The nature of the construction industry in Hong Kong is such that there is an existing conflict between the major construction project participants, owners, design professionals and contractors. The construction industry is well-known for high levels of conflicts and disputes.
Construction is construction, and no matter how complicated the technology. It is also a project-based industry with each project being unique. Within a project life cycle, a large number of separate firm are involved. Failures by one party can affect those engaged in a project and, as work often takes substantial periods during which national economic circumstances can change, it is unavoidable that dispute will arise.
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From the above-mentioned scenario, it should not be surprised that the techniques of conflict management and dispute resolution in construction industry are more developed, compared to the industry, one might be inclined to ask the questions as to whether there is any hope for the industry in attempting to reduce the serious and extent of conflicts and disputes? According to Fenn et al(1997), conflict can be managed, possibly to point of preventing it from leading to dispute whereas, dispute require resolution and , therefore, are associated with distinct justifiable issue.
The purpose of this paper will firstly describe the definition of conflict management and dispute resolution. And also identify the causes of the conflicts and disputes in Hong Kong construction industry. Finally, this study will also identify the way of formal conflict management and the dispute resolution methods to be used.
2. Conflict Management in Construction Industry:
2.1 – The definition of conflict management:
Conflict may be defined as a contest between people with opposing needs, ideas, beliefs, values or goal. Conflict on team is unavoidable; however, the results of conflict are not predetermined. Conflict might increase and lead to non-productive results or conflict can be beneficially resolved and lead to quality final products.
Therefore, learning to manage conflict is essential to a high-performance team. Though very few people go looking for conflict, more often than not. Conflict results because of lacking communication between people with regard to their needs, ideas, beliefs, goals, or values. Conflict management is the principle that all conflicts cannot consequentially be resolved, but learning how to manage conflicts can decrease the odds of non-productive escalation.
According to Algert, N.E., and Watson, K. (2002), Conflict management involves obtaining skills related to conflict resolution, self-awareness about conflict modes, conflict communication skills, and establishing a structure for management of conflict in your environment.
2.2 – The causes of conflict in construction:
Construction is significantly different from manufacturing, in which the same goods are produced a thousand times. Also, construction does not allow for the change of variable while holding the rest fixed in order to study its effects. The nature of the construction referred to earlier so conflicts among owners, design professionals and contractors are general.
To suggest that these parties are prone to confrontational interaction and conflict would be a major statement in the construction industry.
Owners are even arguing with their design professionals over design service explain of errors and neglect in design services rendered, aesthetic considerations and budget overruns.
Accordingly, Howell et.al (1998, cited by Vorster 1993) proposed a nomenclature of elements that summarize four causes behind conflict in the construction environment:
Incomplete scope definition:
The design professional’s responsibility to define and design the project scope so as to meet the owner’s functional, budgetary, time and environmental project criteria. When the design professional fails to meet their responsibility, the owner is almost always dissatisfied with the result, with the effect that strict correspondence soon ensues between the parties. Also, when the scope of the work is unclear, this presents an unhappy relation for future between the owner and the contractor, arguing about the scope and quality of the work, and whether in fact the work is properly defined by the contract documents prepared by the design professional.
Inappropriate contract type:
Contracts are endemic as causes of conflict within the construction industry; almost every stage of the construction process is regulated by an agreement of some sort. Some of the areas of contract dispute are breach of contract in contract clause interpretation, inspection of work clauses, indemnity clauses, payment of supplies, and liability to third parties, just to name a few possible areas of contract dispute.
Infrastructures are unique products with more complex production process than other and most of building products are a combined effort of several peoples or organization. So many professionals have contribution to do a building in various capacities. Among construction team members, each may have different aim in relation to their profession, but their main aim should be to complete the project within a given plan. Conflict between team members may arise when their objectives are inconsistent. Also, their interpretations of contract documents, terms, and conditions can diverge, leading to discrepancies and conflict. In short, all causes of conflict within an area are interrelated.
For external: a) Environmental concerns; b) Social impacts; c) Economics;
d) Political risks; e) Weather; f) Regulation;
g) Unforeseen site condition.
