application of modern methodologies to settle disputes in construction...

15
IPASJ International Journal of Management (IIJM) Web Site: http://www.ipasj.org/IIJM/IIJM.htm A Publisher for Research Motivation........ Email: [email protected] Volume 2, Issue 12, December 2014 ISSN 2321-645X Volume 2, Issue 12, December 2014 Page 1 ABSTRACT The objective of construction project stakeholders is the completion of a project that meets the objectives of time, cost and quality. However, the construction process is often fraught with disputes over the interpretation of construction documents, existing conditions, the legitimacy of variations, timely payments, etc. The best technique to resolve a dispute is how to manage it carefully to reach an appropriate solution. The aim of this paper is to evaluate the prevailing dispute handling methodology process and consequently to recommend possible Alternative Disputes Resolutions (ADR) methods. To achieve the goal of this study, a questionnaire has been used and four case studies have been studied to collect the required data. This study indicates the actual problems facing contractors and owners during dealing with disputes, and how to assist in reaching a good resolution methodology by the application of the proposed ADR. from the experts opinions and questionnaire respondents the proposed ADR procedure for long and short term local contracts is applicable, simple and takes the parties satisfaction .So there is a need to revise the local construction project contracts and standardize it to include the proposed ADR for disputes resolution through establishing an official committee which consists of all related sectors working in public construction projects, contracting union, engineering syndicate, and specialist engineering consulting firms. Key words: Project stakeholders, Disputes, Alternative Dispute Resolution, local contracts. 1.INTRODUCTION The construction industry in Egypt is considered the largest industry over the world wide. The construction sector is a vital contributor to the Egyptian economy, yet, it is also very complex as it involves multidisciplinary participants. In this environment, disputes appear to hinder the completion of construction and cause delays in delivering projects. Said [1], defined disputes as'' any contract question or controversy must be settled beyond the jobsite management staff". Susan [2] used the term dispute to mean "a difference between the parties after the internal procedure has been exhausted". Ndekugri and Russell [3], showed that a dispute only comes after a claim has been made and been rejected ". Roxene [4] stated that in a typical construction project, the owners, donor agencies, project managers, field engineers, general contractors, subcontractors, and suppliers are the primary stakeholders. So when disputes arise in a construction project, some or all of the stakeholders are the dispute parties. Without the means to address disputes, minor issues can fester and grow, with crippling consequences for project participants. The rising cost, delay and risk of litigation in construction disputes has prompted the construction industry to look for new and more efficient ways to resolve these disputes outside the courts. The best technique to resolve a dispute is how to prevent the dispute occurrence. So, all bodies should be cooperative in early handling any problem to avoid enlargement. Office of government commerce [5], determined that the first important step to avoid disputes is to have clear wording in the contract that reflects the intensions of the parties. That wording should include provision for the appropriate dispute resolution techniques to be applied in the event of a dispute arising, with suitable arrangements for escalation. Attorney General's office (AGO) [6], concluded that It may be impossible or too costly to prevent all international disputes. But certainly, one good way of trying to deal with disputes is to forestall as many as possible from ever arising, or at least Application of Modern Methodologies to Settle Disputes in Construction Projects A. A. Elziny 1 , M. A. Mohamadien 2 , H. M. Ibrahim 3, and M. K. Abdel Fattah 4 1 The corresponding author, Planning Engineer , Petrojet Company, Port Said, Egypt 2 President of Suez Canal University, Professor of Steel Structure, Faculty of Engineering Suez Canal University, Ismailia, Egypt 3 Head of Civil Engineering Department, Professor of Concrete Structures, Faculty of Engineering Port Said University, Port Said, Egypt 4 Business Development Manager - Petrojet Company, Cairo, Egypt

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IPASJ International Journal of Management (IIJM) Web Site: http://www.ipasj.org/IIJM/IIJM.htm

A Publisher for Research Motivation........ Email: [email protected] Volume 2, Issue 12, December 2014 ISSN 2321-645X

