BUIL14 - INVESTIGATION OF THE USE OF ARBITRATION IN SETTLING DISPUTES ON CONSTRUCTION CONTRACT

CHAPTER ONE

1.0         Introduction

A construction contract provides a legal binding agreement, for both the owner and the builder, that the executed job will receive the specific amount of compensation or how the compensation will be distributed. There are several types of construction contracts used in the industry, but there are certain types of construction contracts preferred by construction professionals. Construction contract types are usually defined; by the way, the disbursement is going to be made and details other specific terms, like duration, quality, specifications and several other items.  The construction industry is a complex and competitive environment in which participants with different views, talents and levels of knowledge of the construction process work together. In this complex environment, participants from various professions, each has its own goals and each expects to make the most of its own benefits. In the construction industry, since differences in perceptions among the participants of the projects, conflicts are inevitable. If conflicts are not well managed, they quickly turn into disputes. Disputes are one of the main factors which prevent the successfully completion of the construction project. Thus, it is important to be aware of the causes of disputes in order to complete the construction project in the desired time, budget and quality.
The construction industry is a subject to statutory schemes which impose adjudication procedures in the absence of contractual agreement. Many contracts for large and complex projects now have additional (Lowe, et. al. 2010) tiered dispute resolution procedures with obligations to negotiate in good faith and to establish dispute resolution boards, steering committees and partnering meetings.  If the contract sets out procedures for dispute resolution, then the parties must follow those procedure unless they agree otherwise.

Successful implementation of a construction project usually requires huge funds. In fact, the construction sector in Nigeria is the major client for a number of people and one of the largest generators of domestic product in Africa countries (Brauers & et al. 2012). Construction projects are complex. They require the participation of numerous individuals with a wide range of education and skills. From the laborer, craftsman, foreman, and superintendent, to the project manager, architect, and engineer, to the owner and their representatives, and to the inspectors and regulators, everyone has a role. Unfortunately, with so many participants employed in numerous trades and professions, some disagreements and disputes are inevitable. The legal system affords the opportunity for those disputes that are not resolved within the project organization to be resolved in a court of law.

Nowadays, disputes in construction industry is a common thing and sometimes could not be avoided. Every construction project is bound to have conflict .Conflict would exist when incompatibility of interest happened ( Fenn et al. 1997  ). Construction disputes arise from misunderstanding or disagreement between two parties or more, which always arise as assertions for extra money or time in a project. There are many types of methods / techniques to resolve disputes. One of them is arbitration. There are confusion among construction professionals about the differences between conflict and dispute, and these terms have been used interchangeably especially in the construction industry (Acharya et al., 2006). However, according to Fenn et al. (1997) conflict and dispute are two distinct notations. Conflict exists wherever there is incompatibility of interest. Conflict can be managed, possibly to the extent of preventing a dispute resulting from the conflict. On the other hand, disputes are one of the main factors which prevent the successfully completion of the construction project. Disputes are associated with distinct justiciable issues and require resolution such as mediation, negotiation arbitration, etc.

 Arbitration, a form of alternative dispute resolution (ADR), is a technique for the resolution of disputes outside the courts. The parties to a dispute refer it to arbitration by one or more persons (the "arbitrators", "arbiters" or "arbitral tribunal"), and agree to be bound by the arbitration decision (the "award"). A third party reviews the evidence in the case and imposes a decision that is legally binding on both sides and enforceable in the court. O’ Sullivan, Arthur, Sheffrin, Stev en M.(2003).

Arbitration can be either voluntary or mandatory (although mandatory arbitration can only come from a statute or from a contract that is voluntarily entered into, in which the parties agree to hold all existing or future disputes to arbitration, without necessarily knowing, specifically, what disputes will ever occur) and can be either binding or non-binding. Non-binding arbitration is similar to mediation in that a decision cannot be imposed on the parties. However, the principal distinction is that whereas a mediator will try to help the parties find a middle ground on which to compromise, the (non-binding) arbitrator remains totally removed from the settlement process and will only give a determination of liability and, if appropriate, an indication of the quantum of damages payable. By one definition arbitration is binding and non-binding arbitration is therefore technically not arbitration. Arbitration is a proceeding in which a dispute is resolved by an impartial adjudicator whose decision the parties to the dispute have agreed, or legislation has decreed, will be final and binding.  Arbitration also resembles litigation in that many parties use arbitration as a springboard to negotiation. Parties who know that their dispute will wind up in arbitration often fail to commence serious negotiations until shortly before or shortly after the arbitration proceedings have begun. Frequently, negotiations will continue simultaneously with the arbitration proceedings, meaning the parties' representatives will discuss settlement outside the hearing room while the hearing itself is underway inside. Arbitration can even expedite negotiations, since the parties know that once the arbitrator has issued a decision, the decision is typically final and rarely appeal-able.

