Major Causes of Dispute in the Ethiopian Construction Industry

A PROJECT REPORT
Under the guidance of

Prof. D.G.L.Chandra Rao __________________________

Submitted by:

KIFLE SEMU SIMA

Registration No. 531010358

_________________________
in partial fulfillment o f the requirement for the award of the degree

Of

MBA
IN

Project Management
February, 2012

Acknowledgement: I wish to express my deep appreciation to Prof. D.G.L.Chandra Rao, who served as my advisor, for all the support and guidance. I also appreciate his positive comments and advice throughout my research.

Thanks are due also to other members of the thesis committee

Acknowledgement is due to Sikkim Manipal University, Directorate of Distance Education.

Also, I wish to express my sincere gratitude to all my friends and colleagues who have participated in this research,sacrificing their invaluable time.

My thanks and gratitude is due also to my wife,(Alemtsehaye Mamo) for her encouragement and patience without which this work would not have been possible.

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Bonafide Certificate:

BONAFIDE CERTIFICATE
Certified that this project is the report bonafide work titled of

..

..<NAME OF THE CANDIDATE(S)>. who carried out the project work under my supervision.
SIGNATURE HEAD OF THE DEPARTMENT <Department> <<Full address of the Dept & College >> College > SIGNATURE FACULTY IN CHARGE <Academic Designation> <Department> <Full address of the Dept &

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Abstract: Construction projects are becoming increasingly complex, resulting in complex contract documents. Complex construction can likewise result in complex disputes. Disputes are inevitable in construction projects which predominantly arise from Complexity and magnitude of works, multiple prime contracting parties, poorly Prepared and /or executed contract documents, inadequate planning, financial issues and communication problems. Any one of these factors can overturn a project and lead to complicated litigation and arbitration, increased costs, time overrun, and a breakdown in the parties interest and relationship. Thus, the objectives of this study are to study, identify and review the major causes of dispute contributed by clients, consultants and contractors in construction projects and give suggestions and recommendations on how to minimize or avoid the occurrences of construction disputes. A questionnaire survey was carried in the various regions of Ethiopia and the feedbacks were collected and analyzed using important indices (Likert Scale) and Relative Importance Index (RII) analysis. The results show that Contractors Financial Difficulties, Price escalation, inadequate investigation before bidding, Consultants Poor Contract management & Supervision, and other factors contribute to such disputes. By and large, unresolved construction disputes

will only bring in negative impact on clients organization like time and cost overruns, diminution of respect between parties, deterioration of relationship, breakdown in cooperation and additional expenses.

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TABLE OF CONTENTS Page

Acknowledgement: .................................................................................................................. ii Bonafide Certificate:............................................................................................................... iii Abstract: ................................................................................................................................. iv TABLE OF CONTENTS ..........................................................................................................v List of Tables: ......................................................................................................................... ix List of Figures: .........................................................................................................................x Abbreviations and Glossary of Important Terms ..................................................................... xi Abbreviations ..................................................................................................................... xi Glossary of Important Terms ............................................................................................. xii CHAPTER One: .......................................................................................................................1 1.0 Introduction ....................................................................................................................1 1.1 Background of the study..................................................................................................3 1.2 Statement of Problem ......................................................................................................3 1.3 Research Objectives ........................................................................................................4 1.4 Scope and Limitation of Research ...................................................................................5 1.4.1 Scope .......................................................................................................................5 1.4.2 Limitations ...............................................................................................................5 1.5 Research Methodology and Design .................................................................................5 1.6 Significance of the Study ................................................................................................7 1.7 Thesis Organization ........................................................................................................7 1.8 Summary.........................................................................................................................9 CHAPTER Two: Literature Review ........................................................................................ 10 v

2.1 Introduction .................................................................................................................. 10 2.2 Key Terms and Concepts .............................................................................................. 10 2.3 Occurrence and Causes of Construction Dispute .................................................. 13

2.3.1 During the Design Phase......................................................................................... 14 2.3.2 During the Bid and Contract Award Phase .............................................................. 15 2.3.3 During the Construction Phase................................................................................ 15 2.4 summary ....................................................................................................................... 17 CHAPTER Three: Data Collection and Preliminary Analysis ................................................. 18 3.1 Introduction .................................................................................................................. 18 3.2 Sampling Methods ........................................................................................................ 18 3.3 Non-probability Sampling Strategies ............................................................................. 18 3.3.1Haphazard Sampling ............................................................................................... 19 3.3.2 Purposive Sampling ................................................................................................ 19 3.3.3 Convenience Sampling ........................................................................................... 19 3.3.4 The Sampling Method used in the Study ................................................................. 20 3.4 Questionnaire Development .......................................................................................... 20 3.4.1 Distribution of Questionnaires .................................................................................... 21 3.5 Data Summary .............................................................................................................. 22 3.5.1 Summary of Respondents Profile ............................................................................... 22 3.5.2 Response to Category 1: Employer Related Factors: ............................................... 23 3.5.3 Response to Category 2: Contractor Related Factors ............................................... 23 3.5.3 Response to Category 3: Consultant Related Factors............................................... 24 3.5.4 Response to Category 4: Material, Labor & Equipment Related Factors ................. 24 3.5.5 Response to Category 5: Contract & Contract Relationship Related Factors ........... 24 3.5.6 Response to Category 6: External Factors ............................................................... 25 3.6 Summary and conclusion .............................................................................................. 25 vi

CHAPTER Four: Data Analysis ............................................................................................. 26 4.1 Introduction .................................................................................................................. 26 4.2 Calculation of relative importance of Index ................................................................... 26 4.2 Analysis of Data............................................................................................................ 27 4.2. 1 Causes of Dispute .................................................................................................. 27 4.3 Findings and Discussions .............................................................................................. 28 4.3.1. Contractors Financial Difficulties ......................................................................... 31 4.3.2. Price escalation ...................................................................................................... 32 4.3.3 Inadequate investigation before bidding .................................................................. 33 4.3.4 Consultantss Poor Contract management & Supervision ....................................... 34 4.3.5. Shortage in material ............................................................................................... 35 4.3.6 Exceptionally Low Bid ........................................................................................... 36 4.3.7 Employers Slow decision making ......................................................................... 36 4.3.8 Equipment availability and failure .......................................................................... 36 4.3.9. Contractors poor site management ........................................................................ 37 4.3.10 Consultants delay in preparation & approval of drawings ..................................... 37 4.4 Dispute Resolution Methods........................................................................................ 37 4.4.1 Mediation ............................................................................................................... 38 4.4.2 Dispute Review Board ............................................................................................ 39 4.4.3 Dispute Adjudication Board.................................................................................... 39 4.4.4 Arbitration .............................................................................................................. 46 4.4.5Court Litigation ....................................................................................................... 48 4.5 Summary....................................................................................................................... 49 CHAPTER Five: Conclusions and Recommendations ............................................................. 50 5.1 Introduction .................................................................................................................. 50 5.2 Conclusions .................................................................................................................. 50 5.2.1 Employers point of view...................................................................................... 50 5.2.2 Consultants point of view .................................................................................... 52 vii

5.2.3 Contractors point of view .................................................................................... 53 5.2.4 Overall respondents point of view ......................................................................... 54 5.3 Recommendations ......................................................................................................... 57 5.3.1 Recommendations for the Employers/ Clients......................................................... 57 5.3.2 Recommendations for the Consultants .................................................................... 57 5.3.3 Recommendations for the Contractors .................................................................... 58 5.3.4 General Recommendations ..................................................................................... 58 References: ............................................................................................................................. 60 Appendices: ..................................................................................................................... 61 Appendix 1: Cover letter for questionnaire .......................................................................... 62 Appendix 2; Questionnaire Survey ................................................................................ 63

Appendix 3: Calculation of Relative Importance of Index (RII) (based on overall view) ..... 66 Appendix 4: Calculation of Relative Importance of Index (RII) (based on Employers view)69 Appendix 5: Calculation of Relative Importance of Index (RII) (based on Contractors view) ........................................................................................................................................... 72 Appendix 6: Calculation of Relative Importance of Index (RII) (based on Consultants view) ........................................................................................................................................... 75 Appendix 7: Comparison of overall view with Employers, Contractors & Consultants View ........................................................................................................................................... 78

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List of Tables: Table 3.1: Respondents return rate

Table 3.2: Summary of Respondents Profile

Table 3.3: Overall respondents view (Category 1) Table 3.4: Overall respondents view (Category 2) Table 3.5: Overall respondents view (Category 3) Table 3.6: Overall respondents view (Category 4) Table 3.7: Overall respondents view (Category 5) Table 3.8: Overall respondents view (Category 6) Table 4.1: Ranking of causes (based on overall view) Table 5.1: Summary the top 10 causes of dispute (based on Employers point of view) Table 5.2: Summary the top 10 causes of dispute (based on Consultants point of view)
Table 5.3: Summary the top 10 causes of dispute (based on Contractor point

of view) Table 5.4: Summary the top 10 causes of dispute (based on overall respondents view)

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List of Figures: Figure 1.1 Flowchart of the Research Methodology Figure 2.1 Disagreement Escalation Diagram Figure 4.3: The ten most important causes of disputes (based on all respondents)

Abbreviations and Glossary of Important Terms Abbreviations

ADR : Alternate Dispute Resolution CEDR : Centre for Effective Dispute Resolution DAB : Dispute Adjudication Board DB : Dispute Board DRB : Dispute Review Board EoI : Expression of Interest FIDIC : The Fdration Internationale des Ingnieurs-Consei ICC : International Chamber of Commerce ITT : Invitation to Tender JCT : Joint Contracts Tribunal MDB : Multilateral Development Bank MoWUD : Ministry Of Works & Urban Development PASDEP : Plan For Accelerated And Sustained Development To End Poverty

qv, qvv : quod vide indicates a term that has a definition of its own UNCITRAL : United Nations Commission on International Trade Law

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Glossary of Important Terms

The legal process by which an arbiter or judge reviews evidence and argumentation including legal reasoning set forth by opposing parties or Adjudication litigants to come to a decision which determines rights and obligations between the parties involved. It is The final judgment in a legal proceeding; the act of pronouncing judgment based on the evidence presented Alternate Dispute A procedure for settling a dispute by means other than litigation, such Resolution(ADR) as arbitration or mediation. A method of dispute resolution involving one or more neutral third Arbitration parties who are usually agreed to by the disputing parties and whose decision is binding 1. The aggregate of operative facts giving rise to a right enforceable by Claim a court 2) The assertion of an existing right; any right to payment or to an equitable remedy, even if contingent or provisional 3.)A demand for money, property, or a legal remedy to which one asserts a right Construction is a process that consists of the building or assembling of infrastructure, In general, there are three types of construction: Building Construction construction , Heavy / civil construction , Industrial construction (Each type of construction project requires a unique team to plan, design, construct and maintain the project.) Dispute Resolution Agreement Legal agreement between two parties that lays out the method and timetable for solving conflict between them, such as between employers and employees, partners, stockholders (shareholders). A document that the department will issue to tenderers. The document Invitation to Tender (ITT) will request that the tenderers reply to a precisely defined requirement in a prescribed format. It is typically comprised of lodging of tender, terms of tender, conditions of contract, contract schedules, service specifications, offer to be bound and articles of agreement. xii

A method of ascribing quantitative value to qualitative data, to make it Likert Scale amenable to statistical analysis. A numerical value is assigned to each potential choice and a mean figure for all the responses is computed at the end of the evaluation or survey. Litigation The process of carrying on a lawsuit Service levels Service levels are the standards of service with which the service provider must comply. They must be clear and measurable. A stakeholder is anyone who has a vested interest in the project. Stakeholders are individuals and organizations who are actively Stakeholders involved in the project, or whose interest may be positively or negatively affected as a result of project execution or successful project completion. A civil wrong other than a breach of contract or a breach of trust or other merely equitable obligation and which gives rise to an action for un liquidated damages at common law (Sir John Salmond). Tort Literally the word is French for wrong. The essential point is that it is a breach of a civil duty imposed by the law generally. The most important tort today is negligence (qv), but other torts include nuisance (qv), trespass (qv) and defamation (qv).

