Processes to resolve Disputes Mandy Martin. ‘Choosing Costain’ Contents What is a dispute? Causes and avoidance History and impact of adjudication Dispute.

Processes to resolve Disputes

Mandy Martin

‘Choosing Costain’

Contents

• What is a dispute?

• Causes and avoidance

• History and impact of adjudication

• Dispute settlement options

• Consideration factors

• Costs

• Hierarchy

• Q&A

2


What is a dispute?

• Time

• Money

• Defects

• Liability

• Criticality of cashflow

3


• Contract not clear

• Change incorrectly captured

• Industry understanding - ‘ways of doing things’

• Technical language differences

• Contract not administered

• Collaborative working / new relationships – ‘don’t rock the boat’

• Commercial seen as a blocker to the work – retrospective involvement

• Keen to succeed - time and individual drivers

• Corporate ego

4

Key Causes


2012 Rank

Cause 2011 Rank

1 Incomplete or unsubstantiated claims New

2 Failure to comply with contractual obligations New

3 Failure to properly administer the contract 1

4 Failure to make interim awards on EoT 3

5 Errors and or omissions in the Contract Document 2

5

Key Causes

*Global Construction Disputes Report 2013 EC Harris


How can it be avoided?

• Clear agreement at the start

• Ensure supporting data has no contradictions

• Capture all information through the contract

• Record keeping /administration

• Communication

• Influential skills / personal traits

• Positive relationships

• Early negotiation

• Processes

• Commercial requirement

6


Trend…2013• Between 2010 and 2012, the average length of time taken to resolve a dispute

rose by 3.7 months.

…….2012 – 12.8 months + 2.2 months

…….2011 – 10.6 months + 1.5 months

…….2010 – 9.1 months

• Disputes that are not settled through negotiation tend to indicate a polarisation of interests, and are likely to only contain the most complex of issues

• Multi-geography, mixed cultures and the need to consult and engage with head offices can prolong the time it takes for a dispute to be concluded

• Projects are increasing in complexity and so the issues that are material to the dispute can be equally as complex, and therefore need appropriate time to consider the issues.

• In 2013 this trend was reversed, largely due to greater use of Adjudication.

…….2013 – 7.9 months - 4.9 months

• 2014 figures expected to reduce yet further due to increased use of Mediation.

7


Parties in Dispute

8

Adjudication reporting centre Glasgow University


Types of Dispute Settlement

• Mediation / ADR

• Adjudication

• Arbitration

• Dispute Resolution Boards

• Expert Determination

• Litigation

9

‘Choosing Costain’ 10

Mediation or ADR

• ‘First stage' negotiation

• Positive approach

• Parties can ‘vent’ their issues

• Neutral facilitator

• Speedy, informal, inexpensive

• Encouraged by the Courts

• Parties are free to walk away

• Evaluative mediation


Adjudication

• 1980s – the standard forms of UK subcontracts

• Latham Reports 1993/4 conclusions and impact

• 1996 Introduction of Adjudication – Why?

• International review

History


Litigation Vs Adjudication impact 1996 :


Adjudication

• Most popular process in the UK

• Enables work to continue

• Can be used in any dispute

• Adjudicator industry expert

• 28 day period

• Adjudicator is not liable

• Parties to be highly organised

• Courts will readily enforce payment

• May lead to rough justice


Adjudication

Housing, Construction and Regeneration Act 1996 :

• Ensures option of adjudication

• Enables a party to give notice

• Provides a timetable

• Adjudicator to act impartially

• The parties cannot contract out of adjudication

Successful parties in adjudicators' decisions 2000 2001 2002 2004 2005 2007 2008Claimant 66% 74% 69% 65% 72% 68% 60%Respondent 14% 17% 22% 25% 21% 20% 29%Split Decision 20% 9% 9% 10% 7% 12% 11%


What is adjudication appropriate for?

For resolving claims relating to: •interim payments;•delay and disruption of the works;•extensions of time for completion of the works; and•the final account.

Although not originally designed for complex claims, an adjudication can relate to:

•breach of contract;•termination of a contract;•professional negligence; or•complex multi-party disputes.

Adjudication

Initiation of Adjudication* Oct-07 Apr-08Before Practical Completion 16% 17%After Practical Completion 84% 83%

*Technology Construction Solicitors Association adjudication reporting centre of Glasgow University


Adjudication TimelineDispute arises under a construction contractDispute arises under a construction contract

Either party to the contract can refer that dispute to adjudication bygiving a Notice of Adjudication to every other party

Either party to the contract can refer that dispute to adjudication bygiving a Notice of Adjudication to every other party

An Adjudicator is appointedAn Adjudicator is appointed

Within 7 days of the date of the Notice of Adjudication: The Referring Party must have sent the Referral Notice and

documents to the Adjudicator and to the Responding Party

Within 7 days of the date of the Notice of Adjudication: The Referring Party must have sent the Referral Notice and

documents to the Adjudicator and to the Responding Party

The Adjudicator will normally direct the Responding Party to serve aResponse to the Referral Notice

The Adjudicator may give other directions – e.g. for a meeting

The Adjudicator will normally direct the Responding Party to serve aResponse to the Referral Notice

