November 2022

Lecture 9
Engineering Practice
Legal Disputes

1.0 INTRODUCTION
Construction projects are generally complex, for this reason, delays and disputes are always present.
Deputes may Involve many parties. When a project ends up in a dispute, the project will fail to meet its
original goals and expectation. Clients will suffer from high legal fees, delayed completion and
occupation and general dissatisfaction. The contractor’s profits will diminish and to these will be added
additional legal fees. No winners under these circumstances.

2.0 CAUSES OF DISPUTES

The most common causes of disputes can be itemized as:
a. The contract conditions,
b. The design deficiency,
c. The construction process,
d. The consumer reaction,
e. Time.

2.1 The contract conditions

i. The Lack of Perfection in the Contract Documents
All drawings in the contract documents somewhere have mechanical drafting errors or lack
a needed dimension or detail. Many have errors which arise due to the negligence of the
designer. In addition to the human errors, there are changes always occurring as projects
undergo the design and construction process which if not properly documented could lead
to disputes. The larger and more complex a project is, the more are the chances for such
sort of errors.
ii. Failure to Account the Cost
Dispute continually arises in a construction project when the cost at the beginning of the
project is not defined correctly. The contractors bring cost claim on projects which do not
come under the construction budget, and if the client contradicts to these claims then
disputes initiate.
iii. The Psychology of People in Construction
Construction industry is all about people. There are people involved in every stage of
construction, and the contract administrator knows a little about people involved in the
project. This is a major uncertainty in the projects which might lead to the disputes.

2.2 The Design Deficiency

Design deficiency can cause serious disputes between the actors in the construction industry, it is one of
the most often causes – approximately 38% of disputes arise from design related issues (Bramble, 1995).
The most common issues that lead to disputes are:

i. The Underground or Subsurface Problem

One of the most common causes of disputes in construction are the subsurface conditions.
Usually client provides the contractor with the soil boring information so the contractor can
determine the type of soil or rock that may be encountered during the excavation and bid
accordingly. When the construction process is started, often it turns out that the subsurface

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conditions are different than planned so the contractor asks the client for extra money -
compensation for the unexpected expenses. To avoid this, the client can include different
disclaimers in the contract and transfer all the risks to contractor, but that does not always
necessarily mean that there will be no disputes (Cushman, 2001).
ii. Risks
Contractor should do the risk analysis and estimate the risks so he can include the price of
taking these risks in the specification but it does not always happen this way. There have
been many cases that contractor includes the risk of the project delay, but does not include
the extra cost for overtime working during this delay. It leads to dispute because contractor
does not want to cover these extra expenses and asks for extra money from the client.
iii. Defective Plans
Defective or deficient plans are widespread issue in construction industry. It can be said that
all plans are defective or deficient to some extent, small errors like absence of some
dimensions, for example, is a common thing in blueprints. The disputes arise when these
defects in plans result in extra costs. Of course, usually the designer is responsible for these
mistakes (Bramble, 1995).
iv. Methods or Means and Specification Performance
Usually the designer specifies the methods and means how to reach the specific result. In
some cases, even tough contractor does everything according to these specifications and
follows the instructions of designer; the end result comes out different than expected.

For example, designer specifies that 2 layers of certain damp-proofing material should be
applied to certain construction. The contractor applies this material accordingly, but it turns
out that 2 layers are not enough and water infiltrates the construction. Of course, the
designer is responsible for the damages, but often he tries to blame the contractor and this
leads to a dispute between them.

2.3 The Construction Process

A common cause of construction disputes that previously was mentioned, are Incomplete contracts, this
issue is common to the construction industry and the reasons why contracts are not made properly can
be many.

Variations and changes in the construction process is almost impossible to avoid and can sometimes
have very expensive consequences, change and additional work issues are where most of the disputes
relating to the construction process takes play. However, the contractor can prepare for future changes
in advance, for instance to create a cost-post for possible things that can occur and have it approved,
this can be brought up in the risk-analysis for instance such as "unforeseen" future alterations and
additional work.