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CHAPTER One: 1.0 Introduction The role the construction industry plays in socio-economic development is significant. The industry is a distinct sector of the economy, which makes its direct contributions to economic growth. It provides the basis upon which other sectors can grow by constructing the physical facilities required for the production and distribution of goods and services. The industry has a significant multiplier effect on the economy as a whole.

Economic growth is one of the most effective ways of reducing poverty, and infrastructure delivery has been identified as one of its key drivers. The construction industry has great employment generation potential as labor intensive technologies are economically viable for most items of construction work. The present state of the construction industry falls short of meeting domestic and international quality standards and the performance demand expected from the sector. Its percentage of GDP only amounts to 3%, considerably lower than the sub-Saharan average of 6%. However, in line with the overall economic growth of 5% in the past 4 years, the Construction Industry has registered an 8.2% growth. Moreover, Public construction projects consume an average annual rate of nearly 60% of the Governments capital budget. 1

(MoWUD, Plan for Accelerated and Sustained Development to End Poverty (PASDEP))

While construction's direct contributions to development are significant, it also stimulates a sizeable amount of economic growth through backward and forward linkages. Construction's requirements for goods and services from other

industries are considerable; the development of the construction industry therefore stimulates these ancillary industries, thus encouraging further economic growth. In developing countries the construction of physical facilities makes up more than one half of gross domestic investment and tends to be concentrated on basic infrastructure in agriculture, mining, transportation, communication, and utilities. Infrastructural services make some contribution to GDP, but they also stimulate the development of other industries which, in turn, contribute more directly to economic growth. Once the basic infrastructure is created, more effort can be devoted to construction for manufacturing, commerce, and services and to the building of dwellings and institutional facilities. Construction's contributions to employment creation are naturally parallel to its contributions to output generation. A common condition of underdevelopment is unemployment and underemployment. In the past, the question of employment was generally neglected because of the apparent conflict between economic growth and employment creation. The extent to which growth and employment creation should be balanced in developing countries is a matter of importance and necessarily depends largely upon local economic, technical, social, and political conditions. The construction industry could play an important role in resolving this conflict because it is technologically flexible, implying that many of its operations can be made more or less labor-intensive depending upon conditions in the country at the time.
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1.1 Background of the study The subject of study is identified after more than 20years of local & international work experience in infrastructure development and related projects. This was initiated to study the underlying reasons for construction contract disputes in Ethiopian construction industry and to identify methods used for dispute avoidance and resolution. The objectives of the subject are identified through the observations of construction conflicts and disputes which were encountered by clients, consultants and contractors.

1.2 Statement of Problem The construction industry has become very complicated such that political and economic trends are increasing the economic pressure resulting in disputes. Complex construction has brought about complex disputes in the industry. There are so many different types of sources that may lead to disputes, the most common of these: Contracts, Defective work, Variations or extra works, Delays and extensions of time, Failure to adequately document the works & daily events, etc, and this eventually becomes a burden to the industry in terms of production.

Great concern has been expressed in the recent years regarding the dramatic conflicts and disputes in the construction industry in the whole world and this has resulted in: a) Time delays and cost overruns. b) Deterioration of relationship and breakdown in cooperation.
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c) Additional expenses in management and administration d) Possibility of escalation to litigation.

Often seen stakeholders(employers, consultants & contractors) blaming each other because of problems they come across during the construction process, because of poorly done designs, claims, and poor administration and delays and these have been overlooked. There are questions which arise on what is it that is actually causing disputes in the industry? And why disputes have become a nature of event in the industry?

Disputes and conflicts have gained frequent rise during construction of projects and this needs an involvement of a neutral body to resolve disputes as early as possible.

1.3 Research Objectives The goal of this study is to identify the major causes of construction disputes in the Ethiopian construction industry, contributed by clients, consultants and contractors and eventually identify the occurrences of the construction disputes during the process of construction. The objectives of this study can be summarized as follows: 1.3.1 To identify the root/major causes of construction2 disputes

Building construction, Heavy / civil construction, Industrial construction

1.3.2 To identify the perceptions of clients, consultants, and contractors on the relative importance of causes and effects of dispute 1.3.3 To identify contribution of clients, consultants, and contractors to the causes and effects of dispute 1.4 Scope and Limitation of Research 1.4.1 Scope The research has been carried out with a careful study on data collected mainly on questionnaire survey, literature review and observations (personal experience). The research will focus on all kinds of project i.e. private and government projects which are faced with the problem of construction disputes. The questionnaire survey was designed based on factors identified from literature review that contributed to causes of disputes, effects of disputes and methods to minimize disputes. 1.4.2 Limitations The shortcomings/ limitations are unavailability of adequate documented information in the field of the study, and the reluctance of some stakeholders in the construction industry to provide information related to the subject issues/dispute/. 1.5 Research Methodology and Design The research methodology is the essential stages to determine the success of achieving the aim and objectives. The major processes involved in this study includes: Questionnaire survey, literature review, data collection, data analysis and conclusion.

A questionnaire was developed to assess the perceptions of clients, consultants, and contractors on the relative importance of causes and effects of dispute in Ethiopian construction industry. The questionnaire will be divided into two parts. The first part requested background information about the respondents. The second part of the questionnaire focused on causes of construction disputes. The respondents will be asked to indicate their response category on Six (6) & well-recognized major categories of construction dispute factors Category 1: Employer Related Factors; Category 2: Contractor Related Factors; Category 3: Consultant Related Factors Category 4: Material, Labor & Equipment Related Factors Category 5: Contract & Contract Relationship Related Factors Category 6: External Factors

The data collected from the questionnaire survey will be analyzed using the fivepoint Likert scales and the Likert scale taking the following format: 1. Very Insignificant, 2. Insignificant, 3.Average, 4.Significant, And 5.Very Significant.

Finally, results of the questionnaires surveys will be analyzed. The findings and conclusion will be elaborated based on the analysis.

Figure 1.1 Flowchart of the research Methodology

Specify objective (ProblemStatement)

Select method of data collection

Questionnaire Design

Data Collection, processing and analysis

Reporting Findings

1.6 Significance of the Study This study will identify the root causes of construction dispute caused by the client, consultants and contractors. It also covers the impact of construction disputes in a clients organization and methods of disputes resolutions. These factors had been seen as the major factors in affecting production in the industry, thus it is a necessity to manage them or rather to avoid them for the better part of the performance of the industry.

1.7 Thesis Organization This thesis is divided into five chapters. The first chapter introduces the subject, background and justification for this study. This chapter also specifies the aim

and objectives, the methodology of conducting this study and a brief summary on the structure of the research.

Chapter two highlights the related issues on causes of construction disputes from available literature which include the following: Definition of disputes; Disputes Occurrence; Research related to construction Disputes; The causes of construction dispute; Impact of disputes on client organization;

Chapter three describes in details the process of data collection that involved in the study which included introduction, data on the causes of construction disputes questionnaire development, sampling, data summary, and summary and conclusion.

Chapter four discusses the process of the data analysis to achieve the aim and objectives of this study which included introduction, analysis of data, important index, findings and discussion, and conclusion. Finally, the last chapter summarizes the conclusion from the research findings of the study and recommendation.

1.8 Summary This chapter covered the introduction to the problem of disputes in the construction industry that has prompted to this study. Moreover it states the aim and objectives, scope, methodology used and the significance of the findings. This project is based on identifying construction disputes that have been seen to be affecting the industrys performance. The results to be obtained from the study will help in improving the production of the industry by means of implementing the decisions obtained from the results of the study.

CHAPTER Two: Literature Review 2.1 Introduction Construction contracts entered into by various agencies are frequently attended by significant risk of exposure to change order requests and claims. These claims involve numerous issues, such as contract ambiguities, changes and additions to the contract, differing site conditions, schedule delays, stop work orders, errors and omissions in the contract plans and specifications, acceleration of the contract by the agency, defective work by the contractor seeking indemnification from third parties, warranty/guaranty clauses, recovery of liquidated damages. As the volume of unresolved disputes grows, relationships with the contracting community can deteriorate. This may lead to higher bid costs and the actual withdrawal from the bidding of some otherwise capable contractors. The early recognition, identification, and resolution of disputes can lessen management costs and administrative efforts and lower overall program costs, benefiting the public, the agency, and the contractor. 2.2 Key Terms and Concepts The two particular definitions that are important to this report are the key terms dispute and claim As used in this thesis, a dispute refers to a contract related issue that has not yet become a matter of formal process; a claim develops from a dispute and has reached the stage where formal proceedings or legal actions are underway. The definitions are as follows:3 1. Dispute-- Strictly, a calling into question. In the context of construction contracts it is usually associated with adjudication (qv) or arbitration (qv)
3

Building Contract Dictionary

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when it refers to a disagreement between two parties. Usually, that will take the form of a proposition by one party which the other has rejected, although sometimes long silence or delay in responding on the part of the other party may also be considered a rejection. A dispute may exist for the purpose of adjudication or arbitration even though it may be obvious which party is correct. Adjudication and arbitration clauses usually refer to dispute or difference, but they probably have essentially the same meaning in this context. The Arbitration Act 1996 s. 82 (1) says that dispute includes difference. No adjudication or arbitration can take place unless a dispute or difference exists 2. Claim-- The dictionary defines claim as an assertion of a right and, under standard building contracts, the word conveys the concept of additional payment which the contractor seeks to assert outside the contractual machinery for valuing the work itself. The word is also used in respect of the contractors applications for an award of extensions of time (qv). The main types of claim which may be made by a contractor are:

3. Contractual claims: which are those made under specific provisions of the Contract, e.g. one for direct loss and/or expense under JCT 98, clause 26, or for expense under GC/Works/1 (1998), clause 46. This type of claim is also occasionally described as being ex contractu, i.e. arising from the contract. Under JCT terms and most other forms of contract it is only claims of this type which the architect has authority under the contract to settle.
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4. Common law claims: which are those which arise apart from the express provisions of the contract. They include claims in tort (qv), claims for a quantum meruit (qv), claims for a quantum valebat (qv), claims for breach of express or implied terms of the contract or warranty (qv). All the current standard forms allow additional or alternative claims for breach of contract, based on the same facts. Usually they are based on implied terms relating to non-interference with the contractors progress (see: Hindrance or prevention). They are sometimes called ex contractual or extra contractual claims. 5. Ex gratia claims: are those without legal foundation and are usually made on moral or hardship grounds. Very rarely, there may be an advantage to meeting such a claim as a matter of grace, e.g. if the contractor is on the brink of insolvency (qv) and, as a result, the employer would face greater expense if the contractor could not carry on and completion contractors had to be employed.

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Disagreement

When two parties express difference of opinion. The mater is usually resolved to the mutual satisfaction of all Parties

Argument

Where the disagreement can not be so readily resolved and discussion become heated

Dispute

Major disagreements, often over contracts that can not be resolved by the parties without recourse to a formal process

Figure 2.1 Disagreement Escalation Diagram (Source: (IAN M Elenberg), Dispute Resolution in Construction Management)
4 2.3 Occurrence and Causes of Construction Dispute Numerous construction disputes that arise largely through miscommunication

between the various parties in a design/construction effort. Usually, these disputes occur even though the parties involved all are well intended. This often happens because someone drops the ball by failing to communicate effectively with another concerning design issues, compensation and payment issues, scope change issues and the like, leading to legal disputes.

The occurrence of some of the common causes of dispute are discussed below A review of these disputes shows that many, if not all, can be avoided through better communication whether through more effective contract writing, oral

Ineffective Communication: Common Cause of Construction Disputes (Jeffery M. Hall, Esq. Folk & Associates, P.C. Vol.13, No.2, May/June 2002 )

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presentation and/or people communication skills

2.3.1 During the Design Phase 1. Design and specification oversights, and errors or omissions resulting from uncoordinated civil, structural, architectural, mechanical and electrical designs can result in unexpected change orders, wholesale scope changes, and project delays. They may ultimately lead to inadvertently illconstructed projects filled with construction defects due to bad project documentation. 2. The design professionals failure to remain within an owners project budget and design objectives, leads to dissatisfied owners and to design professional liability. 3. A similar dispute may occur when an owners design vision of a project is not communicated effectively to the design team. Perhaps due to an owners inexperience, this breakdown may result in an unrealistic project square footage, unnecessary architectural features, and/or finishes that cannot be achieved within budget. Over-design is a predictable cause of disputes, particularly when an owner turns to third-party consultants for input that is not coordinated effectively with the design team while the overall design is evolving and maturing.

