Engineering, Construction and Architectural Management 2001 8 | 3, 185-197

Construction claims management: towards an agent-based approach

Z. REN, G. J . A N U M B A & O. O. UGWU Centre for Innovative Construction Engineering, Loughborough University, UK

Abstract Disputes are now considered endemic in the construction industry. They often arise from the poor resolution of claims in the course of construction projects. Efforts have been geared towards reducing the incidence of claims. These efforts are of two kinds: those that seek answers from basic principles and legal issues at the pre-construction phase and those that attempt to solve the problems through claims management procedures at the construction phase. This paper reviews the developments in claims

management and highlights the deficiencies in current claims management approaches. It focuses on the need for improvement of the efficiency of claims negotiation and suggests the use of multiagent systems as an approach to achieve it. The potential benefits of the suggested approach are discussed in the concluding section of the paper. Keywords claim justification, claim negotiation, claim quantification, claims management, multiagent systems, risk management

INTRODUCTION Over the past three decades, the construction industry has experienced an increase in claims, liability exposures and disputes, along with an increasing difficulty in reaching reasonable settlements in an effective, economical and timely manner (Barrie & Paulson, 1992). The unique, dynamic and complex nature of the industry inevitably leads to a situation where conflicts are bound to arise, and claims are inevitable. In fact, claims are now considered as a way of life for the construction industry (Bradley & Langford, 1987), as shown by the following: Onyango (1993) found that 52% of all UK construction projects ended up with a claim of some type; Keane (1994) reported that 1.2 billion could be the subject of construction claims or disputes at any one time and that more than 83% of contractors claimed for one or more time extensions during 1992-94 in the UK; Semple et al. (1994) identified that more than half of claims constituted an additional cost of at least 30% of the original contract value based on their survey of construction projects in Canada. In addition, about a third of claims amounted to at least 60% of the original contract value. In some cases, the claim values were almost as high as the original contract value.

The reasons for this problem are very complex, and can be analysed from social, industrial and project perspectives: Social factors: the construction industry, as a whole, is under increasing pressure from the society to be more competitive in terms of cost, time, quality and environmental issues. As a result, the industry is becoming more risky than ever; Industrial factors: the wide range of participants, the increasing size of projects, enhanced competitive tendering, increasing technological complexity, uncertainty in construction environments, unbalanced risk allocation, and complex and confused interdependent relationships brought about by some project procurement systems, also contribute to construction claims; Project factors: unforeseeable site conditions, unrealistic planning and specifications, changes by the client, acceleration, unfulfilled duties by project participants and 'force majeure' are the direct causes for claims (Ren, 2000). To seek answers to the problem, numerous research projects, courses and publications on various aspects of claims, such as Wood (1975), Diekmann & Nelson (1985) and Levin (1998), have been undertaken to investigate industrial practices and to explore the principles and procedures of claim settlement and dispute avoidance. Basically, these efforts are of two

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kinds: those that seek answers from basic principles and legal issues at the pre-construction phase and those that attempt to solve the problems through claims management procedures at the construction phase (Field et al., 1993). This paper undertakes a systematic analysis of developments in claims management, highlights the problems in current claims management procedures, and makes suggestions for further improvement, based on the use of an agent-based approach.

DEVELOPMENTS IN CLAIMS M A N A G E MENT Claims management is the process of employing and co-ordinating resources to progress a claim from identification and analysis through preparation, and presentation, to negotiation and settlement (Keane, 1994). The aim of claims management is to ensure that the client pays a fair price for interfering with the contract in the execution of the work (Bramble & Callahan, 1992). Besides the management activities at the construction phase, claims management is also heavily dependent on the legal principles and other management theories at pre-construction phase, which mainly includes standard construction contract forms, risk management theory and project procurement systems. These principles and theories are vital to avoid construction claims and disputes in the first place, and to ensure that claims management starts right if claims cannot be avoided. To understand claims management fully, it is therefore necessary to explore the development of these theories and principles.

