Kifle Semu's Project Paper_Thesis_ on Major Causes of Dispute in the Ethiopian Construction Industry_,

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Major Causes of Dispute in the Ethiopian

Construction Industry

A PROJECT REPORT

Under the guidance of

Prof. D.G.L.Chandra Rao __________________________

Submitted by: KIFLE SEMU SIMA Registration No. 531010358

_________________________

in partial fulfillment o f the requirement for the award of the degree

Of

MBA

IN

Project Management

February, 2012

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Acknowledgement: I wish to express my deep appreciation to Prof. D.G.L.Chandra Rao, who

served as my advisor, for all the support and guidance. I also appreciate

his positive comments and advice throughout my research.

Thanks are due also to other members of the thesis committee

Acknowledgement is due to Sikkim Manipal University, Directorate of

Distance Education.

Also, I wish to express my sincere gratitude to all my friends and

colleagues who have participated in this research,sacrificing their

invaluable time.

My thanks and gratitude is due also to my wife,(Alemtsehaye Mamo) for

her encouragement and patience without which this work would not have

been possible.

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Bonafide Certificate:

BONAFIDE CERTIFICATE

Certified that this project report titled

……………………………………………..” is the bonafide work of

“…………..<NAME OF THE CANDIDATE(S)>.…………” who carried out

the project work under my supervision.

SIGNATURE SIGNATURE HEAD OF THE DEPARTMENT FACULTY IN CHARGE

<Academic Designation> <Department> <Department> <<Full address of the Dept & College >> <Full address of the Dept & College >

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Abstract: Construction projects are becoming increasingly complex, resulting in complex

contract documents. Complex construction can likewise result in complex

disputes. Disputes are inevitable in construction projects which predominantly

arise from Complexity and magnitude of works, multiple prime contracting

parties, poorly Prepared and /or executed contract documents, inadequate

planning, financial issues and communication problems. Any one of these factors

can overturn a project and lead to complicated litigation and arbitration, increased

costs, time overrun, and a breakdown in the parties’ interest and relationship.

Thus, the objectives of this study are to study, identify and review the major

causes of dispute contributed by clients, consultants and contractors in

construction projects and give suggestions and recommendations on how to

minimize or avoid the occurrences of construction disputes.

A questionnaire survey was carried in the various regions of Ethiopia and the

feedbacks were collected and analyzed using important indices (Likert Scale) and

Relative Importance Index (RII) analysis. The results show that Contractors’

Financial Difficulties, Price escalation, inadequate investigation before bidding,

Consultants’ Poor Contract management & Supervision, and other factors

contribute to such disputes. By and large, unresolved construction disputes

will only bring in negative impact on client’s organization like time and cost

overruns, diminution of respect between parties, deterioration of relationship,

breakdown in cooperation and additional expenses.

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TABLE OF CONTENTS Page Acknowledgement: .................................................................................................................. ii

Bonafide Certificate: ............................................................................................................... iii

Abstract: ................................................................................................................................. iv

TABLE OF CONTENTS ..........................................................................................................v

List of Tables: ......................................................................................................................... ix

List of Figures: .........................................................................................................................x

Abbreviations and Glossary of Important Terms ..................................................................... xi

Abbreviations ..................................................................................................................... xi

Glossary of Important Terms ............................................................................................. xii

CHAPTER One: .......................................................................................................................1

1.0 Introduction ....................................................................................................................1

1.1 Background of the study..................................................................................................3

1.2 Statement of Problem ......................................................................................................3

1.3 Research Objectives ........................................................................................................4

1.4 Scope and Limitation of Research ...................................................................................5

1.4.1 Scope .......................................................................................................................5

1.4.2 Limitations ...............................................................................................................5

1.5 Research Methodology and Design .................................................................................5

1.6 Significance of the Study ................................................................................................7

1.7 Thesis Organization ........................................................................................................7

1.8 Summary.........................................................................................................................9

CHAPTER Two: Literature Review ........................................................................................ 10

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2.1 Introduction .................................................................................................................. 10

2.2 Key Terms and Concepts .............................................................................................. 10

2.3 Occurrence and Causes of Construction Dispute .................................................. 13

2.3.1 During the Design Phase......................................................................................... 14

2.3.2 During the Bid and Contract Award Phase .............................................................. 15

2.3.3 During the Construction Phase................................................................................ 15

2.4 summary ....................................................................................................................... 17

CHAPTER Three: Data Collection and Preliminary Analysis ................................................. 18

3.1 Introduction .................................................................................................................. 18

3.2 Sampling Methods ........................................................................................................ 18

3.3 Non-probability Sampling Strategies ............................................................................. 18

3.3.1Haphazard Sampling ............................................................................................... 19

3.3.2 Purposive Sampling ................................................................................................ 19

3.3.3 Convenience Sampling ........................................................................................... 19

3.3.4 The Sampling Method used in the Study ................................................................. 20

3.4 Questionnaire Development .......................................................................................... 20

3.4.1 Distribution of Questionnaires .................................................................................... 21

3.5 Data Summary .............................................................................................................. 22

3.5.1 Summary of Respondents Profile ............................................................................... 22

3.5.2 Response to Category 1: Employer Related Factors: ............................................... 23

3.5.3 Response to Category 2: Contractor Related Factors ............................................... 23

3.5.3 Response to Category 3: Consultant Related Factors ............................................... 24

3.5.4 Response to Category 4: Material, Labor & Equipment Related Factors ................. 24

3.5.5 Response to Category 5: Contract & Contract Relationship Related Factors ........... 24

3.5.6 Response to Category 6: External Factors ............................................................... 25

3.6 Summary and conclusion .............................................................................................. 25

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CHAPTER Four: Data Analysis ............................................................................................. 26

4.1 Introduction .................................................................................................................. 26

4.2 Calculation of relative importance of Index ................................................................... 26

4.2 Analysis of Data ............................................................................................................ 27

4.2. 1 Causes of Dispute .................................................................................................. 27

4.3 Findings and Discussions .............................................................................................. 28

4.3.1. Contractor’s Financial Difficulties ......................................................................... 31

4.3.2. Price escalation ...................................................................................................... 32

4.3.3 Inadequate investigation before bidding .................................................................. 33

4.3.4 Consultants’s Poor Contract management & Supervision ....................................... 34

4.3.5. Shortage in material ............................................................................................... 35

4.3.6 Exceptionally Low Bid ........................................................................................... 36

4.3.7 Employer’s Slow decision making ......................................................................... 36

4.3.8 Equipment availability and failure .......................................................................... 36

4.3.9. Contractor’s poor site management ........................................................................ 37

4.3.10 Consultants delay in preparation & approval of drawings ..................................... 37

4.4 Dispute Resolution Methods........................................................................................ 37

4.4.1 Mediation ............................................................................................................... 38

4.4.2 Dispute Review Board ............................................................................................ 39

4.4.3 Dispute Adjudication Board.................................................................................... 39

4.4.4 Arbitration .............................................................................................................. 46

4.4.5Court Litigation ....................................................................................................... 48

4.5 Summary....................................................................................................................... 49

CHAPTER Five: Conclusions and Recommendations ............................................................. 50

5.1 Introduction .................................................................................................................. 50

5.2 Conclusions .................................................................................................................. 50

5.2.1 Employers’ point of view...................................................................................... 50

5.2.2 Consultants’ point of view .................................................................................... 52

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5.2.3 Contractors’ point of view .................................................................................... 53

5.2.4 Overall respondents point of view ......................................................................... 54

5.3 Recommendations ......................................................................................................... 57

5.3.1 Recommendations for the Employers/ Clients ......................................................... 57

5.3.2 Recommendations for the Consultants .................................................................... 57

5.3.3 Recommendations for the Contractors .................................................................... 58

5.3.4 General Recommendations ..................................................................................... 58

References: ............................................................................................................................. 60

Appendices: ..................................................................................................................... 61

Appendix 1: Cover letter for questionnaire .......................................................................... 62

Appendix 2; Questionnaire Survey ................................................................................ 63

Appendix 3: Calculation of Relative Importance of Index (RII) (based on overall view) ..... 66

Appendix 4: Calculation of Relative Importance of Index (RII) (based on Employers view)69

Appendix 5: Calculation of Relative Importance of Index (RII) (based on Contractors view)

........................................................................................................................................... 72

Appendix 6: Calculation of Relative Importance of Index (RII) (based on Consultants view)

........................................................................................................................................... 75

Appendix 7: Comparison of overall view with Employers, Contractors & Consultants View

........................................................................................................................................... 78

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List of Tables:

Table 3.1: Respondents’ return rate

Table 3.2: Summary of Respondents Profile

Table 3.3: Overall respondents’’ view (Category 1)

Table 3.4: Overall respondents’’ view (Category 2)

Table 3.5: Overall respondents’’ view (Category 3)

Table 3.6: Overall respondents’’ view (Category 4)

Table 3.7: Overall respondents’’ view (Category 5)

Table 3.8: Overall respondents’’ view (Category 6)

Table 4.1: Ranking of causes (based on overall view)

Table 5.1: Summary the top 10 causes of dispute (based on Employers’ point of view)

Table 5.2: Summary the top 10 causes of dispute (based on Consultants’ point of view)

Table 5.3: Summary the top 10 causes of dispute (based on Contractor’ point of view)

Table 5.4: Summary the top 10 causes of dispute (based on overall respondents view)

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List of Figures:

Figure 1.1 Flowchart of the Research Methodology

Figure 2.1 Disagreement Escalation Diagram

Figure 4.3: The ten most important causes of disputes (based on all

respondents)

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Abbreviations and Glossary of Important Terms

Abbreviations

ADR : Alternate Dispute Resolution

CEDR : Centre for Effective Dispute Resolution

DAB : Dispute Adjudication Board

DB : Dispute Board

DRB : Dispute Review Board

EoI : Expression of Interest

FIDIC : The Fédération Internationale des Ingénieurs-Consei

ICC : International Chamber of Commerce

ITT : Invitation to Tender

JCT : Joint Contracts Tribunal

MDB : Multilateral Development Bank

MoWUD : Ministry Of Works & Urban Development

PASDEP : Plan For Accelerated And Sustained Development To End

Poverty

qv, qvv : quod vide À indicates a term that has a definition of its

own

UNCITRAL : United Nations Commission on International Trade Law

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Glossary of Important Terms

Adjudication

The legal process by which an arbiter or judge reviews evidence and

argumentation including legal reasoning set forth by opposing parties or

litigants to come to a decision which determines rights and obligations

between the parties involved. It is The final judgment in a legal

proceeding; the act of pronouncing judgment based on the evidence

presented

Alternate Dispute

Resolution(ADR)

A procedure for settling a dispute by means other than litigation, such

as arbitration or mediation. -

Arbitration

A method of dispute resolution involving one or more neutral third

parties who are usually agreed to by the disputing parties and whose

decision is binding

Claim

1. The aggregate of operative facts giving rise to a right enforceable by

a court 2) The assertion of an existing right; any right to payment or to

an equitable remedy, even if contingent or provisional 3.)A demand for

money, property, or a legal remedy to which one asserts a right

Construction

Construction is a process that consists of the building or assembling of

infrastructure, In general, there are three types of construction: Building

construction , Heavy / civil construction , Industrial construction

(Each type of construction project requires a unique team to plan,

design, construct and maintain the project.)

Dispute Resolution

Agreement

Legal agreement between two parties that lays out the method and

timetable for solving conflict between them, such as between

employers and employees, partners, stockholders (shareholders).

Invitation to

Tender (ITT)

A document that the department will issue to tenderers. The document

will request that the tenderers reply to a precisely defined requirement

in a prescribed format. It is typically comprised of lodging of tender,

terms of tender, conditions of contract, contract schedules, service

specifications, offer to be bound and articles of agreement.

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Likert Scale

A method of ascribing quantitative value to qualitative data, to make it

amenable to statistical analysis. A numerical value is assigned to each

potential choice and a mean figure for all the responses is computed at

the end of the evaluation or survey.

Litigation The process of carrying on a lawsuit

Service levels Service levels are the standards of service with which the service

provider must comply. They must be clear and measurable.

Stakeholders

A stakeholder is anyone who has a vested interest in the project.

Stakeholders are individuals and organizations who are actively

involved in the project, or whose interest may be positively or

negatively affected as a result of project execution or successful project

completion.

Tort

A civil wrong other than a breach of contract or a breach of trust or other merely equitable obligation and which gives rise to an action for un liquidated damages at common law (Sir John Salmond).

Literally the word is French for ‘wrong’. The essential point is that it is a breach of a civil duty imposed by the law generally. The most important tort today is negligence (qv), but other torts include nuisance (qv), trespass (qv) and defamation (qv).

