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Dispute Resolution in the Pakistani Construction

Industry An Assessment of Current Methods

Conference Paper July 2012

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Third International Conference on Construction in Developing Countries (ICCIDCIII)
Advancing Civil, Architectural and Construction Engineering & Management
July 4-6, 2012, Bangkok, Thailand

Dispute Resolution in the Pakistani Construction Industry An Assessment of

Current Methods
Rizwan U. Farooqui
(NED University of Engineering & Technology, Karachi,Pakistan, rizulhak@neduet.edu.pk)

Muhammad Umer
(NED University of Engineering & Technology, Karachi,Pakistan, emumer@neduet.edu.pk)

Sarosh H. Lodi
(NED University of Engineering and Technology, Karachi, Pakistan, sarosh.lodi@neduet.edu.pk)

Abstract
Construction industry which is considered to be the backbone of the economic growth of a
country has not been able to play its optimum role in the development of sound financial setting
in many countries all over the world. An overabundance of literature is present as to why such a
situation exists in different construction cultures worldwide. This is primarily attributable to the
colossal level of complexity that is involved in this business However this complexity has often
resulted in complex disputes which upon materialization the project suffers time and cost over
runs, loss of image, dissatisfaction among project participants etc. The study is undertaken to
determine the most effective and applicable methods of dispute resolution as perceived by the
contractors in the local construction sector so as to pave way for better and informed decision
making in the wake of any dispute that materializes during a project. Rent-a-Judge has been found
to be the most and Negotiation is the least suitable Dispute Resolution Method respectively, as perceived
by the contractors operating in the local construction sector. The participants of the study were of the
view that it was best in the interest of the project that someone with the legal and construction knowledge
presides over a dispute case as compared to negotiation which was thought to be least suitable hinting at
the stockholder inclination of the project participants.

Keywords: Time and Cost over runs, Rent-a-Judge, Negotiation, Effective and Applicable Methods

1. INTRODUCTION

As the construction field is large and requires tremendous capital, there always exist risks Acharya et al
(2004). This complexity has often resulted in complex disputes, which predominantly arise from
the intricacy and magnitude of the work, multiple prime contracting parties, poorly prepared
and/or executed contract documents, inadequate planning, financial issues, and communication
problems Harmon, (2003). To avoid the risks, the owner and the contractor shall work together to
safeguard themselves, in consequences of which disputes and conflict produced. Therefore, the best

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construction management practice is to resolve the problem before it cultivates as a conflict as argued by
Acharya et al (2004).

This is extremely vital because the costs of contractual disputes, direct and indirect, are substantial. They
are borne not only by clients, designers and contractors, There are also indirect costs incurred by the
parties such as delays to the project, adverse performance of the project, distraction and over-burdening of
staff on the project, reduced morale, erosion of confidence and trust in working relationships, adverse
impact on the reputation of the parties, emotional impact on people involved, lost opportunities for future
work, destruction of business relationships, and the loss of people to the industry because of wasted
effort, disillusionment and frustration. CRC for Construction Innovations Dispute Avoidance and
Resolution.

In response to the litigious nature of business practices, UK construction industry participants have
implemented Alternative Dispute Resolution (ADR) initiatives. The industry has implemented modern
resolution practices, like Arbitration, Mediation, and others with mild success. Thompson (1998). As per
the findings of Oladapo and Onabanjo (2009), adjudication is the most commonly used method of dispute
resolution and mini-trial the least. The results also showed that arbitration and litigation are still popular
while adjudication and negotiation are the only ADR methods in common use.

Jong et al 2003 and Barrett 2000 worked to make the construction personnel realize that resolving a
conflict is not an exact science but an art. Therefore it would be highly valuable to develop a systematic
methodology where a combination of sound formal systems and strong relationships is existed to achieve
high quality in the project environment of construction, both within the companies and across the supply
network by following which can help individuals resolve a conflict as a problem rather than a battle to be
won. Therefore, the effectiveness of dispute resolution determines the cost of resolution, and the
organizations ability to solve future problems is mentioned by Mitropoulos and Howell (2001). Previous
dispute resolution process: satisfaction with the process and the outcomes affects how parties will behave
in a future dispute is argued by Mitropoulos and Howell (2001) and on the same lines the most
appropriate dispute resolution process is provided by various researchers such as Steen, (1994), Treacy,
(1995), Cheung, (1998), Ndekugri and Russell, (2006).

