Dispute Resolution

Resolving business disputes with clarity and efficiency

Overview

Construction projects typically extend over a long period of time and therefore the financial outcome is very sensitive to any delay in completion. The construction business also requires large capital outlay and labour which gets negatively impacted with delays. Most of the disputes on construction contracts originate due to time related issues, large number of stakeholders affecting contractual obligations, and changing technology of industry. The purchaser expects that work plan must align with the project objectives, but the contractor holds the view that contract price is based on defined scope of work. Such opposing views become the base for contract disputes.

Scope Deviation Identification

EPC contracts have provision for superintendence by the purchaser to ensure that the contractor is executing work in accordance with the specification. Typical areas of conflict which lead to variation are:

Delay in issue of Notice to proceed without commensurate adjustment to contract.
Changes to drawings insisted upon by purchaserunder Good Industry Practice provision.
Unforeseen geotechnical conditions.
Frequent variations ordered by purchaser causing disruption.
Design errors by contractor/vendor leading to non-conformance.
Failure of Nominated vendors/subcontractor.
Suspension of work including deemed suspension.
Unrecognised Force Majeure.

Due to such reasons, the contractor expects modifications to the contract to ease the burden which may be denied by purchaser. Apart from the items of conflict listed above, following type of variations may lead to dispute:

Alternation or modification of design asked by purchaser.
Addition or omission of supplies from scope of work without affecting integrity of work.
Restriction imposed during execution.

The contractor may refuse any work which may impact integrity of the design or if the materials required to complete the work are not readily available. The contract may also refuse variation request if the work requested is not directly related to original scope of supply. OIP Services can provide support to continuously monitor the instruction issued to the contractor which may support proper identification and resolution.

Prepare Claim / Counter-Claims

Due to scope deviations experienced during contract execution, the contractor may find difficult to adhere to the time schedule and such prolongation may cause cost overruns. To seek cost compensation and extension of time, the contractor may submit a claim to the purchaser. Even though the contractor bears the burden of proof, the purchaser must prevent such a situation, which may hinder the progress, through regular monitoring of the contractor performance. As part of the claim, the contractor must submit the analysis of extra cost and a time impact analysis (TIA). The events at the risk of the purchaser, known as excusable delays, which cause prolongation can become a reason for seeking compensation. Together with the response to claim or independently, the purchaser is entitled to submit any counterclaim. OIP Services has experience in management of claims/counterclaims and can provide contract administration services which will support the Client in its claim prevention strategy and negotiation.

Negotiaition

The claims/counterclaim will require face-to-face review of documentation submitted by each party. If required, experts’ services can be used to clarify issues. A failed negotiation may lead to reference of claim/counterclaim for formal resolution. Resolution of claim requires:

Contemporaneous documents
Description of what happened.
Analysis of impact-Proof of each event, timings of each event, activities directly affected and responsibility for delay.
Impact on completion schedule
Determination of cost.

Burden of proof is always on the claimant.

Arbitration Proceeding

The contract between parties may have a provision for reference of dispute between parties to commercial arbitration. The contract may provide for institutional arbitration, (e.g. ICC and LCIA), or ad-hoc arbitration (e.g. UNCITRAL or Swiss Chamber of Commerce). The arbitration proceedings follow specified rules and depend upon the time schedule as may be agreed during the initial stages. Any of the party may ask for documents in possession of the other party to examine the issues (“Discovery”) and the Arbitral Tribunal may agree to limited disclosurebased on circumstances. During the proceeding, the Arbitral Tribunal may require fact witnesses who can testify to each event and proof that such events are not part of the contract. These witnesses may be cross examined by the opposing party. Apart from testimony by fact witnesses, the parties may support their claim through expert witness to provide insight into the events and related impact. After testimony of witnesses, the issues related to time extension and cost are taken by Arbitral Tribunal in following details:

Time Impact Analysis (TIA): Identify excusable, non-excusable and concurrent delays and define the net excusable time impact.
Cost analysis: Cost of extra work (engineering, materials, and construction), loss of productivity, field supervision and overheads.

OIP Services can provide support to the Client in managing arbitration proceeding with preparation of documentation for legal team and the expert witnesses.