For internal: a) Error in design; b) Construction methods and workmanship
In figure 10.3 which is one example of what the owner should consider when identifying potential conflicts. We can identify which of them may be realized at the interfaces among the multiple participants in an agency construction management delivery system. Certain conflicts in the relationship among the owner, designer, CM and trade contractor can be eliminated in various situations if a different delivery system is selected.
2.3 – Methods of conflict management used in construction industry in HK:
In the construction industry, ask anyone if they completed a construction project without any conflict. The answer 100% of the time will be “NO”. The successful project managers must be implement strategies to avoid or monitor conflict in their construction project.
The following common steps are used by the project managers when developing a successful conflict management:
- Conflict identification;
- Conflict analysis;
- Design and implementation of a conflict management;
- Monitoring and review of the conflict management.
Prevention is the best method in the management of the conflict in construction industry. The methods include:
- Dispute review boards or advisors;
- Quality (Total quality management and quality assurance);
- Procurement systems
- which are all non-blinding process.
Baden-Hellard (1988) emphasized that construction industry has a built-in potential for conflict arising from the differences always present in values, principles and interest. Thus, when differences arises from unforeseen events, no matter how well the clients, design team and contractors have managed the project, better methods of resolving the differences are needed.
Dispute review boards or advisors:
It is virtually impossible to complete a large construction project without having any disputes develop between the parties. The DRB is a panel of two neutral individuals who are selected by the parties to the construction contract, usually the project owner and the general contractor. The project owner will stipulate in the specifications for bidding the project.
DBR provide the processes and mechanisms to not only help to settle disputes but also can provide a method to prevent the potential conflict from ever happening. The potential conflict to the DRB means that plausible argument at each construction stages and the quality of the presentation of claims.
The first meeting of the DRB usually takes place well before the commencement of the construction project and will continue to meet until the DRB members are well-known all of the aspects of the project. After the project begins, each DRB will usually meet on a regularly scheduled basic such as once each month or once each quarter, etc. Besides, site visit can ne made depending on the requirements of the project.
Negotiation needs to be carrying out to resolve the conflict before it reached a more serious stage and change into dispute. The parties are required to come together and approach an agreeable settlement through communication.
The following two example shown a simple negotiation between the main contractor(MC) and a subcontractor(SC) who is unable to meet the objective in the contract.
SC: I will not be able to finish this process on time.
MC: You must be finish theses according the time schedule.
SC: I need three extra weeks to finish it.
MC:You cannot have extra three weeks.
SC: If I do not get three weeks, i can not complete this process on time.
MC:No, you will complete as scheduled, if you really cannot finish it, we will collect damage and replace you.
The example A is a position-based type of negotiation which will go around in circle until one of parties abandons its position. It is not clear why the parties are even arguing.
SUB: I will not be able to finish this process on time.
MC: What are the reasons and why can you not finish as scheduled?
SUB: My supplier will not able to deliver the materials until next week so I need three extra weeks to finish it.
MC: You should know the schedule is very tight for this project. Are there any other suppliers who can deliver on time?
SUB: Yes, but the suppliers are more expensive than the damages given by finishing late.
MC: Although you are responsible for reaching the target, I also understand your predicament. Actually, I know some other suppliers that might be able to solve these problems and I will contact them as soon as possible.
The example B is an interest-based type of negotiation which can be reached a mutually agreeable solution even the source of the conflict is uncovered.
According to these two examples, a successful negotiation should result in a solution acceptable to both parties that will not damage their relationship and implies collaboration, trust and common objectives.
Quality (Total quality management (TQM) or assurance):
According to Gardiner et al (1992), the most confliction stages are identified within the organization, closely followed by the issue of quality and control. One of the most confliction stages is the quality issue so a good and suitable quality management or control system should be issued. It can reduce the frequency of conflict.
TQM is an extensive management system which:
- Focuses on meeting owners’ needs by providing quality services at a cost that provides value to the owners;
- Is compel by the quest for continuous improvement in all operations;
- Understand everyone in the organization;
- Observe an organization as an internal system with a common objective rather than as individual parties acting to maximize their own performances;
- Emphasize teamwork and a high level of workers.
The procurement system is one of most effective methods in prevention of conflict so it should be located in the earlier stage of the project life cycle.
According to Bennett et al (1990), the procurement system built up the roles and relationships, which constitute the organization. It establishes the overall management structure and systems, which helps to form the overall values and styles of the project.