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CHAPTER One:

1.0 Introduction The role the construction industry plays in socio-economic development is

significant. The industry is a distinct sector of the economy, which makes its

direct contributions to economic growth. It provides the basis upon which

other sectors can grow by constructing the physical facilities required for the

production and distribution of goods and services. The industry has a significant

multiplier effect on the economy as a whole.

Economic growth is one of the most effective ways of reducing poverty, and

infrastructure delivery has been identified as one of its key drivers. The

construction industry has great employment generation potential as labor

intensive technologies are economically viable for most items of construction

work.

The present state of the construction industry falls short of meeting domestic and

international quality standards and the performance demand expected from the

sector. Its percentage of GDP only amounts to 3%, considerably lower than the

sub-Saharan average of 6%. However, in line with the overall economic growth

of 5% in the past 4 years, the Construction Industry has registered an 8.2%

growth. Moreover, Public construction projects consume an average annual rate

of nearly 60% of the Government’s capital budget. 1

1 (MoWUD, Plan for Accelerated and Sustained Development to End Poverty (PASDEP))

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While construction's direct contributions to development are significant, it also

stimulates a sizeable amount of economic growth through backward and forward

linkages. Construction's requirements for goods and services from other

industries are considerable; the development of the construction industry

therefore stimulates these ancillary industries, thus encouraging further economic

growth. In developing countries the construction of physical facilities makes up

more than one half of gross domestic investment and tends to be concentrated on

basic infrastructure in agriculture, mining, transportation, communication, and

utilities. Infrastructural services make some contribution to GDP, but they also

stimulate the development of other industries which, in turn, contribute more

directly to economic growth. Once the basic infrastructure is created, more effort

can be devoted to construction for manufacturing, commerce, and services and to

the building of dwellings and institutional facilities.

Construction's contributions to employment creation are naturally parallel to its

contributions to output generation. A common condition of underdevelopment is

unemployment and underemployment. In the past, the question of employment

was generally neglected because of the apparent conflict between economic

growth and employment creation. The extent to which growth and employment

creation should be balanced in developing countries is a matter of importance and

necessarily depends largely upon local economic, technical, social, and political

conditions. The construction industry could play an important role in resolving

this conflict because it is technologically flexible, implying that many of its

operations can be made more or less labor-intensive depending upon conditions in

the country at the time.

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1.1 Background of the study The subject of study is identified after more than 20years of local & international

work experience in infrastructure development and related projects. This was

initiated to study the underlying reasons for construction contract disputes in

Ethiopian construction industry and to identify methods used for dispute

avoidance and resolution. The objectives of the subject are identified through the

observations of construction conflicts and disputes which were encountered by

clients, consultants and contractors.

1.2 Statement of Problem The construction industry has become very complicated such that political

and economic trends are increasing the economic pressure resulting in disputes.

Complex construction has brought about complex disputes in the industry. There

are so many different types of sources that may lead to disputes, the most

common of these: Contracts, Defective work, Variations or ‘extra works’, Delays

and extensions of time, Failure to adequately document the works & daily events,

etc, and this eventually becomes a burden to the industry in terms of production.

Great concern has been expressed in the recent years regarding the dramatic

conflicts and disputes in the construction industry in the whole world and this has

resulted in:

a) Time delays and cost overruns.

b) Deterioration of relationship and breakdown in cooperation.

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c) Additional expenses in management and administration

d) Possibility of escalation to litigation.

Often seen stakeholders(employers, consultants & contractors) blaming each

other because of problems they come across during the construction process,

because of poorly done designs, claims, and poor administration and delays and

these have been overlooked. There are questions which arise on what is it that is

actually causing disputes in the industry? And why disputes have become a nature

of event in the industry?

Disputes and conflicts have gained frequent rise during construction of projects

and this needs an involvement of a neutral body to resolve disputes as early as

possible.

1.3 Research Objectives The goal of this study is to identify the major causes of construction disputes in

the Ethiopian construction industry, contributed by clients, consultants and

contractors and eventually identify the occurrences of the construction disputes

during the process of construction.

The objectives of this study can be summarized as follows:

1.3.1 To identify the root/major causes of construction2 disputes

2 Building construction, Heavy / civil construction, Industrial construction

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1.3.2 To identify the perceptions of clients, consultants, and contractors on

the relative importance of causes and effects of dispute

1.3.3 To identify contribution of clients, consultants, and contractors to the

causes and effects of dispute

1.4 Scope and Limitation of Research

1.4.1 Scope The research has been carried out with a careful study on data collected mainly on

questionnaire survey, literature review and observations (personal experience).

The research will focus on all kinds of project i.e. private and government

projects which are faced with the problem of construction disputes.

The questionnaire survey was designed based on factors identified from literature

review that contributed to causes of disputes, effects of disputes and methods to

minimize disputes.

1.4.2 Limitations The shortcomings/ limitations are unavailability of adequate documented

information in the field of the study, and the reluctance of some stakeholders in

the construction industry to provide information related to the subject

issues/dispute/.

1.5 Research Methodology and Design The research methodology is the essential stages to determine the success of

achieving the aim and objectives. The major processes involved in this study

includes: Questionnaire survey, literature review, data collection, data analysis

and conclusion.

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A questionnaire was developed to assess the perceptions of clients, consultants,

and contractors on the relative importance of causes and effects of dispute in

Ethiopian construction industry. The questionnaire will be divided into two parts.

The first part requested background information about the respondents.

The second part of the questionnaire focused on causes of construction disputes.

The respondents will be asked to indicate their response category on Six (6) &

well-recognized major categories of construction dispute factors

Category 1: Employer Related Factors;

Category 2: Contractor Related Factors;

Category 3: Consultant Related Factors

Category 4: Material, Labor & Equipment Related Factors

Category 5: Contract & Contract Relationship Related Factors

Category 6: External Factors

The data collected from the questionnaire survey will be analyzed using the five-

point Likert scales and the Likert scale taking the following format: 1. Very

Insignificant, 2. Insignificant, 3.Average, 4.Significant, And 5.Very Significant.

Finally, results of the questionnaires surveys will be analyzed. The findings and

conclusion will be elaborated based on the analysis.

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Figure 1.1 Flowchart of the research Methodology

Specify objective(Problem-Statement)

Select method of data collection

Questionnaire Design

Data Collection, processing and

analysis

Reporting Findings

1.6 Significance of the Study This study will identify the root causes of construction dispute caused by the

client, consultants and contractors. It also covers the impact of construction

disputes in a client’s organization and methods of disputes resolutions. These

factors had been seen as the major factors in affecting production in the industry,

thus it is a necessity to manage them or rather to avoid them for the better part of

the performance of the industry.

1.7 Thesis Organization This thesis is divided into five chapters. The first chapter introduces the subject,

background and justification for this study. This chapter also specifies the aim

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and objectives, the methodology of conducting this study and a brief summary on

the structure of the research.

Chapter two highlights the related issues on causes of construction disputes from

available literature which include the following: Definition of disputes; Disputes

Occurrence; Research related to construction Disputes; The causes of

construction dispute; Impact of disputes on client organization;

Chapter three describes in details the process of data collection that involved in

the study which included introduction, data on the causes of construction disputes

questionnaire development, sampling, data summary, and summary and

conclusion.

Chapter four discusses the process of the data analysis to achieve the aim and

objectives of this study which included introduction, analysis of data, important

index, findings and discussion, and conclusion.

Finally, the last chapter summarizes the conclusion from the research findings of the study and recommendation.

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1.8 Summary This chapter covered the introduction to the problem of disputes in the

construction industry that has prompted to this study. Moreover it states the aim

and objectives, scope, methodology used and the significance of the findings.

This project is based on identifying construction disputes that have been seen to

be affecting the industry’s performance. The results to be obtained from the study

will help in improving the production of the industry by means of implementing

the decisions obtained from the results of the study.

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CHAPTER Two: Literature Review

2.1 Introduction Construction contracts entered into by various agencies are frequently attended by

significant risk of exposure to change order requests and claims. These claims

involve numerous issues, such as contract ambiguities, changes and additions to

the contract, differing site conditions, schedule delays, stop work orders, errors

and omissions in the contract plans and specifications, acceleration of the contract

by the agency, defective work by the contractor seeking indemnification from

third parties, warranty/guaranty clauses, recovery of liquidated damages. As the

volume of unresolved disputes grows, relationships with the contracting

community can deteriorate. This may lead to higher bid costs and the actual

withdrawal from the bidding of some otherwise capable contractors. The early

recognition, identification, and resolution of disputes can lessen management

costs and administrative efforts and lower overall program costs, benefiting the

public, the agency, and the contractor.

2.2 Key Terms and Concepts The two particular definitions that are important to this report are the key terms

“dispute” and “claim” As used in this thesis, a dispute refers to a contract related

issue that has not yet become a matter of formal process; a claim develops from a

dispute and has reached the stage where formal proceedings or legal actions are

underway.

The definitions are as follows:3

1. Dispute-- Strictly, a calling into question. In the context of construction

contracts it is usually associated with adjudication (qv) or arbitration (qv) 3 Building Contract Dictionary

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when it refers to a disagreement between two parties. Usually, that will

take the form of a proposition by one party which the other has rejected,

although sometimes long silence or delay in responding on the part of the

other party may also be considered a rejection. A dispute may exist for the

purpose of adjudication or arbitration even though it may be obvious which

party is correct.

Adjudication and arbitration clauses usually refer to ‘dispute or difference’,

but they probably have essentially the same meaning in this context. The

Arbitration Act 1996 s. 82 (1) says that ‘dispute’ includes ‘difference’. No

adjudication or arbitration can take place unless a dispute or difference

exists

2. Claim-- The dictionary defines ‘claim’ as ‘an assertion of a right’ and,

under standard building contracts, the word conveys the concept of

additional payment which the contractor seeks to assert outside the

contractual machinery for valuing the work itself. The word is also used in

respect of the contractor’s applications for an award of extensions of time

(qv). The main types of claim which may be made by a contractor are:

3. Contractual claims: which are those made under specific provisions of the

Contract, e.g. one for ‘direct loss and/or expense’ under JCT 98, clause 26,

or for ‘expense’ under GC/Works/1 (1998), clause 46. This type of claim is

also occasionally described as being ex contractu, i.e. arising from the

contract. Under JCT terms À and most other forms of contract À it is only

claims of this type which the architect has authority under the contract to

settle.

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4. Common law claims: which are those which arise apart from the express

provisions of the contract. They include claims in tort (qv), claims for a

quantum meruit (qv), claims for a quantum valebat (qv), claims for breach

of express or implied terms of the contract or warranty (qv). All the current

standard forms allow additional or alternative claims for breach of contract,

based on the same facts. Usually they are based on implied terms relating

to non-interference with the contractor’s progress (see: Hindrance or

prevention). They are sometimes called ex contractual or extra contractual

claims.

5. Ex gratia claims: are those without legal foundation and are usually made

on moral or hardship grounds. Very rarely, there may be an advantage to

meeting such a claim as a matter of grace, e.g. if the contractor is on the

brink of insolvency (qv) and, as a result, the employer would face greater

expense if the contractor could not carry on and completion contractors had

to be employed.

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Disagreement

Argument

Dispute

When two parties express difference of opinion. The mater is usually resolved to the mutual satisfaction of all Parties

Where the disagreement can not be so readily resolved and discussion become heated

Major disagreements, often over contracts that can not be resolved by the parties without recourse to a formal process

Figure 2.1 Disagreement Escalation Diagram (Source: (IAN M Elenberg), Dispute Resolution in Construction Management)

2.3 Occurrence and Causes of Construction Dispute 4 Numerous construction disputes that arise largely through miscommunication

between the various parties in a design/construction effort. Usually, these disputes

occur even though the parties involved all are well intended. This often happens

because someone “drops the ball” by failing to communicate effectively with

another concerning design issues, compensation and payment issues, scope

change issues and the like, leading to legal disputes.

The occurrence of some of the common causes of dispute are discussed below

A review of these disputes shows that many, if not all, can be avoided through

better communication — whether through more effective contract writing, oral

4 Ineffective Communication: Common Cause of Construction Disputes (Jeffery M. Hall, Esq. Folk & Associates, P.C. Vol.13, No.2, May/June 2002 )

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presentation and/or people communication skills

2.3.1 During the Design Phase

1. Design and specification oversights, and errors or omissions resulting from

uncoordinated civil, structural, architectural, mechanical and electrical

designs can result in unexpected change orders, wholesale scope changes,

and project delays. They may ultimately lead to inadvertently ill-

constructed projects filled with construction defects due to bad project

documentation.