Volume 2, Issue 12, December 2014 Page 1

ABSTRACT The objective of construction project stakeholders is the completion of a project that meets the objectives of time, cost and quality. However, the construction process is often fraught with disputes over the interpretation of construction documents, existing conditions, the legitimacy of variations, timely payments, etc. The best technique to resolve a dispute is how to manage it carefully to reach an appropriate solution. The aim of this paper is to evaluate the prevailing dispute handling methodology process and consequently to recommend possible Alternative Disputes Resolutions (ADR) methods. To achieve the goal of this study, a questionnaire has been used and four case studies have been studied to collect the required data. This study indicates the actual problems facing contractors and owners during dealing with disputes, and how to assist in reaching a good resolution methodology by the application of the proposed ADR. from the experts opinions and questionnaire respondents the proposed ADR procedure for long and short term local contracts is applicable, simple and takes the parties satisfaction .So there is a need to revise the local construction project contracts and standardize it to include the proposed ADR for disputes resolution through establishing an official committee which consists of all related sectors working in public construction projects, contracting union, engineering syndicate, and specialist engineering consulting firms.

Key words: Project stakeholders, Disputes, Alternative Dispute Resolution, local contracts.

1.INTRODUCTION

The construction industry in Egypt is considered the largest industry over the world wide. The construction sector is a vital contributor to the Egyptian economy, yet, it is also very complex as it involves multidisciplinary participants. In this environment, disputes appear to hinder the completion of construction and cause delays in delivering projects. Said [1], defined disputes as'' any contract question or controversy must be settled beyond the jobsite management staff". Susan [2] used the term dispute to mean "a difference between the parties after the internal procedure has been exhausted". Ndekugri and Russell [3], showed that a dispute only comes after a claim has been made and been rejected ". Roxene [4] stated that in a typical construction project, the owners, donor agencies, project managers, field engineers, general contractors, subcontractors, and suppliers are the primary stakeholders. So when disputes arise in a construction project, some or all of the stakeholders are the dispute parties. Without the means to address disputes, minor issues can fester and grow, with crippling consequences for project participants. The rising cost, delay and risk of litigation in construction disputes has prompted the construction industry to look for new and more efficient ways to resolve these disputes outside the courts. The best technique to resolve a dispute is how to prevent the dispute occurrence. So, all bodies should be cooperative in early handling any problem to avoid enlargement. Office of government commerce [5], determined that the first important step to avoid disputes is to have clear wording in the contract that reflects the intensions of the parties. That wording should include provision for the appropriate dispute resolution techniques to be applied in the event of a dispute arising, with suitable arrangements for escalation. Attorney General's office (AGO) [6], concluded that It may be impossible or too costly to prevent all international disputes. But certainly, one good way of trying to deal with disputes is to forestall as many as possible from ever arising, or at least

Application of Modern Methodologies to Settle Disputes in Construction Projects

A. A. Elziny 1, M. A. Mohamadien 2, H. M. Ibrahim 3, and M. K. Abdel Fattah4

1 The corresponding author, Planning Engineer , Petrojet Company, Port Said, Egypt

2 President of Suez Canal University, Professor of Steel Structure, Faculty of Engineering

Suez Canal University, Ismailia, Egypt

3 Head of Civil Engineering Department, Professor of Concrete Structures, Faculty of Engineering

Port Said University, Port Said, Egypt

4 Business Development Manager - Petrojet Company, Cairo, Egypt

IPASJ International Journal of Management (IIJM) Web Site: http://www.ipasj.org/IIJM/IIJM.htm

A Publisher for Research Motivation........ Email: [email protected] Volume 2, Issue 12, December 2014 ISSN 2321-645X