1.2       Statement Of Problem

Every modern construction place are fill with disputes. Disputes come from conflicts between employees, supervisors and / or management. All these disputes are a regular and an on-going part of every construction place. A survey conducted by the American Management Association revealed that managers spend at least 24 percent of their time at work resolving conflicts. The survey also showed that conflict resolution had become more important over the last 10 years, and that conflict resolution was either more important or equally important with  planning, communication, motivation  and decision making ( Kenneth Cloke, 2001 ).The primary causes of conflict within organizations were identified as :misunderstanding (communication failure), personality clashes, value and goal differences, substandard performance, differences over method, responsibility issues, lack of cooperation, authority issues, frustration and irritability, competition for limited resources, and non-compliance with rules and policies ( Kenneth Cloke, 2001 ). Conflict are not only viewed in a negative way but also could be viewed in a positive

perception. While conflict creates dispute that will lead to decrease in productivity, reduce morale, prevent cooperation between workers, when view in a positive way, dispute can clarify the goals of a project, open communications and resolve problems. One of the effective method in solving disputes is to let the dispute proceed to arbitration. There could only be one outcome when it comes to the end result. Some way or another, one party will result in a win or lose situation where the truth be uncovered and exposed to both participants. This method will involve a third party and that makes it a fair way to solve the dispute. So, there would be no bias in this method as well. Arbitration could be use to solve all kinds of dispute in construction which occur in every workplace. For those reasons, arbitration is a valuable technique for the resolution of workplace disputes which aims at increasing employee satisfaction and job productivity, while improving the quality of work life.

Although arbitration is expecting to solve the dispute within organizations, not all cases are able to be solved smoothly. Sometimes, there are different outcome to a dispute from variety of arbitrators’ decisions on the same construction dispute scenario. There are many disputes in construction involving attorneys, owners, owner representatives, contractors, subcontractors. These are critical disputes where there are many things at stake such as time, money, position and face. When the parties involved could not make a final solution regarding their conflicts, this is where arbitrators come in. They act as a third party who could solved the problem. Somehow the arbitration is the person who has the final say at the end of the day. Their decisions are not constant all the time because different arbitrators have different minds. Arbitrators have different approach when dealing with disputes. Therefore, the objective of this study is to analyze the causes of disputes and its solution techniques in construction industry.

1.3       Research Question

a.         How popular is the different option of dispute resolution in construction industry in Nigeria?

b.         What are the factors responsible for choice of means of dispute resolution?

c.         What is the level of arbitration in construction dispute resolution? 

1.4 Hypothesis

H₁:       Arbitration is not frequently used in the construction industry

H₀:       Arbitration is frequently used in the construction industry

1.5 Aim of the Study

 The aim of this research work is to investigate the use of arbitration in settling of disputes in construction contract in the Nigeria construction industry with the view to determine its value and determine the way forward in settling dispute in the construction industry if the needs arise.

1.6 Objective of Study

a. To determine the different options of dispute resolution in the construction industry in Nigeria.

b. To examine the factors responsible for choice of means of dispute resolution?

c. To investigate the level of arbitration in construction dispute resolution? 

1.7       Significant of Study

Most construction contracts set out the manner in which disputes are to be resolved. Usually, those contracts call for use of a means other than litigation, such as arbitration to resolve disputes. Arbitration is a form of alternative dispute resolution (ADR). Arbitration is most commonly used for the resolution of commercial disputes, particularly in the context of international commercial transactions. The use of arbitration is far more controversial in consumer and employment matters, where arbitration is not voluntary but is instead imposed on consumers or employees through fine-print  contracts,  denying  individuals their right to access the courts. Many construction contracts require that disputes arising under the contract be resolved by arbitration. In addition, many cases occur will order that a case be submitted to arbitration before allowing it to come to trail. Arbitration is like a trail, except that it is usually much less formal. The dispute is heard by one or more arbitrators, who are selected from a panel of neutral arbitrators. Depending on the local practices and rules, the arbitrators may be attorneys, or people with expertise in the construction industry. The arbitrators act like a judge, in that they hear the case and make a final decision based on the evidence presented. Arbitration may be made binding on the parties, if they so agree. Many construction contracts do require binding arbitration, and if you sign such a contract without removing that provision, you will be deemed to have agreed to binding arbitration. The courts will not overturn the order of an arbitrator in binding arbitration unless the arbitrator made a decision that completely lacked any legal foundation.

The arbitral procedure, despite variations, which is uniformly applied to the resolution of commercial, labour, maritime, and construction disputes; is basically the same. Arbitration legislation accords privacy wherein the parties are permitted instead of resorting to court jurisdiction, they can very well agree to submit their disputes if arise in future to arbitration and that the arbitration proceedings to be thereafter commenced and resolved privately. The existence of arbitration, the subject matter, the evidence, the documents that are prepared for and exchanged in the arbitration, and the arbitrator’s award cannot be divulged to third parties. The tribunal, the parties and their representatives are the only persons allowed to participate in the proceedings unless the parties and the tribunal agree otherwise.

