Avoiding Disputes 

Methods of Avoiding Disputes

Dispute Resolution and Prevention: A Proactive Approach

The realm of business, particularly in the construction and contracting sector, is often fraught with the potential for disputes. These disagreements can arise from a myriad of factors, including contract ambiguities, delays, cost overruns, and quality issues. To mitigate the impact of such disputes and foster harmonious business relationships, various systems have been developed to both resolve existing conflicts and prevent their occurrence.

One effective strategy for avoiding disputes is to establish clear and comprehensive contracts. These contracts should outline the scope of work, payment terms, timelines, and dispute resolution mechanisms. By carefully defining the expectations and responsibilities of all parties involved, the likelihood of misunderstandings and disagreements can be significantly reduced.

Moreover, effective communication is paramount in preventing disputes. Open and transparent communication channels should be established between contractors, subcontractors, and clients to facilitate the exchange of information and address concerns promptly. Regular meetings, progress reports, and timely updates can help prevent misunderstandings and misunderstandings.

Another preventive measure is to implement a robust change management process. When changes arise during the project, it is essential to have a clear procedure for documenting, evaluating, and implementing these changes. This helps to avoid disputes over additional costs or time extensions.

Furthermore, proactive risk management is crucial in preventing disputes. By identifying potential risks early on and developing strategies to mitigate them, contractors can avoid costly and time-consuming legal battles. This involves conducting thorough risk assessments, developing contingency plans, and maintaining adequate insurance coverage.

In addition to these preventive measures, it is also essential to have a dispute resolution mechanism in place. This could include mediation, arbitration, or litigation. By agreeing on a dispute resolution process upfront, parties can avoid the uncertainty and potential delays associated with resolving disputes through the court system.

In conclusion, preventing disputes in the construction and contracting sector requires a proactive approach that involves clear communication, effective contract management, risk management, and a well-defined dispute resolution mechanism. By implementing these strategies, contractors can foster harmonious business relationships, reduce the likelihood of disputes, and ultimately achieve greater project success.

Avoiding Disputes

 MAIN AREAS CAUSING DISPUTES

 • Contracts

• Defective work

• Variations or ‘extra works’

• Delays and extensions of time

• Latent conditions

• Failure to adequately document the works

• Failure to adequately document daily events.

 CONTRACTS

Standard forms of contract The majority of construction contracts are in a standard form published by various organizations — Master Builder’s Association, Housing Industry Association, Royal  Australian Institute of Architects, Property Council of Australia, Standards Australia, various State and Federal Governments and even banks and finance organizations sometimes separately and sometimes as joint publications. These can be bought from the various organizations, with some now available from their websites.

The language used in these contracts ranges from high legalese through to straightforward English using layman’s terms. The contracts all cover the same basic information, if in different ways.

Common areas in most contracts include:

• a commencement date

• a completion date or construction duration in either calendar or working days

• a method of dealing with changes to the time frame, for whatever reason

• methods of the builder making a claim for payment

• a time frame for the submission and payment of claims by the client

• methods for dealing with a failure of the client to pay

• methods for dealing with changes to the contract and variations to the work

• methods of pricing and paying for the addition or reduction in workload.

In addition to these, other items may include the process of dealing with a builder who fails to adequately advance the progress of the works and bankruptcy on the part of the builder or client.

Format of the contracts

Most contracts now have two distinct sections. The first part is the printed section containing the standard clauses setting out the parameters of the obligations of both parties. The second part is blank with various clauses relating to the matter in the main part of the contract. It is the second part that is most important , this is where the actual way that matters as listed above may be specified.

It is failure to take care with this second section of the contract that often leads that which should be a readily resolved problem, into a full legal dispute.

This frequently comes about through an inadequacy to correctly fill in the various details.

Adhering to the following requirements will help avoid potential problems:

• Make at least two copies of the contract — one for the client and one for the contractor. Where financial institutions are involved that body may require a third copy. They should be done at the same time. Situations, where the builder has filled in one copy for the client and had it signed, and then given the client a copy that is different is not uncommon in the domestic area.

• Ensure that both parties sign the contract and have it witnessed. Again this should be done with all the parties present. Unsigned copies create unnecessary difficulties.