claims more critical than ever. The old standard forms of contract have not changed in line with the development of the industry. According to Zack (1997), 84% of the respondents of a survey indicated that specifications of projects often required modification; while 55% stated that contract documents often needed significant changes. Many claims and disputes were caused by the ambiguous, incomplete and inadequate understanding of the terms of contract forms and conditions. As a result, improving the legal framework for claims has been a major focus of the industry for many years. The overall objective is to (Vidogah & Ndekugri, 1998): (a) get the contractual language right first time in new contracts; (b) increase awareness of the probable construction terms by the courts and arbitrators; (c) encourage the amendment of the standard terms of contract; (d) expose popular misunderstanding. Some researchers (Levitt et al., 1980; Murdoch & Hughes, 1996; Cox, 1997; Hartman et al., 1998; Sykes, 1999) have also identified risk allocation in standard contract forms and project contracts as an important factor in claims management. In construction projects, both parties take many risks, of human error and of the unexpected, which may cause loss to project participants. Construction contracts are supposed to assign such risks to the parties who have entered into the contracts. Currently, contractors, under the pressure of competition, generally prefer to assume less risk while clients appear willing to push more risks to contractors during the tendering process which is the major source of the claims (Zack, 1997). Hartman et al. (1998) point out that the management of changes and claims is the management of risks. Project participants, especially, the client team should have a fair attitude to risk allocation in selecting the contractor and contract forms, estimating, scheduling and making detailed contract provisions. Equity in risk allocation in project contracts and procurement systems will reduce the root causes of claims, thereby avoiding construction claims and disputes. To reduce construction claims and to facilitate claims management, new project procurement systems, such as partnering, design-build and construction management (CM), have been adopted in construction industry. The impact of these systems on claims management is complex. Generally, it is believed that partnering and the design-build procurement system can reduce claims and facilitate claims management as they reduce conflicts and engender closer collaboration between

Basis of claims management: starting right The paper, entitled 'The Condition of Engineering Contracts', which Rimmer published in 1939, led to the publication of the first edition of the ICE Conditions of Contract in 1945 (Cottam & Hawker, 1992). The main forms and conditions of the contract set up provisions for increasing the time period, and payment of loss and expense sums caused by unexpected events, both of which have to be claimed by the contractor. Similarly, the other popular standard forms of contracts, such as J C T forms, FIDIC, C C D C and AIA, have also been published with the aim of setting up the legal basis and principal claim provisions for claims management. Since the end of the 1970s, an obvious change in the construction industry has been the increasing project size, technical complexity and high risks, which have led to a large number of change orders. Moreover, the increasing time value of money makes time extension

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project participants. On the other hand, the benefits of CM are doubtful. Although, theoretically, the CM system is believed to be able to facilitate claims management, industry practice shows that in most cases construction managers are not willing to make decisions regarding claims so as to protect themselves against all possible litigation. In fact, the existence of a construction manager has, on occasion, complicated the liability and damage issues that accompany a claim. The claims management process, as a result, becomes more confused and complex under the CM system (Barrie & Paulson, 1992; Keane, 1994).

(e) pricing; (f) negotiation; (g) dispute resolution and settlement. The current industry practice shows that the main challenge of claims management is not from the overall management process, but from the ineffectiveness of management activity at each stage. The key aspects include how to justify a proposed claim, how to quantify and present it with full and detailed documentation, and how to negotiate successfully with the client and his agent (Levin, 1998). For example, identification of causes of claims and proper documentation have been recognized as the two most important and difficult factors to justify a claim. The complex causes and effects of construction claims make it difficult to clearly address the claim events and liabilities, which is one of the major barriers for the resolution of claims, and the major reasons for disputes. Meanwhile, documentation is extremely important for the justification of claims as well as the whole claims management process although it is time-consuming, and is rarely directly rewarded (Wilson, 1982). Proper records are crucial for justifying the identified claims, analysing the project scope change and addressing the cost of the identified claim. Following the justification of a claim, the next task is to quantify the claim, which includes both the direct costs or delays caused by the unanticipated events, and the cumulative impacts of such events. However, arguments are often generated about the rates of compensation, quantity of the impacts, and especially the composition of the cumulative effects of the claim event, such as loss of productivity, disruption and indirect costs. These items, by nature, are ambiguous and sensitive. Some of them are impossible to quantify with precision even with the best information available. Therefore, it is very difficult to reach a satisfactory solution between project participants. Part A of Table 1 shows that the numbers of claims for indirect cost items are higher than for direct cost items. Part B indicates that claims for such items are more probably to be disputed. In most cases, negotiations are the main approaches to resolve such conflicts before they finally become disputes. Negotiations go on throughout the whole claims management process from the justification to the settlement of a claim. Although standard contracts like ICE do not suppose that claims will be settled by negotiation, in practice, and wisely so, many claims especially those with greater uncertainty such as material pricing, cost of disruption, and indirect costs are settled through negotiation between the contractor

