ADDIS COLLEGE

SCHOOL OF GRADUATE STUDIES

DEPARTMENT OF CONSTRUCTION TECHNOLOGY &
MANAGEMENT
Degree program: - M.Sc. in Construction
Management
Course title: - Advanced Construction
Procurement and Contract Management
Unit 5
Claim and Dispute Management System
Introduction

 Claim is mostly concerned with entitlements and

liabilities arising under, or as a result of, a legally valid
contract.
 A construction claim can be a demand for payment of
additional compensation
 Adjustment of the parties’ respective contractual
obligations
 Extension of Time or compensating delay damages, or
 Any other change with regard to the contractual
conditions or terms.
Definitions
 Claim definition based on the perceptions held by contractual
stakeholders (Wideman 2001):
 A claim is a disguised form of a blackmail,
 A claim is the last chance to bail out of a losing job, and
 A claim is an assertion to a contractual right.
 Claim is an emotive word that makes contractual stakeholders to take
sides and think the worst of each other.
 He further defined construction claim formally as a legitimate request for
additional compensation (cost and/or time) on account of a change in the
terms of the contract.
Definitions …
 The very bases of such interpretations of claim indicate that any claim is:
 A willful act by the claimant when s/he believes that there is no other way
than claiming to compensate for the loss s/he suffered during relationships
 All of such willful act of the claimant should base on her/his right, entitlement
and privilege that can legally be supported
 All of such willful act by the claimant need to be articulated in such a way
that it proved the claim is properly presented and can be justified
 Whenever necessary, claim goes through different types of processes when
they become disputes among parties in a relationship, and negotiation can be
considered one form of such a process
Definitions …
 When claims reach its utmost and severe stage, its fate is totally geared
to the formal litigation process, and
 When they are concluded, they are made for compensation for which the
claimant intends to retrieve an entitlement.
 Claim categories
 Time Related Claims
 Time Extension only
 Liquidated Damages only
 Time Extension and Cost Compensation
 Concurrent compensations
 Bonus
 Reliving of Obligation
 Cost Related Claims
 Additions requiring rate adjustments
 Price Changes
 Provisional sum adjustments
 Default by contracting parties (non performances of contractual obligations)
such as:
 Delay in payment Certificates
 Suspensions and Terminations
Claim administration processes (CAP)
 CAP is understood as the process for the compensation of any damage,
and/or changes resulted during the implementation of construction
projects which are called entitlements with quantum (quantity or
amount).
 Claims require to establish both the liabilities as well as the damages
incurred in any construction contract.
Claim administration processes …
 CAP is understood as the process staring from a willful act of the claimant
through claim notification to and including claims approval and
acceptance by both the contracting parties for agreed or enforced
compensations or otherwise called claim enforcement.
 Either the contractor or the employer can initiate the CAP.
 The Engineer can also advice on a reasonable incorporation of claims, on
behalf of both the contracting parties, if the engineer believed that
without the treatment of such claims, the successful performance of the
project will considerably be affected.
Claim administration processes …
 CAP can generally fall into three major functions:
Claim Submittal

 This is a process by which the claimant is obliged to

claim within a reasonable period of time (28 - 30 days in
most contracts) followed by her/his preparation for all
submittal.
 This constituted that a claim has been filed for its
consideration if all these three sub processes called:
 Claim Notification,
 Claim preparation and
 claim submittal are fully undertaken by the claimant.
Claim Processing

 Claim handling:
 Initiates checking of the claim whether, it is legally or
contractually supported or not; and overall procedural
requirements have been followed or not.
 After verifying the validity of the claim proper
computations and evaluations will be carried out to
present the proposed compensation for the contractual
parties the claim is applicable to.
Claim Processing …
 Basically, three types of dispute resolution systems (DRS) are well
recognized (