2. SCOPE

The study aims to assess the various dispute resolution methods in terms of their applicability and
effectiveness to resolve claims from the contractors perspective in the local construction.

3. OBJECTIVES

The study is undertaken to identify the most effective and applicable methods of dispute resolution
as perceived by the contractors in the local construction sector so as to pave way for better and
informed decision making

4. LITERATURE REVIEW

Construction disputes, when not resolved in a timely manner, become very expensive in terms of
finances, personnel, time, and opportunity costs. The visible expenses (e.g., attorneys, expert witnesses,
the dispute resolution process itself) alone are significant. The less visible costs (e.g., company resources
assigned to the dispute, lost business opportunities) and the intangible costs (e.g., damage to business

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relationships, potential value lost due to inefficient dispute resolution) are also considerable, although
difficult or impossible to quantify. Respected professionals estimate that construction litigation
expenditures in the United States have increased at an average rate of 10 percent per year over the last
decade, and now total nearly $5 billion annually (Michel 1998, Pea-Mora, Sosa, and McCone 2003).
Construction claims and other disputes frequently arise during construction projects. This will involve
third party on behalf of owners, contractors, design professionals, and construction managers in the early
resolution of these disputes through assistance in partnering, in negotiation, and in mediation. Poh (2005)

Compared to other means of dispute resolution, arbitration as a means of resolving disputes does however
have well-defined and generally well-understood mechanisms, this enables it to gain recognition as
occupying its very definite place in the arena of dispute resolution industry Kheng (2003). When
construction disputes cannot be resolved informally, disputes may lead to arbitration. If the construction
disputes not able to reach the agreement between two parties or more, it will be litigation case.
Construction disputes may end up involvement of high stakes such as multi-million dollar investments,
professional reputations and even business survival of the owner. Poh (2005)

As mentioned by Whitfied (1994), some conflict and disputes are unavoidable, proper management of
conflict will ease the impact it has on the construction process, but resolution must follow quickly.
Dispute can be resolve by either using informal such as negotiation and alternative resolution methods
(ADR) or formal resolution methods such as litigation and arbitration. The dispute resolution process may
be informal (negotiations, bribing, or coercion) or formal (mediation, arbitration, litigation, etc.). The first
step is direct negotiations at the project level. If the project team cannot reach an agreement, the
negotiations continue at higher organizational levels. If the parties cannot resolve the dispute between
themselves, a third party may be called to make the decision. Litigation is the highest possible level of
escalation. Mitropoulos and Howell (2001).

From previous research Poh (2005) and The Allen Consulting Group (2005), following are some of the
major Dispute Resolution Methods employed worldwide.

1. Rent-a-Judge 6. Mediation
2. Dispute Review Board 7. Conciliation
3. Partnering 8. Expert Appraisal
4. Arbitration 9. Negotiation
5. Alternative Dispute Resolution

5. RESEARCH METHODOLOGY

This research effort consisted of a literature review of the relevant secondary data in the form of
published research papers. For this purpose data had been gathered and development of knowledge base
for the exercise was undertaken. However, the study required an extensive Primary data. In order to
acquire that, a simple survey exercise was initiated after questionnaire has been developed in order to
have more responses by targeted audience. The targeted respondents were different Contractors having
their head offices in Karachi due to ease of approach. The results obtained from the survey were then
analyzed in order to draw conclusions and propose some recommendations for improvement.

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5.1. Data Sources

The following data sources have been used for this study.

5.1.1. Primary source

The general methodology of this study relies largely on the survey questionnaire responses which were
collected from the contractors of various categories as per the categorization of Pakistan Engineering
Council (PEC). The questionnaire prepared for the survey was formulated by screening and
comprehending the relevant literatures in the area of Dispute Resolution Mechanisms.

5.1.2. Secondary Source

In order to aid the collection of data through primary source it was vital that a thorough literature review
be initially conducted to identify the various dispute resolution mechanisms that are employed globally
for the resolution of claims and addressing disputes in the construction sector. Prior relevant research and
books form the major part of secondary data source. The study involves qualitative analysis of the
responses from the survey process. The qualitative analysis involves Frequency Analysis of the obtained
responses and ranking of Dispute Resolution Mechanisms in order to meet the objectives set for this
study. And since the data has been gathered from a representative sample of the construction industry it
can be generalized for the construction industry as a whole.