Claims management process: staying right In spite of the extensive literature highlighting the above problems, there is little evidence of significant improvements in claims management. The continuous escalation in claims and disputes prove that the solutions offered by pre-construction research are inadequate. There is, therefore, a need to look for approaches other than the above pre-construction theories and principles. Vidogah & Ndekugri (1997) point out that claims management and 'people' issues may be, at least, as important as having a clear understanding of contractual terms and equitable risk allocation. Therefore, there is a need for complementary research into the claims management process. Diekmann & Girard (1995) also report that people and management issues may be more influential on the incidence of disputes than risk allocation and project characteristics. However, most of the available literature on claims management, by way of defining remedial measures, do not go beyond general exhortations to the contractor to identify clearly the causes of claims and maintain adequate information to support claims (Vidogah & Ndekugri, 1998). Very few research projects are reported, which aim at auditing the whole claims management process in terms of precise deficiencies, their severity and specific remedial measures. The current framework for construction claims management is based on the industry practice of the past few decades. Fig. 1 shows a typical claims management life cycle based on the requirements of FIDIC (4th edition). Levin (1998) standardizes the management process as: (a) recognition and identification of changes or the causes of claims; (b) notification to the engineer and the client; (c) systematic and accurate documentation; (d) analysis of time and cost impacts;

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Table 1 Claims for direct and indirect costs. Part A* Part B Ranking Heads of claim (no. of probably to claims) be disputed 1 2 3 4 5 6 Cost of preparing claims Loss of profit Cost of disruption Head-office overheads Interest and finance charges Others

Claim items Site overhead Loss of productivity Loss of revenue Financing costs Equipment costs Premium time

Ranking 1 2 3 4 5 6

* Semple et al. (1994). Vidogah & Ndekugri (1997).

costs. Quantitative negotiations go into much detail and are time-consuming as there is much more room to bargain, and both parties try to maximize their benefits through this negotiation process. Thus, the current studies on claims negotiation are mainly interested in quantitative negotiations. Negotiations are normally started at a lower level between the contractor and the engineer's quantity surveyors. The project manager and the engineer will join the negotiation if their quantity surveyors cannot solve the problems. If agreement still cannot be reached, the contractor may contact the client in the hope that the client joins the negotiation directly and solves the problems. Although the cases are quite often diverse and project specific, claim negotiations are normally hard and time consuming. This is because: (a) the consequences of negotiations are directly related to financial gain or loss; (b) negotiations are influenced by many internal and external factors. Table 2 lists some of these factors summarized from the work of the following researchers: Hughes & Barber (1992), Scott (1992), Smith (1992), Spittler & Jentzen (1992), Just & Torone (1997) and Levin (1998); (c) negotiation is more a human-oriented process than a technical process. A negotiator's personal abilities, attitudes and negotiation strategies, in many cases, determine the result of a negotiation. Unfortunately, most construction personnel do not have enough negotiation expertise. Emotion, irritation and relationship considerations often strongly influence negotiations.

and the engineer (Powell-Smith & Stephenson, 1993). Successful negotiation of claims is an important element for controlling project costs and reducing the potential for litigation resulting from outstanding claims (Field et al., 1993). Basically, there are two kinds of claim negotiations: qualitative and quantitative negotiation. Qualitative negotiations are about the entitlement of the contractor to a claim, which is mainly regarding the justification of a claim based on the identified causes, liabilities and contract conditions. Such negotiations are essential and highly evidence-oriented with limited free room to bargain. Quantitative negotiations are about the amount of compensation for the entitled claims, which commonly deal with the amount of the quantity of claim items, rates of material or labour and indirect

Table 2 Factors influencing negotiations between project participants. Factors that hamper negotiation Contractor High ambitions Global claims Lack of evidence Wrong calculation Poor presentation Engineer Willingness to protect himself against any harm Discouraging any claim caused by the failure of act of the engineer Client Willingness to pay less for more work Discouraging claims High expertise in construction management Consideration of reputation Factors that facilitate negotiation