2. The design professional’s failure to remain within an owner’s project

budget and design objectives, leads to dissatisfied owners and to design

professional liability.

3. A similar dispute may occur when an owner’s design vision of a project is

not communicated effectively to the design team. Perhaps due to an

owner’s inexperience, this breakdown may result in an unrealistic project

square footage, unnecessary architectural features, and/or finishes that

cannot be achieved within budget. Over-design is a predictable cause of

disputes, particularly when an owner turns to third-party consultants for

input that is not coordinated effectively with the design team while the

overall design is evolving and maturing.

4. The owner’s failure to contract with the consultants for construction

administration/construction observation services can lead to poor

coordination of the project, especially in cases involving absentee or

inexperienced owners. The owner should make a determination at the

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outset whether this service will be provided by the design team or a third

party such as a construction manager, and then engage this party for those

services.

Design phase issues like these can be avoided by addressing them up front and

providing for them in properly drawn construction documents.

2.3.2 During the Bid and Contract Award Phase Lack of understanding and agreement between the owner and contractor as to

whether the contract is a lump-sum, cost-reimbursable (time and materials),

cost-plus fixed fee, or guaranteed maximum price contract arrangement.

Other issues that arise during contract formation include (1) defining what

costs are allowable and reimbursable; (2) the budget breakdown and schedule

of values for pay items that are essential in controlling billed costs, progress

and earned revenue; and (3) the allocation of change orders to budget or pay

items relative to billing practices and progress measurement.

2.3.3 During the Construction Phase 1. Starting construction of a project prior to design completion is a recipe for

trouble. A complete, fully coordinated set of project documents is critical to

realizing a successful project from all parties’ perspectives. Without fully

coordinated drawings and specifications, the project will most assuredly be

faced with budget issues, disputes arising from bid allowances due to

undefined scopes, and ultimately in changes and cost increases.

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2. Construction disputes due to lack of access to utilities, unanticipated site

conditions and/or inclement weather impacts on working conditions can result

in claims for inefficiency and delay-related costs.

3. The contractor’s failure to coordinate its subcontractors’ work through

effective and timely exchange of shop drawings, failure to provide timely

responses to the consultant and client, and purchasing and schedule

mismanagement that may impact the work of others, are all factors that also

result in delays, inefficiency, rework, defects and cost overruns that lead to

claims and disputes.

4. Contractor over-billings often are the result of a fundamental

misunderstanding of what is allowable under the terms of the contract. This

includes unsupported costs, disallowed costs under the construction contract,

or costs for non-compensable delays, inefficiency, rework and

mismanagement.

5. Consultant’s failure in its contractual administrative duties for such things as

field observations and reporting with regard to construction defects, quality,

progress, and conformance of the work with the contract documents; and the

evaluation of contractor change orders and pay applications.

6. Cost overruns often lead to disputes because of an owner’s unwillingness or

inability to pay, even when they are the result of legitimate scope changes

and/or project upgrades. The owner’s contribution to these cost overruns also

typically causes contractor delays, acceleration and inefficiency.

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2.4 summary This chapter highlights issues related to causes of construction disputes from

available literature which including: Definition of disputes; Occurrence & The

causes of construction dispute, etc.

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CHAPTER Three: Data Collection and Preliminary Analysis

3.1 Introduction Data Collection is an important aspect of any type of research study. Inaccurate

data collection can impact the results of a study and ultimately lead to invalid

results.

The purpose of data collection is to obtain information to keep on record, to make

decisions about important issues, to pass information on to others. Primarily, data

is collected to provide information regarding a specific topic

3.2 Sampling Methods One of the most important decisions that any researcher makes is how to obtain

the type of participants needed for the study.

In most situations, it is impossible to study an entire population. Typically a

subset of people drawn from a larger population will be studied and use

inferential statistics to make an inference from the sample back to the population.

The validity of that inference depends on how representative the sample or subset

is of the population from which it is drawn. Given the time constraint, the prime

goal of this paper, is to obtain the most representative sample using the

appropriate type of non probability sampling strategies.

3.3 Non-probability Sampling Strategies There are three types of non-probability sampling strategies: Haphazard,

Convenience and Purposive

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3.3.1Haphazard Sampling Haphazard sampling is a strategy that is almost guaranteed to introduce bias into

your study. It should be avoided at all costs. A typical haphazard strategy uses a

"man-on-the-street" technique to recruit those who wander by or selects a

sampling frame that does not accurately reflect the population.

3.3.2 Purposive Sampling Purposive sampling targets a particular group of people. When the desired

population for the study is rare or very difficult to locate and recruit for a study,

purposive sampling may be the only option. For example, you are interested in

studying cognitive processing speed of young adults who have suffered closed

head brain injuries in automobile accidents. This would be a difficult population

to find.

3.3.3 Convenience Sampling Convenience sampling selects a particular group of people but it does not come

close to sampling all of a population. Researchers want to study the effectiveness

of a diversion program for preventing further criminal activity among first-time

juvenile offenders. Many cities across the nation have such programs but the

researchers study the program in their city. The sample would generalize only to

similar programs in similar cities. Convenience sampling is widely used in

student research projects. Students contact professors that they know and ask if

they can use their classes to recruit research subjects.5

5 http://www.wadsworth.com/psychology_d/templates/student_resources/workshops/res_methd/sampling/sampling_32.html

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3.3.4 The Sampling Method used in the Study The sampling method used in this study was convenience sampling. This

sampling comes under the class of non-probability sampling techniques. As the

name implies, sample elements are identified by convenience (friends). This

method of sampling is preferred when it is difficult to get response from sample

elements selected at random. The questionnaires were distributed through friends

working in various, Employer, consulting and construction firms. This sampling

method enabled us to obtain a large number of completed questionnaires quickly

and economically.

3.4 Questionnaire Development A questionnaire survey shown in Appendix 2 was formulated to compare the

collective perceptions of personnel from clients, consultants and contractors, as to

categorize the major causes of dispute on client’s organization on construction

projects in Ethiopia.

The respondents were asked to indicate their response category on 29(Twenty-

Nine) well-recognized construction delay factors and these causes were

categorized into the following 6(six) major groups:

Category 1: Employer Related Factors: Failure to finance and payments of

completed works, Owner interference, slow decision making, unrealistic

contract duration and requirements imposed.

Category 2: Contractor Related Factors: inadequate investigation before, Site

management, Construction methods, Poor planning and use of wrong

equipment, Mistakes during construction stage, Inexperienced contractor,

Financial Difficulties, Exceptionally Low Bid

21

Category 3: Consultant Related Factors: Poor Contract management &

Supervision, Preparation and approval of drawings, Frequent Changes in

orders & Designs, Waiting time for approval of tests and inspection

Category 4: Material, Labor & Equipment Related Factors: Quality of

Material, Shortage in material, Shortage of Labor supply, Labor productivity,

Equipment availability and failure

Category 5: Contract & Contract Relationship Related Factors: Change

orders, Mistakes and discrepancies in contract document, Inappropriate overall

organizational structure linking to the project, Lack of communication

between the parties

Category 6: External Factors: Inclement Weather condition, Regulatory

changes, Unforeseen site condition

3.4.1 Distribution of Questionnaires Out of the 75(seventy-five) questionnaires sent to prospective respondents’

working in Employer, Consultants, 69(sixty-nine), questionnaires were filled and

were sent back,(the reason for this high rate of response is the method of

sampling used, which is (“convenience sampling”) which equates to 92 % overall

response rate. The composition of respondents is Employer/clients (96%),

consultants (87%) contractors (93%),(Please refer Table 3.1 below) Table 3.1: Respondents’ return rate

Item No Sample type sent return %

1 Employer(Client) 25 24 96% 2 Consultant 23 20 87% 3 Contractor 27 25 93%

Total 75 69 92%

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3.5 Data Summary

3.5.1 Summary of Respondents Profile The respondents’ data profile with respect Positional distribution includes

General Managers, project managers, department heads, resident engineers and

supervisors

With respect to years of experience 14.49% of the sample are less than or equal to

5years of experience, 31.88% of the sample between 6 to 10 years of experience,

17.39% of the sample between 11 to 15 years of experience, 55% of the sample

between 16 to 20 years of experience 20.29 % of the sample are more than 20

years of experience,

With respect to Type of Organization 34.78% of the sample are from Employer

(client) Organization), 28.99% of the sample are from Consultant Organization,

and 36.23% of the sample is from Consultant Organization (please refer Table 3.2,

below) Table 3.2: Summary of Respondents Profile

Item No

Characteristics No. of response

Percent

I Number of Years of Experience Less than 5 years 10 14.49% 6 to 10 years 22 31.88% 11 to 15 years 12 17.39% 16 to 20years 11 15.94%

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More Than 20 years 14 20.29% Total 69 100.00% II Type of Organization Employer(client) 24 34.78% Consultant 20 28.99% Contractor 25 36.23% Total 69 100.00%

3.5.2 Response to Category 1: Employer Related Factors: Table 3.3: Overall respondents’’ view (Category 1)

Sr. No.

Description Indicator Total 1 2 3 4 5

1 Failure to finance and payments of completed work 13 12 15 16 13 69 2 Owner Interference 7 16 23 15 8 69 3 Slow decision making 2 5 15 34 13 69

4 Unrealistic contract duration and requirements imposed 2 14 14 23 16 69

3.5.3 Response to Category 2: Contractor Related Factors Table 3.4: Overall respondents’’ view (Category 2) Sr. No. Description Indicator Total

1 2 3 4 5 1 Inadequate investigation before bidding 4 6 11 13 35 69 2 Site management 3 7 19 23 17 69 3 Construction methods 4 10 28 17 10 69 4 Poor planning and use of wrong equipment 4 7 19 22 17 69 5 Mistakes during construction stage 8 20 25 10 6 69 6 Inexperienced contractor 3 18 18 20 10 69 7 Financial Difficulties 2 0 6 24 37 69 8 Exceptionally Low Bid 4 6 10 29 20 69

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3.5.3 Response to Category 3: Consultant Related Factors Table 3.5: Overall respondents’’ view (Category 3) Sr. No. Description Indicator Total

1 2 3 4 5 1 Poor contract management & Supervision 1 5 17 24 22 69 2 Preparation and approval of drawings 2 6 24 20 17 69 3 Frequent Changes in orders & Designs 2 7 25 22 13 69 4 Waiting time for approval of tests and inspection 3 9 26 20 11 69

3.5.4 Response to Category 4: Material, Labor & Equipment Related Factors Table 3.6: Overall respondents’’ view (Category 4)

Sr. No. Description Indicator Total 1 2 3 4 5

1 Quality of material 5 6 25 22 11 69 2 Shortage in material 2 5 15 29 18 69 3 Shortage of Labor supply 8 15 26 15 5 69 4 Labor productivity 5 13 16 25 10 69 5 Equipment availability and failure 2 5 20 28 14 69

3.5.5 Response to Category 5: Contract & Contract Relationship Related Factors Table 3.7: Overall respondents’’ view (Category 5)

Sr. No.

Description Indicator Total 1 2 3 4 5

1 Change orders 1 9 24 24 11 69 2 Mistakes and discrepancies in contract document 2 7 17 32 11 69 3 Inappropriate overall organizational structure linking to

the project 2 10 26 22 9 69

4 Lack of communication between the parties 0 10 27 22 10 69

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3.5.6 Response to Category 6: External Factors Table 3.8: Overall respondents’’ view (Category 6)

Sr. No. Description Indicator Total 1 2 3 4 5

1 Inclement Weather condition 7 18 28 14 2 69 2 Regulatory changes 10 15 28 14 2 69 3 Unforeseen site condition 1 7 29 25 7 69 4 price escalation 1 2 14 24 28 69

3.6 Summary and conclusion The survey results have been collated and the necessary computation has been

done (please refer Appendix 3, 4, 5, 6 &7)

The overall ratings of the major causes of disputes and the findings and analysis

of top 10 causes of disputes is listed and discussed in details in Chapter 4

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CHAPTER Four: Data Analysis

4.1 Introduction Data analysis is a practice in which raw data is ordered and organized so that

useful information can be extracted from it. The process of organizing and

thinking about data is key to understanding what the data does and does not

contain. There are a variety of approaches to data analysis, and it is notoriously

easy to manipulate data during the analysis phase to push certain conclusions or

agenda. For this reason, it is important to pay attention when data analysis is

presented, and to think critically about the data and the conclusions which were

drawn. Raw data can take a variety of forms, including measurements, survey

responses, and observations. The source of raw data for this research is mainly

questionnaire survey responses and interviews, during the course of the data

analysis process, survey results are tallied, so that one can see at a glance how

many people answered the survey, and how people responded to specific

questions.