):
including partnering, Use of dispute resolution
advisors and Use of Facilitators for early neutral evaluation and advise to
prevent the happening of claims or their consequential disputes.
including Negotiation, Mediation, Conciliation and use of
Mini-Trials to administer the claim in a less formal, simple procedure,
more flexible, less adversarial and strictly confidential made so as to
avoid the time and cost implication of claim processing.
including Adjucation or use of Dispute review board,
Arbitration and Litigation where the formal adjucatory or common law
system is applicable to bring the claim processing.
Claim Processing …
Claim Enforcement:
 This is a stage where the approved claim is enforced and finally become a
closure therefore two sub processes are included.
 The claim enforcement process will entertain the inclusion of the
approved claim into payment certificates where their enforcement is due.
Contract Conditions MoWUD

 In order to account for CAP contracts provide claim

clauses within their provisions in their conditions of
contract.
 Claim clauses which are set out in the MoWUD’s SCC for
construction of civil work projects in Ethiopia, 1994 are
considered in the next slide.
 These claim clauses are largely similar to FIDIC’s 1996
except in the case of delegating Duties and power of
the Engineer by MoWUD.
Contract Conditions MoWUD …

 The duties and power of the Engineer is limited such

that it required special approvals of the MoWUD (ERA in
the case of Road Projects) in connection with claim
clauses causing:
 Repayment to contractors
 Cumulative Time Extension Exceeding 15% of the contract
time,
 Fixing rates
 Variation exceeding 10%
 Increase or decrease of costs, and
 Termination of contract.
Claim
Clause clauses
No. for ofconstruction
Description claims of civil work projects,DueMoWUD
Entitlement to 1994
Additional cost +
5.2 Ambiguities or discrepancies among several documents forming the contract
Time Extensions
The Contractor
Failure or inability to issue Engineering drawings within reasonable time Additional cost +
6.4 causing disruption of progress. Time Extensions
The Contractor
Additional cost +
12 Physical conditions or artificial obstructions which can not be predictable
Time Extensions
The Contractor
Additional cost +
18 Additional boreholes or exploratory excavation
profit
The Contractor
Additional cost +
20.1 Repairs due to damages, loss or injury from any of the excepted risks
profit
The Contractor
Repayment
25 Contractor’s failure to insure. The Employer
Successively
26.3 Compliance With statutes, Regulations, etc. Additional cost The Contractor
27 Obstructions such as archeological and geological interests or structures Additional cost The Contractor

30.2 & 30.4 Protection or strengthening due to special loads to highways or bridges Additional cost + profit The Contractor
Repayment
30.3 & 30.4 Damages due to extraordinary traffic claims
Successively
The Employer

31 Use of constructors belongings for other purposes by the Employer Additional cost + profit The Contractor
36.4 Tests additional to provided in the contract Additional cost The Contractor
38.2 Uncovering and making openings to inspected works Additional cost The Contractor
Repayment
39.2 Removal of improper work & Material
Successively
The Employer
Additional cost +
40.1 Extra cost due to suspension
Time Extensions
The Contractor
Additional cost +
42.1 Failure on the part of the Employer for possession on time
Time Extensions
The Contractor
47.1 Delay in completion time Liquidated damage The Employer
49.3 Cost due to remedy works other than contractors responsibility Additional cost + profit The Contractor
49.4 Remedy on contractor’s failure Repayment The Employer
50 Searching for defects, imperfections, or faults Additional cost + profit
The Contractor / The
52.1 Valuation of variations +/- cost
Employer
63.1 & 63.3 Costs incurred by the Employer due to default by the contractor Repayment The Employer

64 Urgent remedial work made by the Employer Repayment

The Employer
65.3 Damage due to special risks Additional cost + profit The Contractor
65.5 Increased costs due to special risks Additional cost
The Contractor / The
65.8 Payment after termination Additional cost Repayment
Employer
69 Default by the Employer Additional cost + Time Extension The Contractor
The Contractor / The
70.1 – 70.2 Changes in cost & Legislation Additions/Omissions
Employer
Major Causes for Claims
 They are related to (Levy 2000):
 Poor or unclear tender and/or contact documents.
 Poor or inadequate administration of responsibilities by stakeholders, and
 Unforeseen or uncertain situations during execution

