using DRBs to Maintain Control of Large, Complex Construction Projects’ (2012) 67(1)

DRJ 1. 6

See P Gerber and B Ong, ‘DAPs: When Will Australia Jump on Board?’ (2011) 27 BCL 4; and K Cheung and T Yiu, ‘Are Construction Disputes Inevitable?’ (2006) 53(3) IEEE T Eng Manage 456 at 459.

7

Cooperative Research Centre for Construction Innovation, Guide to Leading Practice for Dispute Avoidance and Resolution: An Overview, 2009, .

8

H Michael, ‘The Next 25 Years: The Future of the Construction Industry’ (1998) 14(5) J Manage Eng 26 at 31; and K Harmon, ‘To Be or Not to Be — That is the Question: Is a DRB Right for Your Project?’ (2011) 3(1) J Leg Aff Dispute Resolut Eng Constr 10.

9

Harmon, above n 8.

10

See for example P Love et al, ‘Causal Discovery and Inference of Project Disputes’ (2011) 58(3) IEE T Eng Manage 400; D Richbell, Mediation of Construction Disputes, Blackwells, 2008, p 3; C Seppala, ‘The Development of Case Law in Construction Disputes Relating to FIDIC Contracts’ (2009) 26(1) ICLR 105; W Edgerton, Recommended Contract Practices for Underground Construction, SME, 2008, p 103; Cooperative Research Centre for Construction Innovation, Research Report: Causal Ascription of Disputes in Construction Projects, 2009, ; and J Hinchey, ‘Rethinking Conflict in Construction Project Delivery and Dispute Resolution’ (2012) 29(1) ICLR 29.

11

R McManamy, ‘Industry Pounds Away at Disputes’ (1994) 24 Eng News Rec 3.

12

See, for example, Justice D Byrne, ‘The Future of Litigation of Construction Law Disputes’ (2007) 23 BCL 398 at 405; and M Marzouk et al, ‘Dispute Resolution Aided Tool for Construction Projects in Egypt’ (2011) 17(1) J Civ Eng Manag 63.

13

K Yiu and S Cheung, ‘A Catastrophe Model of Construction Conflict Behaviour’ (2006) 41 Building Environ 438.

14

M Lucado, ‘Conflict is Inevitable, .

15

See, for example, Top 10 Most Impressive Engineering Projects, .

16

The Jumeirah Palm Island in Dubai is also referred to as the eighth wonder of the world. The island consists of villas, a hotel, shopping, dining and a marina. © Haider Yousuf, Dreamstime.com

17

See Cooperative Research Centre for Construction Innovation, Guide to Leading Practice for Dispute Avoidance and Resolution: An Overview, 2009, .

18

T Kelleher and S Walters (eds), Smith, Currie and Hancock’s Common Sense Construction Law: A Practical Guide for the Construction Professional, 4th ed, John Wiley & Sons, 2009, p 335; and N Carnell, Causation and Delay in Construction Disputes, 2nd ed, 2005, p 1.

19

P Mitropoulos and G Howell, ‘Model for Understanding, Preventing, and Resolving Project Disputes’ (2001) 127(3) J Constr Eng Manage 223.

20

See, for example, Marzouk, above n 12; A Mills, ‘A Systematic Approach to Risk Management for Construction’ (2001) 19(5) Structural Survey 245; and N Carnell, Causation and Delay in Construction Disputes, 2nd ed, 2005, Wiley-Blackwell p 1.

21

His Holiness the Dalai Lama on 29 November 2011, cited in E Hammerich, Meeting Conflicts Mindfully,

but

Combat

is

Optional’,

2001, Danish Centre for Conflict Resolution, accessed at . 22

D Langford et al, ‘Contingency Management of Conflict: Analysis of Contract Interfaces’ in P Fenn and R Gameson (eds), Construction Conflict Management and Resolution, Routledge, London, 1992; and L Anderson and P Polkinghorn, ‘Managing Conflict in Construction Megaprojects: Leadership and Third-Party Principles’ (2008) 26(2) Conflict Resol Q 167.

23

K Pickavance, Delay and Disruption in Construction Contracts, LLP, 2005, pp 31 and 37.

24

P Mitropoulos and G Howell, ‘Model for Understanding, Preventing, and Resolving Project Disputes’ (2001) 127(3) J Constr Eng Manage 223 at 226.

25

Adapted from P Gerber and B Ong, ‘DAPs: When Will Australia Jump on Board’ (2011) 27 BCL 4 at 5.