4.2 Calculation of relative importance of Index The Relative Importance Index (RII) method was adopted in this study within

various Categories (i.e. Category1-Category6)). The five-point scale ranged from

1 (Very Insignificant) to 5 (Very Significant) was adopted and transformed to

relative importance indices (RII) for each factor as follows:

RII= ∑W

-------------* 100 A* N

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where W is the weighting given to each factor by the respondents (ranging from 1

to 5), A is the highest weight (i.e. 5 in this case), and N is the total number of

respondents. The RII value had a range from 0 to 1 (0 not inclusive), higher the

value of RII, more important was the cause or effect of disputes.

The RII was used to rank (R) the different causes. These rankings made it

possible to cross-compare the relative importance of the factors

Each individual cause’s RII perceived by all respondents were used to assess the

general and overall rankings in order to give an overall picture of the causes of

construction disputes in the Ethiopian construction industry. The same procedure

was adopted for ranking the effects.

4.2 Analysis of Data Converting all responses into numerical data, will help analyze the data in which

one can draw conclusions on the findings. Analyzing the data is a task that

requires good analytical skills to interpret data accumulated from the

questionnaire.

4.2. 1 Causes of Dispute The primary data collected from the questionnaire was analyzed from the

perspective of respondents. Each individual cause’s Relative Importance Index,

(RII) perceived by all respondents was computed for overall analysis.

The Relative Importance Index, (RII), was computed for each cause to identify

the most significant causes. The causes were ranked based on RII values. From

the ranking assigned to each cause of disputes, Based on the ranking, the 6 (Six)

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most important causes of construction disputes from each category as perceived

by all respondants were:

(1) contractor’s Financial Difficulties (RII = 0.8725) Category 2: Contractor

Related Factors;

(2) price escalation (RII = 0.8203); Category 6: External Factors

(3) Poor Contract management & Supervision (RII = 0.7768) Category 3:

Consultant Related Factors;

(4) Shortage in material (RII = 0.7623) Category 4: Material, Labor &

Equipment Related Factors

(5) Slow decision making (RII = 0.7478), Category 1: Employer Related Factors

(6) Mistakes and discrepancies in contract document(RII = 0.7246) Category 5:

Contract & Contract Relationship Related Factors

4.3 Findings and Discussions This section discusses the results obtained in the earlier section., we discuss the

results obtained by analyzing the causes of disputes.

Table 4.1 shows the ranking of causes based on response of all respondents

(clients, contractors and consultants). Table 4.1: Ranking of causes (based on overall respondents view) Item No.

Description

Indicator Total RII

(%) Rank 1 2 3 4 5

CATEGORY 1: Employer Related Factors

1 Failure to Finance and payments of completed work 13 12 15 16 13 69 61.16 22

2 Owner Interference 7 16 23 15 8 69 60.29 23 3 Slow decision making 2 5 15 34 13 69 74.78 7

4 Unrealistic contract duration and requirements imposed 2 14 14 23 16 69 70.72 12

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Item No.

Description

Indicator Total RII

(%) Rank 1 2 3 4 5

5 Other (if any)

CATEGORY 2: Contractor Related Factors

1 Inadequate investigation before bidding 4 6 11 13 35 69 80.00 3 2 Site management 3 7 19 23 17 69 72.75 9 3 Construction methods 4 10 28 17 10 69 65.51 20

4 Poor planning and use of wrong equipment 4 7 19 22 17 69 71.88 11

5 Mistakes during construction stage 8 20 25 10 6 69 55.94 25 6 Inexperienced contractor 3 18 18 20 10 69 64.64 21 7 Financial Difficulties 2 0 6 24 37 69 87.25 1 8 Exceptionally Low Bid 4 6 10 29 20 69 75.94 6 9 Other (if any)

CATEGORY 3: Consultant Related Factors

1 Poor Contract management & Supervision 1 5 17 24 22 69 77.68 4

2 Preparation and approval of drawings 2 6 24 20 17 69 72.75 9 3 Frequent Changes in orders & Designs 2 7 25 22 13 69 70.72 12

4 Waiting time for approval of tests and inspection 3 9 26 20 11 69 67.83 17

CATEGORY 4: Material, Labor & Equipment Related Factors

1 Quality of material 5 6 25 22 11 69 68.12 16 2 Shortage in material 2 5 15 29 18 69 76.23 5 3 Shortage of Labor supply 8 15 26 15 5 69 58.26 24 4 Labor productivity 5 13 16 25 10 69 66.38 19 5 Equipment availability and failure 2 5 20 28 14 69 73.62 8 6 Other (if any)

CATEGORY 5: Contract & Contract Relationship Related Factors

1 Change orders 1 9 24 24 11 69 70.14 13

2 Mistakes and discrepancies in contract document 2 7 17 32 11 69 72.46 10

3 Inappropriate overall organizational structure linking to the project 2 10 26 22 9 69 67.54 18

4 Lack of communication between the 0 10 27 22 10 69 69.28 14

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Item No.

Description

Indicator Total RII

(%) Rank 1 2 3 4 5

parties

CATEGORY 6: External Factors 1 Inclement Weather condition 7 18 28 14 2 69 55.94 25 2 Regulatory changes 10 15 28 14 2 69 55.07 26 3 Unforeseen site condition 1 7 29 25 7 69 68.70 15 4 price escalation 1 2 14 24 28 69 82.03 2

The ten most important causes of disputes (based on all respondents) as shown in

the Table 4.1 were:

(1) Contractor’s Financial Difficulties (RII = 0.8725),

(2) Price escalation (RII = 0.8203),

(3) Inadequate investigation before bidding (RII = 0.80),

(4) Consultants’s Poor Contract management & Supervision (RII = 0.7768),

(5) Shortage in material (RII = 0.7623),

(6) Exceptionally Low Bid (RII = 0.7594),

(7) Employer’s Slow decision making (RII = 0.7478),

(8) Equipment availability and failure (RII = 0.7362,

(9) Site management (RII = 0.7275), and

(10) Preparation and approval of drawings (RII = 0.7275).

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Figure 4.3: The ten most important causes of disputes (based on all respondents)

1.Contractor’s Financial Difficulties

2.Price

escalation

3.Inadequate

investigation before bidding

4Consultants’

Poor Contract management

& Supervision

7Employer’s

Slow decision making

6Exceptionally Low Bid

5Shortage in

material

9Contractor’s

poor site management

8Equipment availability and failure

10Consultants

delay in Preparation &

approval of drawings

Top 10(Ten) Construction Dispute Factors

4.3.1. Contractor’s Financial Difficulties Whether large or small, contractors can and do experience financial difficulty. In

some cases, this distress becomes so severe that the contractor is forced into

bankruptcy or liquidation. What is important to understand is that when a

contractor develops financial problems, the contract will be at risk.

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To save money, contractors may substitute lower quality products and/or services.

Moreover, companies in financial distress often experience low morale and high

turnover, where the most experienced and talented people are the first to leave.

These companies either do not replace positions or have a difficult time attracting

new employees, thereby creating potential service issues.

Therefore, performing a financial responsibility analysis helps to determine

whether a contractor has the necessary financial resources to begin and complete

a contract successfully.

Financial analysis also helps determine what payment terms to utilize (e.g.,

interim, progress, or advance payments) and whether other contract terms may

need to be added or modified to mitigate risk. While a financial responsibility

analysis needs to be done before entering into a contract, it should also be

performed periodically throughout contract administration for multi-year

contracts.

4.3.2. Price escalation Cost is the fundamental component for any construction project. However, cost

overrun is observed as one of the most frequently occurring issues in

construction projects

Construction cost increases usually occur as a result of market forces, and reflect

increases in the cost of labour/materials and higher levels of construction

activity.

Employers should ensure that the budgets set for construction projects are

achievable, allowing where appropriate for price escalation.

When formulating a project budget, employers must consider cost escalation that

may occur prior to the tender date and duringthe terms of the contract.

33

These anticipated increases in cost should be built into the project budget and

used when preparing budget submissions for funding.

Given the current market conditions for various building materials and the

potential for trouble when the cost escalation occurs, a price escalation clause that

allows for an equitable adjustment for the increased costs of certain materials may

be advisable.

Escalation clauses should be tailored to the individual project and commodity. A

price escalation clause allows the parties an opportunity to plan for the

uncertainty and allocate how and to what extent the additional costs will be

absorbed.

4.3.3 Inadequate investigation before bidding Contractors should do the risk analysis and estimate the risks so that they can

include the price of taking these risks in their cost estimation, but it does not

always happen this way. In most cases, contractors do not carryout suffiecient

risk analysis before bidding and make a realistic cost estimate. It leads to dispute

because 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.

Tenderers for a construction contract need to study hydrological and sub-surface

data, to the extent that the data are relevant to the particular type of works, in

order to plan and estimate the costs of the excavation and other works.

At pre-contract stage, the employer or client should disclose the project

requirements combined with site data and other useful information in order to

enable the contractor or consultant to submit an offer.

34

However, all forms of contracts including FIDIC forms of contract clearly create

retroactive obligations. According to Sub-Clause 4.10 the Contractor shall carry

out inspections and examinations of the site before submitting his tender.

4.3.4 Consultants’s Poor Contract management & Supervision A number of construction projects have suffered as a result of poor performance

in Contract management & Supervision activities by design and supervision

consultants. Consequently, Employers/clients need to establish a guideline for the

periodic Evaluation of Consultant's Performance to improve Consultant's

performance and a reduce of consequential problems which includes:

Disputes & Implementation difficulties resulting from inappropriate

designs and solutions,

Claims resulting from poor quality documents

Budget overrun resulting from inaccurate cost estimates.

Dispute and Budget overrun resulting from poor quality and inaccurate

geotechnical and topographical surveys.

Dispute & implementation difficulties resulting from poor supervision

Tender documents must be drafted with care, particularly in respect of quality,

tests and performance criteria for Contractor-design contracts. If tender

documents are deficient, the Employer may pay an exorbitant price for

unacceptable works. He must therefore ensure that adequate resources are

allocated to the skilled tasks of drafting the technical and commercial aspects of

the tender documents, and of analysing the tenderers' proposals.

35

4.3.5. Shortage in material Material resources, including construction materials and equipment, are

fundamental to the development of a construction project from design through

procurement to physical erection. Also, they represent a large portion of the total

budget.

Materials management is the expertise that mainly copes with procurement

management and site management. Primarily, procurement management has to

ensure the flow of construction materials to the construction sites. This is done

through an integrated procurment process that involves planning, monitoring and

control of the physical flow of material resources (design, manufacturing,

transportation, and handling) and the administrative and contract implications

towards suppliers and subcontractors.

Site management is involved with directing the construction site, the field

logistics and building operations, with special focus on quality and safety.

Typically, site management is responsible for acceptance and control of materials

shipped to the site, storage and management. Building activities require site

managers to oversee construction through inspections, reviews, quality assurance

procedures, organization and direction of foremen and workers.

Shortages in basic materials like sand, cement, stones, bricks, and iron can cause

major delays in projects. often times demand exceeds the supply and this causes

prices to increase. The contractors postpone the purchase activities until the prices

decrease.

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4.3.6 Exceptionally Low Bid When the competitive bidding environment in the construction industry is all

about price, then employer will get a good deal. Competing on price alone leads

to a number of problems that raise the cost of a project in the long run, including

poor planning, poor work quality, delays, the need to redo work and dispute.

There are some good practices that can help the system work better, For

example, owners can specify a condition which disallow contractors from

participaing in the bid if they do not meet certain requirements (such as success

on past projects). The bidding itself should also be fair, open and transparent, so

competing bidders aren’t played one against the other by secretive clients trying

to cut down the price.

4.3.7 Employer’s Slow decision making Any delay in a project can lead to cost and time overruns and these two are

linked. Whenever there are delays, there are disputes as to who should bear the

responsibility and the cost.

This research has indicated that “Employer’s Slow decision making” have a

negative impact on the project progress and efficiency,which may lead to delay in

work progress and dispute.

These disputes often lead to an arbitration process by third parties and failure in

this process leads to litigation where the disputes are settled by the court.

4.3.8 Equipment availability and failure Many of the contractors do not own equipments that are required for the

construction work. They rent the equipments when required. During the season

when there are many construction projects, the equipments are in short supply and

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are poorly maintained. This leads to failure of the equipments causing the

progress to be hampered.