 Clam causes also classified into three main categories (Wideman 2001):
 Changed conditions
 Additional works, and
 Delay for cost overruns and time extension.
Major Causes for Claims …
 The following situations are good grounds for adversarial relationships that
trigger claims and disputes (Wubishet 2004).
 Long and slow decision making process,
 Weak stakeholders’ relationships resulting from unhealthy perceptions
towards each other,
 Lack of conductive Macro and Messo environmental situations, and
 Subordinating common interests to self interest serving practices creates
poor and inadequate administration of responsibilities by stakeholders.
 Moreover, Subsurface conditions that can not be reasonably revealed; and
unforeseen political, Economical, Societal and Technological uncertainties
can also be one of the major factors causing claims.
Requirements for a valid claim

 Stakeholders need to know the following two main

requirements:
 Know the different ways of how to deal with claims and
disputes together with their merit and demerits, and
 Know required procedures and avail necessary documents
to make a valid claim.
Claim administration process
Fair valid claim administration process requires:
 Conducive environment such as policies, Codes, standards, Rules and
Regulations called ‘Macro Environments’.
 Lack of clear claim administration and dispute Resolution system
 and capability to act as a good link between
such that their requirements are aligned, developed and
work for better relationships called ‘ ’. These can
be considered as stakeholders relationships and capacity related issues.
 Weak Stakeholders Relationships
 Week Organizational Managements System
Construction Disputes

“claims” can end up to:

 claims which are resolved between
the parties and do not therefore
become dispute,
Or
 to “disputes” that is those claims
which are not resolved and
escalates to disputes
Cont’d …

• Unresolved claims are the basis for the existence of construction

disputes.
• The basis of remedy for the claims or disputes may be the contract
and/or the applicable law.
• With respect to disputes, the definition of construction disputes,
the available mechanisms to resolve the same, will be addressed.
Cont’d …

 Construction Disputes Construction

dispute may take different forms: dispute in
relation to time or cost, time & cost or
otherwise.
 Dispute Resolution, the contractual parties
will pass through different dispute resolution
system depending on their acceptance over
the proposed compensation varying from the
simplest mediation by the consulting
engineer to the final court ruling in the form
of litigation.
Cont’d …

 Settlement
 is a win – win process
 Is a voluntary process
 Can be made by the contracting party or assisted by other parties
 Can be direct negotiation or assisted
 It is either process and/or outcome or not both controlled.

 The basis of remedy for the claims or

disputes may be the contract and/or the
applicable law.
Dispute Resolution System

Three types of dispute resolution systems are well

recognized. These are,
 Preventive Dispute Resolution System; (
by use of partnering, dispute resolution
advisors, facilitators, …)
 Amicable Dispute Resolution System or
Non Judgmental ; ( through negotiation,
mediation, conciliation, mini-trial, …)
 Judgmental Dispute Resolution System;
(through Dispute Adjudication Board,
Arbitration, Litigation…)
Dispute Management

Dispute management

Preventive Resolution

Non-judgmental Judgmental
Cont’d …

 Where dispute was handled in any form of its resolution System, it is

termed as Dispute Resolution.
 In relation to this there is also the concept of ADR: Alternative Dispute
Resolution. Alternative to what?
 The concept of ADR is related to alternative to litigation or sometimes
alternative to all binding decision making process (including the decision of
the arbitrator & adjudicator).
 Both preventive & amicable dispute resolution systems may be categorized
under Alternative Dispute Resolution (ADR). There is no any binding or
imposed decision by a third party in them.
 In this respect, except with respect to the preventive aspect, the Ethiopian law recognizes both the
amicable & the judgmental aspect of dispute resolution systems.
 The scope of the Ethiopian law may be limited in this regard. Because not all amicable &
judgmental forms of dispute resolution systems are recognized.

 From the amicable settlement both:-

 Negotiation (Compromise: See Article 3307-Article 3317 of the Civil Code);
and
 Conciliation: See Article 3318-Article 3324 of the Civil Code); are
recognized.
 From the judgmental forms of dispute resolution both:-
 Litigation ( the Court System or the Judiciary System: See Article 78-Article
82 of the FDRE Constitution); and
 Arbitration (See Arbitral Submission: Article 3325-Article 3346 of the Civil
Code & Article 315-Article 319, Article 350-Article 357 & Article 461(for
foreign arbitral awards) of the Civil Procedure Code) are recognized.
Preventive Aspect