5.1.3. Questionnaire Structure

The questionnaire for this study comprised of three parts, which were:
Part A: Major Dispute Resolution Methods for assessment on the basis of their applicability and
effectiveness.
Part B: It dealt with the general information of the respondents and the participating
organizations.
Part C: Suggestions for improvements.

5.1.4. Response Rate

Baker (1998) reported that statistically reliable conclusions can be obtained from a sample size of 20 or
more. Also Stoker (1985) (cited by Strydom and De Vos, 1998, p.192) suggested that for a population
size of thirty (30), at least twenty (24) constituting 80%, ought to be the sample size. Nevertheless, the
questionnaire was sent to all the contractors short listed. The summary of response rate is summarized in
Table1.

Table 1: Survey Response Summary

Total
Questionnaires Questionnaires Valid Percentage of Valid
Distributed Returned Responses Responses

70 58 45 64%

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6. ANALYSIS AND DISCUSSION

The analysis of the responses received is discussed in the succeeding sections.

6.1. Evaluation of Dispute Resolution Methods

Reliance on courts to resolve disputes between construction firms is costly and can involve substantial
delays. Without a mechanism to resolve interconnection disputes quickly and effectively, innovation and
competition in the sector is threatened. Entrants will not commit resources unless they have confidence
that their business will be viable and that they will be able to resolve any disputes in a timely fashion.
Therefore it is necessary that various options of dispute resolution be evaluated on the basis of
effectiveness and their potential for applicability in the local construction sector to achieve the same. The
following section addresses the Effectiveness Index and Applicability Index of various dispute resolution
methods calculated on the basis of the responses of the local construction sector. Figure 1 represents the
scenario of the local construction sector with respect to the Effectiveness Index and Applicability Index of
various dispute resolution methods.

Evaluation of Dispute Resolution Methods

Dispute Resolution Method

Expert Appraisal
Partnering
Conciliation
Alternative Dispute Resolution
Dispute Review Board
Rent-a-Judge
Mediation
Negotiation
Arbitration
Effectiveness 0 1 2 3 4 5 6 7 8 9 10
Applicability Weighted Average

Figure 1: Dispute Resolution Methods (Effectiveness & Applicability)

The analysis of the evaluation of dispute resolution methods describe that all of the respondents were of
the view that Rent-a-Judge, is the most effective and most applicable dispute resolution method among
all, in their projects. Whereas Expert Appraisal, Partnering, Conciliation, Alternative Dispute
Resolution, Dispute Review Board and Mediation are moderate dispute resolution methods in terms
of their effectiveness and applicability, according to majority of the respondents. On the other hand
Arbitration is moderately applicable method but not so much effective in resolving disputes on the
projects. Negotiation is negligibly effective and applicable in dispute resolutions, said by the
respondents.

6.2. Ranking of Dispute Resolution Methods

A typical cross tabulation holds the dispute resolution methods arranged according to the values of
Applicability Index (A.I), Effectiveness Index (E.I), and Dispute Resolution Score (D.R.S). Table 2

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provides the ranking of the Dispute Resolution Methods, in the following order of prioritization. Firstly,
value of Applicability Index (A.I), secondly value of Effectiveness Index (E.I) and finally Dispute
Resolution Score (D.R.S).

Table 2: Ranking of Dispute Resolution Methods

1 2
Dispute Resolution Methods A.I E.I 3D.R.I 4
R
Rent-a-Judge 10.00 10.00 100.00 1
Dispute Review Board 7.60 8.36 63.56 2
Partnering 6.40 6.73 43.05 3
Arbitration 6.40 4.27 27.35 4
Alternative Dispute Resolution 5.20 8.36 43.49 5
Mediation 4.60 6.73 30.95 6
Conciliation 4.60 5.91 27.18 7
Expert Appraisal 4.00 5.91 23.64 8
Negotiation 1.00 1.00 1.00 9

1 2 3 4
Applicability Index Effectiveness Index Dispute Resolution Index Rank

As per the prioritization rule discussed, the most and the least suitable Dispute Resolution Method
relative to all others in the same group can be deduced. Consequently, Rent-a-Judge has been found to
be the most and Negotiation is the least suitable Dispute Resolution Method respectively, as perceived
by the contractors operating in the local construction sector of Pakistan.

