The root cause of claims

and disputes in construction industry and solution analysis

 

FEATURED PAPER

By Wantong Zhao

SKEMA Business School

Beijing, China

 


 

ABSTRACT

Globalization has entered a new age in which the entire world is inextricably linked. Countless transnational trade is carried out every day, while numerous contracts are signed every day, and a EPC contracting is the main modality.  However, trade frictions and trade disputes may cause various problems because of the differences between buyers and sellers and may eventually damage the interests of one or both parties. Hence, to settle the claims and disputes in international project management admits of no delay.

This paper focus on two research questions to address the above issues: the root causes of claims and disputes in construction; and to explore the best options by some analyzing techniques and methodologies. Such as to provide feasible alternatives (prevention, negotiation, standing neutral, non-binding solution, private binding solution, litigation) to deal with them. Then by evaluating through Fish bone Diagrams, Pair-wise comparison method, non-comparison model, non-dimensional data technique, rank table as well as Pareto Analysis to achieve the objective of choosing the best and eliminating the worst.

Therefore, throughout all the analysis we found that prevention is the best alternative solution and we eliminated negotiation and litigation.

Keywords: EPC contracting; contract; contractor; dispute; cause; project management; risk; solution; disagreement

INTRODUCTION

Throughout the world, dispute is inevitable in the construction domain. “In 2016, the average value of construction disputes stood at 42.8 million U.S. dollars. A dispute was defined as a situation where two parties differ in the assertion of a contractual right. ”[1] The causes are numerous mainly caused by what happened on site between the parties. All the project management team are challenged by the risk of dispute from the initiating to the closing stage of a project. It does not matter that how exhausting the planning is, uncertainty are always happen during the execution stage of a project. So many parties are involved, owners, contractors, subcontractors, “there are always different between the parties and it exist so many opportunities for a disagreement.” [2]

The EPC mode is a common project management model for engineering. Under normal circumstances, the owner strictly controls the contract price standard of the project, and the “project design, procurement and construction” [3] are fully contracted to the contractor. The contractor is responsible for the contracting of the whole process of design, procurement and construction of the project. Under the EPC project management model, the contractor of the project needs to bear responsibility for all aspects of the project, such as project design, material procurement, construction progress, quality, safety control and so on. Using the EPC project contracting model, the engineering contractor can use its own advantages to coordinate and manage the project overall, “control project costs and schedules, so as to achieve maximum economic and social benefits with minimum investment, and achieve the goal of achieving maximum corporate value.”[4] The EPC contracting mode is also an effective means for project owners to control engineering risks and ensure project benefits.

Indeed, as an “important element of any country’s infrastructure and industrial growth, construction industry has faced an intense period in many countries” [5] such as China and India, particularly in to improve the performance and productivity. In addition to the most 3 important elements: time, cost, quality, other factors such as rework, variations, incorrect design and incomplete documentation, late authority approvals are must to be taken into consideration of the new project managers.   The leading causes of claims and disputes mainly come from the following 4 aspects: “Construction technique related causes; Financial/Economical causes; management related causes; Contract related causes” [6]. As mentioned in the previous paragraph, the management of sub-contractor is a fatal element for the success of a project. To resolve all the sub issues may quite effective. Essentially, if the claims and disputes can be reduced by improving “workflow management” [7], by perfecting the “documentation detail management” [8], by perfecting system, by “changing behaviors” [9], the productivity can have a significant increase.

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Editor’s note: This paper was prepared for the course “International Contract Management” facilitated by Dr Paul D. Giammalvo of PT Mitratata Citragraha, Jakarta, Indonesia as an Adjunct Professor under contract to SKEMA Business School for the program Master of Science in Project and Programme Management and Business Development.  http://www.skema.edu/programmes/masters-of-science. For more information on this global program (Lille and Paris in France; Belo Horizonte in Brazil), contact Dr Paul Gardiner, Global Programme Director paul.gardiner@skema.edu.

How to cite this paper: Zhao, W. (2019). The root cause of claims and disputes in construction industry and solution analysis, PM World Journal, Vol. VIII, Issue V, June.  Available online at https://pmworldlibrary.net/wp-content/uploads/2019/06/pmwj82-Jun2019-Zhao-root-cause-of-claims-and-disputes-in-construction.pdf

 


 

About the Author


Wantong Zhao

Beijing, China

 

Wantong ZHAO is a SKEMA Business School MSc project management and business development student with 5+ years of experience in project management in the construction industry in North Africa. Born in China, she gained a bachelor license in French language and culture in Jilin province. Working more than 5+ years in Algeria in China State Construction Engineering Corporation, which is a top construction leader worldwide, evolves in several projects in the capital Algers. And then working for StarTimes Beijing as a purchasing assistant, before pursuing the master’s degree course in Lille, France. She completed her last assignment under the tutorage of Dr. Paul D. Giammalvo in December of 2018, and currently, furthering her education by way of stage.

Wantong lives in Beijing, China and can be contacted at lesoleilzwt@126.com

 

[1] Statista. (n.d). U.S. Construction Industry – Statistics & Fact. Retrieved from https://www.statista.com/statistics/731826/global-construction-dispute-values/

[2] What are the most common causes of construction disputes? Retrieved from https://www.wrightgreenhill.com/blog/2017/05/what-are-the-most-common-causes-of-construction-disputes.shtml

[3] 3 Engineering, procurement, and construction  Retrieved from https://en.wikipedia.org/wiki/Engineering,_procurement,_and_construction

[4] The characteristic of EPC contracting Retrieved from https://wenku.baidu.com/view/54f24efb0b4e767f5bcfcea8.html

[5]  A REVIEW ON CAUSES OF DISPUTES IN CONSTRUCTION INDUSTRY Retrieved from http://ijaresm.net/Pepar/VOLUME_1/ISSUE_4/12.pdf

[6] A REVIEW ON CAUSES OF DISPUTES IN CONSTRUCTION INDUSTRY Retrieved from http://ijaresm.net/Pepar/VOLUME_1/ISSUE_4/12.pdf

[7] A REVIEW ON CAUSES OF DISPUTES IN CONSTRUCTION INDUSTRY Retrieved from http://ijaresm.net/Pepar/VOLUME_1/ISSUE_4/12.pdf

[8] A REVIEW ON CAUSES OF DISPUTES IN CONSTRUCTION INDUSTRY Retrieved from http://ijaresm.net/Pepar/VOLUME_1/ISSUE_4/12.pdf

[9] A REVIEW ON CAUSES OF DISPUTES IN CONSTRUCTION INDUSTRY Retrieved from http://ijaresm.net/Pepar/VOLUME_1/ISSUE_4/12.pdf