• Ensure the date is written into the contract. Leaving this out, or having different dates in different copies makes determination of the completion date that much more difficult.

• Fill in all the relevant dates, especially if there are to be staged handovers.

• Where provided, ensure that ALL the relevant documents included in the contract are listed, for example drawings, specifications and where they exist and the status of the Bill of Quantities.

• Where there is provision for additional items to be inserted, either include them or write ‘not applicable’ (rather than ‘n/a’).

Finally, it is wise to have your lawyer check the various requirements of the contract conditions, and explain to you the various implications and obligations that this contract will place on you, before filling in and signing the contract. It is too late if you find out later that the contract contains conditions you either did not understand or expect. The law will generally accept that if you sign the contract, subject to specific conditions, you agreed to and understood the contract that you signed.

Specially drafted contracts

Where a contract is specifically drafted for a project it is essential that the parties seek advice from their own lawyers. The recommended practice is to use lawyers who have a specialty in construction contracts.

Other related contract documents

As well as the main contract document, the full range of contractual documents consists of:

• The contract itself

• The plans or drawings

• The specification

• The Bill of Quantities or Schedule of Rates and so on.

Each document carries a potential dispute. However, if we ignore the actual content for a moment, there are a couple of simple things that can be done to minimize the possibility of disputation.

Defective works

It may seem obvious, but if a builder contracts for a project, the standard of work required as set out in the contract documents or in other documents accepted by the construction industry must be provided. The client has established these standards and has a contractual right to expect that the contractor will meet these. Most tolerances and acceptable levels of work are specified in building codes or standards. Indeed, it may be useful to consult the Handbook of Building Construction Tolerances.

Variations — or extra works

I am referring to deliberate variations (or extras) to the original contract as often requested by the client, but which are also sometimes necessary to enable the works to be completed on time. Builders need to be aware that by and large, work performed but not included in documentation may not form a legitimate variation. The law has long established that the builder is contracted to carry out the works and is responsible for its completion.

Delays and extensions of time

Delays are a common occurrence in construction projects, and they can have significant implications for the project’s schedule, budget, and overall success. While unforeseen circumstances can contribute to delays, many can be attributed to natural elements. Wet weather, for example, can prevent work from being carried out in the open, leading to subsequent problems such as access to the site, flooded footings, and delays in other related tasks.

Other natural factors that can cause delays include extreme temperatures, high winds, earthquakes, and floods. These events can disrupt the project’s timeline, damage equipment or materials, and create safety hazards. In some cases, natural disasters may even force the project to be temporarily halted or relocated.

While natural elements are a common cause of delays, they are not the only factor to consider. Other potential causes include:

• Design changes: Modifications to the original design can introduce delays and increase costs.
• Material shortages: Delays in the delivery of materials can disrupt the project’s schedule.
• Labor shortages: A lack of skilled workers can slow down progress and lead to delays.
• Equipment failures: Malfunctioning or damaged equipment can cause delays and increase costs.
• Unexpected site conditions: Unforeseen conditions, such as contaminated soil or underground utilities, can disrupt the project’s timeline.

When delays occur, it’s important to assess their impact on the project’s overall schedule and budget. In some cases, the delays may be minor and can be addressed through adjustments to the project schedule. However, in other cases, the delays may be more significant and may require extensions of time or additional funding.

To mitigate the impact of delays, it’s essential to have a robust project management plan in place. This plan should include contingency plans for various potential delays, as well as procedures for requesting and managing extensions of time. By being prepared for delays and taking proactive steps to address them, contractors can minimize their impact on the project’s overall success.

Latent conditions — or the hidden snags

Like hidden snags in water, latent conditions are those items that cannot be seen on a normal inspection of the site or works and would not normally be expected. These range from differing soil conditions — water, rock and so on — through to hidden water or gas pipes in walls or even acid in old holding tanks. Once again the essential action by the builder, when this situation is encountered, is to notify the client in writing. In this case the builder may need to receive instructions as to what should be done, but in circumstances

where the builder cannot wait, clear documentation as to why and what has been done is essential.