26

K Cheung and T Yiu, ‘Are Construction Disputes Inevitable?’ (2006) 53 IEEE T Eng Manage 456 at 459. For a comprehensive analysis and definition of conflict, see Chapter 2.

27

M Kumaraswamy, ‘Conflicts, Claims and Disputes in Construction’ (1997) 4(2) Eng Constr Arch Manage 95; P Love et al, ‘Causal Discovery and Inference of Project Disputes’ (2011) 58(3) IEE T Eng Manage 400; and P Gerber and B Ong, ‘DAPs: When Will Australia Jump on Board?’ (2011) 27 BCL 4.

28

See generally D Dana, Conflict Resolution, McGraw-Hill, 2001, p 8.

29

Dana, above n 28, p 8, and W Wilmot and J Hocker, Interpersonal Conflict, 5th ed, McGraw-Hill, 1998, p 1.

30

D De Clercq, N Thongpapanl and D Dimov, ‘When Good Conflict Gets Better and Bad Conflict Becomes Worse: The Role of Social Capital in the Conflict–Innovation Relationship’ (2009) 37 J Acad Market Sci 283; and L Van Dyne and R Saaverdra, ‘A Naturalistic Minority Influence Experiment: Effects on Divergent Thinking, Conflict and Originality in Work-groups’ 35(1) Brit J Soc Psychol 151.

31

See H Assael, ‘Constructive Role of Interorganizational Conflict’ 14(3) Admin Sci Quart 573.

32

See K Eisenhardt, J Kahwajy and L Bourgeois, ‘Conflict and Strategic Choice: How Top Management Teams Disagree’ (1997) 39(2) Calif Manage Rev 42; and De Clercq, above n 30, p 285.

33

Eisenhardt, above n 32.

34

See generally Gully et al., ‘A Meta-analysis of Team Efficacy, Potency, and Performance: Interdependence and Level of Analysis as Moderators of Observed Relationships’ (2002) 87 J Appl Psychol 819; F Williams, ‘Interpersonal Conflict: The Importance of Clarifying Manifest Conflict Behaviour’ (2011) 1(3) International Journal of Business, Humanities and Technology 148; and F Chiocchio, D Forgues, D Paradis and I Iordanova, ‘Teamwork in Integrated Design Projects: Understanding the Effects of Trust, Conflict, and Collaboration on Performance’ (2011) 42(6) Project Management Journal 78.

35

D Yates, Conflict and Disputes in the Development Process: A Transaction Cost Economics Perspective, (1998) , p 2.

36

See K Jehn and C Bendersky, ‘Intragroup Conflict in Organizations: A Contingency Perspective’ (2003) 25 Res Organ Behav 189.

37

De Clercq, above n 30; K Jehn, ‘A Multimethod Examination of the Benefits and Detriments of Intragroup Conflict’ (1995) 40 Admin Sci Quart 256; and A Amason, ‘Distinguishing the Effect of Functional and Dysfunctional Conflict on Strategic Decision Making: Resolving a Paradox for Top Management Teams’ (1996) 39 Acad Manage J 123.

38

K Harmon, Dispute Review Boards and Construction Conflicts: Attitudes and Opinions of Construction Industry Members, 2003, PhD dissertation, Nova Southeastern University, p 30; and R Martin, ‘Construction

Industry Disputes: How Did We Get Where We Are?’ (1989) 5 BCL 89. 39

P Loots and D Charrett, Practical Guide to Engineering and Construction Contracts, 2009, p 279.

40

P Hibberd and P Newman, ADR and Adjudication in Construction Disputes, CCH Australia, 1999, p 2.

41

See for example A Reid and R Ellis ‘Common Sense Applied to Definition of a Dispute’ (2007) 25(3) Structural Survey 239 and I Ndekugri and V Russel, ‘Disputing the Existence of a Dispute as a Strategy for Avoiding Construction Adjudication’ (2006) 13(4) Eng Constr Arch Manage 380.

42

Statutory adjudication is analysed in depth in Chapter 16.

43

Ndekugri, above n 41, p 389.

44

Arbitration is a method of binding dispute resolution that is analysed in Chapter 17.

45

[1985] VR 586.

46

[1985] VR 586, 591 (Fullagar J concurring with Phillip J in Concrete Developments Pty Ltd v Queensland Housing Commission [1961] Qd R 356, 360). See also Marzouk, above n 12.

47

J Dorter and J Sharkey, Building and Construction Contracts in Australia: Law and Practice, 2nd ed, Lawbook Co, 1990, p 7012.