The Adjudicator may give other directions – e.g. for a meeting

Referral Notice + 28 days:The Adjudicator must reach his decision by this time

(unless the Referring Party agrees to extend time (up to 42 days)or both parties agree a different period for the decision)

Referral Notice + 28 days:The Adjudicator must reach his decision by this time

(unless the Referring Party agrees to extend time (up to 42 days)or both parties agree a different period for the decision)


Appeal on adjudication

Complaints made against Adjudicators (of total)* Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9

Year 10

Complaints Made 0.45% 1.97% 9.00% 1.07% 1.48% 1.46% 1.20% 1.19%Complaints Upheld 0.05% 0.35% 0.00% 0.21% 0.00% 0.00% 0.07% 0.00%


•Apply to the court for a mandatory injunction

•Apply to the court for a stay of execution

•‘Technology and Construction Court will enforce unless:-

(a) No Jurisdiction(b) Breach of Natural Justice

•Losing party pays

Note the above figures may be a factor of 10 out, e.g. 4.5% on 0.45%


Arbitration

• Standard form contracts, such as JCT and ICE

• Can become a legal trial – litigation

• New York Convention 1958 – 146 Signatories

• Not construction specific

• Formal process

• Arbitrator's decision is legally binding

• Lengthy and Costly

• Settlement is often long after works

• Compelled by law to comply – fined or jail

• UK arbitration is regulated by the Arbitration Act 1996

• Parties are able to select an arbitrator of their choice

‘Choosing Costain’19

Arbitration ProcessRequest for Request for ArbitrationArbitration

ConfirmationConfirmation

Arbitration Arbitration ProcedureProcedure

SeatSeat

DecisionDecision

EnforcementEnforcement

DenialDenial


• Major Projects – increasing trend for DRB’s/DAB’s

• Best known model FIDIC, particularly international

• DRBs are usually three or more

• Appointed by agreement at the outset

• Their decisions are binding unless taken to arbitration

Dispute resolution Boards


Expert Determination

• Impartial expert third party

• Bound by his or her decision.

• Parties can choose who the appointed expert is.

• Quick, informal, confidential

• Inexpensive compared to other processes.

• No formal hearings

• Experts’ discretion

• Parties agree to use the process

• Only subject to appeal on limited grounds


Litigation

• Litigation is action taken in court

• Thorough, impartial and generally consistent

• Ease of enforcement

• Public process

• Not conducive to win/win

• In order of authority from the lowest to highest level is:» Magistrate court» County court» High court - TCC» Court of Appeal» Supreme Court

• The TCC is ordinarily the court in which the enforcement


Key points of similarity Key points of difference

Certification / Negotiation

The process produces a prompt evaluation of payment and other contractual entitlements

Unlike many certifiers, the adjudicator is truly independent, and unlike all certifiers is not limited to considerations provided for in the contract

ADR / Mediation Similar timeframe and cost; small adjudications are comparable to mediations and larger adjudications are more akin to mini-trial or hybrid processes

Unlike mediation, mini-trial or hybrid processes, the adjudication always produces an enforceable result

Dispute Review Boards

Similar approach to scope and process; in many respects, DRBs are the US equivalent to adjudication

The popularity of DRBs in major projects in the USA has not spread much to the UK

Arbitration Dispute resolution in the private sector before an agreed or appointed person

Adjudication is much quicker and cheaper than arbitration

Expert determination Rapid and enforceable determination of issues

The decision of an adjudicator is not finally determinative of the parties rights

Similarities / Differences


Primary Subject of Disputes

24

Subject * 2009 2010 2011

Valuation of Final Account 14% 22% 22%

Failure to comply with payment 14% 8% 19%

Valuation of interim payments 13% 15% 16%

Witholding Monies 11% 10% 10%

Extension of Time 8% 8% 9%

Loss and Expense 10% 2% 7%

Valuation of Variations 17% 11% 5%

Defective Work 5% 7% 4%

Determination 3% 4% 4%

Non-payment fees 1% 7% 2%



Considerations

• Solid claims basis

• Ultimate outcome (victory, defeat, win/win?)

• Future business

• Supporting documentation

• Resources available

• Costs

• Keeping Control – have a strategy

• Publicity

25

Has the need for a right answer has been sacrificed in favour of the need for a quick answer?


Costs

• Adjudication £70k+ but 10% of litigating or arbitrating

• Major projects - cost = legal team• Minor project - cost = adjudicator’s fees

• Total costs of multi-party litigation can exceed the sum in dispute

• Adjudicators average charge £151-£175

• Courts will consider costs argument for unreasonably parties

• Losing party pays the costs

• Cost of appeal and consequence


Dispute Hierachy

Negotiation

Engineers Decision

Mediation

ADR Expert Determination

Adjudication

Mini-trial

Dispute Review BoardInternational Arbitration

Domestic Arbitration

Litigation

Form

ality

Finality

low

highlow

high

Q&A

Processes to resolve Disputes Mandy Martin. ‘Choosing Costain’ Contents What is a dispute? Causes and avoidance History and impact of adjudication Dispute.

Documents

months disputes

key causeschoosing costain

specialist contractor

appropriate time

greater use of adjudication

main contractor38

main contractor5

contract record