“Although most wood and concrete building materials can be obtained locally and

several firms are providing sophisticated steel products, Ethiopia must depend on

imports for most other inputs in the construction industry. For example, Ethiopia

imports diesel fuel, explosives, steel panels, welding parts, timber and plywood,

composite material panels, and bitumen from overseas. The majority of these

materials are brought in from Europe and Saudi Arabia.”6

4.3.9. Contractor’s poor site management Contractor’s poor site management is one of the most significant factor in causing

the construction delays. The results of this research indicate that local contractors

face deficiency in site planning, implementation and controls.

A poor site management results in delays in responding to the issues that arise at

the site and causes negative impact on the overall work progress.

4.3.10 Consultants delay in preparation & approval of drawings Inadequate consultants’experience was an important factor and this could be

linked to the contract awarding procedure where most projects were awarded to

the lowest bidder. A cconsultant with inadequate experience cannot plan and

manage the projects properly and this can lead to disastrous consequences.

4.4 Dispute Resolution Methods

Whenever possible, it is advisable to solve any differences or disputes by

amicable settlement, since disputes are time-consuming and expensive.

6 Ethiopian Business Development Services Network (EBDSN)

38

Most contract forms therefore provide express stipulations through which the

parties to them attempt to avoid disputes. Some of them even require endeavors to

be made to reach an amicable settlement before any difference or dispute can be

referred either to the courts or to arbitration. As both court and arbitration

proceedings are expensive and time-consuming the business community has

developed so called alternative dispute resolution (ADR) proceedings, which are

either used exclusively or as compulsory interim proceedings, thus baring the

referral to courts or arbitration until these preliminary proceedings have come to

an end.

4.4.1 Mediation According to the CEDR (Centre for Effective Dispute Resolution) definition,

mediation is a flexible process conducted confidentially in which a neutral person

actively assists parties in working towards a negotiated agreement of a dispute or

difference, with the parties in ultimate control of the decision to settle and the

terms of resolution. Key features of mediation are:

Mediation is voluntary.

However, refusal to mediate can give rise to cost sanctions.

Courts actively encourage parties to consider mediation.

The mediator facilitates the process but the parties are and remain

responsible for the outcome.

Any settlement reached during mediation is binding once put into writing

and signed by the parties subject to the governing law

39

Mediation is presumed to have a number of advantages over litigation and

arbitration proceedings:

4.4.2 Dispute Review Board Dispute Review Boards (DRBs) are also a very appropriate means for solving

disputes in the course of the project development. Dispute review consists of a

procedure wherein the dispute reviewer takes no decision but provides his opinion

on the merits of the case. Usually DRBs, issues a non-binding recommendation,

which the parties may use in order to reach an amicable settlement based on a

clear legal position. Dispute review evolved from the former role of the engineer

as decision-maker in the first instance under various standard forms of

construction contracts, such as the old FIDIC Red Book 1987 (fourth Edition).

For example, earlier editions of the FIDIC contracts provided that disputes were

to be determined in the first instance by the Engineer under the contract. The

Engineer’s decision was binding upon the parties until it was reversed by

arbitration.

However, Dispute Review Boards lack the advantage of rendering a decision

which is binding on the parties. There is always an underlying possibility that

negotiations do not lead to an amicable settlement and the parties have wasted a

lot of time for no visible result.

4.4.3 Dispute Adjudication Board The Disputes Adjudication Board (DAB) is an impartial and independent panel of

one or three people who are ideally appointed at the start of project and give

decisions on any disputes. When the DAB requested by both the Employer and

40

the Contractor shall be available to give advice and opinions on any matter

relevant to the contract.

The DAB has four main functions:

i. To visit the site periodically and become familiar with the details of the

project

ii. To keep up to date with activities, progress, developments and problems at

the site

iii. Encourage the resolution of disputes by the parties

iv. When a dispute is referred to it, hold a hearing, complete its deliberations

and prepare a Decision in professional and timely manner

Dispute Adjudication is the most recent form of alternative dispute resolution but

likely to be the most successful and satisfactory one at the same time, because it

is very effective. Unlike dispute review dispute adjudication leads to a decision of

the adjudicator on the merits of the case which becomes temporarily binding until

revised by either an arbitral or a state court.

Due to its success in some jurisdictions, dispute adjudication legislation has been

set in force. Usually dispute adjudication starts by a notice of reference to dispute

adjudication, whose Disputes purpose is to warn the adverse party of the intention

to start dispute adjudication and which is a precondition for the appointment of

the adjudicator, if necessary (say, if the parties did not agree to a permanent

adjudicator during the whole phase of contract execution). At a second stage the

referral to adjudication follows, containing a written statement by which the

claimant substantiates the merits of the case and defines its demand. The

41

adjudicator will hear the case and provide the defending party with an opportunity

to answer to the complaint. Depending on the adjudication agreement of the

parties he may obtain evidence, require expert advice and visit the site. Once

having heard the parties the adjudicator will render a decision which he shall

notify to the parties. The decision usually becomes temporarily binding until

revised by subsequent arbitration or court proceedings. The adjudicator’s decision

is neither an arbitral award capable of enforcement under the New York

Convention, nor does it have the status of a court judgment. Instead, the decision

is binding only as a matter of contract between the parties. Failure to comply with

a temporarily binding adjudication decision constitutes breach of contract and the

appropriate method of enforcing an adjudicator’s decision is by way of an action

for breach of contract unless ruled otherwise by national law. Depending on the

applicable law the winning party may obtain a summary judgment or similar in

order to enforce the adjudication decision.

FIDIC 1999 introduce a formal procedure for the resolution of disputes. If a

dispute of any kind develops between the Employer and the Contractor in

connection with or arising out of the Contract or the execution of the Works, it is

referred to the DAB under Sub clause 20.4. This procedure is not restricted to

consideration of disputes arising from claims.

The Contract contains detailed provisions for establishing the DAB and the

procedural rules under which it should operate. These can be amended or

augmented in the Particular Conditions if required. However, proper

consideration should be given to any changes that are made.

42

The Contract will determine whether the DAB should consist of one or three

members, how they should be appointed and reimbursed and the terms of

reference and procedures under which the DAB will operate.

A decision must be made whether the DAB shall comprise one or three members

and whether any potential members of the board should be nominated in the

tender documents.

If there are to be any changes to the Dispute Adjudication Agreement or to the

Procedural Rules they should be included in the Particular Conditions.

The intention is that the DAB should be appointed at the beginning of the

Contract and visit the Site periodically. The DAB will also be sent copies of

correspondence, notices and minutes of meetings so that it is kept abreast of

progress and is aware of the background to any problems that may arise.

During its visits to Site, the DAB will inspect the work and meet the personnel on

site. Any issue may be raised jointly with the DAB, which can be asked for an

opinion. This process has been found to reduce the frequency with which claims

or other problems escalate into more serious disputes and to assist in their

resolution.

If a dispute cannot be resolved by negotiation between the parties, it can be

referred formally to the DAB by any of them, provided that the required notices

are given. Any decision reached by the DAB must be complied with by both the

Employer and Contractor. Either of these can give a notice of dissatisfaction

within 28 days. The decision of the DAB then becomes temporarily binding and

remains in effect until arbitration is concluded.

43

The MDB Edition replaces the DAB with a Dispute Board (DB). However, there

appears to be little difference between the way in which the DAB and DB operate

or in their powers or authority, although the MDB Edition does not allow parties

to consult the DB about problems other than in accordance with the procedural

rules. This appears to be intended to disallow the Parties from referring anything

but a dispute to the DB.

However, the, or a, member of the DB can give advice and opinions on any

matter relevant to the Contract when requested by both the Employer and the

Contractor. In addition, the procedural rules require the DB to try to prevent

potential problems or claims from becoming disputes. This would require the DB

to intervene before a dispute arose and was referred to it under the provisions of

Clause 20. Clause 20, deals specifically with Claims, Disputes and Arbitration. It

envisages the establishment of a Dispute Adjudication Board, known as the DAB.

A DAB is a panel of experienced, respected, impartial and independent

reviewers. The board is normally organized before construction begins and meets

at the job site periodically. The DAB members are provided with the contract

documents, plans and specifications and become familiar with the project

procedures and the participants and are kept abreast of job progress and

developments. The DAB meets with the

Employer’s and Contractor’s representatives during regular site visits and

encourages the resolution of disputes at job level. When any dispute flowing from

the contract or the work can not be resolved by the parties it is referred to the

DAB for Decision.

44

4.4.3.1 General Conditions of Dispute Adjudication Agreement

The appendix to the General Conditions of the 1999 FIDIC form of Contract

contains conditions upon which Dispute Adjudication will be undertaken in the

Contract. The Dispute Adjudication Agreement is a tripartite agreement between

the parties to the contract on the one hand and the board member on the other.

The board member is an individual and the agreement is personal to him alone.

He is not permitted to assign or subcontract the agreement without the prior

agreement of the parties.

The agreement will define whether the member is a sole adjudicator or a member

of a panel and if he is to be acting as chairman.

The general provisions of the agreement define the period of the DAB and

particularly define the start date and the completion date which is normally the

discharge date mentioned in Clause 14.12 of the contract. The start date takes

effect on the occasion of a number of alternatives:

The commencement date of the contract

The date when all the participant in the tripartite agreement have executed

the agreement, or

When all the tripartite agreements between the parties and other DAB

members have been executed.

When the agreements have taken effect then it is the responsibility of teach of the

parties to notify each of the board members.

It is evident that when a DAB has not been constituted at the beginning of a

project then procedural delays may be encountered after the agreement of the

45

DAB constitution, but before it has any jurisdiction to act. If it is considered that

delays in the commencement of the DAB activities may give rise to extensions of

period under

Clause 20.4 (period in which a DAB has to reach a decision) then a further clause

more closely defining the commencement date of the tripartite agreement should

be considered. This may take the form of a definition of an actual commencement

date or a date unrelated to any further notice by either of the parties, such as the

date of execution of the tripartite agreement alone.

The member is obligated to remain available to undertake the provisions of the

tripartite agreement despite a period of 6 months elapsing during which the

silence of the parties is permitted. This may be problematic to a busy practitioner

who needs to make decisions regarding the most beneficial use of his time.

Parties should attempt in all cases to minimize the delays between the execution

of the tripartite agreement and the commencement of the DAB activities.

During periods of non confirmation of the contract commencement the member is

During periods of non confirmation of the contract commencement the member is

obliged to remain available to the parties, however will be at risk of the

agreement not proceeding. He will be uncompensated for the period prior to the

termination or confirmation of the agreement. The long period of allowable

silence prior to the determination of the agreement will in the long term inflate

the costs of DAB participation to the industry.

The agreement may be terminated by the resignation of the member. Applicable

law may entitle the member to resign under certain conditions. Clause 6 of the

46

agreement also entitles him to resign in the case of the non payment of his fees

and expenses.

Resignation is a very drastic action to be taken by the member and one which

may have considerable consequences. Confidence of the parties and their

supporters in the DAB system will be undermined if a member resigns in

anything other than a genuine circumstance not already envisaged in the contract.

4.4.4 Arbitration At one time arbitration was seen as the only and unique alternative to the court

system. Accordingly for a long period of time arbitration was the only means to

escape from court proceedings. It has since become a common method of dispute

settlement and national legislation usually accepts clauses by which the parties to

a contract derogate court proceedings in favor of arbitration. If the parties to a

contract have agreed to arbitration the national courts usually lack jurisdiction. By

consequence a national court will reject any complaint brought before it.

If any dispute or difference arises, the parties have to refer it to the agreed

arbitration. Arbitration does not mean that there is a worldwide accepted

international arbitral court providing a number of arbitral judges waiting for

work. Referring to arbitration usually means that the parties agree to an

arbitration procedure according to a named procedure such as the ICC procedure

rules or the UNCITRAL procedure rules. These sets of rules provide all necessary

regulations as to the nomination of the arbitrators and the proceedings itself. Most

often national law provides complementary provisions as to arbitration which

must be taken into consideration by the arbitrators and the parties.

47

Article 1 7

1. Where the parties to a contract have agreed in writing* that disputes in relation

to that contract shall be referred to arbitration under the UNCITRAL Arbitration

Rules, then such disputes shall be settled in accordance with these Rules subject

to such modification as the parties may agree in writing.

2. These Rules shall govern the arbitration except that where any of these Rules is

in conflict with a provision of the law applicable to the arbitration from which the

parties cannot derogate, that provision shall prevail.

The Ethiopian civil procedure code on chapter 4, article 315(principle) stipulates

the following:

1. Where Arbitration Is Required by Law, or persons have entered into a

written agreement to submit present or future differences to arbitration the

provisions of this chapter shall apply.

