Is Dispute Resolution a Part of Risk Management

“Isn’t Risk Management what you do prior to a problem occurring and Dispute Resolution what happens after the problem has occurred?”

I often talk of construction dispute resolution and risk management as if they are the same thing.  If risk management is the identification, management and monitoring of each risk, that implies that a process has been established to determine how each risk will be handled.  This would include establishing who is best able to handle the risk, an approach to dealing with the risk, and subsequent monitoring to see whether those decisions are appropriate. 

If we define dispute resolution more broadly as implementing systems to deal with and reduce the impact of issues as they are identified – are the two that much different?  Some dispute resolution processes encourage consistent third-party involvement with a project from initiation to completion.  For example, Dispute Resolution Boards (DRBs) are often required to meet regularly throughout the course of a project so that they are familiar with progress and potential issues and, because of this familiarity, are able to quickly understand and deal with issues as they develop.

Many construction risks are not discrete, stand-alone occurrences, but are hard to separate from normal productive activities and often have related residual issues.  There is usually a period of time where consensus on the extent of the issue and appropriate resolution can be initiated prior to there being a significant impact if systems are in place to allow this to happen.  This process does not even have to be non-contentious – as long as there is alignment of purpose, agreements can be reached for many different and divergent reasons.

If dispute resolution is included as a part of a project’s issues escalation process, it would go a long way to meet the desired objective of avoiding or expeditiously resolving issues that could impact a project’s success.  This requires looking at ADR as not the last resort before litigation or what to do when everything else has failed, but rather as an integral part and an important element of the risk management process.

Why Contractors Do What They Do

What is the impact of some common contract terms:

·        Claim notification must be submitted within ?? days of an occurrence or the claim is void

·        All costs must be submitted within ?? days or they will not be considered.

·        The amount negotiated is full and final settlement for that change

·        No total cost claims are allowed

Each of these requirements is perfectly sensible, you need to be notified in a timely manner, costs should be collected expeditiously, and once negotiated, the costs of changes should be final.  Unfortunately, many changes are not so clear-cut as to have definite start and completion dates (do you make a claim for changed conditions after the first hard driving pile of 500, the 10th, ???).  A series of changes may have a different cumulative impact than the sum of the individual changes and some changes result in incremental increases in the cost of the work (for example, a high-water table impacting the rate at which material can be excavated).   If you work in area where strict notice regulations apply, as a contractor, you may have little choice but to claim quickly and claim often in order to protect your right to recovery.  Even if substantial compliance with contractual notice is accepted in your area, why take the chance?

What constitutes notice is sometimes an issue as well.  Is formal written notice of a potential claim required, are site meeting minutes sufficient, is the change so obvious that notice is a given?

A contractor has every right to be compensated for changed conditions and, as an owner, you should want your contractors to be paid for the work that they have done and to be recognized as a partner, not a combatant, in delivery of your projects.  Ignoring contract requirements is not a solution for either party, but appreciate that your contactor may be playing by the rules that you established and react accordingly.