Volume 2, Issue 12, December 2014 Page 2

try to find ways to solve them quickly before the dispute becomes exacerbated and the parties' positions harden. If a dispute occurs, it should be managed carefully to reach an appropriate solution for it, Cheung [7], found that construction management has been recognized as a distinct method of managing construction projects for over twenty years. Unsuitable management system can be a vital reason to produce various conflicts, misunderstanding of project documents and weak communications between the project contract parties. Early positive management for disputes leads to early settlement. This idea was stated by the Office of government commerce [5]. J.J.P [8] stated that the first step in the process of differences between parties, relating to any project, should be to establish a process whereby parties would be enabled to mitigate disputes. However, the goals of dispute resolution should firstly be to establish the right of a party to submit a claim and to enable the other party to consider the claim in terms of validity, contractual terms and possible outcome. The establishment and consideration of a claim does not mean that a dispute exists, but should the rejection of a claim occur, or a different interpretation to a claim remains and parties are not able to settle or mitigate their differences, a dispute may then be the result. According to Guidance for Government Departments and Agencies [6], if a dispute arises, it is important to manage it actively and positively and at the right level in order to encourage early and effective settlement. Unnecessary delays and inefficiency can lead to rapid escalation of costs and further damage the client/supplier relationship. S. Cheung and H. C. H. Suen, [9], stated that disputes are inevitable in construction projects, Skills in dispute resolution should be part of the toolkit of any practitioner in a managerial position. Thus resolving dispute has been part of the routine of every construction manager. Construction disputes could be resolved using several techniques including negotiation, mediation, conciliation, review, mini-trial, arbitration, and litigation.The term "ADR" is often used to describe a wide variety of dispute resolution mechanisms that are short of, or alternative to, full-scale court processes. Taschuk and Chambers [10] defined ADR as a collection of techniques for the resolution of disputes quickly and economically, in a fashion not usually possible with the traditional litigation process. FIAS [11] clarified that ADR system offer disputants a chance to avoid the often long and expensive process of taking a case through the formal judicial system. Mediated solutions are generally faster, less expensive, and more likely to allow the parties to return to doing business with one another. ADR has long been an important part of disputes resolutions in many developed countries and are becoming increasingly important in developing countries as these countries attempt to reform their judicial systems. Barr [12] stated that ADR means methods of resolving legal disputes or conflicts privately through the intervention of a third party other than via litigation. It offers a more conciliatory means, quicker and less expensive platform for resolving disputes in contrast to the procedures of seeking justice and fairness or even redress, in a law court. More importantly, ADR mechanism promotes and protects the privacy of aggrieved parties, creates calm and friendly atmosphere for parties to discuss, agree and disagree before reaching amicable and endurable agreement. A.A Okharedia [13], showed how South Africa has successfully used ADR (refers to a set of practices and techniques aimed at permitting the resolution of legal disputes outside the courts, The practice and technique of ADR comprises negotiation, mediation, conciliation, arbitration, and a variety of “hybrid” processes by which a neutral person facilitates the resolution of legal disputes without formal adjudication.) to settle dispute. and how this method be used by other countries like Ghana, Nigeria, Ethiopia, Malawi and other African countries where the method of ADR has not been fully utilized. The main objective is to keep disputes out of the normal court system in an effort to cut down the cost of resolving the dispute among the parties. Nicholas and Partner [14], searched for how disputes arise and then taking proactive steps to avoid them. communicating well and looking for objective solutions and avoiding conflict can also help once the project is under way. A commercially based settlement, either in negotiation or by mediation, is now frequently used in the construction industry. Use of a mediator or some other ADR process can resolve disputes more quickly, saving time and money. If all of this fails, there are of course the procedures of arbitration and litigation. While they are applicable occasionally, they are best avoided if possible. The present study is thus an attempt to extend the previous studies by investigating the disputes in construction projects. From the authors’ point of view, the studies which were conducted on disputes settlement procedures are too few also there was rare in the application of ADR to solve disputes in Egyptian contracts. so this research may be a good starting point for the study by applying a decision support system that helps the contract parties to estimate their performance in dispute management, settle disputes through proposed ADR methodology in both local long and short term contracts and provide recommendations in these issues, This will be through a questionnaire and four case studies to collect the required data.