 The following aspects may contribute to the prevention of

construction disputes. To mention few of them:-
 To have a well planned project;
 To have a well studied project;
 To have a well designed project;
 To have a clear, accurate & complete tender dossier &
document;
 To have a clear, accurate & complete contract document;
 To have a balanced (in terms of allocation & distribution of
risks, rights & obligations) contract document;
 To discharge the expected contractual & legal obligations by
the contracting parties;
 To have a good project governance;
 To have a well thought & suitable dispute prevention system;
Amicable Aspect

 The very feature of Amicable Settlement is that the

disputing parties shall have full control both over the
process & the outcome.
 There is no third party imposition of solution on the
parties to the dispute.
 The following are some of the highly recognized
amicable settlement methods.
 Negotiation;
 Mediation;
 Conciliation;

 They are binding as long as the parties agree but not

final or it is initially non-binding but the parties can
however, agree to be bound by their final decision.
Negotiation

 Negotiation is a give & take process, a

serious attempt to reach a settlement
agreement.
 Negotiation could be:-
 Direct negotiation; or
 Assisted negotiation;
 Direct negotiation is held directly between the very parties to the dispute.
The parties may, of course, be assisted by their own internal advisors.
 In case of assisted negotiation, mediation & conciliation come in to picture.
Mediation

 Mediation describes the process of a

neutral & disinterested person helping
disputing parties to negotiate a resolution
to their dispute.
 Mediation is simply a facilitated or assisted
negotiation. To agree or not to agree is left
to the decision of the parties.
 The mediator helps disputing parties to
understand the dispute in a way that will
maximize their chances to reach a
mutually acceptable & lasting solution.
Cont’d …

 A mediator facilitates the discussion or

negotiation. He will never propose a solution for
the settlement of the dispute. He is a mere
facilitator.
 He simply performs the task of persuading the
parties in dispute to change their respective
positions in the hope of reaching a point where
those positions coincide, without actively
initiating any ideas as to how the dispute might
be settled.
 The advantages of mediation include informality, speed & economy, but more
importantly perhaps, it often leads to an agreed settlement between the parties
rather than an imposed award or judgment.
Mediation (cont)

▪ Private and confidential

▪ Mediator/party communication
confidential
▪ Parties have confidence in mediator
▪ Not imposed
▪ Brings parties together
▪ Informs decision makers
▪ Real needs and issues
Conciliation

 Similar to mediation, conciliation is a voluntary form of dispute resolution

where a neutral party, the Conciliator, is appointed to facilitate negotiation
between the parties in dispute & to act as a catalyst for them to reach a
resolution of their dispute.

 Unlike the mediator, the conciliator under

the conciliation process, takes a more active
role probing the strengths & weaknesses of
the parties’ case, making suggestions, giving
advice, finding persuasive arguments for &
against each of the parties’ positions, and
creating new ideas which might induce them
to settle their dispute.
Cont’d …

 Conciliation is a process similar to mediation except that the conciliator

can express an opinion on the merits of the case and is required to
recommend a solution if the parties fail to agree.

 The conciliator’s role is also broader than in the mediation as it includes

advising the parties on the possible result of the dispute if it were
resolved in either arbitration or litigation.

 In conciliation, the process begins with identification of the issues, then

the options for resolution are explored, the conciliator advises on likely
outcome of dispute in other forums and in light of this the options for
resolution are considered; and ideally a consensual agreement is then
reached.
Cont’d …

 Conciliation is sometimes called evaluative mediation.

 Conciliation is a more formal process than mediation & it generally involves
the engagement of legal representatives, thus making it a more expensive
process than mediation.

 There are internationally recognized specific

Conciliation Rules. Like
• International Chamber of Commerce (ICC)
Conciliation Rules;
• The UNCITRAL Conciliation Rules;
• The ICE Conciliation Procedure;
• Others;
Cont’d …

 The conciliation service is regulated by specific

contract agreement signed between the parties
in dispute & the conciliator.
 There is also a fee to be paid by the parties to the
Conciliator.
 Evaluative role is made by the conciliator but the
decision to agree is up to the disputants.
 Evaluative role: giving weakness and strength of
the disputant and may recommend solutions.
But the agreement on the recommended
solution is up to the disputants
Judgmental Dimension

 The very feature of judgmental form of dispute

resolution is that the third party known as the court
judge, the arbitrator or the adjudicator decides the
case before him for the parties.