Willingness to maintain a good relationship Willingness to compromise because of the weakness in claims management Concentrating on future prospects of work or compensation (new claims or items)

Consideration of the entire project progress Involvement of client

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A final compromise will be reached under the influence of all these factors. Computer supported claims management Developments in general project management principles and the application of new information technologies strongly support the claims management process. For example, the improvement of planning and scheduling technologies in project management, especially the application of the critical path method (CPM) strongly supports delay claims by sorting out the overall impacts of unanticipated events on the schedule. Delays resulting from unanticipated events can be addressed clearly by analysing their effects on the critical path while the effects on non-critical paths are excluded. An 'as-planned' CPM schedule is first built based upon the approved project schedule; then a network model known as the 'impact schedule' is built to superimpose various schedule impacts upon the as-planned schedule including excusable, compensable, non-compensable and concurrent items. Input to the schedule involves identifying and quantifying the individual delays and determining the responsibility and entitlement of the parties. Finally, delays in the critical path can be identified and the revised overall completion date for the project is calculated (Barrie & Paulson, 1992). The development of modern information technologies, such as MS Word, Excel spreadsheet, MS Project, Primavera, Intranet, Extranet, Electronic Data Interchange (EDI) and Expert System, and their applications in general project management provides an opportunity for the improvement of claims management through: improved record keeping and presentation, easier analysis of the impact of delays and changes, improved communication and decision support/advice on legal aspects of a given claim. For example, a well-designed expert system can help the site engineer to improve the efficiency and accuracy of their decision making related to site claims (Levitt, 1987; Adams, 1988; Diekmann & Gjertsen, 1992; Alkass et al., 1995).

construction claims management will be a long strategic task for the industry. The major deficiencies of current claims management practice are in the following areas. Awareness and interpretation of contract terms and provisions Keane (1994) points out that difference in awareness and interpretation of standard contract terms is still a major contributor to the problems in claims management. Contractors, engineers and clients regularly fail to agree on the basis of a claim and how it should be settled. The reasons are: Understanding of the terms of the contract is still inadequate in spite of the large volume of information dedicated to interpreting them. Understanding is usually based on experience and common sense. Sometimes, what was meant to be said may be the determining factor instead of what was actually written in the contract (Thomas et al., 1994); Contracting parties frequently interpret contract terms from their own perspectives in an ad hoc manner and for their own benefit. The same contract clauses are often interpreted differently; Contracts themselves may contain ambiguous or unfair provisions. Contract terms alone are insufficient to clearly apportion risks or responsibilities between contracting parties. This holds true not only for what is stated explicitly in the contract documents, but also for what is implied.

Inadequate information and documentation Many researchers have identified inadequate information and poor documentation to support claims as major problems in current claims management practice. The Wood (1975) report made the same point when it emphasized the lack of factual evidence as a prime cause of delayed payment and protracted disputes. Scott (1992) points out that perhaps the biggest failing on the part of contractors when dealing with claims is the lack of sufficient recorded data on the effects of delaying and disrupting events. Wilson (1982) and Badger & Gay (1996) all stress the lack of initial records, such as minutes of meetings, correspondence, progress reports, status logs, photographs, records of delay and disturbance, and revised drawings, as the major reason for the failure of claims. Many contractors' management information systems are ill designed to support claims. Records are kept either in an inaccessible way or are incomplete

DEFICIENCIES IN C L A I M S M A N A G E M E N T PRACTICE Despite the extensive studies on claims management theories and practices, the increasing incidence of claims and disputes imply that the current claims management principles and process are ineffective in meeting industry requirements. Because of the volatile nature of construction projects, it is also unrealistic to expect that claims can be avoided or resolved by a single principle or method. The improvement of

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or designed for other purposes even if they can be accessed. Vidogah & Ndekugri (1997) conclude that the reasons for these problems are: a culture of bias against paperwork on site operations, poor design of recording systems, the paper-based nature of most of the relevant information and poor resourcing of the claims management role in contracting organizations.

