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Bau-Consulting Prof. Dr.-Ing. Dipl.-Wirt.-Ing. (FH) Laurenz Görres

Methods of alternative dispute resolution

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General aspects about conflicts in construction business

 

Misunderstandings, differences of opinion, disagreements … are part of every large-scale project. They can lead to conflicts and larger disputes. The construction industry is particularly vulnerable to conflicts and disputes compared to other sectors of industry. This is due to some peculiarities of architecture and civil engineering such as:

  • the complexity of constructions regarding engineering, technology, organization, personnel and other aspects,
  • unforeseeable events during the construction phase (conditions on site are not stationary),
  • different perceptions about required duties of the involved parties (especially on the part of the client).

These three points are already sufficient to create larger conflicts and disputes. They are the reason why the construction sector tends to experience more conflicts than other industrial sectors. Further reasons for conflicts are based on the way client and contractors deal with each other, including:

  • confrontational behaviour towards each other,
  • a lack of or bad manners,
  • mutual mistrust,
  • little room to act and react due to very limited financial margins.

An additional aspect is that the parties are rarely able to solve conflicts themselves due to their high degree of individual responsibility and personal emotionality.

Construction projects are therefore likely to cause conflicts and disputes and therefore often end up in litigation. But this leads to the following dilemma:

"A court case does not solve a dispute as it just ends with a decision (by a judge)."

Franke (2006)

The real facts of the case are often not discovered during a court case because the judges mostly try to find compromises, which do not really satisfy the parties in dispute.

It is not really helpful to clarify the facts of a dispute by litigation as such a court case takes a lot of time and will therefore go on long after the project has ended. All the facts leading to the conflict date back months or years. They are often very complicated issues which involved a lot of people and therefore tend to be very complex matters. To work through such complex matters a long time later is a very difficult task. And it is much more difficult because the court is only allowed to come to a decision on the complaint brought to court ‚Äď which is generally only a small part of the whole project and the whole problem.

Due to these facts, in most cases a trial is less effective and not an economical solution for the parties in dispute. Court cases cost a lot of money and take a lot of time which costs further money and leads to further damage to the project. The following principle should therefore be considered:

"To keep away from court is a much better option than to go to court."

Englert (2006)

Methods such as mediation, conciliation and arbitration are much more effective than a court case. They are faster, cheaper, more focused on the project targets and therefore much more efficient.

But to use these methods of mediation, conciliation, arbitration and others, they must be agreed upon and included in the contract, which is not the case in practice. It is not sufficient to include only one single method of alternative dispute resolution in the contract because the possible degrees of conflict escalation require different methods.

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The best way to manage conflicts in a construction project

 

It is not really wise to solve disputes in a construction project by means of a court case because the issues are highly complex and influenced by a lot of parameters, persons and aspects. A layperson will not be able to understand the cause-and-effect chain of such a dispute and even an expert in construction needs a lot of experience and knowledge about construction technology, process engineering, construction law and economics to identify the causes and effects of such disputes. All these aspects are connected and must be seen as a whole. We must also not forget that many people with different attitudes and possibly unpredictable forms of behaviour are involved in such projects over a long period of time. Conflicts in construction projects are therefore more or less inevitable. The relevant factors are visualized by Englert in the following sketch:

Darstellung Bau-Problemkreis nach Englert

Source: "Circle of construction problems" by Englert (2006)

 

To end a dispute by a court case means that this dispute must be solved by lawyers and judges who are not as familiar with the construction business as the parties in dispute. Lawyers and judges are laypeople regarding the construction business. This results in time-consuming and expensive court cases as well as court decisions which are often not understood by the parties in dispute. Such a decision ends the dispute superficially but in a lot of cases not to the satisfaction of the parties. The judges and lawyers are often unable to cope with the complexity of the problem because they do not have the expertise in the construction business to come to a fair decision which will satisfy the parties in conflict. They therefore try to find some kind of compromise. This is the reason why construction disputes should not end up in a court case.