The Procurement System for Construction provides support for:
- Selection of appropriate procurement and contracting strategies, and nomination of an appropriate Principal in the contracts;
- Preparation of tender documents and contracts based on standard forms;
- Selection of contractors and consultants with proven performance records;
- Effective management of contracts, including clause commentaries, sample letters and checklists;
- Maintenance of an effective performance management system through monitoring and reporting; and
- Resolution of contractual claims and disputes.
(NSW Government (2000), Procurement system for construction. Available from:
NSW Government, NSW Government Procurement
Web site: http://www.nswprocurement.com.au/Procurement-System-for-Construction.aspx [Accessed: March 13, 2011].)
3. Dispute Resolution in Construction Industry:
3.1 – The definition of Dispute Resolution:
Dispute resolution is about identifying the root causes of conflict and preventing and managing conflict with the purpose of resolving disputes or conflict during the construction process in order to avoid post-construction claims, litigation, and related costs.
According to Whitfield(1994), resolve disputation can use either informal resolution methods such as negotiation and alternative dispute resolution(ADR) or formal resolution methods such as litigation and arbitration.
3.2 – The causes of dispute in construction:
Disputes are often the outcome of ill considered procurement practices, inadequate preparatory planning and design activity, or poor project and commercial management procedures.
If the conflict happened in construction site, all parties are agreed to each other. There is no further conflict because objectives of both party become same. But if one or both party becomes intransigent, then the conflict may turn to a dispute. In other word, disputes are come up when parties are unable to manage their conflicts properly. Dispute can be defined as a disagreement between parties in connection with their objectives.
Construction failure may create dispute between the parties in construction sites. According to Feld and carper; Kaminetzky (1997), failure during the construction phase may include:
- Improper temporary supports.
- Inadequate planning and execution of construction process.
- Lack of inspection.
- Insufficient safety factors.
- Inadequate training of construction workers.
Feld, J. and Carper, K. (1997). ConstructionFailure. John Wiley &Sons, New York.
Cause of client:
1) Failure to respond in timely manner.
2) Inadequate tracing mechanisms for RFI (Request for information).
3) Reluctant to check for constructability, clarity and completeness.
4) Discrepancies / ambiguities in contract documents.
5) Poor communications between and among the parties involved in theproject.
6) Failure to appoint an overall project manager.
7) Lowest price mentality in engagement of contractors and designers.
The absence of “team spirit” among the participants.
8) Deficient management, supervision and coordination efforts on the part of the project.
Cause of designer:
- Failure to understand its responsibilities under design team contract.
- Over-design and underestimate the costs involve.
- Inadequate in open and factual communication.
- Late information issued and cumbersome approaches to RFIs
- Design and specification oversights and errors or omissions resulting from uncoordinated civil, structural, architectural, mechanical and electrical designs.
- Incompleteness of drawing and specifications.
Cause of contractor:
- Inadequate contractor management, supervision and coordination.
- Lack of understanding and agreement in contract procurement.
- Failure to understand and correctly bid or price the works.
- Reluctance to seek clarification.
- Failure to plan and execute the changes of works.
- Inadequate CPM Scheduling and update requirements.
- Delay/ suspension of works.
Fenn et al (1997) provides a synopsis of the findings of nine frequently cited studies of the sources of disputes:
3.3 – Methods of dispute resolution used in construction industry in HK:
According to Carmichael (2002), the step approach to dispute resolution as below.
An attempt is made to resolve the dispute at the level at which it occurs, in a reasonable time;
If this fails, involve parties at a higher level with decision making authority, and the potential to settle in the interests of a commercial solution;
If this fails, proceed to an ADR approach using and independent third party;
If this fails, arbitration or litigation will be used.
3.3.1 Informal resolution methods:
Negotiation is a common dispute resolution method, which we all are using in every day. There is no neutral third party for the negotiation, only the disputants. It is also defined as a means to reach mutual agreement through communication, according to Down, L.J. (2009), (p.140-white)
Negotiation is considered by most appropriate way to resolve any dispute in construction industry. It was because negotiation is not expensive and can be maintained relationship with the related parties.