48

Ndekugri, above n 41; and A Reid and R Ellis, ‘Common Sense Applied to the Definition of a Dispute’ (2007) 25(3) Structural Survey 239.

49

[1998] 1 WLR 726.

50

Ndekugri, above n 41, p 389.

51

Ndekugri, above n 41, p 389.

52

Ndekugri, above n 41, p 389.

53

[1966] 63 LGR. 429 (CA).

54

[1966] 63 LGR. 429 (CA), per Denning MR.

55

See, for example, Fastrack Contractors Ltd v Morrison Construction Ltd [2000] BLR 168; Edmund Nuttall Ltd v R G Carter Ltd [2002] EWHC 400 (TCC); and Cowlin Construction Ltd v CFW Architects (A Firm) [2003] EWHC 50 (TCC).

56

See AMEC Civil Engineering Ltd v The Secretary of State for Transport [2005] ECWA Civ 291.

57

See, for example, Love PED et al, A Systematic View of Dispute Causation, Paper submitted to Building Research and Information for the Cooperative Research Centre’s Guide to Leading Practice for Dispute Avoidance and Resolution, 2008, .

58

B Smith, ‘Scope for Improvement — A Survey of Pressure Points in Australian Construction and Infrastructure Projects’ (2007) 24(1) ICLR 36.

59

R Martin, ‘Construction Industry Disputes: How Did We Get Where We Are?’ (1989) 5 BCL 89.

60

L King, The Avalon Project: Code of Hammurabi, 2008, [229]–[233], .

61

King, above n 60.

62

Sir Michael Latham, Trust and Money: Interim Report of the Joint Government Industry Review of Procurement and Contractual Arrangements in the United Kingdom Construction Industry, HMSO, 1993, p 20.

63

Fullbright and Jaworski LLP, 2011 Annual Litigation Trends Report, .

64

Fullbright and Jaworski LLP, above n 63.

65

Based on data reported in Fullbright and Jaworski LLP, 2011 Annual Litigation Trends Report, .

66

American Arbitration Association, The Dispute Avoidance and Resolution Task Force Newsletter, 1994.

67

G Ridgway, ‘The Cause if Cultural’ in P Fenn (ed), Proceedings of CIV TG 15 Meeting: Construction Conflict: Management and Resolution, CIB Publication No 171.

68

See, for example, S Yousefi, K Hipel and T Hegazy, ‘Attitude-Based Negotiation Methodology for the Management of Construction Disputes’ (2010) 3(1) J Manage Eng 114; N Legge, G Crossley and C Pope, ‘Disputes in Construction and Tunnelling Projects — Part 1’ (2009) June Tunnels and Tunnelling International 40; R Thompson, Efforts to Manage Disputes in the Construction Industry: A Comparison of the New Engineering Contract and the Dispute Review Board, Master of Science in Civil Engineering thesis, Virginia Polytechnic Institute and State University, 1998, p 2; H Subramanyan, P Sawant and V Bhatt, ‘Construction Project Risk Assessment: Development of Model Based on Investigation of Opinion of Construction Project Experts from India’ (2012) 138(3) J Constr Eng Manage 409; and M Danuir et al, ‘Growth of Dispute Avoidance Procedure in the Construction Industry a Revisit and New Perspectives’ (2010) 26(5) Con LJ 349.

69

Generally referred to as ‘lump-sum’ or ‘fixed-time/fixed-cost’ contracting. A range of construction procurement models are considered in depth in Chapter 3.

70

D Jones, ‘Relationship Contracting’ in J Bueno (ed), The Projects and Construction Review, 2nd ed, Law Business Research Ltd, 2012, p 23.

71

See, for example, I Eilenberg, Dispute Resolution in Construction Management, UNSW Press, 2003, p 2; M Kumaraswamy, ‘Conflicts, Claims and Disputes’ (1997) 4(2) Eng Constr Arch Manage 95; C Semple, F Hartman and G Jegeas, ‘Construction Claims and Disputes: Causes and Cost/Time Overruns’ (1994) 120(4) J Constr Eng Manage 785; J Sykes, ‘Claims and Disputes in Construction’ (1996) 12(1) Con LJ 3; J Busby and E Hughes, ‘Projects, Pathogens, and Incubation Periods’ (2004) 22 Int J Proj Manage 425, P Love et al, ‘Causal Discovery and Inference of Project Disputes’ (2011) 58(3) IEEE T Eng Manage 400; and P Mitropoulos and G Howell, ‘Model for Understanding, Preventing, and Resolving Project Disputes’ (2001) 127(3) J Constr Eng Manage 223.