 The parties to the dispute shall have no control over

the process (especially in case of the court system)
and/or the outcome of same in all the three cases.
• Under the judgmental forms of dispute resolution the
following are recognized.
• Adjudication ;

• Arbitration; and

• Litigation;
Cont’d …

 Adjudication and Arbitration are

both process controlled but not
outcome by the disputants.
 Litigation is not both process and
outcome controlled.
 In judgmental form there is win –
loose
 Both arbitration and litigation are
final and binding procedures
Adjudication

 Adjudication can be defined as a process

whereby an appointed neutral & impartial party
is entrusted to take the initiative in ascertaining
the facts & the law relating to a dispute & to
reach a decision within a short period of time.
 Under the FIDIC Conditions of Contract
Dispute Board is suggested.
 Dispute Board can, according to ICC, be of three types, namely,
 Dispute Review Board (DRB);
 Dispute Adjudication Board (DAB);
 Combined Dispute Board(CDB);
Cont’d …

 The decision of a third party neutral,

named in the contract, is binding upon the
parties with respect to any matter in
dispute until the contract is complete. At
that time the parties may challenge the
decision through arbitration or litigation.
 The disputants agree before hand that they
will be bound by the opinion of the expert
and that this decision is binding on the
parties in the interim, until a further
decision by a court of law or arbitration is
reached
Adjudication

▪ Expert determination
▪ Adopted by parties
▪ Legal status
▪ Cash flow
▪ Short period
▪ Ambush
Cont’d …

 Adjudication could be:-

 permanent
adjudication - appointed from the
commencement of the contract or
 ad hoc adjudication - appointed when a
dispute arises.
 Adjudication can be statutory/compulsory
or voluntary
 In Ethiopia, it is voluntary or introduced by
contractual agreement. But in England it is
statutory before we go to arbitration.
Arbitration

 Arbitration is a process whereby parties in dispute

agree to submit the matter in dispute to the decision
of a person or persons in whom they have confidence
& trust & undertake to abide by that decision.
 According to Article 3325(1) of the Civil Code:-
 The arbitral submission is the contract whereby the
parties to a dispute entrust its solution to a third
party, the arbitrator, who undertakes to settle the
dispute in accordance with the principles of law.
 Disputes in Administrative contracts are finally
resolved by court.
Cont’d …

 The very nature of arbitration is that it is

fundamentally consensual. Arbitration is based on
contract between the parties to the construction
contract & the dispute:
 arbitration is out-of-court proceeding where the
arbitrator acts as a judge
 The contract to resolve a construction dispute is
known as agreement to arbitrate.
 Agreement to arbitrate or the “Arbitration Clause” is
independent from the substantive contract. It is called
severability or autonomy of the arbitration agreement
from the rest of the construction contract.
Cont’d …

 The decision of the arbitrator is legally binding

and, often, there is no provision for appeal
/petition to a court of law.
 There are exceptions, such as misconduct of the
arbitrator. Rules of evidence used in arbitration
depend on the prior agreement between the
parties.
 It may take a long time, same as for a litigation
process, and may even be more costly.
 What makes it attractive is the mutual agreement
by the parties, appointment of arbitrator, privacy
and confidentiality
Arbitration

▪ Private
▪ Final and binding
▪ Third party
▪ Individual or tribunal
▪ Complies with applicable law
Litigation

 Litigation takes place at the court of law having

jurisdiction over the case.
 The courts play here their dispute resolution
role.
 Litigation is the most serious & adversarial
method of dispute resolution.
 The procedure before the court is so rigid & not
tailor made to the construction dispute
resolution.
 The courts have standard procedure established
under the civil procedure code, which applies for
all types of disputes brought to them.
Cont’d …

 The advantages of arbitration are

all missing under litigation.
 The clear disadvantage of
litigation is that it being the most
time consuming.
 The clear advantage of litigation
is that the court itself enforces its
own orders & judgments.