2.QUESTIONNAIRE DESIGN According to the review of literature and after interviewing experts who were dealing with the disputes in construction projects at different levels, all the information that could help in achieving the study objectives were collected, reviewed and formalized to be suitable for the study survey and after many stages of brain storming, consulting, amending, and reviewing that executed by the researcher with the supervisors. A questionnaire survey designed to study the

IPASJ International Journal of Management (IIJM) Web Site: http://www.ipasj.org/IIJM/IIJM.htm

A Publisher for Research Motivation........ Email: [email protected] Volume 2, Issue 12, December 2014 ISSN 2321-645X

Volume 2, Issue 12, December 2014 Page 3

companies' point of view in main sources of disputes, modern methodologies to settle disputes in construction projects including its application, obstacles and proposed ADR to settle disputes in long and short term contracts in Egypt.

The questionnaire contains two parts, as follows:

Part A:

A.1 General Information about respondents contains their name, company, project, location and its field.

A.2 Main sources of disputes include five main subsections as follows: contract documents, contract management, project related issues, financial issues and other sources as (Force majeure, weak of construction laws, etc)

A.3 Modern methodologies to settle disputes in construction projects and contains: disputes resolution methods and disputes resolution obstacles.

Part B:

The Proposed ADR to settle disputes in Egypt contracts.

2.1 Questionnaire population

The research target is 500 companies working in the construction projects in Egypt. The studied population was the companies (contractors, consultants and owners) work at both management and operational levels during the construction process. The interviews aimed to classify responses arising from the questionnaire. The interviews included project managers, site managers, project coordinators, planning, and contract administration engineers of various disciplines.

2.2 Sample Size Determination

Statistical equations were used in order to calculate the sample size for the companies. Follow Said, [1] the sample size of the unlimited population could be taken as:

(1)

Where SS = Sample size

Z = Z value (e.g. 1.96 for 95% confidence level)

P = percentage picking a choice, expressed as a decimal (0.50 used for sample size needed)

C = margin of error (8%)

Substituting these values in equation (1) leads to

Correction for Finite Population:

(2)

Substitute pop of 500; match the proposed classes of construction companies.

Interviews and e-mails have been successfully implemented with 120 experts with different scope of experience in the Egyptian construction industry and different years of field experience for each construction category. The selected sample has different field of experience to actually typify the different construction projects. They also selected with suitable period of experience so that their answers can represent valuable information. The studied population was the companies working in the fields: concrete structures, buildings, steel, roads, water and sewage, and electro-mechanics. 120 out of 140 questionnaires have been distributed, filled, completed by the informants in public and private projects in Egypt, and then analyzed.

IPASJ International Journal of Management (IIJM) Web Site: http://www.ipasj.org/IIJM/IIJM.htm

A Publisher for Research Motivation........ Email: [email protected] Volume 2, Issue 12, December 2014 ISSN 2321-645X

Volume 2, Issue 12, December 2014 Page 4

2.3 Method Of Data Measurement

As provided by Odeh A. N., and Battaineh H. T. [15], The frequency of each type of claims, which firms were asked to fill a questionnaire and were implemented in which they choose one of four possible options for the frequency of each type of claims. A weight in a scale from 1 to 4 was given for each of the four frequencies with a weight of 1 for ‘‘Seldom’’, 2 for ‘‘Sometimes’’, 3 for ‘‘Often’’, 4 for ‘‘Always’’, No weight was given when no response was provided.

(3)

Where Wi is the weight assigned to the ith item;

Xi is the number of respondents who selected the ith option; and N is the total number of respondents (120 out of 140 in this paper). To better understand the importance of the questionnaire contents, an importance index percentage was then calculated:

(4)

Where h is the highest scale = 4

2.4 Results and Discussions

The results of analyzing main sources of disputes are distributed into five groups as shown in Fig. 1.