4. The owners failure to contract with the consultants for construction administration/construction observation services can lead to poor coordination of the project, especially in cases involving absentee or inexperienced owners. The owner should make a determination at the
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outset whether this service will be provided by the design team or a third party such as a construction manager, and then engage this party for those services. Design phase issues like these can be avoided by addressing them up front and providing for them in properly drawn construction documents. 2.3.2 During the Bid and Contract Award Phase Lack of understanding and agreement between the owner and contractor as to whether the contract is a lump-sum, cost-reimbursable (time and materials), cost-plus fixed fee, or guaranteed maximum price contract arrangement. Other issues that arise during contract formation include (1) defining what costs are allowable and reimbursable; (2) the budget breakdown and schedule of values for pay items that are essential in controlling billed costs, progress and earned revenue; and (3) the allocation of change orders to budget or pay items relative to billing practices and progress measurement.

2.3.3 During the Construction Phase 1. Starting construction of a project prior to design completion is a recipe for trouble. A complete, fully coordinated set of project documents is critical to realizing a successful project from all parties perspectives. Without fully coordinated drawings and specifications, the project will most assuredly be faced with budget issues, disputes arising from bid allowances due to undefined scopes, and ultimately in changes and cost increases.

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2. Construction disputes due to lack of access to utilities, unanticipated site conditions and/or inclement weather impacts on working conditions can result in claims for inefficiency and delay-related costs. 3. The contractors failure to coordinate its subcontractors work through effective and timely exchange of shop drawings, failure to provide timely responses to the consultant and client, and purchasing and schedule mismanagement that may impact the work of others, are all factors that also result in delays, inefficiency, rework, defects and cost overruns that lead to claims and disputes.

4. Contractor

over-billings

often

are

the

result

of

fundamental

misunderstanding of what is allowable under the terms of the contract. This includes unsupported costs, disallowed costs under the construction contract, or costs for non-compensable delays, inefficiency, rework and

mismanagement. 5. Consultants failure in its contractual administrative duties for such things as field observations and reporting with regard to construction defects, quality, progress, and conformance of the work with the contract documents; and the evaluation of contractor change orders and pay applications. 6. Cost overruns often lead to disputes because of an owners unwillingness or inability to pay, even when they are the result of legitimate scope changes and/or project upgrades. The owners contribution to these cost overruns also typically causes contractor delays, acceleration and inefficiency.

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2.4 summary This chapter highlights issues related to causes of construction disputes from available literature which including: Definition of disputes; Occurrence & The causes of construction dispute, etc.

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CHAPTER Three: Data Collection and Preliminary Analysis

3.1 Introduction Data Collection is an important aspect of any type of research study. Inaccurate data collection can impact the results of a study and ultimately lead to invalid results. The purpose of data collection is to obtain information to keep on record, to make decisions about important issues, to pass information on to others. Primarily, data is collected to provide information regarding a specific topic 3.2 Sampling Methods One of the most important decisions that any researcher makes is how to obtain the type of participants needed for the study. In most situations, it is impossible to study an entire population. Typically a subset of people drawn from a larger population will be studied and use inferential statistics to make an inference from the sample back to the population. The validity of that inference depends on how representative the sample or subset is of the population from which it is drawn. Given the time constraint, the prime goal of this paper, is to obtain the most representative sample using the appropriate type of non probability sampling strategies. 3.3 Non-probability Sampling Strategies There are three types of non-probability sampling strategies: Haphazard, Convenience and Purposive

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3.3.1Haphazard Sampling Haphazard sampling is a strategy that is almost guaranteed to introduce bias into your study. It should be avoided at all costs. A typical haphazard strategy uses a "man-on-the-street" technique to recruit those who wander by or selects a sampling frame that does not accurately reflect the population. 3.3.2 Purposive Sampling Purposive sampling targets a particular group of people. When the desired population for the study is rare or very difficult to locate and recruit for a study, purposive sampling may be the only option. For example, you are interested in studying cognitive processing speed of young adults who have suffered closed head brain injuries in automobile accidents. This would be a difficult population to find. 3.3.3 Convenience Sampling Convenience sampling selects a particular group of people but it does not come close to sampling all of a population. Researchers want to study the effectiveness of a diversion program for preventing further criminal activity among first-time juvenile offenders. Many cities across the nation have such programs but the researchers study the program in their city. The sample would generalize only to similar programs in similar cities. Convenience sampling is widely used in student research projects. Students contact professors that they know and ask if they can use their classes to recruit research subjects.5

http://www.wadsworth.com/psychology_d/templates/student_resources/workshops/res_methd/sampling/sampling_ 32.html

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3.3.4 The Sampling Method used in the Study The sampling method used in this study was convenience sampling. This sampling comes under the class of non-probability sampling techniques. As the name implies, sample elements are identified by convenience (friends). This method of sampling is preferred when it is difficult to get response from sample elements selected at random. The questionnaires were distributed through friends working in various, Employer, consulting and construction firms. This sampling method enabled us to obtain a large number of completed questionnaires quickly and economically. 3.4 Questionnaire Development A questionnaire survey shown in Appendix 2 was formulated to compare the collective perceptions of personnel from clients, consultants and contractors, as to categorize the major causes of dispute on clients organization on construction projects in Ethiopia. The respondents were asked to indicate their response category on 29(TwentyNine) well-recognized construction delay factors and these causes were categorized into the following 6(six) major groups: Category 1: Employer Related Factors: Failure to finance and payments of completed works, Owner interference, slow decision making, unrealistic contract duration and requirements imposed. Category 2: Contractor Related Factors: inadequate investigation before, Site management, Construction methods, Poor planning and use of wrong equipment, Mistakes during construction stage, Inexperienced contractor, Financial Difficulties, Exceptionally Low Bid
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 Category 3: Consultant Related Factors: Poor Contract management & Supervision, Preparation and approval of drawings, Frequent Changes in orders & Designs, Waiting time for approval of tests and inspection Category 4: Material, Labor & Equipment Related Factors: Quality of

Material, Shortage in material, Shortage of Labor supply, Labor productivity, Equipment availability and failure Category 5: Contract & Contract Relationship Related Factors: Change orders, Mistakes and discrepancies in contract document, Inappropriate overall organizational structure linking to the project, Lack of communication between the parties Category 6: External Factors: Inclement Weather condition, Regulatory changes, Unforeseen site condition 3.4.1 Distribution of Questionnaires Out of the 75(seventy-five) questionnaires sent to prospective respondents working in Employer, Consultants, 69(sixty-nine), questionnaires were filled and were sent back,(the reason for this high rate of response is the method of sampling used, which is (convenience sampling) which equates to 92 % overall response rate. The composition of respondents is Employer/clients (96%), consultants (87%) contractors (93%),(Please refer Table 3.1 below)
Table 3.1: Respondents return rate Item No 1 2 3 Sample type Employer(Client) Consultant Contractor Total sent 25 23 27 75 return 24 20 25 69 % 96% 87% 93% 92% 21

3.5 Data Summary 3.5.1 Summary of Respondents Profile The respondents data profile with respect Positional distribution includes General Managers, project managers, department heads, resident engineers and supervisors With respect to years of experience 14.49% of the sample are less than or equal to 5years of experience, 31.88% of the sample between 6 to 10 years of experience, 17.39% of the sample between 11 to 15 years of experience, 55% of the sample between 16 to 20 years of experience 20.29 % of the sample are more than 20 years of experience,

With respect to Type of Organization 34.78% of the sample are from Employer (client) Organization), 28.99% of the sample are from Consultant Organization, and 36.23% of the sample is from Consultant Organization (please refer Table 3.2,
below)

Table 3.2: Summary of Respondents Profile Item No I Characteristics Number of Years of Experience Less than 5 years 6 to 10 years 11 to 15 years 16 to 20years No. of response 10 22 12 11 Percent

14.49% 31.88% 17.39% 15.94% 22

More Than 20 years Total II Type of Organization Employer(client) Consultant Contractor Total

14 69 24 20 25 69

20.29% 100.00% 34.78% 28.99% 36.23% 100.00%

3.5.2 Response to Category 1: Employer Related Factors:

Table 3.3: Overall respondents view (Category 1) Sr. Description No. 1 2 3 4 Failure to finance and payments of completed work Owner Interference Slow decision making Unrealistic contract duration and requirements imposed Indicator 2 3 4 Total 5 69 69 69 69

1 7 2 2

13 12 15 16 13 16 23 15 8 5 15 34 13 14 14 23 16

3.5.3 Response to Category 2: Contractor Related Factors

Table 3.4: Overall respondents view (Category 2) Sr. No. Description 1 2 3 4 5 6 7 8 Inadequate investigation before bidding Site management Construction methods Poor planning and use of wrong equipment Mistakes during construction stage Inexperienced contractor Financial Difficulties Exceptionally Low Bid 1 4 3 4 4 8 3 2 4 Indicator 2 3 4 6 11 13 7 19 23 10 28 17 7 19 22 20 25 10 18 18 20 0 6 24 6 10 29 Total 5 35 17 10 17 6 10 37 20 69 69 69 69 69 69 69 69

23

3.5.3 Response to Category 3: Consultant Related Factors

Table 3.5: Overall respondents view (Category 3) Sr. No. 1 2 3 4 Description 1 Poor contract management & Supervision Preparation and approval of drawings Frequent Changes in orders & Designs Waiting time for approval of tests and inspection 1 2 2 3 Indicator 2 3 4 5 5 6 7 9 17 24 25 26 24 20 22 20 22 17 13 11 Total 69 69 69 69

3.5.4 Response to Category 4: Material, Labor & Equipment Related Factors

Table 3.6: Overall respondents view (Category 4) Sr. No. 1 2 3 4 5 Description Quality of material Shortage in material Shortage of Labor supply Labor productivity Equipment availability and failure 1 5 2 8 5 2 Indicator 2 3 4 6 25 22 5 15 29 15 26 15 13 16 25 5 20 28 Total 5 11 18 5 10 14 69 69 69 69 69

3.5.5 Response to Category 5: Contract & Contract Relationship Related Factors

Table 3.7: Overall respondents view (Category 5) Sr. No. 1 2 3 4 Description Change orders Mistakes and discrepancies in contract document Inappropriate overall organizational structure linking to the project Lack of communication between the parties 1 1 2 2 Indicator Total 2 3 4 5 69 9 24 24 11 69 7 17 32 11 69 10 26 22 9 69

0 10 27 22 10

24

3.5.6 Response to Category 6: External Factors

Table 3.8: Overall respondents view (Category 6) Sr. No. 1 2 3 4 Description 1 Inclement Weather condition Regulatory changes Unforeseen site condition price escalation 7 10 1 1 Indicator 2 3 4 18 15 7 2 28 28 29 14 14 14 25 24 Total 5 2 2 7 28 69 69 69 69

3.6 Summary and conclusion The survey results have been collated and the necessary computation has been done (please refer Appendix 3, 4, 5, 6 &7) The overall ratings of the major causes of disputes and the findings and analysis of top 10 causes of disputes is listed and discussed in details in Chapter 4

25

CHAPTER Four: Data Analysis 4.1 Introduction Data analysis is a practice in which raw data is ordered and organized so that useful information can be extracted from it. The process of organizing and thinking about data is key to understanding what the data does and does not contain. There are a variety of approaches to data analysis, and it is notoriously easy to manipulate data during the analysis phase to push certain conclusions or agenda. For this reason, it is important to pay attention when data analysis is presented, and to think critically about the data and the conclusions which were drawn. Raw data can take a variety of forms, including measurements, survey responses, and observations. The source of raw data for this research is mainly questionnaire survey responses and interviews, during the course of the data analysis process, survey results are tallied, so that one can see at a glance how many people answered the survey, and how people responded to specific questions. 4.2 Calculation of relative importance of Index The Relative Importance Index (RII) method was adopted in this study within various Categories (i.e. Category1-Category6)). The five-point scale ranged from 1 (Very Insignificant) to 5 (Very Significant) was adopted and transformed to relative importance indices (RII) for each factor as follows:

RII= W -------------* 100 A* N 26

where W is the weighting given to each factor by the respondents (ranging from 1 to 5), A is the highest weight (i.e. 5 in this case), and N is the total number of respondents. The RII value had a range from 0 to 1 (0 not inclusive), higher the value of RII, more important was the cause or effect of disputes.