Lack of effective claims management tools Compared with the number of research projects on the legal bases and principles of claims, the efforts seeking to develop effective tools to support claims management activities are few. As a result, claims management activities rely on the project management tools. Very few project management tools, especially systematically designed, are appropriate for claims management. For example, inadequate record keeping has been recognized for a long time as a major problem area in claims management. There is virtually no chance of improvement without the application of information technology. On the other hand, industry practice shows that claim documentation is still perceived to be woefully inadequate in many cases even with the support of IT. The increasing power and affordability of information technologies do not naturally lead to an improvement of the claims management process. There is a lack of systematic analysis on how best to apply these technologies. This is crucial for claims management (Vidogah & Ndekugri, 1997).

tive and strategy analysis) and negotiation activities (offer, evaluation and counteroffer), as well as many other factors, which may take more time than the negotiation itself. For example, before negotiation, claim documents have to be specially presented for negotiation. There is quite a substantial delay between document submission and discussion of the claim. Negotiations are seldom held immediately for one claim after the documents are submitted. In most cases, the claim will be discussed at a progress meeting or special meeting where many claims are discussed. Moreover, negotiators need to be appointed and brought together for the negotiation. In cases where project managers or other key project personnel act as negotiators, negotiations are often delayed because of the absence of these people. During negotiations, unrelated arguments such as site management, quality or site safety are often used to pressurize an opponent. A party may expect to get benefit by waiting or delaying until the other side is emotionally exhausted. In most cases, neither side wants to make a concession first or easily. Smith (1992) identifies improper negotiation styles and lack of planning as the main reasons for inefficient construction negotiation. Zack (1994) lists some improper negotiation styles as: (a) (b) (c) (d) (e) (f) (g) (h) (i) win/lose strategy; stubborn negotiation style; making concessions for the sake of a relationship; bargaining vs. negotiation; establishing fixed objective vs. a range; failing to choose right negotiation team members; failing to plan negotiation; unclear authority; failing to document negotiation.

Inefficient claims negotiation Most project managers consider claims negotiation as the most time and energy-consuming activity in claims management (Hu, 1997). The major reasons are the diversity of intellectual background, the many variables involved, complex interactions, and inefficiencies in the negotiation process (Zack, 1994). For example, engineers and clients typically respond in a tough and unyielding manner in claims negotiation because of the negative perception of claims. Moreover, the negotiation items, such as loss of productivity and disruptions, are generally ambiguous and sensitive. The main contributors to the inefficiency of the claims negotiation process are discussed below.

Low client

involvement

Preparation and negotiation processes Currently, both the preparation and negotiation processes are time-consuming. This is caused by the necessary negotiation preparation (evidence-collection, opponent position anticipation, and negotiation objec-

The involvement of the client is currently very low in claims management (Vidogah & Ndekugri, 1997). The late and low involvement of the client and the engineer's conflicting role as an independent professional and the client's representative have been recognized as major factors contributing to the inefficiency of claims negotiation by the European Construction Institute (ECI) (1992). In cases where claims are caused by the engineer's failure of action, the engineer is probably to discourage the claims, and to deal with the claims in a partial manner by taking advantage of the low client intervention. This may finally increase the difficulty of negotiation and open up the possibility of disputes.

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Therefore, ECI (1992) recommends earlier and greater client involvement in claims management. Human factors Negotiation involves many human factors in addition to the pure technical issues. A negotiator's personal abilities and attitudes, in many cases, determine the result of a negotiation. Smith (1992) points out that negotiation has been labelled as a basic survival skill for today's project manager. Unfortunately, very few construction participants have adequate negotiation expertise. Most claim negotiations are conducted in a heuristic way. Unnecessary concession and stubbornness are common mistakes, which make the negotiations harder and inefficient.

which negotiators are motivated by both individual and group benefits. The negotiation mechanism is built on a simple game theoretical model which is difficult to apply in the complex claims negotiation environment. In this study, a MAS for construction claims negotiation (MASCOT) model has been developed to address the deficiencies in current claims negotiation practice. The main focus is on the negotiation mechanism which matches the specific characteristics of claims negotiation.