Fig.1 shows a summary of each group (Ip.I %) rank to the main field of sources of disputes. The first most important source of disputes among the fifth groups, is the "contract management", then the "contract document", the "financial issues" is the third, the "project related issues" is the forth, and finally "other sources" is the fifth, which respectively had an Ip.I% as: 74.04 %, 71.49 %", 67.8 %, 63.92 %, and 61.58 %. The results of analyzing dispute settlement procedures according to contract type (FIDIC 1987, FIDIC 1999, ECC, AIA, Petroleum, Public, Private contracts) as shown in Fig. 2

Fig. 1 Sources of disputes importance index percentage (Ip.I %)

Fig. (2) dispute settlement procedures according to contract type

IPASJ International Journal of Management (IIJM) Web Site: http://www.ipasj.org/IIJM/IIJM.htm

A Publisher for Research Motivation........ Email: [email protected] Volume 2, Issue 12, December 2014 ISSN 2321-645X

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The respondents ranked the international contracts (FIDIC 1999, FIDIC 1987, ECC and AIA) in the highest position, with an Ip.I value 0.70, 0.55, 0.45 and 0.38 respectively. This means that the international contracts especially the FIDIC contracts described the disputes settlement procedure in comprehensive way. On the other hand the respondents also ranked the local contracts (petroleum, public and private contracts) in the lowest position with an Ip.I value 0.36, 0.30 and 0.23 respectively this means that the existing local contracts described the dispute procedures in non comprehensive way, some of it did not indicate any issues regard disputes and some of these contract indicates the dispute procedure in ambiguous way, which create difficulties to the contractor in haw to present and discuss his dispute with the owner, where this issues can affect the contractor in losing his right to the dispute. As illustrated in Table (1) the respondents opinion about the most disputes resolution obstacles is "weak process of dispute resolution for local contract" as the first highest Ip.I value of 0.91.This means that existing dispute resolution procedure in Egypt is weak and create difficulties for both contract parties to solve their disputes, where this issue can affect the contractor in losing his rights to the dispute and the relation between the contract parties.

2.5 Statistical Validity of Responses

Odeh A. N., and Battaineh H. T. [15], suggested ensuring the validity of the questionnaire by using the structure validity test (Spearman test) to test the validity of the questionnaire structure by testing the validity of each group. This test was used to measure the correlation coefficient between the theoretical and actual responses of the questionnaire that have the same level of similar scale.

The following formula is used to calculate the Spearman rank correlation:

(

Where Rs= Spearman rank correlation di= the difference between the ranks of the theoretical and actual responses of the questionnaire n= the total number of respondents (120 out of 140 in this paper).

As illustrated in both tables (2&3), the result of the questionnaire respondents for both (source of disputes groups and obstacles for dispute resolution) have perfect and strong correlation with theoretical responses from previous literatures. Thereby, it can be said the questionnaire responses was valid for all responses.

Table (1) disputes resolution obstacles

No. disputes resolution obstacles Ip.I Ip.I % Sub

Field Rank

1 Weak process of dispute resolution for local contract. 0.91 91.46 1

2 No department for saving the project records. 0.86 85.63 2

3 Insufficient employee for review the contract to determine right time for dispute identification / resolution 0.85 84.58 3

4 Lack of training on dispute management. 0.83 83.33 4

5 The owner postpone of the resolution till finishing project works. 0.80 80.42 5

6 Lack of the helping technical means in dispute analysis. 0.80 79.58 5

7 Insufficient authority delegated to the project site staff. 0.79 79.38 6

8 Lack of information from the contractor to support his position in the dispute. 0.79 79.38 6

9 Weak possibilities of project manager in dispute settlement. 0.78 77.92 7

10 Weak involvement by the owner / contractor legal representative. 0.78 77.92 7

11 The supervisor and designer are the same. 0.73 72.92 8

12 Insufficient project funding. 0.68 67.50 9

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Table 2 Sources of disputes validity

Groups

The

oret

ical

Ip.I

The

oret

ical

R

ank

Act

ual

Ip.I

Act

ual R

ank

Rs Correlation Degree

1. Contract Management 0.85 1 0.74 1 1.00 Perfect correlation

2. Contract documents 0.75 3 0.71 2 0.99 Strong correlation

3. Financial issues 0.78 2 0.68 3 0.99 Strong correlation

4. Project related issues 0.68 5 0.64 4 0.99 Strong correlation

5. Other Reasons 0.72 4 0.62 5 0.99 Strong correlation

Table 3 Disputes resolution obstacles validity

IPASJ International Journal of Management (IIJM) Web Site: http://www.ipasj.org/IIJM/IIJM.htm

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3.CASE STUDIES The data was collected via interviews with some companies' organizations in Egypt. Site visits and reviewing project documents were the core of data for all case studies .summarized data of the collected information was presented by concentrating on the nature, sources of disputes and the resolution methodology used by the contract parties to solve their disputes.