The RII was used to rank (R) the different causes. These rankings made it possible to cross-compare the relative importance of the factors Each individual causes RII perceived by all respondents were used to assess the general and overall rankings in order to give an overall picture of the causes of construction disputes in the Ethiopian construction industry. The same procedure was adopted for ranking the effects.

4.2 Analysis of Data Converting all responses into numerical data, will help analyze the data in which one can draw conclusions on the findings. Analyzing the data is a task that requires good analytical skills to interpret data accumulated from the questionnaire. 4.2. 1 Causes of Dispute The primary data collected from the questionnaire was analyzed from the perspective of respondents. Each individual causes Relative Importance Index, (RII) perceived by all respondents was computed for overall analysis. The Relative Importance Index, (RII), was computed for each cause to identify the most signicant causes. The causes were ranked based on RII values. From the ranking assigned to each cause of disputes, Based on the ranking, the 6 (Six)

27

most important causes of construction disputes from each category as perceived by all respondants were: (1) contractors Financial Difficulties (RII = 0.8725) Category 2: Contractor Related Factors; (2) price escalation (RII = 0.8203); Category 6: External Factors (3) Poor Contract management & Supervision (RII = 0.7768) Category 3: Consultant Related Factors; (4) Shortage in material (RII = 0.7623) Category 4: Material, Labor & Equipment Related Factors (5) Slow decision making (RII = 0.7478), Category 1: Employer Related Factors (6) Mistakes and discrepancies in contract document(RII = 0.7246) Category 5: Contract & Contract Relationship Related Factors 4.3 Findings and Discussions This section discusses the results obtained in the earlier section., we discuss the results obtained by analyzing the causes of disputes. Table 4.1 shows the ranking of causes based on response of all respondents (clients, contractors and consultants).
Table 4.1: Ranking of causes (based on overall respondents view) Item No. Indicator Description CATEGORY 1: Employer Related Factors Failure to Finance and payments of completed work Owner Interference Slow decision making Unrealistic contract duration and requirements imposed 1 2 3 4 5 Total RII (%)

Rank

1 2 3 4

13 12 15 16 13 7 2 2 16 23 15 8 5 15 34 13 14 14 23 16

69 69 69 69

61.16 60.29 74.78 70.72

22 23 7 12 28

Item No. 5

Indicator Description Other (if any) CATEGORY 2: Contractor Related Factors Inadequate investigation before bidding Site management Construction methods Poor planning and use of wrong equipment Mistakes during construction stage Inexperienced contractor Financial Difficulties Exceptionally Low Bid Other (if any) CATEGORY 3: Consultant Related Factors Poor Contract management & Supervision Preparation and approval of drawings Frequent Changes in orders & Designs Waiting time for approval of tests and inspection CATEGORY 4: Material, Labor & Equipment Related Factors Quality of material Shortage in material Shortage of Labor supply Labor productivity Equipment availability and failure Other (if any) CATEGORY 5: Contract & Contract Relationship Related Factors Change orders Mistakes and discrepancies in contract document Inappropriate overall organizational structure linking to the project Lack of communication between the 1 2 3 4 5 Total

RII (%)

Rank

1 2 3 4 5 6 7 8 9

4 3 4 4 8 3 2 4

6 11 13 35 7 19 23 17 10 28 17 10 7 19 22 17

69 69 69 69 69 69 69 69

80.00 72.75 65.51 71.88 55.94 64.64 87.25 75.94

3 9 20 11 25 21 1 6

20 25 10 6 18 18 20 10 0 6 24 37 6 10 29 20

1 2 3 4

1 2 2 3

5 6 7 9

17 24 22 24 20 17 25 22 13 26 20 11

69 69 69 69

77.68 72.75 70.72 67.83

4 9 12 17

1 2 3 4 5 6

5 2 8 5 2

6 5 15 13 5

25 15 26 16 20

22 29 15 25 28

11 18 5 10 14

69 69 69 69 69

68.12 76.23 58.26 66.38 73.62

16 5 24 19 8

1 2 3 4

1 2 2 0

9 7

24 24 11 17 32 11 9

69 69 69 69

70.14 72.46 67.54 69.28

13 10 18 14 29

10 26 22

10 27 22 10

Item No.

Indicator Description parties CATEGORY 6: External Factors Inclement Weather condition Regulatory changes Unforeseen site condition price escalation 1 2 3 4 5 Total

RII (%)

Rank

1 2 3 4

7 18 28 14 2 10 15 28 14 2 1 7 29 25 7 1 2 14 24 28

69 69 69 69

55.94 55.07 68.70 82.03

25 26 15 2

The ten most important causes of disputes (based on all respondents) as shown in the Table 4.1 were: (1) Contractors Financial Difficulties (RII = 0.8725), (2) Price escalation (RII = 0.8203), (3) Inadequate investigation before bidding (RII = 0.80), (4) Consultantss Poor Contract management & Supervision (RII = 0.7768), (5) Shortage in material (RII = 0.7623), (6) Exceptionally Low Bid (RII = 0.7594), (7) Employers Slow decision making (RII = 0.7478), (8) Equipment availability and failure (RII = 0.7362, (9) Site management (RII = 0.7275), and (10) Preparation and approval of drawings (RII = 0.7275).

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Figure 4.3: The ten most important causes of disputes (based on all respondents)
1. Contractor s Financial Difficulties 2. Price escalation
3. Inadequate investigation before bidding 4 Consultants Poor Contract management & Supervision

5 Shortage in material

Top 10(Ten) Construction Dispute Factors

6 Exceptional ly Low Bid

7 Employers Slow decision making

8 Equipment availability and failure

9 Contractors poor site management

10 Consultants delay in Preparation & approval of drawings

4.3.1. Contractors Financial Difficulties Whether large or small, contractors can and do experience financial difficulty. In some cases, this distress becomes so severe that the contractor is forced into bankruptcy or liquidation. What is important to understand is that when a contractor develops financial problems, the contract will be at risk.

31

To save money, contractors may substitute lower quality products and/or services. Moreover, companies in financial distress often experience low morale and high turnover, where the most experienced and talented people are the first to leave. These companies either do not replace positions or have a difficult time attracting new employees, thereby creating potential service issues. Therefore, performing a financial responsibility analysis helps to determine whether a contractor has the necessary financial resources to begin and complete a contract successfully. Financial analysis also helps determine what payment terms to utilize (e.g., interim, progress, or advance payments) and whether other contract terms may need to be added or modified to mitigate risk. While a financial responsibility analysis needs to be done before entering into a contract, it should also be performed periodically throughout contract administration for multi-year contracts. 4.3.2. Price escalation Cost is the fundamental component for any construction project. However, cost overrun is observed construction projects Construction cost increases usually occur as a result of market forces, and reflect increases in the cost of labour/materials and higher levels of activity. Employers should ensure that the budgets set for construction projects are achievable, allowing where appropriate for price escalation. When formulating a project budget, employers must consider cost escalation that may occur prior to the tender date and duringthe terms of the contract.
32

as one of the most frequently occurring issues in

construction

These anticipated increases in cost should be built into the project budget and used when preparing budget submissions for funding.

Given the current market conditions for various building materials and the potential for trouble when the cost escalation occurs, a price escalation clause that allows for an equitable adjustment for the increased costs of certain materials may be advisable. Escalation clauses should be tailored to the individual project and commodity. A price escalation clause allows the parties an opportunity to plan for the uncertainty and allocate how and to what extent the additional costs will be absorbed. 4.3.3 Inadequate investigation before bidding Contractors should do the risk analysis and estimate the risks so that they can include the price of taking these risks in their cost estimation, but it does not always happen this way. In most cases, contractors do not carryout suffiecient risk analysis before bidding and make a realistic cost estimate. It leads to dispute because the contractors bring cost claim on projects which do not come under the construction budget, and if the client contradicts to these claims then disputes initiate. Tenderers for a construction contract need to study hydrological and sub-surface data, to the extent that the data are relevant to the particular type of works, in order to plan and estimate the costs of the excavation and other works. At pre-contract stage, the employer or client should disclose the project requirements combined with site data and other useful information in order to enable the contractor or consultant to submit an offer.
33

However, all forms of contracts including FIDIC forms of contract clearly create retroactive obligations. According to Sub-Clause 4.10 the Contractor shall carry out inspections and examinations of the site before submitting his tender.

4.3.4 Consultantss Poor Contract management & Supervision A number of construction projects have suffered as a result of poor performance in Contract management & Supervision activities by design and supervision consultants. Consequently, Employers/clients need to establish a guideline for the periodic Evaluation of Consultant's Performance Disputes & Implementation difficulties designs and solutions, Claims resulting from poor quality documents Budget overrun resulting from inaccurate cost estimates. Dispute and Budget overrun resulting from poor quality and inaccurate geotechnical and topographical surveys. Dispute & implementation difficulties resulting from poor supervision to improve Consultant's

performance and a reduce of consequential problems which includes: resulting from inappropriate

Tender documents must be drafted with care, particularly in respect of quality, tests and performance criteria for Contractor-design contracts. If tender documents are deficient, the Employer may pay an exorbitant price for unacceptable works. He must therefore ensure that adequate resources are allocated to the skilled tasks of drafting the technical and commercial aspects of the tender documents, and of analysing the tenderers' proposals.

34

4.3.5. Shortage in material Material resources, including construction materials and equipment, are fundamental to the development of a construction project from design through procurement to physical erection. Also, they represent a large portion of the total budget. Materials management is the expertise that mainly copes with procurement management and site management. Primarily, procurement management has to ensure the ow of construction materials to the construction sites. This is done through an integrated procurment process that involves planning, monitoring and control of the physical ow of material resources (design, manufacturing, transportation, and handling) and the administrative and contract implications towards suppliers and subcontractors. Site management is involved with directing the construction site, the eld logistics and building operations, with special focus on quality and safety. Typically, site management is responsible for acceptance and control of materials shipped to the site, storage and management. Building activities require site managers to oversee construction through inspections, reviews, quality assurance procedures, organization and direction of foremen and workers.

Shortages in basic materials like sand, cement, stones, bricks, and iron can cause major delays in projects. often times demand exceeds the supply and this causes prices to increase. The contractors postpone the purchase activities until the prices decrease.

35

4.3.6 Exceptionally Low Bid When the competitive bidding environment in the construction industry is all about price, then employer will get a good deal. Competing on price alone leads to a number of problems that raise the cost of a project in the long run, including poor planning, poor work quality, delays, the need to redo work and dispute. There are some good practices that can help the system work better, For contractors from

example, owners can specify a condition which disallow

participaing in the bid if they do not meet certain requirements (such as success on past projects). The bidding itself should also be fair, open and transparent, so competing bidders arent played one against the other by secretive clients trying to cut down the price.

4.3.7 Employers Slow decision making Any delay in a project can lead to cost and time overruns and these two are linked. Whenever there are delays, there are disputes as to who should bear the responsibility and the cost. This research has indicated that Employers Slow decision making have a negative impact on the project progress and eciency,which may lead to delay in work progress and dispute. These disputes often lead to an arbitration process by third parties and failure in this process leads to litigation where the disputes are settled by the court.