Failure to adequately document the works

Arbitrators nominate inadequate documentation as a major cause of building disputes. A growing tendency is for the client to spend as little as possible in the preparation of the documentation, leaving more and more to the builder to resolve. It is widely accepted that the more extensive the detailing and documentation, the less chance there is for misunderstanding of the client’s intentions and thus mistakes by the builder. The skill and knowledge of the technology of construction by the builder will always be required, as every detail cannot be economically (or even reasonably) included in the drawings or specification. It is also true to say that if a given detail is open to interpretation, in most cases there will be more than one interpretation possible.

The simplest solution is to adequately document the works at the start of the building process. This benefits all parties concerned:

it lessens the chances of misinterpretation on the part of the builder and thus the need to impose a cost burden; and it increases the chances of the client being given a more realistic time frame. There is not much that the builder can do with poor documentation supplied on behalf of the client, except to price the work to cover the inevitable problems ahead.

Documenting daily events — or how you will learn to love your diary

Many disputes are related to the failure to establish ‘facts’. A good site diary where all relevant information is recorded is a prime source of facts when a matter is in dispute. Data should include a record of all people working on the site, from direct labour to subcontractors, as well as visitors to the site, work being undertaken and the recording of all instructions received and actions taken on those instructions.

It is recommended practice to store a copy at the head office for future use if necessary. In this day and age, the use of computers and emails can replace the written page, but proof of authenticity is that much harder.

 Avoiding Disputes – SUMMARY

Avoiding Disputes in Construction Projects

To minimize the risk of disputes in construction projects, it is essential to take proactive steps to prevent them from occurring in the first place. Here are some key strategies to consider:

1. Complete Contracts Thoroughly:

• Fill in all blanks: Ensure that all sections of the contract are completed, especially those related to dates, financial terms, and deliverables. This helps to avoid misunderstandings and ambiguities.
• Address variations: For any changes or variations to the original contract, obtain written confirmation and determine the associated costs before proceeding with the work. This prevents disputes over unexpected expenses.

2. Accurate Pricing:

• Thorough cost analysis: Carefully price the work to account for all potential costs, including materials, labor, equipment, and overhead expenses. This helps to avoid disputes arising from underpricing or unforeseen costs.
• Error prevention: Implement measures to prevent documentation errors that can lead to disputes over payment or project scope.

3. Comprehensive Recordkeeping:

• Document everything: Maintain detailed records of all project activities, including site visits, meetings, correspondence, and changes. This documentation can be invaluable in resolving disputes and providing evidence if necessary.
• On-site and off-site records: Keep records of both on-site and off-site activities that may impact the project. This includes weather conditions, material deliveries, and any external factors that could affect the project’s timeline or budget.

By following these guidelines, contractors can significantly reduce the likelihood of disputes and foster a more harmonious working relationship with clients and subcontractors. Effective communication, clear agreements, and meticulous recordkeeping are essential for preventing disputes and ensuring a successful project outcome.

10 FAQs About Avoiding Disputes in Construction Projects

General Questions

1. Why is it important to prevent disputes in construction projects?

   • Disputes can lead to delays, increased costs, and damaged relationships.

2. What are some common causes of disputes in construction projects?

   • Contract ambiguities, changes in scope, delays, cost overruns, and quality issues.

3. How can contractors proactively avoid disputes?

   • By following best practices for contract management, communication, and risk mitigation.

Contractual Issues

4. What are some key provisions to include in construction contracts to prevent disputes?

   • Clear scope of work, payment terms, change order procedures, and dispute resolution mechanisms.

5. How can contractors ensure that contracts are properly executed and understood by all parties?

   • By reviewing and discussing the contract thoroughly with all involved parties and seeking legal advice if necessary.

Communication and Collaboration

6. What is the role of effective communication in preventing disputes?

   • Open and transparent communication can help avoid misunderstandings and resolve issues promptly.

7. How can contractors establish effective communication channels with clients, subcontractors, and other stakeholders?

   • By using regular meetings, written correspondence, and technology tools.

Risk Management

8. What is risk management in construction projects?

   • The process of identifying, assessing, and mitigating potential risks that could lead to disputes.

9. How can contractors conduct effective risk assessments?

   • By considering factors such as weather conditions, material availability, labor shortages, and regulatory changes.

10. What are some strategies for mitigating risks in construction projects?

• Developing contingency plans, using risk management tools, and maintaining adequate insurance coverage.

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