Case Study No. (1)

The project is located in Egypt. It involves the construction of container terminal, the project basic information as per the following:

Work Fields: Civil, Mechanical and Electrical works.

Project nature: Private project.

Contract type: Unit price contract.

Contract Period: 140 weeks.

Contract Price: 620,000,000 L.E.

Contract conditions: General conditions "FIDIC" with particular applications [16].

Disputes status summarized in Table 4

`Table 4 Case study No. (1) disputes summary

1st Dispute 2nd Dispute 3rd Dispute 4th Dispute

Disputing party Contractor Contractor Contractor Owner

Subject/ Reasons

Additional costs for extension of time for the completion of whole of works due to1st revolution in Egypt on 25th Jan.2011(Force majeure)

Shortage of fuel supply / Rommana Sand as consequences of the 1st revolution dated 25th Jan.2011

Time and Cost arising out of Project revised completion date due to delay caused by civil unrest conditions as consequences of Force Majeure

Deduct the current delay damages for the contractor's delay in completion of parts of works Sec (D,ETJ and ETI)

Sources of dispute

Contract Management (Delay the approval on claims )

Contract Management (Delay the approval on claims)

Contract Management (Delay the approval on claims)

Financial issues (Difference in opinion for the responsibilities of delay damage)

Consequences Extra cost and time Extra cost and time Extra cost Liquidated damages as per contract.

Disputed amount in time

28 days 114 days Nil Nil

Disputed amount in cost

3,121,000 L.E 1,114,000 L.E 4,820,000 L.E 8,500,000 L.E

How the dispute was treated

Not settled Not settled Not settled Not settled

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Granted extension of time

Nil Nil Nil Nil

Compensation of cost Nil Nil Nil Nil

Resolution of Disputes by Negotiation

The Contractor requested many meetings with the Engineer, and the Employer's representative to discuss the disputed issues. They conducted long meetings and negotiations reviewing all disputes to reach a compromise state then finally they got a solution. Under this agreement the Employer agrees to waive all rights to deduct the delay damages due under the provisions of the conditions of contract, sub clause 8.7. In consideration of the Employer's agreement with regard to waiving delay damages, the Contractor agrees to waive all rights to additional costs arising out of extensions of time for completion already granted and also agrees to withdraw all outstanding claims for extension of time.

Case study No. (2)

The project is located in Egypt. It involves the onshore construction services, the project basic information as per the following:

Work Fields: Civil, Mechanical and Electrical works.

Project nature: Petroleum project.

Contract type: Unit price contract.

Contract Period: 120 weeks.

Contract Conditions :particular conditions

Disputes status summarized in Table 5

Table 5 Case study No. (2) disputes summary

1st Dispute 2nd Dispute 3rd Dispute

Disputing party Sub-contractor Sub-contractor Main-Contractor

Reasons Sales Taxes invoices paid due to change in local regulations

during construction

Additional piles requested from the Main contractor after completing the work

Apply Liquidated damages for delay of Mechanical completion date (MC)

Sources of dispute

New laws affect the construction time and budget

Contract Management (Delay the approval on

claim for additional cost)

Financial issues (Difference in opinion for the

responsibilities of delay damage)

Consequences Extra cost Extra cost Extra cost and time

Disputed amount in time

Nil Nil 90 days.

Disputed amount in cost

3.222.327L.E. 384.420 L.E 2.500.000L.E.