4.3.8 Equipment availability and failure Many of the contractors do not own equipments that are required for the construction work. They rent the equipments when required. During the season when there are many construction projects, the equipments are in short supply and
36

are poorly maintained. This leads to failure of the equipments causing the progress to be hampered. Although most wood and concrete building materials can be obtained locally and several firms are providing sophisticated steel products, Ethiopia must depend on imports for most other inputs in the construction industry. For example, Ethiopia imports diesel fuel, explosives, steel panels, welding parts, timber and plywood, composite material panels, and bitumen from overseas. The majority of these materials are brought in from Europe and Saudi Arabia.6 4.3.9. Contractors poor site management Contractors poor site management is one of the most signicant factor in causing the construction delays. The results of this research indicate that local contractors face deciency in site planning, implementation and controls. A poor site management results in delays in responding to the issues that arise at the site and causes negative impact on the overall work progress.

4.3.10 Consultants delay in preparation & approval of drawings Inadequate consultantsexperience was an important factor and this could be linked to the contract awarding procedure where most projects were awarded to the lowest bidder. A cconsultant with inadequate experience cannot plan and manage the projects properly and this can lead to disastrous consequences.

4.4 Dispute Resolution Methods Whenever possible, it is advisable to solve any differences or disputes by amicable settlement, since disputes are time-consuming and expensive.
6

Ethiopian Business Development Services Network (EBDSN)

37

Most contract forms therefore provide express stipulations through which the parties to them attempt to avoid disputes. Some of them even require endeavors to be made to reach an amicable settlement before any difference or dispute can be referred either to the courts or to arbitration. As both court and arbitration proceedings are expensive and time-consuming the business community has developed so called alternative dispute resolution (ADR) proceedings, which are either used exclusively or as compulsory interim proceedings, thus baring the referral to courts or arbitration until these preliminary proceedings have come to an end.

4.4.1 Mediation According to the CEDR (Centre for Effective Dispute Resolution) definition, mediation is a flexible process conducted confidentially in which a neutral person actively assists parties in working towards a negotiated agreement of a dispute or difference, with the parties in ultimate control of the decision to settle and the terms of resolution. Key features of mediation are: Mediation is voluntary. However, refusal to mediate can give rise to cost sanctions. Courts actively encourage parties to consider mediation. The mediator facilitates the process but the parties are and remain responsible for the outcome. Any settlement reached during mediation is binding once put into writing and signed by the parties subject to the governing law

38

Mediation is presumed to have a number of advantages over litigation and arbitration proceedings:

4.4.2 Dispute Review Board Dispute Review Boards (DRBs) are also a very appropriate means for solving disputes in the course of the project development. Dispute review consists of a procedure wherein the dispute reviewer takes no decision but provides his opinion on the merits of the case. Usually DRBs, issues a non-binding recommendation, which the parties may use in order to reach an amicable settlement based on a clear legal position. Dispute review evolved from the former role of the engineer as decision-maker in the first instance under various standard forms of construction contracts, such as the old FIDIC Red Book 1987 (fourth Edition). For example, earlier editions of the FIDIC contracts provided that disputes were to be determined in the first instance by the Engineer under the contract. The Engineers decision was binding upon the parties until it was reversed by arbitration. However, Dispute Review Boards lack the advantage of rendering a decision which is binding on the parties. There is always an underlying possibility that negotiations do not lead to an amicable settlement and the parties have wasted a lot of time for no visible result. 4.4.3 Dispute Adjudication Board The Disputes Adjudication Board (DAB) is an impartial and independent panel of one or three people who are ideally appointed at the start of project and give decisions on any disputes. When the DAB requested by both the Employer and

39

the Contractor shall be available to give advice and opinions on any matter relevant to the contract.

The DAB has four main functions:

i.

To visit the site periodically and become familiar with the details of the project

ii.

To keep up to date with activities, progress, developments and problems at the site

iii. iv.

Encourage the resolution of disputes by the parties When a dispute is referred to it, hold a hearing, complete its deliberations and prepare a Decision in professional and timely manner

Dispute Adjudication is the most recent form of alternative dispute resolution but likely to be the most successful and satisfactory one at the same time, because it is very effective. Unlike dispute review dispute adjudication leads to a decision of the adjudicator on the merits of the case which becomes temporarily binding until revised by either an arbitral or a state court. Due to its success in some jurisdictions, dispute adjudication legislation has been set in force. Usually dispute adjudication starts by a notice of reference to dispute adjudication, whose Disputes purpose is to warn the adverse party of the intention to start dispute adjudication and which is a precondition for the appointment of the adjudicator, if necessary (say, if the parties did not agree to a permanent adjudicator during the whole phase of contract execution). At a second stage the referral to adjudication follows, containing a written statement by which the claimant substantiates the merits of the case and defines its demand. The
40

adjudicator will hear the case and provide the defending party with an opportunity to answer to the complaint. Depending on the adjudication agreement of the parties he may obtain evidence, require expert advice and visit the site. Once having heard the parties the adjudicator will render a decision which he shall notify to the parties. The decision usually becomes temporarily binding until revised by subsequent arbitration or court proceedings. The adjudicators decision is neither an arbitral award capable of enforcement under the New York Convention, nor does it have the status of a court judgment. Instead, the decision is binding only as a matter of contract between the parties. Failure to comply with a temporarily binding adjudication decision constitutes breach of contract and the appropriate method of enforcing an adjudicators decision is by way of an action for breach of contract unless ruled otherwise by national law. Depending on the applicable law the winning party may obtain a summary judgment or similar in order to enforce the adjudication decision.

FIDIC 1999 introduce a formal procedure for the resolution of disputes. If a dispute of any kind develops between the Employer and the Contractor in connection with or arising out of the Contract or the execution of the Works, it is referred to the DAB under Sub clause 20.4. This procedure is not restricted to consideration of disputes arising from claims.

The Contract contains detailed provisions for establishing the DAB and the procedural rules under which it should operate. These can be amended or However, proper

augmented in the Particular Conditions if required. consideration should be given to any changes that are made.

41

The Contract will determine whether the DAB should consist of one or three members, how they should be appointed and reimbursed and the terms of reference and procedures under which the DAB will operate. A decision must be made whether the DAB shall comprise one or three members and whether any potential members of the board should be nominated in the tender documents.

If there are to be any changes to the Dispute Adjudication Agreement or to the Procedural Rules they should be included in the Particular Conditions. The intention is that the DAB should be appointed at the beginning of the Contract and visit the Site periodically. The DAB will also be sent copies of correspondence, notices and minutes of meetings so that it is kept abreast of progress and is aware of the background to any problems that may arise. During its visits to Site, the DAB will inspect the work and meet the personnel on site. Any issue may be raised jointly with the DAB, which can be asked for an opinion. This process has been found to reduce the frequency with which claims or other problems escalate into more serious disputes and to assist in their resolution. If a dispute cannot be resolved by negotiation between the parties, it can be referred formally to the DAB by any of them, provided that the required notices are given. Any decision reached by the DAB must be complied with by both the Employer and Contractor. Either of these can give a notice of dissatisfaction within 28 days. The decision of the DAB then becomes temporarily binding and remains in effect until arbitration is concluded.

42

The MDB Edition replaces the DAB with a Dispute Board (DB). However, there appears to be little difference between the way in which the DAB and DB operate or in their powers or authority, although the MDB Edition does not allow parties to consult the DB about problems other than in accordance with the procedural rules. This appears to be intended to disallow the Parties from referring anything but a dispute to the DB.

However, the, or a, member of the DB can give advice and opinions on any matter relevant to the Contract when requested by both the Employer and the Contractor. In addition, the procedural rules require the DB to try to prevent potential problems or claims from becoming disputes. This would require the DB to intervene before a dispute arose and was referred to it under the provisions of Clause 20. Clause 20, deals specifically with Claims, Disputes and Arbitration. It envisages the establishment of a Dispute Adjudication Board, known as the DAB. A DAB is a panel of experienced, respected, impartial and independent reviewers. The board is normally organized before construction begins and meets at the job site periodically. The DAB members are provided with the contract documents, plans and specifications and become familiar with the project procedures and the participants and are kept abreast of job progress and developments. The DAB meets with the Employers and Contractors representatives during regular site visits and encourages the resolution of disputes at job level. When any dispute flowing from the contract or the work can not be resolved by the parties it is referred to the DAB for Decision.

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4.4.3.1 General Conditions of Dispute Adjudication Agreement The appendix to the General Conditions of the 1999 FIDIC form of Contract contains conditions upon which Dispute Adjudication will be undertaken in the Contract. The Dispute Adjudication Agreement is a tripartite agreement between the parties to the contract on the one hand and the board member on the other. The board member is an individual and the agreement is personal to him alone. He is not permitted to assign or subcontract the agreement without the prior agreement of the parties.

The agreement will define whether the member is a sole adjudicator or a member of a panel and if he is to be acting as chairman. The general provisions of the agreement define the period of the DAB and particularly define the start date and the completion date which is normally the discharge date mentioned in Clause 14.12 of the contract. The start date takes effect on the occasion of a number of alternatives: The commencement date of the contract The date when all the participant in the tripartite agreement have executed the agreement, or When all the tripartite agreements between the parties and other DAB members have been executed.

When the agreements have taken effect then it is the responsibility of teach of the parties to notify each of the board members.

It is evident that when a DAB has not been constituted at the beginning of a project then procedural delays may be encountered after the agreement of the
44

DAB constitution, but before it has any jurisdiction to act. If it is considered that delays in the commencement of the DAB activities may give rise to extensions of period under Clause 20.4 (period in which a DAB has to reach a decision) then a further clause more closely defining the commencement date of the tripartite agreement should be considered. This may take the form of a definition of an actual commencement date or a date unrelated to any further notice by either of the parties, such as the date of execution of the tripartite agreement alone.

The member is obligated to remain available to undertake the provisions of the tripartite agreement despite a period of 6 months elapsing during which the silence of the parties is permitted. This may be problematic to a busy practitioner who needs to make decisions regarding the most beneficial use of his time. Parties should attempt in all cases to minimize the delays between the execution of the tripartite agreement and the commencement of the DAB activities.

During periods of non confirmation of the contract commencement the member is During periods of non confirmation of the contract commencement the member is obliged to remain available to the parties, however will be at risk of the agreement not proceeding. He will be uncompensated for the period prior to the termination or confirmation of the agreement. The long period of allowable silence prior to the determination of the agreement will in the long term inflate the costs of DAB participation to the industry. The agreement may be terminated by the resignation of the member. Applicable law may entitle the member to resign under certain conditions. Clause 6 of the
45

agreement also entitles him to resign in the case of the non payment of his fees and expenses. Resignation is a very drastic action to be taken by the member and one which may have considerable consequences. Confidence of the parties and their supporters in the DAB system will be undermined if a member resigns in anything other than a genuine circumstance not already envisaged in the contract. 4.4.4 Arbitration At one time arbitration was seen as the only and unique alternative to the court system. Accordingly for a long period of time arbitration was the only means to escape from court proceedings. It has since become a common method of dispute settlement and national legislation usually accepts clauses by which the parties to a contract derogate court proceedings in favor of arbitration. If the parties to a contract have agreed to arbitration the national courts usually lack jurisdiction. By consequence a national court will reject any complaint brought before it.

If any dispute or difference arises, the parties have to refer it to the agreed arbitration. Arbitration does not mean that there is a worldwide accepted international arbitral court providing a number of arbitral judges waiting for work. Referring to arbitration usually means that the parties agree to an arbitration procedure according to a named procedure such as the ICC procedure rules or the UNCITRAL procedure rules. These sets of rules provide all necessary regulations as to the nomination of the arbitrators and the proceedings itself. Most often national law provides complementary provisions as to arbitration which must be taken into consideration by the arbitrators and the parties.

46

Article 1 7 1. Where the parties to a contract have agreed in writing* that disputes in relation to that contract shall be referred to arbitration under the UNCITRAL Arbitration Rules, then such disputes shall be settled in accordance with these Rules subject to such modification as the parties may agree in writing. 2. These Rules shall govern the arbitration except that where any of these Rules is in conflict with a provision of the law applicable to the arbitration from which the parties cannot derogate, that provision shall prevail.