In addition, the contractor can set up “prevention plans” and take extra notice to phase’s whit some
greater sensitivity, but also taking in account the probability of the many different changes and
additional work that may occur during the project life cycle. Changes and additional work is something
that does not always arrive from the client but is often the case. For instance, the client can suggest
another choice of materials, requests concerning the design, or a new project in principle that is fixed to
"merge into or belong to" the old project. The consequences can be great unless the participating are
careful and understand how to resolve certain issues such as what kind of changes are we to make, the
choice of method, what will it cost and do we have even a contract for this additional work. (Potts, 2008)
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2.4 The Consumer Reaction

i. The public owner
Sometimes after completion of the construction project, the user or the owner of the
building is not satisfied with it. It often occurs because the users of the building do not know
what were the design requirements that designer should have met. For example, the
building was designed to support a certain amount of kilowatts of electricity used, but the
users need more and they don’t realize that designer have met the requirements. This can
cause a dispute between the client or the user of the building and the designer or the
contractor.
ii. Warranties.
The client’s role when it comes to the warranty issue is to make sure that they are
Implemented and ready before the production process. From the client’s point of view there
are two warranties that should be under great consideration, firstly the Production
Guarantee insurance and secondly the Construction errors insurance. The production
guarantee insurance is basically a guarantee made off the insurance company that
“promise” the client to continue and complete the construction object if the contractors
company goes bankrupt.
The second warranty that will help to secure some of the client’s wishes and the operation-
flow of the facility or building whom the client operates in. This warranty means that the
insurance company will cover future unanticipated construction errors up to ten years after
the completion of final inspection.

2.5 Time
In construction industry it’s not only the cost that is important, but the time is equally important too.
Delay in the time period of the project generates different extra costs or losses, with which either the
client or the contractor has to deal.
Scheduling and proper planning will help the contractor to manage his project and finish and complete
his jobs on agreed time. This will avoid any dispute that may occur due to delay because of poor
planning by the contractor.
In normal circumstances a Contractor may consider himself to be entitled to any extension of the Time
for Completion and/or any additional payment. A dispute may arise.

2.6 Other Causes

Other causes may arise as a result of:
 Late or nonpayment for works satisfactorily completed when payment is due.
 Inaccurate valuation of variations and works in progress.
 Delays in the supply of general construction information.
 Late issue of instruction varying some sections of the works.
 Shortcomings, omissions and errors in contract documentation giving rise to ambiguities in
contract requirements.
 Failure of contractor to construct the works diligently and to programme.
 Unrealistic Construction schedules.
 Inappropriate contract type.

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3.0 CAUSES OF DELAYS

 Increase in scope of work (changes, extras and errors) without proper consideration for
extension of production time.
 Untimely issue of variation instructions, which disrupts the contractor’s progress and
programme of works.
 Acceleration to complete within original programme without proper agreement over the
payment
 Poor workmanship and failure to use specified materials, skilled operatives and recognised
methods.
 Failure to inspect works in progress regularly and condemning only when works are
completed

4.0 General Conditions of Contract [extracts]

If the Contractor considers himself to be entitled to any extension of the Time and/or any additional
payment, the Contractor shall give notice to the Engineer. The notice shall be given not later than 28
days after the Contractor became aware of the event or circumstance. If the Contractor fails to give
notice, the Employer shall be discharged from all liability in connection with the claim.

Otherwise The Contractor shall also submit any other notices which are required by the Contract, and
supporting particulars for the claim, all as relevant to such event or circumstance. Without admitting the
Employer’s liability, the Engineer may, after receiving any notice under this Sub-Clause, monitor the
record-keeping and/or instruct the Contractor to keep further contemporary records.

Within 42 days after the Contractor became aware of circumstance giving rise to the claim, the
Contractor shall send to the Engineer a fully detailed claim. If the event or circumstance giving rise to
the claim has a continuing effect:

a) this fully detailed claim shall be considered as interim;

b) the Contractor shall send further interim claims at monthly intervals, giving the accumulated
delay and/or amount claimed; and
c) the Contractor shall send a final claim within 28 days after the end of the effects.