How the dispute was treated

Not settled Not settled Not settled

Granted extension of time

Nil Nil Nil

Compensation of cost

Nil Nil Nil

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Resolution of disputes by mediation

The Sub-contractor requested many meetings with the Main contractor to discuss the disputed issues. They conducted long meetings and negotiations reviewing the disputes to reach a compromise state then finally they didn't get a solution. The Sub-contractor proposed to assign an external mediator to investigate his disputes also the main contractor's disputes and the value of delay damages requested from the Main contractor. The Main contractor accepted the sub-contractor suggestion, and then all parties suggested construction consulting firm and the Mediation procedure finished as the main contractor made an offer that he agrees to waive all rights to deduct the delay damages. In consideration of the contractor's agreement with regard to waiving delay damages, the sub- contractor have to agrees to withdraw all outstanding disputes for extension of time and additional cost. The Sub contractor agreed to the main contractor offer and the disputes settled.

Case study No. (3)

The project is located in Egypt. It involves the construction of storage plant, the project basic information as per the following: Work Fields: Civil, Mechanical and Electrical works.

Project nature: Private project.

Contract type: Lump Sum contract (Turn Key).

Contract Period: 48 weeks.

Contract Conditions: Particular conditions.

Disputes status summarized in Table 6

Table 6 Case study No. (3) disputes summary

1st Dispute 2nd Dispute 3rd Dispute

Disputing party Contactor Contactor Owner

Reasons Additional cost due to extension of Asphalt area and thickness for roads upon instructions from Road Authority

Additional cost due to instruction of constructing new buildings not mentioned in the contract

Additional expenses due to contractor's delay on completing some parts of work.

Sources of dispute Interposition of other parties in contract management issues

Contract Management (Delay the approval on claim for additional cost)

Financial issues (Difference in opinion for the responsibilities of delay damage)

Consequences Extra cost Extra cost Extra cost

Disputed amount in time

Nil Nil Nil

Disputed amount in cost

606.903L.E 250.300 L.E. 1,100.000 L.E

How the dispute was treated

Not settled Not settled Not settled

Granted extension of time

Nil Nil Nil

Compensation of cost

Nil Nil Nil

Resolution of disputes by arbitration

IPASJ International Journal of Management (IIJM) Web Site: http://www.ipasj.org/IIJM/IIJM.htm

A Publisher for Research Motivation........ Email: [email protected] Volume 2, Issue 12, December 2014 ISSN 2321-645X

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The contractor requested many meetings with the Engineer, and the Employer's representative to discuss the disputed issues. They conducted long meetings and negotiations reviewing the disputes to reach a compromise state then finally they didn't get a solution and had to go to Arbitration as per the contract.

The results of Arbitration that obligating the second party (The contractor) to pay 850,453.14 L.E to the first party (The owner) for the additional expenses due to the delay had been occurred by the mismanagement of the contractor for completing the works.

Case study No. (4)

The project is located in Egypt. It involves the Construction of road, the project basic information as per the following:

Work Fields: Civil and Electrical works.

Project nature: Public project.

Contract type: Lump sum contract.

Contract Period: 40 weeks.

Contract Conditions: General conditions of Egyptian Tender Law (No. 89 / 1998), with Particular conditions.

Disputes status summarized in Table 7

Table 7 Case study No. (4) disputes summary

1st Dispute 2nd Dispute 3rd Dispute

Disputing party Contactor Contactor Owner

Reasons Additional time and cost due to delay occurred as result of '' there is no permits to start works''

Additional cost for stoppage of work due to 1st revolution dated 25th Jan. 2011 in Egypt (force majeure)

Termination of contract due to negligence of contractor and delay of work

Sources of dispute Remote location (no access to the site)

Acts beyond the responsibility of contract parties

Financial issues

Consequences Extra time and cost Extra time and cost Extra cost

Disputed amount in time

90 days 28 days Nil

Disputed amount in cost

1,385,000 L.E

750,000 L.E 2,436,000L.E

How the dispute was treated

Not settled Not settled Not settled

Granted extension of time

Nil Nil Nil

Compensation of cost

Nil Nil Nil

Resolution of disputes (not settled yet)