The Ethiopian civil procedure code on chapter 4, article 315(principle) stipulates the following: 1. Where Arbitration Is Required by Law, or persons have entered into a written agreement to submit present or future differences to arbitration the provisions of this chapter shall apply. 2. No arbitration may take place in relation to administrative contracts as defined in Art.3132 of the Civil Code or in any other case where it is prohibited by law. 3. No person shall submit a right to arbitration unless he is capable under the law of disposing such right. 4. Nothing in this chapter shall affect the provisions of Art.3325-3346 of the Civil Code.

UNCITRAL ARBITRATION RULES

47

4.4.5Court Litigation Litigation is the formal process whereby claims relating to the construction dispute are taken through the civil courts and conducted in public. The judgments are binding on parties subject to rights of appeal. In litigation, the parties are referred to as the plaintiff (one who brings the charge) and the defendant (one against whom the charge is brought).

Court litigation means proceedings in a court of the country stated in the contract, following the procedures of that court. In some countries there are courts

specifically for dealing with this type of litigation. In UK a Technology and Construction Court (TCC) is located in London and specialist TCC judges officiate in the main provincial centers.

The protocols require full or substantial disclosure of documents by both parties. Technical experts may be engaged and this, in conjunction with the cost of solicitors, barristers and court charges, can make litigation an expensive and lengthy process.

Both sides of the case must be set out in detail in documents; witnesses have to produce detailed statements of their evidence and experts must provide reports. Because of the complexity and cost of the exercise, it is frequently preferable to resolve the dispute through negotiation or mediation.

48

4.5 Summary Choosing the right form of dispute resolution is a critical aspect when preparing international contracts. Jurisdiction of a court or arbitral court strongly influences questions of applicable law. Procedural law including regulations as to evidence and service of documents can have big influence on the result of any dispute.

Time consuming proceedings should be avoided but the advantages of quality of dispute resolution should not be underestimated. It is thus a tremendous task to find the best solution for each contract. There is a broad freedom of choice and a widespread offer of all forms of dispute resolution. It can be presumed that recommendations as to the form of dispute resolution and clauses concerning jurisdiction issues which can be found in international standard forms are well considered and usually suitable for the disputes arising during the execution of the contract. However it is worthwhile researching different forms of dispute resolution and the advantages and disadvantages of any place of jurisdiction.

49

CHAPTER Five: Conclusions and Recommendations 5.1 Introduction This is the last chapter of the study, which will conclude all the study that had been carried out. The aim of this research was to carryout an Investigation into Major Causes of Dispute in the Ethiopian Construction Industry and based on the grouping of respondents, the findings are analyzed in four categories i.e. (i), based on employers point of view (ii) based on consultants point of view (iii) contractors point of view, and finally, (iv) based on the combined or overall respondents point of view. Lastly, after the conclusion; some recommendations to avoid the causes of construction disputes are also mentioned.

5.2 Conclusions This section deals with the most significant disputes and draws conclusions from the analyzed data. The report will provide an interpretation of the results 5.2.1 Employers point of view Based on the Employers point of views, the top three significant causes of construction dispute are (i) Financial Difficulties of the contractor, with Relative Importance Index (RII), value of 90.83%, (ii) Inadequate investigation before 88.33%, which are

bidding with Relative Importance Index (RII), value of

contractor related causes and the third significant cause is related to Shortage in material with Relative Importance Index (RII), value of 81.67%,

Furthermore, the research also identified that both Exceptionally Low Bid and Price Escalation with equal Relative Importance Index (RII), value of 80.83%,
50

are ranked 4th, Poor planning and use of wrong equipment with Relative Importance Index (RII), value of 79.17%, is ranked 5th, and unforeseen site

condition, consultants Poor Contract management & Supervision and contractors poor Site management with equal Relative Importance Index (RII), value of 75%, are ranked 6th, and also problems related to Preparation and

approval of drawings by the consultants with Relative Importance Index (RII), value of 74.17%, is ranked 7th.
Table 5.1: Summary the top 10 causes of dispute (based on Employers point of view) No 1 2 3 4 5 6 7 8 9 10 Cause of Dispute Financial Difficulties of the contractor Inadequate investigation before bidding Shortage in material Exceptionally Low Bid of the contractor Price Escalation Poor planning and use of wrong equipment Unforeseen site condition Consultants Poor Contract management & Supervision Contractors poor Site management Problems related to Preparation and approval of drawings by the consultants RII (%) 90.83 88.33 81.67 80.83 80.83 79.17 75.00 75.00 75.00 74.17 Rank 1st, 2nd, 3rd, 4th, 4th, 5th, 6th, 6th 6th 7th, Category Contractor Contractor Material related Contractor External Contractor External Consultant Contractor Consultant

In accordance with the employers point of view, among the top ten major causes, five of them are Contractor related factors, two consultants related, two external related and one Material related factor.
51

5.2.2 Consultants point of view According to the consultants point of views, (i) Consultants Poor Contract management & Supervision, with Relative Importance Index (RII), value of 82.00%, (ii) price escalation, with Relative Importance Index (RII), value of 81.00%, and (iii) Financial Difficulties of the contractor with Relative Importance Index (RII), value of 80.00%, are the top three significant causes of construction dispute.

Besides, the research also identified that, contractors poor Site management with Relative Importance Index (RII), value of 75%, is ranked 4th, and both

Employers Unrealistic contract duration and requirements imposed & Mistakes and discrepancies in contract document with equal Relative Importance Index (RII), value of 73.00%, are ranked 5th, and Inadequate investigation before bidding , with Relative Importance Index (RII), value of 71.00%, is ranked 6th, and also both poor quality of material, shortage in material, Failure &

unavailability of Equipment and Lack of communication between the parties, with equal Relative Importance Index (RII), value of 69.00%, are ranked 7th.

Table 5.2: Summary the top 10 causes of dispute (based on Consultants point of view) No 1 2 3 4 Cause of Dispute Poor Contract management & Supervision, of the consultant Price escalation Financial Difficulties of the contractor Contractors poor site management RII (%) 82.00 81.00 80.00 75.00 Rank 1st, 2nd, 3rd, 4th, Category Consultant External Contractor Contractor 52

5 6 7 8 9 10

Employers Unrealistic contract duration and requirements imposed Mistakes and discrepancies in contract document Inadequate investigation before bidding Poor quality & Shortage of material Failure & unavailability of Equipment Lack of communication between the parties

73.00 73.00 71.00 69.00 69.00 69.00

5th, 5th, 6th, 7th, 7th, 7th,

Employer Contract document related factor Contractor Material Related Contractor Contract relation related factor

According to the Consultants point of view, among the top ten major causes, four of them are Contractor related factors, two Contract document &

relationship related factor, and Material, Consultant, External and Employers related factor one each. 5.2.3 Contractors point of view Based on the contractors point of views, (i) Financial Difficulties of the contractor, with Relative Importance Index (RII), value of escalation, with Relative Importance Index (RII), value of 89.60%, (ii) price 84.00%, and (iii)

Inadequate investigation before bidding, with Relative Importance Index (RII), value of 79.20%, are the top three significant causes of construction dispute.

Moreover, the research also identified that, Employers Slow decision making & Contractors Exceptionally Low Bid with equal Relative Importance Index (RII), value of 78.40%, are ranked 4th, and also Frequent Changes in orders &

Designs by the consulting firm and Failure & unavailability of Equipment with equal Relative Importance Index (RII), value of 77.60%, are ranked 5th, and 76.80%,
53

Shortage in material, with Relative Importance Index (RII), value of

consultants Poor Contract management & Supervision with Relative Importance Index (RII), value of 76.00%, and Consultants delay in Preparation and 75.20%,

approval of drawings with Relative Importance Index (RII), value of are ranked 6th, 7th, and 8th, respectively.

Table 5.3: Summary the top 10 causes of dispute (based on Contractor point of view) No 1 2 3 4 5 6 7 8 9 10 Cause of Dispute Financial Difficulties of the contractor Price escalation Contractors Inadequate investigation before bidding Employers Slow decision making Exceptionally Low Bid of the contractor Frequent Changes in orders & Designs by the consulting firm Failure & unavailability of Equipment Shortage in material Consultants Poor Contract management & Supervision Consultants delay in Preparation and approval of drawings RII (%) 89.60 84.00 79.20 78.40 78.40 77.60 77.60 76.80 76.00 75.20 Rank 1st, 2nd, 3rd, 4th, 4th, 5th, 5th, 6th, 7th, 8th, Category Contractor External Contractor Employer Contractor Consultant Equipment Related Material Related Consultant Consultant

The Contractors point of view, shows that among the top ten major causes, Contractor & Consultant related factors, score three each, Equipment & Material Related factors one each, and Employer and External related factors one each. 5.2.4 Overall respondents point of view Based on overall respondents view, the analysis reveals that the most significant causes of construction dispute is(i) Financial Difficulties of the contractor with
54

Relative Importance Index (RII), value of

87.25%, followed by (ii) Price 82.03%, and (iii)

escalation with Relative Importance Index (RII), value of

contractors Inadequate investigation before bidding, with Relative Importance Index (RII), value of 80.00%, Moreover, Poor Contract management & Supervision, of the consultant, with Relative Importance Index (RII), value of 77.68%,Shortage in material, with

Relative Importance Index (RII), value of 76.23%,Exceptionally Low Bid of the contractor, with Relative Importance Index (RII), value of 75.94%,Employers

Slow decision making, with Relative Importance Index (RII), value of 74.78%, and Failure & unavailability of Equipment, with Relative Importance Index (RII), value of 73.62%, are ranked 4th, 5th, 6th,7th,and 8th, respectively and also

Consultants delay in Preparation and approval of drawings and contractors poor site management with equal Relative Importance Index (RII), value of 72.75%, are ranked 9th,
Table 5.4: Summary the top 10 causes of dispute (based on overall respondents view) No 1 2 3 4 Cause of Dispute Financial Difficulties of the contractor Price escalation Contractors Inadequate investigation before bidding Poor Contract management & Supervision, of the consultant RII (%) 87.25 82.03 80.00 77.68 Rank 1st, 2nd, 3rd, 4th, Category Contractor External Contractor Consultant

55

5 6 7 8 9 10

Shortage in material Exceptionally Low Bid of the contractor Employers Slow decision making Failure & unavailability of Equipment Consultants delay in Preparation and approval of drawings contractors poor site management

76.23 75.94 74.78 73.62 72.75 72.75

5th, 6th, 7th, 8th, 9th, 9th,

Material related Contractor Employer Equipment Related Consultant Contractor

Finally, the combined overall point of view, demonstrates that among the top ten major causes, i. ii. iii. iv. v. Contractors related factors, score four ; Consultants related factors, score two; Material &Equipment Related Factor Score One each; Employers related factors, score one; and External related factors, score one;

Depending on the grouping of respondents, point of view the ranking of the major causes of disputes is slightly different from each other. However, the results of this study can be helpful to the parties (Clients, Contractors and Consultants) to visualize and better understand the characteristic or manner of an interaction of disputes in the construction industry and make efforts to reduce the incidences of disputes.

56

5.3 Recommendations The recommendations to adopt can be divided into three groups: (1) recommendations for the clients, (2) recommendations for the consultants, and (3) recommendations for the contractors. 5.3.1 Recommendations for the Employers/ Clients 1. While selecting the contractors, clients have to make sure that the contractors are not selected based only on the lowest bid. The selected contractor must have sufficient experience, technical capability, financial capability, and sufficient manpower to execute the project, 2. Clients should not interfere frequently during the execution and keep making major changes to the requirements. This can cause excessive delays in the project, 3. Clients should have the finances in time to pay the contractors after completion of a work. Therefore, clients should work closely with the financing bodies and institutions to release the payment on schedule, and 4. Clients must make quick decisions to solve any problem that arise during the execution. 5.3.2 Recommendations for the Consultants 1. While drawing the contract between the client and contractor, the consultant must include items such as duration of contract, mechanism to solve disputes, mechanism to assess the causes of delay, if there are any and risk management plans, 2. consultants should prepare and approve drawings on time, and

57

3. Consultants should monitor the work closely by making inspections at appropriate times. 4. Confirm all oral agreements/changes in writing and maintain daily records of the project.