The MASCOT model The MASCOT model has been developed based on a thorough analysis of the characteristics of claims negotiation. For example, an essential nature of the negotiation is that construction claims negotiation can be understood as a bounded self-interested negotiation. That is, the negotiation participants are initially selfmotivated, their main interest is to maximize their own benefits. On the other hand, such self-interested competition is bounded by the willingness of not breaking the negotiation because that may force them to give up the claim or go into an arbitration or litigation that they can hardly afford. Such nature is the starting point where the MASCOT is built. Meanwhile, the other characteristics like participant-dependent information, strategy-influenced process and time impact are also essential for the development of the model. Moreover, the MASCOT model also takes advantage of the opportunities offered by negotiation theories and intelligent agent technology. The negotiation theories: game theory, bargaining theory and behaviour theory and their applications in various MAS environments provide a theoretical background for the development of the system. Based on the identified important claims negotiation characteristics, proper negotiation theoretic models have been adopted and modified. The key aspects of the MASCOT negotiation mechanism include: first, a modified monotonic concession protocol (MCP) is adopted. In MCP, both parties start by simultaneously proposing one deal from the space of possible deals, an agreement is reached if one party matches what the other one asked for, or exceeds what the other one asked for. The protocol continues to another round if neither party matches or exceeds the other's demand. A party is not allowed to offer the other party less than it did in the previous round. If neither party concedes at a certain step, then the negotiation ends and the protocol specifies that a deadlock has been reached. The advantage of MCP is that it ensures convergence or puts a stop to the negotiation promptly when convergence is not occurring. In

TOWARDS AGENT-BASED CLAIMS NEGOTIATION Although several problems in claims management have been identified above, the authors, unlike most other researchers who emphasize the problems of documentation, will focus on the improvement of the efficiency of claims negotiation. This is because inefficiencies in negotiation make claims resolution much more difficult and adversarial, and may delay resolution or, in the worst case, lead to expensive litigation (Zack, 1994). Thus, it is necessary to develop a methodology to facilitate claims negotiation so as to reduce the tremendous time and human resources invested. A technology that has the potential to improve the efficiency and effectiveness of claims negotiation involves the use of a multiagent system (MAS) to facilitate negotiations between project participants. Multiagent systems are networked systems composed of individual agents which can negotiate for their own benefits. These agents are characterized as autonomous, facilitating and filtering information, communicating, learning and facilitating collaboration (Ugwu et al., 1999). This makes MAS ideal for supporting construction claims negotiation. Unlike other negotiation supporting approaches, such as expert systems and decision support systems, which can only provide information or suggestions to human negotiators, agents in a MAS can, on behalf of the different project participants, directly negotiate with each other regarding a claim item, and reach an agreement within a specified time frame. This constitutes a promising approach to solve complicated negotiation problems in a natural way (Ferber, 1998). Pena-Mora & Wang (1998) developed a system to facilitate collaborative negotiation in large-scale civil engineering project, in

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MASCOT, this protocol is modified in the situations of reaching conflict result, complete information assumption, introduction of time penalty and the involvement of the client agent in negotiation. Secondly, an economic model for negotiation, Zeuthen's model, is adopted. In this model, two parties' negotiation problem is considered as a one-party's decision process under the assumption that if none of the players concede at a particular step, they will reach a conflict (Young, 1975). There are two steps in the negotiation: the individual negotiator compares the certain value he can obtain by accepting the other side's offer. Based on this offer, his own favoured outcome and the results of conflict, he calculates the maximum probability of conflict he would be willing to accept in preference to acquiescing on the current offer of the other side; concession will be made by the side willing to accept the smaller risk of conflict at any given moment in time. A player needs only reduce his own demand to the point where he is willing to accept a greater risk of conflict than the other. Accordingly, each player must continue to concede until he is willing to accept a larger risk of conflict than his opponent. Zeuthen's model best reflects the nature of claims negotiation, i.e. the bounded self-interested negotiation. The advantages of the model are two-fold: first, it reflects both parties' risk perceptions during negotiation; and second, the solution of Zeuthen's model is identical to Nash's (1950) method. That is, patties settle at the point that maximizes the product of the difference between what bargainers get from conflict and what each gets from the settlement point (Harsanyi, 1965). Thirdly, a learning mechanism, Bayesian learning mechanism, is incorporated. The importance of learning in negotiation has been recognized in the game research community as fundamental for understanding human behaviour as well as for developing new solution concepts (Cross, 1977; Jordan, 1992; Osborne & Rubinstein, 1994). It also recognizes the practical experience that most skilled claim negotiators have. The Bayesian learning mechanism, as a simple and powerful approach, provides a method to update an agent's beliefs about the opponent based on the agent's prior knowledge about the opponent and the opponent's offers during the negotiation process (Zeng & Sycara, 1998). The updated belief then becomes the agent's new domain knowledge in the next updating process. An agent can finally get a relatively accurate estimate about the opponent's key negotiation feature