Within 42 days after receiving a claim, the Engineer shall respond with approval, or with disapproval and
detailed comments. Each Payment Certificate shall include such amounts for any claim as have been
reasonably substantiated. If the Contractor fails to comply with this, any extension of time and/or
additional payment shall take account of the extent to which the failure has prevented or prejudiced
proper investigation of the claim.

4.1 Appointment of the Dispute Board

Disputes shall be referred to a DB for decision in accordance with “Obtaining Dispute Board’s Decision”.
If the number is not so stated, the DB shall comprise three persons, one of whom shall serve as
chairman. If the Parties have not jointly appointed the DB 21 days before the date stated in the Contract
Data and the DB is to comprise three persons, each Party shall nominate one member for the approval
of the other Party. The first two members shall recommend and the Parties shall agree upon the third
member, who shall act as chairman.

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The agreement between the Parties and either the sole member or each of the three members shall
incorporate by reference the General Conditions of Dispute Board Agreement. The terms of the
remuneration of either the sole member or each of the three members, including the remuneration of
any expert whom the DB consults, shall be mutually agreed upon by the Parties. The appointment of any
member may be terminated by mutual agreement of both Parties, but not by the Employer or the
Contractor acting alone.

4.2 Failure to Agree on Composition of the Dispute Board

If any of the following conditions apply, namely:
a) the Parties fail to agree upon the appointment of the sole member of the DB,
b) either Party fails to nominate a member or fails to approve a member nominated by the
other Party, of a DB of three persons by such date,
c) the Parties fail to agree upon the appointment of the third member, or
d) the Parties fail to agree upon the appointment of a replacement person within 42 days after
the date on which the sole member or one of the three members’ declines to act, then the
appointing entity or official named in the Contract Data shall appoint this member of the DB

Obtaining Dispute Board Decision

For a DB of three persons, the DB shall be deemed to have received such reference on the date when it
is received by the chairman of the DB. The DB shall be deemed to be not acting as arbitrator(s). Within
84 days after receiving such reference, the DB shall give its decision. The decision shall be binding on
both Parties, who shall promptly give effect to it unless and until it shall be revised in an amicable
settlement or an arbitral award as described below.

Unless the Contract has already been abandoned, repudiated or terminated, the Contractor shall
continue to proceed with the Works in accordance with the Contract.

If either Party is dissatisfied with the DB’s decision, then either Party may, within 28 days after receiving
the decision, give notice to the other Party of its dissatisfaction and intention to commence arbitration.
If the DB fails to give its decision within the period of 84 days after receiving such reference, then either
Party may, within 28 days after this period has expired, give notice to the other Party of its
dissatisfaction and intention to commence arbitration. If the DB has given its decision as to a matter in
dispute to both Parties, and no notice of dissatisfaction has been given by either Party within 28 days
after it received the DB’s decision, then the decision shall become final and binding upon both Parties.

5.0 SUMMARY OF DISPUTES

Disputes areas Client Contractor Sub-contractor Consultants

Time for Late completion Insufficient: speed Under pressure to Sufficient;
completion and payment for up production to speed up invocation of
extended period avoid payment of production to penalty clause
expected penalty for non- programme should contractor
completion default
Quality Good quality Good quality Production to Inspection;
workmanship product to workmanship specified quality nonpayment for
specification ensure future work below
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Disputes areas Client Contractor Sub-contractor Consultants

assured commission specified quality
level
Payment Uncertainty of Prompt; should Same as main Avoid over-
final cost of reflect production contractor payment, keep
product due to cost and aid cost of variations
variations and maintenance of within client’s
claims good cash flow budget
Contract Should be reliable Inadequate; Only part Adequate; clear
documentation if all contentious ambiguous with disclosed; enough for the
points covered hidden extra cost inadequate execution of work
Construction Assured that is Late issue by Late, inadequate, Contractor
information adequate, clear client; inadequate; disrupts possess enough
and timely issued causes delay and production information to
disruption programme carry on

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