5.3.3 Recommendations for the Contractors 1. Contractors should not take up the job in which they do not have sufficient expertise, 2. Contractors should have able site-managers for the smooth execution of work, 3. Contractors must plan their work properly and provide the entire schedule to the clients, and 4. Contractors must make sure they have a sound financial backing and financial management system 5.3.4 General Recommendations Some disputes may not be prevented by prior action, but many can. Ensuring that a formal contract agreement is executed between parties to a contract is a first step towards avoiding disputes. Contractual precautions that provide some safeguard against disputes include: Ensuring that the parties enter into a finalised contract before work commences; Ensuring that the scope of works is clearly defined prior to tender; Ensuring that the quality constraints are fully defined prior to tender; Ensuring that the conditions of the contract are fair and clear, using standard forms unless non standard provisions are essential;

58

 Ensuring that the contract provides for early notification of potential disputes and that dispute resolution procedures are stipulated and not restricted to arbitration or litigation; and Ensuring that contract management is effective.

59

References:
1. A Thomson Reuters business, Blacks Law Dictionary 9th edition, page 127, 244 2. (David Chappell, Derek Marshall, Vincent Powell-Smith, Simon Cavender)Building Contract Dictionary Third Edition , page 70, 71, 134, 135 3. (IAN M Elenberg),Dispute Resolution In Construction Management, Page 9-12 4. Federal Democratic Republic of Ethiopia , Ministry of Works and Urban Development ,PLAN FOR ACCELERATED AND SUSTAINED DEVELOPMENT TO END POVERTY(PASDEP) (2005/06-2009/10) Page 11

5. Ethiopian Business Development Services Network (EBDSN) 6. FIDIC-A Guide for Practitioners , page 418-423 7. Alberto De Marco Project Management for Facility Constructions( A Guide for Engineers and Architects) page 50-52 8. (Fred Moavenzadeh ,Professor of Civil Engineering & Janet Ann Koch Rossow Graduate Research Assistant)The Construction Industry In Developing Countries, page 3-5 9. Ineffective Communication: Common Cause of Construction Disputes (Jeffery M. Hall, Esq. Folk & Associates, P.C. Vol.13, No.2, May/June 2002 10. Wikipedia, the free encyclopedia ;

60

Appendices:

61

Appendix 1: Cover letter for questionnaire

Dear Mr. _________________

Good Day! As you already know, I am working on a research paper on the subject issue of Construction Disputes. Accordingly, I have developed a questionnaire to assess the perceptions of engineers on the relative importance of causes and effects of dispute in Ethiopian construction industry. Enclosed you will find the questionnaire (3pages, pdf. file). Hence, I kindly request you to respond to the simple questions. I shall be very grateful if you will also use your influence to include your colleagues & friends to fill the questionnaire survey.

Thanks and Regards, Kifle Semu

62

Appendix 2;

Questionnaire Survey

SECTION A: RESPONDENT PROFILE Please fill in the blank 1 2 3 4 5 Respondent Name: Company Name: Type of Job/Position: Year of Experience Type of Organization [Employer/ Contractor/Consultant]

63

Please indicate your best opinion for the following cause of Construction Disputes

1 2 3 4 5 Item No. Question

Very Insignificant Insignificant Average Significant Very Significant Indicator 1 2 3 4 5

CATEGORY 1: Employer Related Factors 1 2 3 4 5 Failure to Finance and payments of completed work Owner Interference Slow decision making Unrealistic contract duration and requirements imposed Other (if any)

CATEGORY 2: Contractor Related Factors 1 2 3 4 5 6 7 8 9 Inadequate investigation before bidding Site management Construction methods Poor planning and use of wrong equipment Mistakes during construction stage Inexperienced contractor Financial Difficulties Exceptionally Low Bid Other (if any)

CATEGORY 3: Consultant Related Factors 64

Item No. 1 2 3 4 5

Question Poor Contract management & Supervision Preparation and approval of drawings Frequent Changes in orders & Designs Waiting time for approval of tests and inspection Other (if any)

Indicator 1 2 3 4 5

1 2 3 4 5 6

CATEGORY 4: Material, Labor & Equipment Related Factors Quality of material Shortage in material Shortage of Labor supply Labor productivity Equipment availability and failure Other (if any) CATEGORY 5: Contract & Contract Relationship Related Factors Change orders Mistakes and discrepancies in contract document Inappropriate overall organizational structure linking to the project Lack of communication between the parties CATEGORY 6: External Factors

1 2 3 4

1 2 3 4 5

Inclement Weather condition Regulatory changes Unforeseen site condition Price escalation Other (if any)

65

Appendix 3: Calculation of Relative Importance of Index (RII) (based on overall view)

Item No Description CATEGORY 1: Related Factors Employer n1 1 n2 2 n3 3 n4 4 n5 5 N a1=1 a1*X1 a2=2 a2*X2 a3=3 a3*X3 a4=4 a4*X4 a5=5 a5*X5 W aiXi A=5 aiXi/N*A RII= aiXi/N*(100/5)

Failure to Finance and payments of completed work Owner Interference Slow decision making Unrealistic contract duration and requirements imposed Other (if any) CATEGORY 2: Contractor Related Factors Inadequate investigation before bidding Site management Construction methods Poor planning and use of wrong equipment Mistakes during construction stage Inexperienced contractor Financial Difficulties Exceptionally Low Bid

13

12

15

16

13

69

13

24

45

64

65

211

3.06

61.16

2 3 4 5

7 2 2

16 5 14

23 15 14

15 34 23

8 13 16

69 69 69

7 2 2

32 10 28

69 45 42

60 136 92

40 65 80

208 258 244

3.01 3.74 3.54

60.29 74.78 70.72

1 2 3 4 5 6 7 8

4 3 4 4 8 3 2 4

6 7 10 7 20 18 0 6

11 19 28 19 25 18 6 10

13 23 17 22 10 20 24 29

35 17 10 17 6 10 37 20

69 69 69 69 69 69 69 69

4 3 4 4 8 3 2 4

12 14 20 14 40 36 0 12

33 57 84 57 75 54 18 30

52 92 68 88 40 80 96 116

175 85 50 85 30 50 185 100

276 251 226 248 193 223 301 262

4.00 3.64 3.28 3.59 2.80 3.23 4.36 3.80

80.00 72.75 65.51 71.88 55.94 64.64 87.25 75.94

66

Item No 9

Description Other (if any) CATEGORY 3: Consultant Related Factors Poor Contract management & Supervision Preparation and approval of drawings Frequent Changes in orders & Designs Waiting time for approval of tests and inspection Other (if any) CATEGORY 4: Material, Labor & Equipment Related Factors

n1

n2

n3

n4

n5

a1=1

a2=2

a3=3

a4=4

a5=5

A=5

RII=

1 2 3 4 5

1 2 2 3

5 6 7 9

17 24 25 26

24 20 22 20

22 17 13 11

69 69 69 69

1 2 2 3

10 12 14 18

51 72 75 78

96 80 88 80

110 85 65 55

268 251 244 234

3.8841 3.6377 3.5362 3.3913

77.68 72.75 70.72 67.83

1 2 3 4 5 6

Quality of material Shortage in material Shortage of Labor supply Labor productivity Equipment availability failure Other (if any) and

5 2 8 5 2

6 5 15 13 5

25 15 26 16 20

22 29 15 25 28

11 18 5 10 14

69 69 69 69 69

5 2 8 5 2

12 10 30 26 10

75 45 78 48 60

88 116 60 100 112

55 90 25 50 70

235 263 201 229 254

3.4058 3.8116 2.913 3.3188 3.6812

68.12 76.23 58.26 66.38 73.62

1 2 3

CATEGORY 5: Contract & Contract Relationship Related Factors Change orders Mistakes and discrepancies in contract document Inappropriate overall organizational structure linking to the project Lack of communication between

1 2 2

9 7 10

24 17 26

24 32 22

11 11 9

69 69 69

1 2 2

18 14 20

72 51 78

96 128 88

55 55 45

242 250 233

3.5072 3.6232 3.3768

70.14 72.46 67.54

10

27

22

10

69

20

81

88

50

239

3.4638

69.28

67

Item No the parties

Description CATEGORY 6: External Factors Inclement Weather condition Regulatory changes Unforeseen site condition price escalation Other (if any)

n1

n2

n3

n4

n5

a1=1

a2=2

a3=3

a4=4

a5=5

A=5

RII=

1 2 3 4 5

7 10 1 1

18 15 7 2

28 28 29 14

14 14 25 24

2 2 7 28

69 69 69 69

7 10 1 1

36 30 14 4

84 84 87 42

56 56 100 96

10 10 35 140

193 190 237 283

2.7971 2.7536 3.4348 4.1014

55.94 55.07 68.70 82.03

68

Appendix 4: Calculation of Relative Importance of Index (RII) (based on Employers view)

Item No Description CATEGORY 1: Employer Related Factors 1 Failure to Finance and payments of completed work Owner Interference Slow decision making Unrealistic contract duration and requirements imposed Other (if any) CATEGORY 2: Contractor Related Factors Inadequate investigation before bidding Site management Construction methods Poor planning and use of wrong equipment Mistakes during construction stage n1 1 n2 2 n3 3 n4 4 n5 5 N a1=1 a1*X1 a2=2 a2*X2 a3=3 a3*X3 a4=4 a4*X4 a5=5 a5*X5 W aiXi A=5 aiXi/N*A RII= aiXi/N*(100/5)

24

10

28

10

64

2.67

53.33

2 3 4

6 1

2 1 6

7 6 8

6 12 6

3 4 4

24 24 24

6 1 0

4 2 12

21 18 24

24 48 24

15 20 20

70 89 80

2.92 3.71 3.33

58.33 74.17 66.67

17

24

12

85

106

4.42

88.33

2 3 4

1 2 1

9 15 6

9 5 10

5 2 7

24 24 24

0 0 0

2 4 2

27 45 18

36 20 40

25 10 35

90 79 95

3.75 3.29 3.96

75.00 65.83 79.17

24

18

27

15

69

2.88

57.50

69

Item No 6 7 8 9

Description Inexperienced contractor Financial Difficulties Exceptionally Low Bid Other (if any) CATEGORY 3: Consultant Related Factors Poor Contract management & Supervision Preparation and approval of drawings Frequent Changes in orders & Designs Waiting time for approval of tests and inspection Other (if any) CATEGORY 4: Material, Labor & Equipment Related Factors Quality of material Shortage in material Shortage of Labor supply Labor

n1 1

n2 7

n3 4 2

n4 9 7 11

n5 3 15 8

N 24 24 24 1 0 0

a1=1

a2=2 14 0 4

a3=3 12 6 9

a4=4 36 28 44

a5=5 15 75 40

W 78 109 97 3.25 4.54 4.04

A=5 65.00 90.83 80.83

RII=

11

24

18

44

25

90

3.75

75.00

24

21

32

30

89

3.7083

74.17

12

24

36

24

15

80

3.3333

66.67

24

24

36

10

79

3.2917

65.83

1 2 3 4

10 6

9 10 4 11

4 8 1 2

24 24 24 24

0 0 3 0

2 0 12 10

30 18 30 18

36 40 16 44

20 40 5 10

88 98 66 82

3.6667 4.0833 2.75 3.4167

73.33 81.67 55.00 68.33

6 5

10 6

70

Item No 5

Description productivity Equipment availability and failure Other (if any) CATEGORY 5: Contract & Contract Relationship Related Factors Change orders Mistakes and discrepancies in contract document Inappropriate overall organizational structure linking to the project Lack of communication between the parties CATEGORY 6: External Factors Inclement Weather condition Regulatory changes Unforeseen site condition price escalation Other (if any)

n1 1

n2 1

n3 9

n4 7

n5 6

N 24 1

a1=1 2

a2=2

a3=3 27

a4=4 28

a5=5 30

W 88

A=5 3.6667 73.33

RII=

1 2

3 1 3

7 6

11 11

3 3

24 24

0 1

6 6

21 18

44 44

15 15

86 84

3.5833 3.5

71.67 70.00

10

24

30

24

15

78

3.25

65.00

10

24

30

36

79

3.2917

65.83

1 2 3 4 5

2 5

7 4 1 1

8 11 8 6

6 3 11 8

1 1 4 9

24 24 24 24

2 5 0 0

14 8 2 2

24 33 24 18

24 12 44 32

5 5 20 45

69 63 90 97

2.875 2.625 3.75 4.0417

57.50 52.50 75.00 80.83

71

Appendix 5: Calculation of Relative Importance of Index (RII) (based on Contractors view)