(e.g. reservation value; even if its initial d o m a i n knowledge is not so accurate (Fig. 2). Fourthly, time penalty is considered. Multiagent system for construction claims negotiation takes the passage of time during the negotiation process into account in facilitating convergence. The time taken by each agent during negotiation is considered as a penalty element in its utility function. As time penalty is a driving force for agents, especially those with a high time penalty, to concede to reach an agreement, the problem that an agent may try to benefit by diverging from the Zeuthen strategy can be avoided (Rosenschein & Zlotkin, 1994). This ensures that the MASCOT negotiation mechanism is stable. Finally, an expanded solution searching strategy is incorporated, which allows the client agent to join the negotiation if a conflict result will reach between the contractor and the engineer agents. Moreover, it also allows the trade-offs between different negotiation items.

Example This case involves a seven-town water supply project. According to the design, the intake structures in G, P and A towns were the same. The walls of the intake chamber were based on driven concrete piles. The length of pile was 8 m with 7.5 m to be driven into the riverbed. The contractor's quotation for the piling work was $90 000. According to the contractor's schedule, the piling work would be made sequentially in G, P and A towns. After starting the work, the contractor found that piles could only be driven 3.5 m into riverbed. The engineer thought the problem was caused by the contractor's old piling machine and reminded the contractor that it was the contractor's responsibility to drive the piles to the designed level. As a result, the contractor

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tried all the possible methods to conduct the piling work. However, only three piles were driven 4.5 m into the riverbed till all the piling work was completed. The piling work was delayed 60 days in G town. Following a request by the contractor, a bore-hole was made by the National Geology Laboratory, which showed that a 3-m dense gravel-sand layer lay underneath the riverbed at about 3-4 m while the original drawing showed this to be soft clay. Eventually, the engineer agreed that the problem was created by the fault of design. A claim was submitted by the contractor including time extension, new pile rate, cost of pile cutting and removal, overheads and loss of productivity. As the same problem might occur in the other two towns, both parties were very cautious about the claim. The real case took more than 4 months to settle. The most difficult negotiation item was loss of productivity, more than 10 negotiation meetings were held at different levels. In this study, MASCOT is adopted to resolve this claim item. To apply the M A C O T model, two kinds of information are necessary (Fig. 3). One is the negotiator's estimate about his own reservation value and optimum value about the claim item. Another one is his prior knowledge about the opponent's reservation range and negotiation habit. Such information is based on the negotiator's experience with the opponent. If he does not have enough knowledge, the learning mechanism will allow him to accumulate such information during the negotiation process. Suppose, in this case, that the contractor has an estimate about his reservation value of S9000 for the loss of productivity and an optimum

value of S11 000. Meanwhile, he also has some domain knowledge about the possible range of the engineer's reservation value (e.g. from $8500 to S11 000 with equal possibility) and the engineer's negotiation habit (e.g. the engineer normally makes an offer which is 10% lower than his real value). Similarly, the engineer estimates his reservation value as $9800, the optimum value as $7000 and the range of the contractor's reservation value (e.g. from $7500 to $10 000 with high probability on $8000 and $9000) and negotiation habit (e.g. the contractor normally makes an offer which is 20% higher than his real value). After receiving this information from their owners, the agents start their negotiation and generate an outcome of $9535 as the compensation for the contractor's loss of productivity (Fig. 4). The outcome mainly depends on the negotiators' estimate about his claims compensation and the prior knowledge about the opponent. As MASCOT incorporates a learning mechanism, the outcome will become more accurate as the negotiation goes on. Full details of various negotiation scenarios are presented in Ren et al. (2000).

