Wanted: alternative ways to resolve project disputes

19 November 2004
Construction firms in the Middle East use old and outdated forms of contract and contractors often feel that the contracts are very restrictive and overly favourable towards the client. If they do take matters to the courts, litigation in local jurisdictions can end up taking years, and even when the court appoints technical advisers there is little confidence that they will be able to rule on the detailed and complex issues that arise in claims relating to construction. On the other hand, if litigation is launched in a foreign jurisdiction, the judgement may be almost impossible to enforce in the relevant local court.

Arbitration is little better. An arbitration clause in a contract is a good defence against a claim in a local court, but the initial appointment of an arbitrator may take months, if not years, even if an application is made to a local court to resolve the matter. And years can pass before you obtain a decision. Avoiding this by arbitration outside the region offers the prospect of a better reward, but an arbitration award obtained overseas may well not be upheld in a local court.

Failure to pay contractors as they are entitled causes not only resentment but also loss of productivity and even insolvency on the part of the contractor. Clearly, this is not in the long-term interests of clients or the Middle East's construction industry as a whole.

A better solution would be for the region's construction ventures to adopt alternative dispute resolution (ADR) if the boom is not to lead to dissatisfaction on both sides.

Adjudication in the UK has demonstrated that there are alternative ways of resolving claims. This is a process whereby a contractor or client can serve notice of a claim, have an adjudicator appointed within days and a decision within 35 days. Given the traditional approach to disputes in the Middle East, this would come as something of a shock to the system, but it works.

Mediation is widely used in the UK and can be very effective in bringing the parties round the table. With the assistance of a neutral mediator, a negotiated deal can be reached which preserves the business relationship between the parties. Construction often involves multi-party disputes between clients, contractors, subcontractors, consultants and insurers. Mediation can bring these various parties together in a way that conventional dispute resolution may not be able to, while being far less expensive than a long, drawn-out action.

Partnering also provides a different way of approaching the problems that arise during construction projects, bringing together all the parties to resolve problems before they escalate into disputes. Trowers & Hamlins has had considerable experience in the use of partnering forms of contracts, having drafted the Standard Form of Partnering Contract, PPC 2000. Parties can refer to a partnering adviser who has been approved by the parties to assist in the process.

Contracts can provide for a number of different ways of resolving disputes, from simple negotiation between the parties on site, to meetings of chief executives to more formal forms of dispute resolution. With the boom in construction work and the willingness of Middle East countries to bring in private finance partners, there may now be more willingness to look at ADR methods instead of the means that have been used in the past.

There can never be a substitute for the identification of risks and the proper understanding of contracts by the parties concerned, so that risks can be managed and, if additional time and money are due, this can be demonstrated.

But ADR should be used more widely to assist in preventing debilitating and long-running disputes and enable contractors to operate profitably and efficiently at the same time as providing the client with the quality of project required. It will be interesting to se

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