However, there are also negative sides of negotiation. For example, if the related parties negotiated a long and protected period of discussion, the negotiation will be fail because they are not blinding. Besides, it is an informal resolution method, it can allow any surprise issue or irrelevant points rising.
b) Alternative Dispute Resolution (ADR)
ADR is a collective term used to describe methods of resolving disputes which are alternatives to litigation and arbitration and which usually offer a less expensive solution.
Mediation: This has appeared as an increasingly used form of dispute resolution, involving a neutral third party working to facilitate effective negotiations to enable a mutually acceptable settlement.
In mediation, the parties explore options, measuring the strengths and weaknesses of their respective cases.
Mediation can save a great deal of time and cost in resolving a dispute and can also help the parties to re-establish trust and prevent damage to ongoing relationships.
Adjudication: This is a quick and relatively inexpensive way of resolving a dispute.The adjudicator’s decision is normally upheld by the courts and so it is important to ensure that all the relevant facts are put in front of the adjudicator.
Adjudication does not necessarily achieve final settlement of a dispute because either of the parties has the right to have the same dispute heard afresh in court.
However, experience shows that the majority of adjudication decisions are accepted by the parties as the final result.
(Powell, J. David. 2005. Boundary Dispute Resolution in England & Wales Surveyors and Lawyers Working Together to Resolve Problems. Proceedings of Cairo: Egypt.)
Because of the following potential advantages, it is worth considering using ADR early in a lawsuit or even before you files a lawsuit.
Advantages of ADR:
- Better communication;
- Continued business relationship;
- More options for settlement;
- Reduced costs in achieving settlement;
- Control of outcome and the process.
3.3.2 Formal resolution methods:
On occasions, alternative dispute resolution procedures are not successful in resolving disputes, resulting with the parties resorting to formal litigation through the courts.
According to Whitfield(1994), the process of litigation is from the issue of a writ to a hearing and then on to a judgment. One of the failures of the legal process has been the speed with which solicitors have been prepared to issue writ. After writ has been issue, the plaintiff cannot simply withdraw his writ and forget the matter. If he did so, the counterclaim would be found against him along with the cost.
The related construction companies need to provide litigation support services for both formal litigation and alternative dispute resolution as follows:
- Programme delay analysis;
- Forensic research;
- Preparation of statements of claim and statements of defence;
- Paralegal support.
According to Ashworth (2005), Arbitration is a legal technique for the resolution of dispute outside the courts. The parties refer the dispute to a neutral, knowledgeable person (arbitrator or arbitral tribunal) who then gives the final decision (award) to which both the parties agree.
Arbitration, in lieu of court proceedings, as the last resort to resolving disputes in construction contracts has been commonly used in Hong Kong as well as internationally.
Although intended to be a less formal and more flexible alternative to litigation, arbitration can be as thorough and time-consuming as litigation, especially for construction disputes.
The related companies should be employ the expertise in representing them in arbitration proceedings and handling the whole arbitration process from the appointment of arbitrators, drafting of pleadings, dealing with interlocutory proceedings through to the hearing stage and beyond.
Where necessary, lawyers who experienced in construction disputes to provide the most comprehensive services to the company in arbitration.
Each construction projects are unique and complex undertakings. A unique set of drawings and specifications are used to describe each construction stages. The drawings and related documents generally performed by a general contractor and several subcontractors, many of whom have not work together previously. The unique aspects of each project and the unique constitution of each construction team are common reasons for disagreements to occur.
Disputes can be generated in any environment; indeed, conflict can occur whenever two individuals try to work together. These disputes often concern topics such as changes, differing site conditions, delays, and payments.
Many researchers had attempted to determine the causes of conflict and disputes within the construction industry.
Besides, H. Murray Hohns (1979) leads to the conclusion that the specific causes of the conflict and dispute can be largely traced to the following five sources:
- Errors, defects or omissions in contract documents;
- Underestimation of the cost – by the client, the contractor, or both;
- Changes in conditions, (e.g. unforeseen ground conditions);
- Claims from end-users (legal rights of owners and tenants);
- People involved in the construction process.
When confliction is arise in the construction industry, the importance of proper conflict recovery method and compliance with formal procedures cannot be over-stressed. If disputes proceedings become unavoidable, it should be some comfort to know that proper alternative dispute resolution will be a favorable condition rather than a drawback.
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