Discussion 4

Contracts, Conflicts, and Dispute

Resolution

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 What is “contract”?

 A contract is an agreement between two parties that

creates an obligation to perform (or not perform) a
particular duty.
 A legally binding contracts should have
 Offer
 Acceptance
 The intention to be legally bound
 Consideration
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 What is “offer”?

 An offer in law is a statement of the terms upon

which a party is
 willing to contract and
 An expression of willingness to do so if an
acceptance is given of those terms
 It is different from an ‘invitation to treat’ (ITB).

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 What is “acceptance”?

 An acceptance of an offer becomes effective

when it has been communicated to the person
who made the offer (post, email, fax)
 The acceptance is effective in creating a
contract if it coincides with what was the offer,
otherwise it is a ‘counter offer’

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 Intention to be legally bound
 Normally if the two parties are commercial
organisations then it is expected that they
intended to go into a binding contract.
 However, if there is no such intention then
‘subject to contract’ is used to make it clear that
there are still matters to be agreed upon before
we have a binding contract.

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 Consideration
 An act or promise of one party must have been
given in exchange for an act or promise by the
other.

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 Letter of intent
 The expression of an intention to enter into a
contract at a future date which does not give rise
to any liability in contract but does not exclude
or negate a right to recover reasonable
expenditure

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 What is “conflict”?
 “the tension between two or more social entities
–individuals, groups or large organisations –
which arises from the incompatibility of actual
desired responses”.
 “interpersonal conflict occurs between two or
more persons when attitudes, motives, values,
expectations or activities are incompatible and if
those people perceived themselves to be in
disagreement”. (Guirdham, 1996)
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 “Conflicts” Good or bad?
 An organisation's ability to respond to change,
challenges and opportunities, effectively, is
greatly affected by its ability to create new ideas
and innovations.
 This will be achieved by its ability to harness
the different, and sometimes conflicting, views,
ideas and behaviours of its members.

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 “Conflicts” Good or bad? Cont.
 Conflict, therefore, is beneficial
 Should be encouraged
 Sources of additional information for the
decision maker,
 Seek the best solution from two or more
potentially, mutually exclusive alternatives

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 Why do we need conflict
management?
 Organisational conflict is now considered to be
positive and may result in creative solutions to
problems.
 Little or no conflict may lead to stagnation, poor
decisions, and ineffectiveness.
 On the other hand, organisational conflict left
uncontrolled may have dysfunctional outcomes.

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 Balancing act
 The philosophy of balancing conflict levels is
the cornerstone of the contemporary principles
of conflict management.
 Management has a central role and major
influence in the creation of an organizational
environment conducive to a positive outcome of
conflict.

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13
 Reasons for conflict in projects
1. Interpersonal conflicts
 Between individuals.

2. Administrative Procedure Based Conflict.

 Different parties have different approaches.

3. Incompatibility of goals in project teams.

 Different companies have different objectives

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 Conflict management in projects
 The Project is a complex inter-organizational
world in which many different types of
specialist knowledge are required at different
stages in the project.
 Therefore, conflict management is an
inescapable part of the Project Managers' role
and responsibility.
 The nature of the project organisation gives rise
to conflict, relationships, power, authority
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Separated by culture and interest
 The grouping of the project team very often
results in conflict.
 The team members expect to enter into
confrontation with one another and with the client.
 The expectation of adversarial relationships is at
the root of the problem.
 Construction professionals are educated in the
very narrow field of their discipline

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 Project manager is a conflict
manager
 The challenge to project management is to
negotiate, compromise and accommodate the
different people with different individual needs
and style, possessing different identities,
belonging to different groups with different
aims and objectives.

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Sources of conflict in projects
Process level

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 Sources of conflict in projects
Process level- 1. Design
 The growing number of parties/professionals
playing a significant role in the design of the
project.
 The pressure to implement the design as early as
possible.
 The problem of hidden requirements for design
input from the contracting side.
 Failure to recognise the importance of design
management.
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 Sources of conflict in projects
Process level- 2. Subcontracting
 The increase use of subcontractors has led to
serious problems in the quality of the works and
the issue of liability.
 The practice of imposing subcontractors on the
main contractor will increase risk and conflict.

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 Sources of conflict in projects
Process level- 3. Payments
 Disputes over payments are common with
contractors alleging under-certification.
 The question of how payments can be secured.
 The "completion" game!

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 Sources of conflict in projects
Process level- 4. Contracts
 The use of ‘non-standard’ forms of contract has
resulted in greater complexity, fostering distrust
and a plain lack of comprehension of the
document.

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 Sources of conflict in projects
Process level- 4. Contracts
 The use of ‘non-standard’ forms of contract has
resulted in greater complexity, fostering distrust
and a plain lack of comprehension of the
document.