Item No Description CATEGORY 1: Related Factors Employer n1 1 n2 2 n3 3 n4 4 n5 5 N a1=1 a1*X1 a2=2 a2*X2 a3=3 a3*X3 a4=4 a4*X4 a5=5 a5*X5 W aiXi A=5 aiXi/N*A RII= aiXi/N*(100/5)

1 2 3 4 5

Failure to Finance and payments of completed work Owner Interference Slow decision making Unrealistic contract duration and requirements imposed Other (if any) CATEGORY 2: Contractor Related Factors Inadequate investigation before bidding Site management Construction methods Poor planning and use of wrong equipment Mistakes during construction stage Inexperienced contractor Financial Difficulties Exceptionally Low Bid Other (if any) CATEGORY 3: Related Factors Consultant

2 1 1 2

4 7 4

6 9 7 3

6 6 9 8

7 2 8 8

25 25 25 25

2 1 1 2

8 14 0 8

18 27 21 9

24 24 36 32

35 10 40 40

87 76 98 91

3.48 3.04 3.92 3.64

69.60 60.80 78.40 72.80

1 2 3 4 5 6 7 8 9

4 2 1 1 2 2 1 3 6 4 8 5 1

5 7 7 8 9 7 2 4

4 8 6 6 4 7 9 12

12 5 5 6 2 4 14 7

25 25 25 25 25 25 25 25

0 2 1 1 2 2 0 1

8 6 12 8 16 10 0 2

15 21 21 24 27 21 6 12

16 32 24 24 16 28 36 48

60 25 25 30 10 20 70 35

99 86 83 87 71 81 112 98

3.96 3.44 3.32 3.48 2.84 3.24 4.48 3.92

79.20 68.80 66.40 69.60 56.80 64.80 89.60 78.40

72

Item No 1 2 3 4 5

Description Poor Contract management Supervision Preparation and approval drawings Frequent Changes in orders Designs Waiting time for approval tests and inspection Other (if any) & of & of

n1

n2 2 3 3

n3 8 9 4 8

n4 8 4 11 6

n5 7 9 7 8

N 25 25 25 25

a1=1 0 0 0 2

a2=2 4 6 6 2

a3=3 24 27 12 24

a4=4 32 16 44 24

a5=5 35 45 35 40

W 95 94 97 92 3.8

A=5 76.00 75.20 77.60 73.60

RII=

3.76 3.88 3.68

CATEGORY 4: Material, Labor & Equipment Related Factors 1 2 3 4 5 6 Quality of material Shortage in material Shortage of Labor supply Labor productivity Equipment availability failure Other (if any) and 3 1 3 5 2 2 4 1 7 4 9 7 7 6 11 7 8 11 4 7 4 6 6 25 25 25 25 25 3 1 3 0 0 10 4 4 8 2 21 12 27 21 21 24 44 28 32 44 20 35 20 30 30 78 96 82 91 97 3.12 3.84 3.28 3.64 3.88 62.40 76.80 65.60 72.80 77.60

1 2 3

CATEGORY 5: Contract & Contract Relationship Related Factors Change orders Mistakes and discrepancies in contract document Inappropriate overall organizational structure linking to the project Lack of communication between the parties CATEGORY 6: External Factors 1

9 7

9 14 9

5 3 4

25 25 25

0 1 0

4 0 6

27 21 27

36 56 36

25 15 20

92 93 89

3.68 3.72 3.56

73.60 74.40 71.20

25

24

24

35

91

3.64

72.80

73

Item No 1 2 3 4 5

Description Inclement Weather condition Regulatory changes Unforeseen site condition price escalation Other (if any)

n1 3 3 1

n2 7 6 4

n3 11 10 10 4

n4 3 6 10 8

n5 1 1 12

N 25 25 25 25

a1=1 3 3 0 1

a2=2 14 12 8 0

a3=3 33 30 30 12

a4=4 12 24 40 32

a5=5 5 0 5 60

W 67 69 83 105

A=5 2.68 2.76 3.32 4.2 53.60 55.20 66.40 84.00

RII=

74

Appendix 6: Calculation of Relative Importance of Index (RII) (based on Consultants view)

Item No Description CATEGORY 1: Related Factors Employer n1 1 n2 2 n3 3 n4 4 n5 5 N a1=1 a1*X1 a2=2 a2*X2 a3=3 a3*X3 a4=4 a4*X4 a5=5 a5*X5 W aiXi A=5 aiXi/N*A RII= aiXi/N*(100/5)

1 2 3 4 5

Failure to Finance and payments of completed work Owner Interference Slow decision making Unrealistic contract duration and requirements imposed Other (if any) CATEGORY 2: Contractor Related Factors Inadequate investigation before bidding Site management Construction methods Poor planning and use of wrong equipment Mistakes during construction stage Inexperienced contractor Financial Difficulties Exceptionally Low Bid Other (if any) CATEGORY 3: Consultant

3 5 5 4

6 8 3 3

3 3 12 9

4 4 4

20 20 20 20

4 0 0 0

6 10 10 8

18 24 9 9

12 12 48 36

20 20 0 20

60 66 67 73

3.00 3.30 3.35 3.65

60.00 66.00 67.00 73.00

1 2 3 4 5 6 7 8 9

3 1 3 3 5

1 3 2 2 3 6

4 3 6 5 7 7 2 3

6 6 6 6 4 4 8 6

6 7 3 4 1 3 8 5

20 20 20 20 20 20 20 20

3 1 3 3 5 0 2 3

2 6 4 4 6 12 0 6

12 9 18 15 21 21 6 9

24 24 24 24 16 16 32 24

30 35 15 20 5 15 40 25

71 75 64 66 53 64 80 67

3.55 3.75 3.20 3.30 2.65 3.20 4.00 3.35

71.00 75.00 64.00 66.00 53.00 64.00 80.00 67.00

2 3 3

75

Item No 1 2 3 4 5

Description Related Factors Poor Contract management Supervision Preparation and approval drawings Frequent Changes in orders Designs Waiting time for approval tests and inspection Other (if any) & of & of

n1

n2 2

n3 3 8

n4 6 8 5 5

n5 9 2 3 1

N 20 20 20 20

a1=1 0 2 1 0

a2=2 4 0 4 8

a3=3 9 24 27 30

a4=4 24 32 20 20

a5=5 45 10 15 5

W 82 68 67 63 4.1 3.4

A=5 82.00 68.00 67.00 63.00

RII=

2 1 2 4

9 10

3.35 3.15

CATEGORY 4: Material, Labor & Equipment Related Factors 1 2 3 4 5 6 Quality of material Shortage in material Shortage of Labor supply Labor productivity Equipment availability failure Other (if any) and 2 1 2 5 1 3 7 4 3 8 5 7 3 4 7 8 4 6 10 2 2 3 3 20 20 20 20 20 2 1 2 5 1 0 6 14 8 6 24 15 21 9 12 28 32 16 24 40 15 15 0 10 10 69 69 53 56 69 3.45 3.45 2.65 2.8 3.45 69.00 69.00 53.00 56.00 69.00

1 2 3

CATEGORY 5: Contract & Contract Relationship Related Factors Change orders Mistakes and discrepancies in contract document Inappropriate overall organizational structure linking to the project Lack of communication between the parties CATEGORY 6: External

4 4

8 4 7

4 7 7

3 5 2

20 20 20

1 0 1

8 8 6

24 12 21

16 28 28

15 25 10

64 73 66

3.2 3.65 3.3

64.00 73.00 66.00

20

27

28

10

69

3.45

69.00

76

Item No Factors 1 2 3 4 5

Description Inclement Weather condition Regulatory changes Unforeseen site condition price escalation Other (if any)

n1 2 2 1

n2 4 5 2 1

n3 9 7 11 4

n4 5 5 4 8

n5

N 20

a1=1 2 2 1 0

a2=2 8 10 4 2

a3=3 27 21 33 12

a4=4 20 20 16 32

a5=5 0 5 10 35

W 57 58 64 81

A=5 2.85 2.9 3.2 4.05 57.00 58.00 64.00 81.00

RII=

1 2 7

20 20 20

77

Appendix 7: Comparison of overall view with Employers, Contractors & Consultants View
Based overall view RII (%) Ran k Based on employers view Financial Difficulties(Category 2: Contractor Related Factors) Inadequate investigation before bidding Category 2: Contractor Related Factors) Shortage in material(Category 4: Material, Labor & Equipment Related Factors) price escalation(Category 6: External Factors) RII (%) Ran k Based on contractors view Financial Difficulties(Categor y 2: Contractor Related Factors) RII (%) Ran k Based on consultants view Poor Contract management & Supervision (Category 3: Consultant Related Factors) price escalation(Category 6: External Factors) Financial Difficulties(Category 2: Contractor Related Factors) Site management(Categor y 2: Contractor Related Factors) Unrealistic contract duration and requirements imposed Category 1: Employer Related Factors) Mistakes and discrepancies in contract document(Category RI I % Ran k

Financial Difficulties(Category 2: Contractor Related Factors)

87.2 5

90.8 3

89.6 0

82

price escalation(Category 6: External Factors) Inadequate investigation before bidding(Category 2: Contractor Related Factors) Poor Contract management & Supervision (Category 3: Consultant Related Factors) Shortage in material(Category 4: Material, Labor & Equipment Related Factors) Exceptionally Low Bid (Category 2: Contractor Related Factors)

82.0 3

88.3 3

price escalation(Category 6: External Factors) Inadequate investigation before bidding(Category 2: Contractor Related Factors) Slow decision making(Category 1: Employer Related Factors) Exceptionally Low Bid (Category 2: Contractor Related Factors) Frequent Changes in orders & Designs(Category 3: Consultant Related

84.0 0

81

80.0 0

81.6 7

79.2 0

80

77.6 8

80.8 3

78.4

75

76.2 3

Exceptionally Low Bid (Category 2: Contractor Related Factors) Poor planning and use of wrong equipment(Category 2: Contractor Related

80.8 3

78.4

73

75.9 4

79.1 7

77.6

73

78

Based overall view

RII (%)

Ran k

Based on employers view Factors)

RII (%)

Ran k

Based on contractors view Factors)

RII (%)

Ran k

Based on consultants view 5: Contract & Contract Relationship Related Factors) Inadequate investigation before bidding(Category 2: Contractor Related Factors) Quality of material(Category 4: Material, Labor & Equipment Related Factors) Shortage in material(Category 4: Material, Labor & Equipment Related Factors) Equipment availability and failure (Category 4: Material, Labor & Equipment Related Factors)

RI I %

Ran k

Slow decision making(Category 1: Employer Related Factors) Equipment availability and failure (Category 4: Material, Labor & Equipment Related Factors) Site management(Categor y 2: Contractor Related Factors) Preparation and approval of drawings(Category 3: Consultant Related Factors)

74.7 8

Site management(Categor y 2: Contractor Related Factors) Poor Contract management & Supervision (Category 3: Consultant Related Factors) Unforeseen site condition(Category 6: External Factors) Preparation and approval of drawings(Category 3: Consultant Related Factors)

75.0 0

Equipment availability and failure (Category 4: Material, Labor & Equipment Related Factors) Shortage in material(Category 4: Material, Labor & Equipment Related Factors) Poor Contract management & Supervision (Category 3: Consultant Related Factors) Preparation and approval of drawings(Category 3: Consultant Related Factors)

77.6

71

73.6 2

75.0 0

76.8

69

72.7 5

75.0 0

76.0 0

69

72.7 5

10

74.1 7

10

75.2 0

10

69

10

79

80