2. No arbitration may take place in relation to administrative contracts as

defined in Art.3132 of the Civil Code or in any other case where it is

prohibited by law.

3. No person shall submit a right to arbitration unless he is capable under the

law of disposing such right.

4. Nothing in this chapter shall affect the provisions of Art.3325-3346 of the

Civil Code.

7 UNCITRAL ARBITRATION RULES

48

4.4.5Court Litigation Litigation is the formal process whereby claims relating to the construction

dispute are taken through the civil courts and conducted in public. The judgments

are binding on parties subject to rights of appeal.

In litigation, the parties are referred to as the plaintiff (one who brings the charge)

and the defendant (one against whom the charge is brought).

Court litigation means proceedings in a court of the country stated in the contract,

following the procedures of that court. In some countries there are courts

specifically for dealing with this type of litigation. In UK a Technology and

Construction Court (TCC) is located in London and specialist TCC judges

officiate in the main provincial centers.

The protocols require full or substantial disclosure of documents by both parties.

Technical experts may be engaged and this, in conjunction with the cost of

solicitors, barristers and court charges, can make litigation an expensive and

lengthy process.

Both sides of the case must be set out in detail in documents; witnesses have to

produce detailed statements of their evidence and experts must provide reports.

Because of the complexity and cost of the exercise, it is frequently preferable to

resolve the dispute through negotiation or mediation.

49

4.5 Summary Choosing the right form of dispute resolution is a critical aspect when preparing

international contracts. Jurisdiction of a court or arbitral court strongly influences

questions of applicable law. Procedural law including regulations as to evidence

and service of documents can have big influence on the result of any dispute.

Time consuming proceedings should be avoided but the advantages of quality of

dispute resolution should not be underestimated. It is thus a tremendous task to

find the best solution for each contract. There is a broad freedom of choice and a

widespread offer of all forms of dispute resolution. It can be presumed that

recommendations as to the form of dispute resolution and clauses concerning

jurisdiction issues which can be found in international standard forms are well

considered and usually suitable for the disputes arising during the execution of

the contract. However it is worthwhile researching different forms of dispute

resolution and the advantages and disadvantages of any place of jurisdiction.

50

CHAPTER Five: Conclusions and Recommendations

5.1 Introduction This is the last chapter of the study, which will conclude all the study that had

been carried out. The aim of this research was to carryout an “Investigation into

Major Causes of Dispute in the Ethiopian Construction Industry” and based on

the grouping of respondents, the findings are analyzed in four categories i.e. (i),

based on employers’ point of view (ii) based on consultants’ point of view (iii)

contractors’ point of view, and finally, (iv) based on the combined or overall

respondents point of view. Lastly, after the conclusion; some recommendations

to avoid the causes of construction disputes are also mentioned.

5.2 Conclusions This section deals with the most significant disputes and draws conclusions from

the analyzed data. The report will provide an interpretation of the results

5.2.1 Employers’ point of view Based on the Employers’ point of views, the top three significant causes of

construction dispute are (i) Financial Difficulties of the contractor, with Relative

Importance Index (RII), value of 90.83%, (ii) Inadequate investigation before

bidding with Relative Importance Index (RII), value of 88.33%, which are

contractor related causes and the third significant cause is related to “Shortage in

material” with Relative Importance Index (RII), value of 81.67%,

Furthermore, the research also identified that both Exceptionally Low Bid and

Price Escalation with equal Relative Importance Index (RII), value of 80.83%,

51

are ranked 4th, Poor planning and use of wrong equipment with Relative

Importance Index (RII), value of 79.17%, is ranked 5th, and unforeseen site

condition, consultants’ Poor Contract management & Supervision and

contractors’ poor Site management with equal Relative Importance Index (RII),

value of 75%, are ranked 6th, and also problems related to Preparation and

approval of drawings by the consultants with Relative Importance Index (RII),

value of 74.17%, is ranked 7th. Table 5.1: Summary the top 10 causes of dispute (based on Employers’ point of view)

No Cause of Dispute RII (%) Rank Category

1 Financial Difficulties of the contractor 90.83 1st, Contractor

2 Inadequate investigation before bidding 88.33 2nd, Contractor

3 Shortage in material 81.67 3rd, Material related

4 Exceptionally Low Bid of the contractor 80.83 4th, Contractor

5 Price Escalation 80.83 4th, External

6 Poor planning and use of wrong equipment 79.17 5th, Contractor

7 Unforeseen site condition 75.00 6th, External

8 Consultants’ Poor Contract management & Supervision

75.00 6th Consultant

9 Contractors’ poor Site management 75.00 6th Contractor

10 Problems related to Preparation and approval of drawings by the consultants

74.17 7th, Consultant

In accordance with the employers’ point of view, among the top ten major causes,

five of them are Contractor related factors, two consultants related, two external

related and one Material related factor.

52

5.2.2 Consultants’ point of view According to the consultants’ point of views, (i) Consultants Poor Contract

management & Supervision, with Relative Importance Index (RII), value of

82.00%, (ii) price escalation, with Relative Importance Index (RII), value of

81.00%, and (iii) Financial Difficulties of the contractor with Relative Importance

Index (RII), value of 80.00%, are the top three significant causes of construction

dispute.

Besides, the research also identified that, contractors’ poor Site management with

Relative Importance Index (RII), value of 75%, is ranked 4th, and both

Employers’ Unrealistic contract duration and requirements imposed & Mistakes

and discrepancies in contract document with equal Relative Importance Index

(RII), value of 73.00%, are ranked 5th, and Inadequate investigation before

bidding , with Relative Importance Index (RII), value of 71.00%, is ranked 6th,

and also both poor quality of material, shortage in material, Failure &

unavailability of Equipment and Lack of communication between the parties,

with equal Relative Importance Index (RII), value of 69.00%, are ranked 7th.

Table 5.2: Summary the top 10 causes of dispute (based on Consultants’ point of view)

No Cause of Dispute RII (%) Rank Category

1 Poor Contract management & Supervision, of the consultant

82.00 1st, Consultant

2 Price escalation 81.00 2nd, External

3 Financial Difficulties of the contractor 80.00 3rd, Contractor

4 Contractors’ poor site management 75.00 4th, Contractor

53

5 Employers’ Unrealistic contract duration and requirements imposed

73.00 5th, Employer

6 Mistakes and discrepancies in contract document

73.00 5th, Contract document related factor

7 Inadequate investigation before bidding 71.00 6th, Contractor

8 Poor quality & Shortage of material 69.00 7th, Material Related

9 Failure & unavailability of Equipment 69.00 7th, Contractor

10 Lack of communication between the parties 69.00 7th, Contract relation related factor

According to the Consultants’ point of view, among the top ten major causes,

four of them are Contractor related factors, two Contract document &

relationship related factor, and Material, Consultant, External and Employers’

related factor one each.

5.2.3 Contractors’ point of view Based on the contractors’ point of views, (i) Financial Difficulties of the

contractor, with Relative Importance Index (RII), value of 89.60%, (ii) price

escalation, with Relative Importance Index (RII), value of 84.00%, and (iii)

Inadequate investigation before bidding, with Relative Importance Index (RII),

value of 79.20%, are the top three significant causes of construction dispute.

Moreover, the research also identified that, Employers Slow decision making &

Contractors Exceptionally Low Bid with equal Relative Importance Index (RII),

value of 78.40%, are ranked 4th, and also Frequent Changes in orders &

Designs by the consulting firm and Failure & unavailability of Equipment with

equal Relative Importance Index (RII), value of 77.60%, are ranked 5th, and

Shortage in material, with Relative Importance Index (RII), value of 76.80%,

54

consultants’ Poor Contract management & Supervision with Relative Importance

Index (RII), value of 76.00%, and Consultants’ delay in Preparation and

approval of drawings with Relative Importance Index (RII), value of 75.20%,

are ranked 6th, 7th, and 8th, respectively. Table 5.3: Summary the top 10 causes of dispute (based on Contractor’ point of view)

No Cause of Dispute RII (%) Rank Category

1 Financial Difficulties” of the contractor 89.60 1st, Contractor

2 Price escalation 84.00 2nd, External

3 Contractors’ Inadequate investigation before bidding

79.20 3rd,

Contractor

4 Employers’ Slow decision making 78.40 4th, Employer

5 Exceptionally Low Bid of the contractor 78.40 4th, Contractor

6 Frequent Changes in orders & Designs by the consulting firm

77.60 5th, Consultant

7 Failure & unavailability of Equipment 77.60 5th, Equipment Related

8 Shortage in material 76.80 6th, Material Related

9 Consultants’ Poor Contract management & Supervision

76.00 7th, Consultant

10 Consultants’ delay in Preparation and approval of drawings

75.20 8th, Consultant

The Contractors’ point of view, shows that among the top ten major causes,

Contractor & Consultant related factors, score three each, Equipment & Material

Related factors one each, and Employer and External related factors one each.

5.2.4 Overall respondents point of view Based on overall respondents view, the analysis reveals that the most significant

causes of construction dispute is(i) “Financial Difficulties” of the contractor with

55

Relative Importance Index (RII), value of 87.25%, followed by (ii) “Price

escalation” with Relative Importance Index (RII), value of 82.03%, and (iii)

contractors’ “Inadequate investigation before bidding,” with Relative Importance

Index (RII), value of 80.00%,

Moreover, Poor Contract management & Supervision, of the consultant, with

Relative Importance Index (RII), value of 77.68%,Shortage in material, with

Relative Importance Index (RII), value of 76.23%,Exceptionally Low Bid of the

contractor, with Relative Importance Index (RII), value of 75.94%,Employers’

Slow decision making, with Relative Importance Index (RII), value of 74.78%,

and Failure & unavailability of Equipment, with Relative Importance Index (RII),

value of 73.62%, are ranked 4th, 5th, 6th,7th,and 8th, respectively and also

Consultants’ delay in Preparation and approval of drawings and contractors’ poor

site management with equal Relative Importance Index (RII), value of 72.75%,

are ranked 9th, Table 5.4: Summary the top 10 causes of dispute (based on overall respondents view)

No Cause of Dispute RII (%) Rank Category

1 Financial Difficulties” of the contractor 87.25 1st, Contractor

2 Price escalation 82.03 2nd, External

3 Contractors’ “Inadequate investigation before bidding

80.00 3rd, Contractor

4 Poor Contract management & Supervision, of the consultant

77.68 4th, Consultant

56

5 Shortage in material 76.23 5th, Material related

6 Exceptionally Low Bid of the contractor 75.94 6th, Contractor

7 Employers’ Slow decision making 74.78 7th, Employer

8 Failure & unavailability of Equipment 73.62 8th, Equipment Related

9 Consultants’ delay in Preparation and approval of drawings

72.75 9th, Consultant

10 contractors’ poor site management 72.75 9th, Contractor

Finally, the combined overall point of view, demonstrates that among the top ten

major causes,

i. Contractors’ related factors, score four ;

ii. Consultants’ related factors, score two;

iii. Material &Equipment Related Factor Score One each;

iv. Employers’ related factors, score one; and

v. External related factors, score one;

Depending on the grouping of respondents, point of view the ranking of the major

causes of disputes is slightly different from each other. However, the results of

this study can be helpful to the parties (Clients, Contractors and Consultants) to

visualize and better understand the characteristic or manner of an interaction of

disputes in the construction industry and make efforts to reduce the incidences of

disputes.

57

5.3 Recommendations The recommendations to adopt can be divided into three groups: (1)

recommendations for the clients, (2) recommendations for the consultants, and (3)

recommendations for the contractors.

5.3.1 Recommendations for the Employers/ Clients 1. While selecting the contractors, clients have to make sure that the contractors

are not selected based only on the lowest bid. The selected contractor must

have sufficient experience, technical capability, financial capability, and

sufficient manpower to execute the project,

2. Clients should not interfere frequently during the execution and keep making

major changes to the requirements. This can cause excessive delays in the

project,

3. Clients should have the finances in time to pay the contractors after

completion of a work. Therefore, clients should work closely with the

financing bodies and institutions to release the payment on schedule, and

4. Clients must make quick decisions to solve any problem that arise during the

execution.

5.3.2 Recommendations for the Consultants 1. While drawing the contract between the client and contractor, the consultant

must include items such as duration of contract, mechanism to solve disputes,

mechanism to assess the causes of delay, if there are any and risk management

plans,

2. consultants should prepare and approve drawings on time, and

58

3. Consultants should monitor the work closely by making inspections at

appropriate times.

4. Confirm all oral agreements/changes in writing and maintain daily records of

the project.