7. CONCLUSIONS AND RECOMMENDATIONS

The conclusions and recommendation have been derived after the analysis of the responses gathered.

Rent-a-Judge has been found to be the most and Negotiation is the least suitable Dispute Resolution
Method respectively, as perceived by the contractors operating in the local construction sector. The
participants of the study were of the view that it was best in the interest of the project that someone with
the legal and construction knowledge presides over a dispute case as compared to negotiation which was
thought to be least suitable hinting at the stockholder inclination of the project participants. It is of vital
importance that steps are taken for the development of such arrangements that have the vote of the local
construction sector for the dispute resolution whereas on the other hand it is of equal prominence that
general awareness is created among project participants regarding their importance in the settlement of
disputes.

8. REFERENCES
Adebayo Oladapo and Babajide Onabanjo (2009), A study of the causes and resolution of disputes in the
Nigerian construction industry. RICS COBRA Research Conference, University of Cape Town, 10-
11th September 2009. Oladapo and Onabanjo, pp 7-22
Baker, S. W. (1998). Risk Management in Major Projects. Ph.D. Thesis, University of Edinburgh, UK.

85
 Barrett, P. (2000), Systems and relationships for construction quality, International Journal of Quality
and Reliability Management, 17.4/5, 377-392.
Cheung, S-O. (1998). Critical factors affecting the use of alternative dispute resolution processes in
construction. International Journal of Project Management, 17(3), pp.189-194.
CRC for Construction Innovations Dispute Avoidance and Resolution, Guide to Leading Practice for
Dispute Avoidance and Resolution: An overview.
Harmon, K.M.J. (2003), Resolution of Construction Disputes: A Review of Current Methodologies,
Leadership and Management in Engineering, October, 187-201.
Jong, H. O. and Seung, H. H. (2003), Lessons learned from rigid conflict resolution in an organization:
Construction conflict case study, Journal of Management in Engineering, (ASCE), 19.2, 83-89.
Koh Cheo Poh (2005), The Causes of Construction Dispute On Client Organizations A project report
submitted in partial fulfilment of the requirement for the award of the degree of Master of Science
(Construction Management) Faculty of Civil Engineering Universiti Teknologi Malaysia MAY 2005.
Michel, H. L. 1998. The Next 25 Years: The Future of the Construction Industry. Journal of
Management in Engineering, 14 (5), 26-31.
Ndekugri, I., and Russell, V. (2006). Disputing the existence of a dispute as a strategy for avoiding
construction adjudication. Engineering, Construction and Architectural Management, 13(4), pp.380-
395.
Nirmal Kumar Acharya, Soo-Yong Kim and Young-Dai Lee (2004), Conflict Free Project: A Dream of
Project Executors, Proceedings of the Fifth Asia Pacific Industrial Engineering and Management
Systems Conference.
Oon Chee Kheng (2003), Arbitration In Construction Disputes -A Procedural And Legal Overview. A
paper based on a lecture delivered on 24 May 2003 in Seremban to The Institution of Engineers,
Malaysia (Negri Sembilan Branch)
Mitropoulos Panagiotis and Howell, Gregory, (2001) Model For Understanding, Preventing, And
Resolving Project Disputes. Journal of Construction Engineering and Management, Vol. 127, No. 3,
May/June, 2001.
Pea-Mora, F., C. E. Sosa, and D. S. McCone. 2003. Introduction to Construction Dispute Resolution.
Prentice Hall, Upper Saddle River, NJ.
Roxene M. Thompson (1998), Efforts to Manage Disputes In The Construction Industry: A Comparison
of The New Engineering Contract And The Dispute Review Board. Thesis submitted to the Faculty
of the Virginia Polytechnic Institute and State University in partial fulfillment of the requirements for
the degree of Master of Science in Civil Engineering
Steen, J. (1994), Five steps to resolving construction disputes without litigation. ASCE Journal of
Management in Engineering, 10(4), pp.19-21.
Strydom, H. and De, Vos A.S.(1998). Sampling and sampling methods. In A.S. De Vos (Ed) Research at
grass roots: A primer for the caring professions. Van Schaik Publishers, Pretoria.
The Allen Consulting Group (2005), Reducing building disputes in Victoria. Final Report to the
Building Commission, Research findings
Treacy, T. (1995), Use of alternative dispute resolution in the construction industry. ASCE Journal of
Management in Engineering, 11(1), pp.58-63.

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