72

For example contract interpretation, project uncertainty, design errors, site management, personality traits, availability of resources and poor management.

73

Conflict avoidance, management and resolution are analysed in-depth in Chapter 2.

74

The Institution of Civil Engineers (ICE) (1991) quoted in J Wong, ‘What Lies Beneath???: An Overview of Claims relating to Unforeseen Ground Conditions’, 6 October 2010, accessed at .

75

See, for example, Ryde City Tunnel v Transfield Pty Ltd [2002] NSWSC 1037. See also AS 4000 — 1997, General Conditions of Contract, cl 25; FIDIC, Conditions of Contract for Construction 1999, cl 4.12; New Engineering Contract (NEC3), Engineering and Construction Contract, cl 60.1(12); and NSD3910 — 2003, Conditions of Contract for Building and Civil Engineering Construction, cl 9.5.

76

See B Rom, Impact of Wild Weather and Murky Depths on Port Construction Projects, 2012, .

77

I Ndekugri and B McDonnell, ‘Differing Site Conditions Risks: A FIDIC/Engineering and Construction Contract Comparison’ (1999) 6(2) Eng Constr Arch Manage 177 at 177.

78

See, for example, Thorn v City of London [1976] 1 AC 120; Bottoms v York Corporation (1892) 2 HBC 208; Workshop Tarmacadam Co Ltd v Hannaby [1995] 66 Con LR 105; and Thiess Services Pty Ltd v Mirvac Queensland Pty Ltd (2006) 22(6) BCL 437. See also United States v Spearin [1918] 248 US 132.

79

See, for example, AS 4000 — 1997, General Conditions of Contract, cl 25; FIDIC, Conditions of Contract for Construction 1999, cl 4.12; NSD3910 — 2003, Conditions of Contract for Building and Civil Engineering Construction, cl 9.5; New Engineering Contract (NEC3), Engineering and Construction Contract, cl 60.1; and ConsensusDOCS200 — 2011, Standard Agreement and General Conditions Between Owner and Contractor, cl 3.16.

80

These clauses generally exclude delays caused by weather and industrial disputes.

81

J Dorter, ‘The Standards Australia Suite’ (2003) 19 BCL 320.

82

S Revay, ‘Can Construction Claims be Avoided?’ in P Fenn and R Gameson (eds), Construction Conflict Management and Resolution, E & FN Spon, London, 1992, p 204; and M Kumaraswamy, ‘Conflicts, Claims and Disputes’ (1997) 4(2) Eng Constr Arch Manage 95.

83

The operation of standard form contracts and why they are adversarial is analysed in Chapter 3.

84

W Ibbs, ‘Construction Change: Likelihood, Severity, and Impact on Productivity’ (2012) 4(3) J Leg Aff Dispute Resolut Eng Constr 67 and K Molly, ‘Six Steps for Successful Change Order Management’ (2007) 49(3) Cost Engineering 12.

85

Blake Construction Co v C J Coakley Co, 431 A2d 569 at 575 (DC 1981).

86

Contractors however can claim payment for work performed that was not stipulated in the construction contract by way of a quantum meruit claim. See, for example, S & W Process Engineering Ltd v Cauldron Foods [2005] EWHC 153 (TCC); Trimis v Mina [2000] 2 TCLR 346; and Sopov v Kane Construction Pty Limited (No 2) [2009] VSCA 141.

87

AS 4000 — 1997, General Conditions of Contract, cl 36.1.

88

P Gerber, ‘The Teaching of Construction Law and the Practice of Construction Law: Never the Twain Shall Meet?’ (2010) 20(1) Legal Educ Rev 59 at 75.

89

International Organization for Standards (ISO Standard 9000/2005: ‘Quality Management Systems — Fundamentals and Vocabulary’, 2005.

90

Construction Industry Development Board, Construction Quality in South Africa: A Client Perspective, 2011, , p ii.

91

J Bennett and T Grice, ‘Procurement Systems for Building’ in P Brandon (ed), Quantity Surveying Techniques: New Directions, Wiley-Blackwell, 1990.

92

See, for example, Building Act 2004 (New Zealand); Construction Quality Assurance Act 2009 (United States); and National Construction Code 2012 (Australia).

93

See FIDIC, Improving the Quality of Construction, 2004.

94

See FIDIC, Improving the Quality of Construction, 2004.

95

See Construction Industry Development Board, Construction Quality in South Africa: A Client Perspective, 2011,