Despite different types of dispute resolution, arbitration conflict in construction projects remained unending and project abandonment flourishes in Nigerian construction industry, however the involvement of Project Managers as a leader who should manage conflict within the project is worthy of precise role clarification. Whether viewed from the perspective of the owner or the contractor, construction schedules serve several important purposes. First, the schedule is the vehicle for planning and sequencing the work. Second, the schedule may protect a party from liability for delay costs. Third, the schedule may allow a party to establish that it was delayed by another party or that another party was, in fact, the cause of a claimed delay. In fact, so prevalent was the system of Arbitration in India, that Hon’ble Chief Justice Marten, was compelled to state: “Arbitration is indeed a striking feature of ordinary Indian life, and I would go further and say that it prevails in all ranks of life to a much grater extent than is the case in England. To refer matters to a Panch is one of the natural ways of deciding many a dispute in India. Arbitration was originally frowned upon as expelling the purview of the court. This scenario came to be changed by the dictum of law laid down by the House of Lords in Scott V. Avery, in which it was held that till an award has been made, no right of action shall arise. This clause makes an award a condition precedent to any right of action for commencing the arbitration proceedings. It was decided in that case that though it is a principle of law that parties cannot oust the jurisdiction of the Court, any person may agree that no right of action shall accrue to him till the arbitrator have decided on any difference, that may arise between the parties to the agreement. Arbitration is one of the oldest systems of alternative dispute resolution to the traditional state administered court litigation. According to Aristotle, ‘it is equitable to be patient under wrong (not to retaliate); to be willing that a difference shall be settled by discussion rather than by force; to agree to arbitration rather than to go to court- for the umpire in an arbitration looks to equity, whereas the juryman sees only the law. Indeed, arbitration was devised to the end that equity might have full sway’. This precept has been echoed by William O Douglas J. in Bernhardt V Polygraphic Co in the following language: ‘The nature of the tribunal where suits are tried is an important part of the parcel of rights behind a cause of action. The change from a court of law to an arbitration panel may make a radical difference in ultimate result’.  This process has been adopted with considerable success on the Sea-to-Sky highway, and is also being used on the Pitt River Bridge construction. What this approach using a Fairness Commissioner does is assist the parties by having an independent party provide objective comments as to the dispute or claim at an early date during construction. The most salient factor differentiating court litigation from arbitration is the rigidity of the court procedure. Arbitration can be much more flexible both in time and procedure. As arbitration is consensual, the parties can choose the most suitable procedure. Neither they nor the tribunal are tied to inflexible rules of court. The parties can also be represented by anyone other choice, they are not bound by rules limiting appearance to persons with particular legal qualifications. The Tribunal may also conduct the proceedings in the manner it considers appropriate in case of default of the agreement by the parties. This power includes the power to determine the admissibility, relevance, materiality and the weight of any evidence83. Arbitration has always operated as an extrajudicial and informal trial process that allows the designated experts to adjudicate the disputes equitably which arise within specialized, self regulating communities. The arbitral procedure, despite variations, which is uniformly applied to the resolution of commercial, labour, maritime, and construction disputes; is basically the same. Arbitration legislation accords privacy wherein the parties are permitted instead of resorting to court jurisdiction, they can very well agree to submit their disputes if arise in future to arbitration and that the arbitration proceedings to be thereafter commenced and resolved privately. The existence of arbitration, the subject matter, the evidence, the documents that are prepared for and exchanged in the arbitration, and the arbitrator’s award cannot be divulged to third parties. The tribunal, the parties and their representatives are the only persons allowed to participate in the proceedings unless the parties and the tribunal agree otherwise.

1.9       Scope of the Study

For the scope of this thesis, the study would be restricted to the dispute resolution using arbitration on building project and it will be limited to construction site in Ibadan, Oyo state.

Click to Download Other Full Project

PAYMENT OPTIONS

Option one

For you to have access to the other Chapters kindly click on the button below to download. Payment of N5000.00 will be required of you to pay before downloading the materials. Our Materials is Unique and accessible.

Click to Download

Option TwoYou can pay to these following Bank Account No.

a.  Account name:  Solomon Samuel A.
     Account No.    0049522201
     Bank Name:     Gtbank

b.  Account name:  Abimbola Olawale Yusuf
     Bank Name:     1st Bank
     Account No.:    3046183290
After payment call the following Numbers for the Complete Project to be sent to your email; kindly send us the following details:

a.  Email Address
b.  Phone number
c.  Teller Number
d.  Code and Name of Project Topic.

Kindly send us these following information and the Complete Material will be sent to your mail in 30 minute time of the confirmation of the money sent.

Also, you can contact Sabtech Education on 07066244719, 08038581735, 08189473989

Whatsapp No: 07066244719, 08189473989

And through the email address: sabtechcafe@gmail.com.

Wishing you Best of Luck in your Academic pursuit and endeavors, God Bless.