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Methods of resolving conflicts

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 Methods of resolving conflicts
Litigation
 Litigation is the process of contesting a dispute
in the courts of law. Litigation is referred to as
an 'adversarial system‘.
 It is long and costly
 Damage to business relationships and reputation

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 Methods of resolving conflicts
Arbitration
 Arbitration evolved because of the general
dissatisfaction with litigation.
 Arbitration was intended to provide a faster,
flexible, and cheaper form of resolving disputes
that was adjudicated by an expert arbitrator.
 The process also offers privacy to disputants.
 In addition, unlike the local courts, rights of
audience are not restricted largely to lawyers
who are UAE nationals. 26
 Methods of resolving conflicts
Arbitration
 The Dubai International Arbitration Centre,
created in 1994, is the UAE's busiest arbitration
centre.
 DIAC publishes its own arbitration rules

(see http://www.diac.ae/idias/rules)

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Alternative dispute resolution

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 Alternative dispute resolution
 ADR is a non-confrontational technique, which
may resolve disputes without resorting to
traditional litigation or arbitration.
 It is claimed to be fast, effective and less
threatening or stressful.
 ADR offers disputants the opportunity to
participate in the process and empowers them to be
creative in solving their own conflicts.
 It should enable the parties to maintain a good
business relationship
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 ADR techniques
Negotiations
 In almost every dispute which arises, the
parties‘ representatives at the project will
usually have entered into informal negotiations.
 Structured negotiations between the parties'
higher management will usually be a first step
of a multi-tiered dispute resolution process.
 It may lead to arbitration or litigation in the
event that the ADR techniques employed are
unsuccessful.
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 ADR techniques
Mediation
 Mediation is a form of 'assisted negotiation',
whereby any settlement will be the result of an
agreement by the parties.
 The mediator's job is only to assist the
negotiation, not to decide the case or impose a
solution.
 When it is successful, mediation is generally
considerably quicker and cheaper than
arbitration or litigation.
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 ADR techniques
Mediation- cont.
 A mediation clause should be written into the
contract.
 The parties must usually also enter into a
separate written agreement to secure the
professional services of their chosen mediator
 Unlike arbitration, there is no legislation within
the UAE that will govern mediations.

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 ADR techniques
Mediation- cont.
 Therefore, the parties should, in the agreement
to mediate, provide what, if any, rules will
govern the conduct of the mediation.
 The parties will also have to agree on the
identity of the mediator to be appointed.
 The mediator should be independent and both
parties should be able to have confidence in his
or her ability to assist them in negotiating an
agreement which is fair and reasonable.
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 Mediation- the process
 In a mediation, both parties will generally
furnish the mediator with an overview of their
respective positions,
 Firstly in the form of a written statement
supplied before the mediation is convened, and
 Secondly by way of a short presentation at the
outset of the mediation proceedings.

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 Mediation- the process
 The mediator will then, usually, split the parties
into separate rooms and go between them
having meetings with each party to explore the
strengths and weaknesses of that party's case
and to attempt to encourage them to adopt a
realistic valuation of their claims

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 Mediation- the process
 The idea is that by reducing both parties'
expectations of their entitlement and alerting
them to the potential weaknesses of their case
and the risks involved in pursuing it, the
mediator assists the parties in reaching
settlement.
 The settlement will then be recorded in a
written agreement, which will have the legal
force of a binding contract.
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 Mediation- the process
 Accordingly, if one party does not honour its
obligations there under, the other party may sue
for breach of the contract.

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 ADR techniques: Expert
appraisal or Expert
determination
 A neutral third party, appointed by the parties in
dispute, provides an opinion on the dispute.
 The parties may agree that this opinion will
function as a recommendation (expert appraisal)
or will be final and binding upon them (expert
determination).
 The neutral third party will be chosen for his/her
technical expertise in the particular field that the
dispute concerns
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 ADR techniques: Adjudication
 The parties will agree terms for the appointment
of an adjudicator in the event that a dispute
arises.
 Once appointed, the Claimant will set out its
claim and the Respondent will set out its
Defense and any Counterclaims.
 The adjudicator will review the parties positions
and decides the claim.

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 ADR techniques: Adjudication
 The adjudicator will usually issue his decision
within 28 days.
 The point of adjudication is to free up cash flow
between the parties involved in projects by
rendering a temporary, quick decision before the
dispute escalates into entrenched and protracted
arbitration / litigation.

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 ADR techniques: Adjudication
 Adjudication is a far more common method of
ADR in construction.
 Expert determination may be found in projects
with an engineering element, such as waste-to-
energy plants, or in overseas projects.

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…end

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