5.3.3 Recommendations for the Contractors 1. Contractors should not take up the job in which they do not have sufficient

expertise,

2. Contractors should have able site-managers for the smooth execution of work,

3. Contractors must plan their work properly and provide the entire schedule to

the clients, and

4. Contractors must make sure they have a sound financial backing and financial

management system

5.3.4 General Recommendations Some disputes may not be prevented by prior action, but many can. Ensuring that

a formal contract agreement is executed between parties to a contract is a first

step towards avoiding disputes.

Contractual precautions that provide some safeguard against disputes include:

Ensuring that the parties enter into a finalised contract before work

commences;

Ensuring that the scope of works is clearly defined prior to tender;

Ensuring that the quality constraints are fully defined prior to tender;

Ensuring that the conditions of the contract are fair and clear, using

standard forms unless non standard provisions are essential;

59

Ensuring that the contract provides for early notification of potential

disputes and that dispute resolution procedures are stipulated and not

restricted to arbitration or litigation; and

Ensuring that contract management is effective.

60

References:

1. A Thomson Reuters business, Black’s Law Dictionary 9th edition, page 127, 244

2. (David Chappell, Derek Marshall, Vincent Powell-Smith, Simon Cavender)Building

Contract Dictionary Third Edition , page 70, 71, 134, 135

3. (IAN M Elenberg),Dispute Resolution In Construction Management, Page 9-12

4. Federal Democratic Republic of Ethiopia , Ministry of Works and Urban Development

,PLAN FOR ACCELERATED AND SUSTAINED DEVELOPMENT TO END

POVERTY(PASDEP) (2005/06-2009/10) Page 11

5. Ethiopian Business Development Services Network (EBDSN)

6. FIDIC-A Guide for Practitioners , page 418-423

7. Alberto De Marco Project Management for Facility Constructions( A Guide for

Engineers and Architects) page 50-52

8. (Fred Moavenzadeh ,Professor of Civil Engineering & Janet Ann Koch Rossow

Graduate Research Assistant)The Construction Industry In Developing Countries,

page 3-5

9. Ineffective Communication: Common Cause of Construction Disputes (Jeffery M. Hall,

Esq. Folk & Associates, P.C. Vol.13, No.2, May/June 2002

10. Wikipedia, the free encyclopedia ;

61

Appendices:

62

Appendix 1: Cover letter for questionnaire Dear Mr. _________________ Good Day!

As you already know, I am working on a research paper on the subject issue of

“Construction Disputes”. Accordingly, I have developed a questionnaire to assess

the perceptions of engineers on the relative importance of causes and effects of

dispute in Ethiopian construction industry.

Enclosed you will find the questionnaire (3pages, pdf. file). Hence, I kindly

request you to respond to the simple questions. I shall be very grateful if you will

also use your influence to include your colleagues & friends to fill the

questionnaire survey.

Thanks and Regards,

Kifle Semu

63

Appendix 2; Questionnaire Survey SECTION A: RESPONDENT PROFILE Please fill in the blank

1 Respondent Name:

2 Company Name:

3 Type of Job/Position:

4 Year of Experience

5 Type of Organization [Employer/ Contractor/Consultant]

64

Please indicate your best opinion for the following cause of Construction Disputes

1 Very Insignificant 2 Insignificant 3 Average 4 Significant 5 Very Significant

Item No. Question

Indicator

1 2 3 4 5

CATEGORY 1: Employer Related Factors

1 Failure to Finance and payments of completed work

2 Owner Interference

3 Slow decision making

4 Unrealistic contract duration and requirements imposed

5 Other (if any)

CATEGORY 2: Contractor Related Factors

1 Inadequate investigation before bidding

2 Site management

3 Construction methods

4 Poor planning and use of wrong equipment

5 Mistakes during construction stage

6 Inexperienced contractor

7 Financial Difficulties

8 Exceptionally Low Bid

9 Other (if any)

CATEGORY 3: Consultant Related Factors

65

Item No. Question

Indicator

1 2 3 4 5

1 Poor Contract management & Supervision

2 Preparation and approval of drawings

3 Frequent Changes in orders & Designs

4 Waiting time for approval of tests and inspection

5 Other (if any)

CATEGORY 4: Material, Labor & Equipment Related Factors

1 Quality of material

2 Shortage in material

3 Shortage of Labor supply

4 Labor productivity

5 Equipment availability and failure

6 Other (if any)

CATEGORY 5: Contract & Contract Relationship Related Factors

1 Change orders

2 Mistakes and discrepancies in contract document

3 Inappropriate overall organizational structure linking to the project

4 Lack of communication between the parties

CATEGORY 6: External Factors

1 Inclement Weather condition

2 Regulatory changes

3 Unforeseen site condition

4 Price escalation

5 Other (if any)

66

Appendix 3: Calculation of Relative Importance of Index (RII) (based on overall view) Item No Description n1 n2 n3 n4 n5 N a1=1 a2=2 a3=3 a4=4 a5=5 W A=5 RII=

CATEGORY 1: Employer Related Factors

1 2 3 4 5 ∑ a1*X1 a2*X2 a3*X3 a4*X4 a5*X5 ∑aiXi ∑aiXi/N*A ∑aiXi/N*(100/5)

1 Failure to Finance and payments of completed work

13 12 15 16 13 69 13 24 45 64 65 211 3.06 61.16

2 Owner Interference 7 16 23 15 8 69 7 32 69 60 40 208 3.01 60.29 3 Slow decision making 2 5 15 34 13 69 2 10 45 136 65 258 3.74 74.78 4 Unrealistic contract duration and

requirements imposed 2 14 14 23 16 69 2 28 42 92 80 244 3.54 70.72

5 Other (if any) CATEGORY 2: Contractor

Related Factors

1 Inadequate investigation before bidding

4 6 11 13 35 69 4 12 33 52 175 276 4.00 80.00

2 Site management 3 7 19 23 17 69 3 14 57 92 85 251 3.64 72.75 3 Construction methods 4 10 28 17 10 69 4 20 84 68 50 226 3.28 65.51 4 Poor planning and use of wrong

equipment 4 7 19 22 17 69 4 14 57 88 85 248 3.59 71.88

5 Mistakes during construction stage

8 20 25 10 6 69 8 40 75 40 30 193 2.80 55.94

6 Inexperienced contractor 3 18 18 20 10 69 3 36 54 80 50 223 3.23 64.64 7 Financial Difficulties 2 0 6 24 37 69 2 0 18 96 185 301 4.36 87.25 8 Exceptionally Low Bid 4 6 10 29 20 69 4 12 30 116 100 262 3.80 75.94

67

Item No Description n1 n2 n3 n4 n5 N a1=1 a2=2 a3=3 a4=4 a5=5 W A=5 RII=

9 Other (if any) CATEGORY 3: Consultant

Related Factors

1 Poor Contract management & Supervision

1 5 17 24 22 69 1 10 51 96 110 268 3.8841 77.68

2 Preparation and approval of drawings

2 6 24 20 17 69 2 12 72 80 85 251 3.6377 72.75

3 Frequent Changes in orders & Designs

2 7 25 22 13 69 2 14 75 88 65 244 3.5362 70.72

4 Waiting time for approval of tests and inspection

3 9 26 20 11 69 3 18 78 80 55 234 3.3913 67.83

5 Other (if any) CATEGORY 4: Material, Labor

& Equipment Related Factors

1 Quality of material 5 6 25 22 11 69 5 12 75 88 55 235 3.4058 68.12 2 Shortage in material 2 5 15 29 18 69 2 10 45 116 90 263 3.8116 76.23 3 Shortage of Labor supply 8 15 26 15 5 69 8 30 78 60 25 201 2.913 58.26 4 Labor productivity 5 13 16 25 10 69 5 26 48 100 50 229 3.3188 66.38 5 Equipment availability and

failure 2 5 20 28 14 69 2 10 60 112 70 254 3.6812 73.62

6 Other (if any) CATEGORY 5: Contract &

Contract Relationship Related Factors

1 Change orders 1 9 24 24 11 69 1 18 72 96 55 242 3.5072 70.14 2 Mistakes and discrepancies in

contract document 2 7 17 32 11 69 2 14 51 128 55 250 3.6232 72.46

3 Inappropriate overall organizational structure linking to the project

2 10 26 22 9 69 2 20 78 88 45 233 3.3768 67.54

4 Lack of communication between 0 10 27 22 10 69 0 20 81 88 50 239 3.4638 69.28

68

Item No Description n1 n2 n3 n4 n5 N a1=1 a2=2 a3=3 a4=4 a5=5 W A=5 RII=

the parties CATEGORY 6: External

Factors

1 Inclement Weather condition 7 18 28 14 2 69 7 36 84 56 10 193 2.7971 55.94 2 Regulatory changes 10 15 28 14 2 69 10 30 84 56 10 190 2.7536 55.07 3 Unforeseen site condition 1 7 29 25 7 69 1 14 87 100 35 237 3.4348 68.70 4 price escalation 1 2 14 24 28 69 1 4 42 96 140 283 4.1014 82.03 5 Other (if any)

69

Appendix 4: Calculation of Relative Importance of Index (RII) (based on Employers view) Item No Description n1 n2 n3 n4 n5 N a1=1 a2=2 a3=3 a4=4 a5=5 W A=5 RII=

CATEGORY 1: Employer Related Factors

1 2 3 4 5 ∑ a1*X1 a2*X2 a3*X3 a4*X4 a5*X5 ∑aiXi ∑aiXi/N*A ∑aiXi/N*(100/5)

1 Failure to Finance and payments of completed work

7 5 3 7 2 24 7 10 9 28 10 64 2.67 53.33

2 Owner Interference

6 2 7 6 3 24 6 4 21 24 15 70 2.92 58.33

3 Slow decision making

1 1 6 12 4 24 1 2 18 48 20 89 3.71 74.17

4 Unrealistic contract duration and requirements imposed

6 8 6 4 24 0 12 24 24 20 80 3.33 66.67

5 Other (if any) CATEGORY 2:

Contractor Related Factors

1 Inadequate investigation before bidding

1 1 2 3 17 24 1 2 6 12 85 106 4.42 88.33

2 Site management 1 9 9 5 24 0 2 27 36 25 90 3.75 75.00 3 Construction

methods 2 15 5 2 24 0 4 45 20 10 79 3.29 65.83

4 Poor planning and use of wrong equipment

1 6 10 7 24 0 2 18 40 35 95 3.96 79.17

5 Mistakes during construction stage

1 9 9 2 3 24 1 18 27 8 15 69 2.88 57.50

70

Item No Description n1 n2 n3 n4 n5 N a1=1 a2=2 a3=3 a4=4 a5=5 W A=5 RII=

6 Inexperienced contractor

1 7 4 9 3 24 1 14 12 36 15 78 3.25 65.00

7 Financial Difficulties

2 7 15 24 0 0 6 28 75 109 4.54 90.83

8 Exceptionally Low Bid

2 3 11 8 24 0 4 9 44 40 97 4.04 80.83

9 Other (if any) CATEGORY 3:

Consultant Related Factors

1 Poor Contract management & Supervision

1 1 6 11 5 24 1 2 18 44 25 90 3.75 75.00

2 Preparation and approval of drawings

3 7 8 6 24 0 6 21 32 30 89 3.7083 74.17

3 Frequent Changes in orders & Designs

1 2 12 6 3 24 1 4 36 24 15 80 3.3333 66.67

4 Waiting time for approval of tests and inspection

1 4 8 9 2 24 1 8 24 36 10 79 3.2917 65.83

5 Other (if any) CATEGORY 4:

Material, Labor & Equipment Related Factors

1 Quality of material

1 10 9 4 24 0 2 30 36 20 88 3.6667 73.33

2 Shortage in material

6 10 8 24 0 0 18 40 40 98 4.0833 81.67

3 Shortage of Labor supply

3 6 10 4 1 24 3 12 30 16 5 66 2.75 55.00

4 Labor 5 6 11 2 24 0 10 18 44 10 82 3.4167 68.33

71

Item No Description n1 n2 n3 n4 n5 N a1=1 a2=2 a3=3 a4=4 a5=5 W A=5 RII=

productivity 5 Equipment

availability and failure

1 1 9 7 6 24 1 2 27 28 30 88 3.6667 73.33

6 Other (if any) CATEGORY 5:

Contract & Contract Relationship Related Factors

1 Change orders 3 7 11 3 24 0 6 21 44 15 86 3.5833 71.67 2 Mistakes and

discrepancies in contract document

1 3 6 11 3 24 1 6 18 44 15 84 3.5 70.00

3 Inappropriate overall organizational structure linking to the project

1 4 10 6 3 24 1 8 30 24 15 78 3.25 65.00

4 Lack of communication between the parties

4 10 9 1 24 0 8 30 36 5 79 3.2917 65.83

CATEGORY 6: External Factors

1 Inclement Weather condition

2 7 8 6 1 24 2 14 24 24 5 69 2.875 57.50

2 Regulatory changes

5 4 11 3 1 24 5 8 33 12 5 63 2.625 52.50

3 Unforeseen site condition

1 8 11 4 24 0 2 24 44 20 90 3.75 75.00

4 price escalation 1 6 8 9 24 0 2 18 32 45 97 4.0417 80.83 5 Other (if any)