There are better ways to end a conflict than a court case such as conciliation and mediation. In Germany, unfortunately, there is no (legal) compulsion for parties in conflict to use methods of alternative dispute resolution. This is why ‚Äď if they do not voluntarily choose such a method ‚Äď they will always end up with the worst possible solution: court cases.

Methods of alternative dispute resolution need to be contractually agreed. Available methods are:

 

Darstellung alternativer Streitlösungsverfahren in Deutschland nach Englert

Source: Methods of alternative dispute resolution in Germany (own sketch)

 

Alternative dispute resolution offers a variety of very effective methods to cope with upcoming emotional pressure, stress, crises or existing conflicts and disputes. But one must keep in mind that each method is specifically appropriate for a defined level of conflict escalation. Conciliation, mediation and expert determination can be used to clarify the following disputes:

  • claims for renumeration,
  • compensation claims,
  • claims about defects,
  • termination of a contract,
  • liability issues,
  • liquidated damages,
  • clarification of fees, payments and billings,
  • clarification about sureties,
  • and others.

 

The parties are advised to find an agreement on dispute resolution. This should ‚Äď at the latest ‚Äď be clarified when signing the contract. Englert recommends:

"Each construction contract … should include an agreement about mediation and conciliation from the very beginning. Such an agreement should name the mediators or conciliators (and their replacements) ... "

 

"The methods should build on each other like a cascading system. A special agreement about arbitration should also be included, specifying the exact method of arbitration and the arbitrators (as well as their replacements) ..."

 

"A court case should only ever be the ultima ratio".

Englert (2006)

The parties in dispute should be aware that a court case means "losses" for all involved parties. This is due to the considerable costs as well as efforts (time, emotional stress, uncertainties and others) involved with such a court case.

A court case is very often not the best way to resolve construction conflicts.

 

The parties in dispute both benefit if they choose methods of alternative dispute resolution such as mediation and conciliation. In most construction disputes, litigation is unnecessary or even unsuitable to settle a dispute and mediation as well as conciliation are much better options.

This is due to the fact that the original reason for an escalated conflict has been almost forgotten and many other smaller (objective) conflicts as well as a subjective or personal conflict have superseded it. The parties of an escalated conflict are arguing not so much about the original misunderstanding or issue and much more about themselves. Instead of searching for solutions to this issue, the parties argue about the people involved and about who is responsible for this dilemma. At this point a conciliator as well as a mediator are much better "conflict managers" than judges and lawyers because they initially try to salvage the damaged relationship between the parties and subsequently work on the objective or original conflict. Judges and lawyers do not deal with the relationship between the parties because they only focus on the matter of dispute and on facts.  

There are other reasons to use conciliation and mediation in construction projects in order to handle conflicts: both methods can be employed preventatively. Compared to a court case, where a very high level of escalation has already been reached, it is possible to call in a conciliator or mediator on a much lower level of escalation, e. g. if one or both parties feel tension arising in the relationship. At this stage, both parties are still talking to each other and can engage in frank discussion, thus only using the conciliator or mediator to argue about facts without involving him/her in emotional issues.

For these reasons, conciliators and mediators should definitely be involved in conflict management methods in construction projects.

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Some remarks on the term "conflict"

 

In most cases, regardless of the actual conflict at hand, only part of the whole conflict is "visible". Before a conflict is realized as being a conflict by the involved parties, the conflict itself has been "smouldering" in the background for a long time. During this time of "smouldering" the original conflict matter has accumulated a lot of other matters to a conflict conglomerate. At some point, one single matter of this conglomerate pops up and makes the conflict visible. But all parties should keep in mind that this matter is only a very small or smaller part of the whole conflict. To understand the whole conflict, it is important to consider the rest of the conflict which is not visible. The "iceberg model" visualizes this scenario:

 

Darstellung Eisbergmodell f√ľr Konflikte nach Grieger

Source: "Iceberg" model by Grieger (2006)

 

The iceberg model shows possible conflicts in the background:

  • needs,
  • emotions,
  • problems in relationships,
  • interpersonal problems,
  • moral concepts,
  • misunderstandings,
  • problems in communication,
  • information,
  • perspectives,
  • and more.

 


Date of last edit webpage: August 2018

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