The contractor requested many meetings with the Engineer, and the Employer's representative to discuss the disputed issues. They conducted long meetings and negotiations reviewing the disputes to reach a compromise state then finally they didn't get a solution and had to go to Litigation as per the contract. This case not settled yet through the litigation process, where the contractor submitted his disputes to court by hiring services of legal advisor, this took long time, after waiting more than 24 months it still pending up to survey date. Form the collected cases studies. It can be concluded that the collected cases studies confirms with the questionnaire results especially for sources and resolution of disputes for the selected actual disputes cases studies. The four case studies presenting the sample of how actual situation of disputes management process used in Egyptian construction industry for construction project sectors and this is confirmed with questionnaire results as there is weak process of dispute resolution for local contract. The results of the four case studies were summarized as shown in Table 8.

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Table 8 result of all case studies disputes summary

Case No. Type of contract Sources of disputes Procedure

status Lessoned learnt

(1) FIDIC Contract Contract Management & Financial issues

Negotiation

(Solved)

Agreement of dispute cases by negotiation process is the shortest way.

(2) Petroleum contract

Contract Management & Financial issues &other sources.

Mediation

( Solved )

Mediation process consumes longer period than direct negotiation between the project parties but still better alternative resolution than other alternatives.

(3) Private contract

Contract Management

Arbitration

( Solved )

Arbitration is a good alternative to litigation, often quicker and less expensive, yet it is typically more costly and time consuming than other methods of ADR.

(4) Public Contract Financial issues & other sources

Litigation

( Unsolved )

The stages passed by this case show that litigation process is costly as result of hiring a legal adviser and consuming long period.

4. ADR PROPOSED PROCEDURE FOR DISPUTE RESOLUTION IN EGYPT Due to the lack of dispute resolution management in Egypt contracts and there is no procedure for actual ADR to settle these disputes as stated in questionnaire results and case studies analysis , the researcher proposed the following procedures and use each of them depending on the duration of the contract. ADR Proposed Procedure for Dispute Resolution in Long Term Contracts in Egypt (more than 12 months).as shown in Fig. 3. ADR Proposed Procedure for Dispute Resolution in Short Term Contracts in Egypt. (From 6 to 12 months) as shown in Fig. 4.

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Fig.4 Proposed procedure for dispute resolution in short term contracts in Egypt

The results of analyzing questionnaire respondents regarding proposed ADR procedure in both long and short contracts are validated as shown in both Tables 9 and 10.

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5.CONCLUSIONS The study proposes a reliable and accurate method to quantify and analyze sources of construction disputes .The

most important sources of disputes was "contract management (74.04 %)", the second was "contract documents (71.49 %)", the third was financial issues (67.80 %)", the fourth was "project related issues (63.92 %)", and the lowest one was "other sources'' such as force majeure, weak of construction laws, etc...., (61.58%)".

The study indicates that the contract management can be considered the main factor that can affect the existence of disputes due to many reasons such as the issues related to the owner and the contractor, their management of the contract, time schedule prepared by the contractor and required update.

Disputes resolution procedures are mentioned in different ways in most local contracts and the balance doesn't facilitate disputes conditions and procedures. The existing local contracts are various, and changeable according to the owner vision and some of them obligate the parties go to direct to arbitration then litigation without amicable settlement conditions, on the other hand The International contracts especially the FIDIC contracts described the disputes settlement procedure in comprehensive way, which gives rights to all contract parties (contractor/owner).

Dispute resolution procedure in Egypt is weak which create difficulties for both contract parties to solve their disputes, where this issue can affect the contractor in losing his rights to the dispute and the relation between the contract parties.

The proposed ADR procedure for long and short term local contracts is applicable, simple and takes the parties satisfaction.

There is a need to revise the local construction project contracts and standardize it to include the proposed ADR for disputes resolution through establishing an official committee which consists of all related sectors working in public construction projects, contracting union, engineering syndicate, and specialist engineering consulting firms

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