72

Appendix 5: Calculation of Relative Importance of Index (RII) (based on Contractors view) Item No Description n1 n2 n3 n4 n5 N a1=1 a2=2 a3=3 a4=4 a5=5 W A=5 RII=

CATEGORY 1: Employer Related Factors

1 2 3 4 5 ∑ a1*X1 a2*X2 a3*X3 a4*X4 a5*X5 ∑aiXi ∑aiXi/N*A ∑aiXi/N*(100/5)

1 Failure to Finance and payments of completed work

2 4 6 6 7 25 2 8 18 24 35 87 3.48 69.60

2 Owner Interference 1 7 9 6 2 25 1 14 27 24 10 76 3.04 60.80 3 Slow decision making 1 7 9 8 25 1 0 21 36 40 98 3.92 78.40 4 Unrealistic contract duration and

requirements imposed 2 4 3 8 8 25 2 8 9 32 40 91 3.64 72.80

5 Other (if any) CATEGORY 2: Contractor

Related Factors

1 Inadequate investigation before bidding

4 5 4 12 25 0 8 15 16 60 99 3.96 79.20

2 Site management 2 3 7 8 5 25 2 6 21 32 25 86 3.44 68.80 3 Construction methods 1 6 7 6 5 25 1 12 21 24 25 83 3.32 66.40 4 Poor planning and use of wrong

equipment 1 4 8 6 6 25 1 8 24 24 30 87 3.48 69.60

5 Mistakes during construction stage

2 8 9 4 2 25 2 16 27 16 10 71 2.84 56.80

6 Inexperienced contractor 2 5 7 7 4 25 2 10 21 28 20 81 3.24 64.80 7 Financial Difficulties 2 9 14 25 0 0 6 36 70 112 4.48 89.60 8 Exceptionally Low Bid 1 1 4 12 7 25 1 2 12 48 35 98 3.92 78.40 9 Other (if any) CATEGORY 3: Consultant

Related Factors

73

Item No Description n1 n2 n3 n4 n5 N a1=1 a2=2 a3=3 a4=4 a5=5 W A=5 RII=

1 Poor Contract management & Supervision

2 8 8 7 25 0 4 24 32 35 95 3.8 76.00

2 Preparation and approval of drawings

3 9 4 9 25 0 6 27 16 45 94 3.76 75.20

3 Frequent Changes in orders & Designs

3 4 11 7 25 0 6 12 44 35 97 3.88 77.60

4 Waiting time for approval of tests and inspection

2 1 8 6 8 25 2 2 24 24 40 92 3.68 73.60

5 Other (if any) CATEGORY 4: Material, Labor

& Equipment Related Factors

1 Quality of material 3 5 7 6 4 25 3 10 21 24 20 78 3.12 62.40 2 Shortage in material 1 2 4 11 7 25 1 4 12 44 35 96 3.84 76.80 3 Shortage of Labor supply 3 2 9 7 4 25 3 4 27 28 20 82 3.28 65.60 4 Labor productivity 4 7 8 6 25 0 8 21 32 30 91 3.64 72.80 5 Equipment availability and

failure 1 7 11 6 25 0 2 21 44 30 97 3.88 77.60

6 Other (if any) CATEGORY 5: Contract &

Contract Relationship Related Factors

1 Change orders 2 9 9 5 25 0 4 27 36 25 92 3.68 73.60 2 Mistakes and discrepancies in

contract document 1 7 14 3 25 1 0 21 56 15 93 3.72 74.40

3 Inappropriate overall organizational structure linking to the project

3 9 9 4 25 0 6 27 36 20 89 3.56 71.20

4 Lack of communication between the parties

4 8 6 7 25 0 8 24 24 35 91 3.64 72.80

CATEGORY 6: External Factors

74

Item No Description n1 n2 n3 n4 n5 N a1=1 a2=2 a3=3 a4=4 a5=5 W A=5 RII=

1 Inclement Weather condition 3 7 11 3 1 25 3 14 33 12 5 67 2.68 53.60 2 Regulatory changes 3 6 10 6 25 3 12 30 24 0 69 2.76 55.20 3 Unforeseen site condition 4 10 10 1 25 0 8 30 40 5 83 3.32 66.40 4 price escalation 1 4 8 12 25 1 0 12 32 60 105 4.2 84.00 5 Other (if any)

75

Appendix 6: Calculation of Relative Importance of Index (RII) (based on Consultants view) Item No Description n1 n2 n3 n4 n5 N a1=1 a2=2 a3=3 a4=4 a5=5 W A=5 RII=

CATEGORY 1: Employer Related Factors

1 2 3 4 5 ∑ a1*X1 a2*X2 a3*X3 a4*X4 a5*X5 ∑aiXi ∑aiXi/N*A ∑aiXi/N*(100/5)

1 Failure to Finance and payments of completed work

4 3 6 3 4 20 4 6 18 12 20 60 3.00 60.00

2 Owner Interference 5 8 3 4 20 0 10 24 12 20 66 3.30 66.00 3 Slow decision making 5 3 12 20 0 10 9 48 0 67 3.35 67.00 4 Unrealistic contract duration and

requirements imposed 4 3 9 4 20 0 8 9 36 20 73 3.65 73.00

5 Other (if any) CATEGORY 2: Contractor

Related Factors

1 Inadequate investigation before bidding

3 1 4 6 6 20 3 2 12 24 30 71 3.55 71.00

2 Site management 1 3 3 6 7 20 1 6 9 24 35 75 3.75 75.00 3 Construction methods 3 2 6 6 3 20 3 4 18 24 15 64 3.20 64.00 4 Poor planning and use of wrong

equipment 3 2 5 6 4 20 3 4 15 24 20 66 3.30 66.00

5 Mistakes during construction stage

5 3 7 4 1 20 5 6 21 16 5 53 2.65 53.00

6 Inexperienced contractor 6 7 4 3 20 0 12 21 16 15 64 3.20 64.00 7 Financial Difficulties 2 2 8 8 20 2 0 6 32 40 80 4.00 80.00 8 Exceptionally Low Bid 3 3 3 6 5 20 3 6 9 24 25 67 3.35 67.00 9 Other (if any) CATEGORY 3: Consultant

76

Item No Description n1 n2 n3 n4 n5 N a1=1 a2=2 a3=3 a4=4 a5=5 W A=5 RII=

Related Factors 1 Poor Contract management &

Supervision 2 3 6 9 20 0 4 9 24 45 82 4.1 82.00

2 Preparation and approval of drawings

2 8 8 2 20 2 0 24 32 10 68 3.4 68.00

3 Frequent Changes in orders & Designs

1 2 9 5 3 20 1 4 27 20 15 67 3.35 67.00

4 Waiting time for approval of tests and inspection

4 10 5 1 20 0 8 30 20 5 63 3.15 63.00

5 Other (if any) CATEGORY 4: Material, Labor

& Equipment Related Factors

1 Quality of material 2 8 7 3 20 2 0 24 28 15 69 3.45 69.00 2 Shortage in material 1 3 5 8 3 20 1 6 15 32 15 69 3.45 69.00 3 Shortage of Labor supply 2 7 7 4 20 2 14 21 16 0 53 2.65 53.00 4 Labor productivity 5 4 3 6 2 20 5 8 9 24 10 56 2.8 56.00 5 Equipment availability and

failure 1 3 4 10 2 20 1 6 12 40 10 69 3.45 69.00

6 Other (if any) CATEGORY 5: Contract &

Contract Relationship Related Factors

1 Change orders 1 4 8 4 3 20 1 8 24 16 15 64 3.2 64.00 2 Mistakes and discrepancies in

contract document 4 4 7 5 20 0 8 12 28 25 73 3.65 73.00

3 Inappropriate overall organizational structure linking to the project

1 3 7 7 2 20 1 6 21 28 10 66 3.3 66.00

4 Lack of communication between the parties

2 9 7 2 20 0 4 27 28 10 69 3.45 69.00

CATEGORY 6: External

77

Item No Description n1 n2 n3 n4 n5 N a1=1 a2=2 a3=3 a4=4 a5=5 W A=5 RII=

Factors 1 Inclement Weather condition 2 4 9 5 20 2 8 27 20 0 57 2.85 57.00 2 Regulatory changes 2 5 7 5 1 20 2 10 21 20 5 58 2.9 58.00 3 Unforeseen site condition 1 2 11 4 2 20 1 4 33 16 10 64 3.2 64.00 4 price escalation 1 4 8 7 20 0 2 12 32 35 81 4.05 81.00 5 Other (if any)

78

Appendix 7: Comparison of overall view with Employers, Contractors & Consultants View

Based overall view RII (%)

Rank

Based on employer’s view

RII (%)

Rank

Based on contractors view

RII (%)

Rank

Based on consultants view

RII

%

Rank

Financial Difficulties(Category 2: Contractor Related Factors)

87.25 1

Financial Difficulties(Category 2: Contractor Related Factors)

90.83 1

Financial Difficulties(Category 2: Contractor Related Factors)

89.60 1

Poor Contract management & Supervision (Category 3: Consultant Related Factors)

82 1

price escalation(Category 6: External Factors)

82.03 2

Inadequate investigation before bidding Category 2: Contractor Related Factors)

88.33 2

price escalation(Category 6: External Factors)

84.00 2

price escalation(Category 6: External Factors)

81 2

Inadequate investigation before bidding(Category 2: Contractor Related Factors)

80.00 3

Shortage in material(Category 4: Material, Labor & Equipment Related Factors)

81.67 3

Inadequate investigation before bidding(Category 2: Contractor Related Factors)

79.20 3

Financial Difficulties(Category 2: Contractor Related Factors)

80 3

Poor Contract management & Supervision (Category 3: Consultant Related Factors)

77.68 4

price escalation(Category 6: External Factors)

80.83 4

Slow decision making(Category 1: Employer Related Factors)

78.4 4

Site management(Category 2: Contractor Related Factors)

75 4

Shortage in material(Category 4: Material, Labor & Equipment Related Factors)

76.23 5

Exceptionally Low Bid (Category 2: Contractor Related Factors)

80.83 5

Exceptionally Low Bid (Category 2: Contractor Related Factors)

78.4 5

Unrealistic contract duration and requirements imposed Category 1: Employer Related Factors)

73 5

Exceptionally Low Bid (Category 2: Contractor Related Factors)

75.94 6

Poor planning and use of wrong equipment(Category 2: Contractor Related

79.17 6

Frequent Changes in orders & Designs(Category 3: Consultant Related

77.6 6

Mistakes and discrepancies in contract document(Category

73 6

79

Based overall view RII (%)

Rank

Based on employer’s view

RII (%)

Rank

Based on contractors view

RII (%)

Rank

Based on consultants view

RII

%

Rank

Factors) Factors) 5: Contract & Contract Relationship Related Factors)

Slow decision making(Category 1: Employer Related Factors)

74.78 7

Site management(Category 2: Contractor Related Factors)

75.00 7

Equipment availability and failure (Category 4: Material, Labor & Equipment Related Factors)

77.6 7

Inadequate investigation before bidding(Category 2: Contractor Related Factors)

71 7

Equipment availability and failure (Category 4: Material, Labor & Equipment Related Factors)

73.62 8

Poor Contract management & Supervision (Category 3: Consultant Related Factors)

75.00 8

Shortage in material(Category 4: Material, Labor & Equipment Related Factors)

76.8 8

Quality of material(Category 4: Material, Labor & Equipment Related Factors)

69 8

Site management(Category 2: Contractor Related Factors)

72.75 9

Unforeseen site condition(Category 6: External Factors)

75.00 9

Poor Contract management & Supervision (Category 3: Consultant Related Factors)

76.00 9

Shortage in material(Category 4: Material, Labor & Equipment Related Factors)

69 9

Preparation and approval of drawings(Category 3: Consultant Related Factors)

72.75 10

Preparation and approval of drawings(Category 3: Consultant Related Factors)

74.17 10

Preparation and approval of drawings(Category 3: Consultant Related Factors)

75.20 10

Equipment availability and failure (Category 4: Material, Labor & Equipment Related Factors)

69 10

80