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BENEFITS OF THE AGENT-BASED APPROACH From the above example, it can be seen that by adopting the MASCOT approach, an outcome is generated effectively through the negotiation between agents with reasonable accuracy and acceptability. The main advantages of this approach are: Improved efficiency of negotiation The proposed system is expected to solve or relieve the problems in claims negotiation preparation and negotiation process. First, as claim negotiations are conducted between the autonomous agents through a network, the time for negotiation preparation, such as time for negotiation document presentation, waiting for a negotiation meeting or gathering negotiators is reduced. Secondly, the negotiations between agents are more efficient than that of human negotiators as the negotiations between agents are continuous, straightforward and highly concentrated. Thirdly, the unhealthy tricks of negotiation, such as obfuscation, are avoided as agents have to reach a result within a specific time limit. Thus, it is expected that the new approach will address and solve the negotiation problem in a quick and effective manner. Currently, most contracts require the contractor to complete work first, regardless of claims for extra payment, regardless of disputes and regardless of references to arbitration. Claim negotiations are conducted long after the revised work or even after the whole project has been completed because the possibly long argument about compensation could delay the work further. Having made so, the contractor has little negotiating strength and becomes a supplicant. The application of the proposed system will provide an opportunity to settle claims in a timely manner. Even if the claim could not be settled at the early stage, the problem areas will be identified for further action.

because of non-agreement by the direct involvement of the client. When a negotiation between the contractor agent and the engineer agent falls into conflict, the client agent will join the negotiation and search for any possible deal that can be accepted by the contractor agent in its negotiation zone. If such a deal is found, it will be passed to the engineer agent to expand its negotiation zone to enable the negotiation move forward. Secondly, the problems caused when the engineer tries to cover personal faults are also avoided. Thirdly, the system also facilitates communication between the client and the engineer, which will also facilitate the negotiations.

Reduced influence of unhealthy human factors The application of the system will avoid many unhealthy human factors, which are often used in claims negotiation. For example, a party may seek to win a negotiation by taking advantage of the other party's weakness in negotiation tactics, emotional influences or relationship considerations without quibbling about how to justify the settlement value. On the other hand, claims and claims negotiation are continuous processes during the construction process. Once a party finds that he has suffered an unreasonable loss, the following negotiations will be much harder and finally may lead to disputes. The application of the MASCOT system will reduce the influence of such human factors. The negotiation between agents will avoid any obvious mistakes, which its owner may otherwise make. Moreover, the system could also help those project participants who do not have enough negotiation experience to avoid unnecessary mistakes caused by improper negotiation strategies.

S U M M A R Y AND C O N C L U S I O N S Despite the extensive studies of claims avoidance and claims management at both pre-construction phase and construction phase, the continuing escalation in construction claims and disputes show that the solutions offered by these approaches are inadequate. This paper has reviewed developments in construction claims management and highlighted the major deficiencies in current procedures. One of these is inefficiency in claims negotiations. T h e paper proposes the use of intelligent agent technology (particularly MAS) to overcome these deficiencies. Multiagent systems offer the potential to improve the efficiency of the claims negotiation by automating aspects of the negotiation process such that distributed construction team

Earlier client involvement The proposed system provides a mechanism for the client to get involved early in the claims negotiation process. The client, through his agent, can monitor and get involved in the negotiations between the engineer and the contractor. There is scope for the contractor directly to negotiate with the client. This will result in important improvements to the current claims negotiation process. First, it is possible to resolve negotiation deadlocks between the contractor and the engineer

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m e m b e r s can reach agreement quickly and without the influence of unhealthy h u m a n factors. T h e potential benefits of the proposed a p p r o a c h , which is being encapsulated in a c o m p u t i n g application, have also b e e n outlined. It is evident that that the agent-based a p p r o a c h offers n e w possibilities for t h e efficient c o n d u c t of claims negotiations in construction. However, there are still m a n y key issues that need to b e further explored to enable the p r o p o s e d system achieve the desired objective. These include establishing the roles that the client a n d t h e engineer play in the p r o p o s e d negotiation system, identifying the m o s t appropriate negotiation theories for the application of M A S in claim negotiation, negotiation protocols a n d strategies for agent interaction in the M A S C O T system, e m p o w e r m e n t of agents, d o m a i n ontology a n d t h e involvement of each individual agent's owner in establishing its negotiation strategy. All of these issues are being addressed as part of t h e project a n d will be t h e subject of future publications.

ACKNOWLEDGEMENTS
T h e work described in this p a p e r is funded b y the Engineering a n d Physical Sciences Research Council, E P S R C u n d e r its Innovative M a n u f a c t u r i n g Initiative (IMI).

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