7 COMMON CONSTRUCTION DISPUTES AND THEIR SOLUTIONS
The most popular standard construction contracts like FIDIC, NEC, JCT, ICE include well drafted tiered Arbitration clauses. The framers of these contracts and others in the Oil and Gas sector, envisage that disputes are likely to occur during and after the performance of those contracts. Through my experience as an Arbitrator and a Construction Lawyer, I have identified the most common construction disputes and their solutions. The contractual
provisions have been drawn from the FIDIC Red Book.
1.Errors in Designs and Specifications.
The FIDIC Contracts attempt to draw a balance between the Employer and the Contractor by providing that both
parties bear parts of the risks associated with implementation of the project. The project risks are allocated to the
party that is in the best position to control them. Errors in designs and specifications usually lead to claims for
additional money and time. In the FIDIC Red Book, the design responsibility lies with the Employer, therefore any
risk that arises from errors in designs falls squarely on the Employer. Whereas the Contractor has the responsibility
to correctly position all parts of the Works, the Employer bears the responsibility for any errors in the designs. In
case of an error in the designs, which has the effect of delaying the Contractor’s works and he incurs costs, the
Employer is liable to pay those costs subject to the Contractor complying with the claim procedure.
To avoid the design risk, some Employers have adopted the FIDIC Yellow and Silver Contracts which place the
design responsibility and risk upon the Contractor.
2. Unforeseen Conditions.
Most construction projects are built on green fields, where there is little or no data about the ground conditions.
Usually, the weather patterns are unpredictable, all these are breeding grounds for disputes. The Contractor is duty
bound to notify the Engineer once he encounters adverse unforeseeable physical conditions. The Employer will
bear this risk and is liable to pay the Contractor for any costs he may incur and for extension of time. The cause for
a dispute arises when a Contractor makes a claim arising from unforeseeable ground conditions like weak soils.
Some Employers reject such claims and maintain that the site was available for inspection at the time of the tender,
therefore the Contractor ought to have investigated and discovered the ground conditions. To avoid such a claim,
the Employers must inform the Contractors who wish to tender for the works, to inspect the site for ground
conditions and include any costs in the tender price. The Employers should also provide sufficient site data in the
tender documents to guide Contractors on the ground conditions.
3. Delays and Disruption.
The Employer bears the risk for delays or disruption in the works due to failure to issue any design or instruction to
the Contractor or for delays caused by Authorities. Where such delays occur, and the Contractor has complied with
the claim procedure, the Employer is obliged to extend time for completion of the contact and pay costs plus
reasonable profit. However, in case the delay is occasioned by the Contractor, and it affects the time for completion,
he is liable to pay the Employer delay or liquidated damages subject to making a claim to the Engineer. However, the
Employer will be denied delay damages if he has engaged in any act of prevention such as preventing the Contractor
to complete the works, delayed payments, delayed Certification et cetera. The prevention principle is born out of
common law, that a party will not enforce a contractual obligation against another where it has prevented the other
party from performing their obligation. Simply put, one cannot benefit from their own breach. Once the Employer
engages in any act of prevention, then time is deemed to be at large and the Contractor is no longer bound to
complete the works on a specific date but within a reasonable time. Employers should always act in good faith and
if necessary, extend time for completion to preserve their entitlement to delay damages.
4. Extension of Time.
The Contractor is obliged to complete the works by the date of completion unless the Engineer extends the time for
completion. The Contractor is entitled to Extension of Time for Completion if he demonstrates that: there was a
variation to the works, there were exceptionally adverse climatic conditions, unforeseen shortages in availability of
personnel or Goods caused by an epidemic or government actions or any delay, impediment or prevention by the
Employer. In case of concurrent delay, put differently, delay events caused by both the Employer and the Contractor,
the Contractor would nevertheless be entitled to the full extension of time but not additional payment for
prolongation costs.
5. Variations.
A variation is any change to the Works, which is instructed or approved as a variation by the Engineer. A dispute
arises when an instruction is given by the Engineer verbally or during site meetings and it is implemented by the
Contractor without a Determination and or a Variation Order issued by the Engineer. In some cases, Employers
have refused to pay the Contractor for such works for lack of a Variation Order. The Courts have applied the law of
restitution and rejected this argument, they have allowed Contractors to recover money under quasi-contract
based on the principle of unjust benefit.
6. Failure to Issue Notices.
The requirement to issue contractual notices within the prescribed time, is a condition precedent to any right of
payment or remedy. The Notice prior to presentation of a claim should be issued within 28 days if, the Contractor
considers himself entitled to a remedy and the time starts to run after the Contractor became aware of the event or
should have become aware of the event or circumstance. If the Contractor fails to issue the Notice, he loses his right
to claim for a relief and the Employer is discharged from any liability. The ambiguity in this clause has led to disputes arising from interpretation. Some Courts in Dubai have struck down this clause for being a penalty and therefore unenforceable. Contractors should comply with the Notice provisions since Engineers and Adjudicators are bound to enforce the contractual provisions. At the commencement of the project, it is good practice for the Engineer to brief the parties about their respective obligations including the importance of issuance of Notices on time.
7. Practical Completion.
When the works have been completed, the Contractor is entitled to a Taking-Over Certificate. Disputes arise as to
whether a building has achieved practical completion and the Engineer delays or refuses to issue the Taking-Over
Certificate. Employers should take note, that even in the absence of a Taking-Over Certificate, a Contractor
achieves practical completion of a project where it is fit for occupation by the Employer. The Contractor would be
obliged to correct any defects during the defects liability period and thereafter he would be entitled to any
outstanding sums of the contract price plus the retention.
Conclusion
Construction claims and disputes are an everyday occurrence. 50% of construction involves building and the other
50% are contractual problems. We can only deal with these problems but not to avoid them. Employers must act in
good faith; Contractors must comply with their contractual obligations and the Engineers must effectively
administer the contract.
