Reducing Construction Disputes through Effective Claims Management

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El-Mesteckawi ^[4] founded that, there are three types of claims according to claimant compensation; time claims, cost claims and time and cost claims. The word “Management” means the process of dealing with or controlling people or things according to Alkass et al.^[1]. But the word “Construction claim management” can be construed as the process of dealing with or controlling the seeking of consideration or change by one of the parties involved in the construction process according to Tochaiwat and Chovichien^[11]. Ren et al.^[12] mentioned that, the former efforts to resolve claims are mainly of two kinds: those that seek answers through claims avoidance and those that seek answers through claims management if claims cannot be avoided. The former seeks to ensure that construction project starts right, while the later aims to ensure construction project stays right. There are many sub-processes related to construction claim management. Tochaiwat and Chovichien ^[11] indicated seven basic procedures for claims and change order administration. They are:1) recognition and identification of change, 2) notification of change, 3) systematic and accurate documentation of change, 4) analysis of time and cost impacts of change, 5) pricing of change, 6) negotiation of claim, and 7) dispute resolution and settlement. Construction claims have many causes (controllable and uncontrollable) according to the point of view of each part of contract. Fakhr El-Deen ^[7] had mentioned the leading problems were caused claims concluded that, contract documents (55%), site conditions (20%), scheduling problems (15%), substandard work (6%), and contractual duty (4%). A number of studies classify the main causes of construction claims as extension of time, variation in quantities, variation in specifications, and drawings changes. Kumaraswamy ^[10] determine the main (the underlying reason of the problem and if eliminated, would prevent recurrence) and proximate (immediately precedes and produces the effect) causes. Main causes include: unfair risk allocation, unrealistic time/cost/quality targets by the client, adversarial industry culture, inappropriate contract type, and unrealistic information expectations. Proximate causes identified included: inadequate brief, slow client responses, inaccurate design information, inaccurate design documentation, inappropriate contract form, inadequate contract administration, and inappropriate contractor selection.

The Alternative Dispute Resolution (ADR) can be classified into these categories: litigation, negotiation, mediation, arbitration, Partnering, Dispute Review Boards (DRB) and Mini-Trials. Negotiation is preferred by project participants as it plays an important role in preventing disputes, and keeping good relationship between project participants. Project managers consider negotiation as the most time-and energy-consuming activity in preventing disputes, Ibrahim^[9]. Litigation is defined as "contest in a court of law for the purpose of enforcing a right or seeking a remedy". Contractors try to avoid litigation as possible due to high financial cost, long duration, damage to business relationships and delay of corporate resources. The most important feature of mediation is the voluntary agreement regarding the dispute with facilitation by a third party. The third party does not impose a resolution or outcome on the parties, but instead the disputing parties agree to a solution facilitated by a neutral. Arbitration is more expensive than traditional litigation but it is considered a faster technique. In arbitration, third party neutral(s) render a decision based on information submitted to him/them by the dispute parties, Ibrahim^[9]. Partnering was defined by the Construction Industry Institute (CII 1996) in the United States as "a long-term commitment between two or more organizations for the purposes of achieving specific business objectives by maximizing the effectiveness of each participant resources. The DRB consists of a three-member panel chosen and approved jointly by the contractor and the owner prior to the start of construction. The primary emphasis of DRB's is to settle disputes "as soon as possible". After the panel is chosen, a third party agreement is executed by the panelists, owner and contractor. Mini-trials are generally held after other ADR mechanisms have failed, but before an actual trial. They are effective in disputes that mix factual and legal issues and are thought to promise an early "Business-Decision Settlement", El-Mesteckawi ^[4].

2. Problem Statement

Many construction projects are of long-duration and high value and foreseeing and planning for every eventuality may be impossible. Disputes are a reality in every construction project. Without a means to address them, minor issues can grow into serious disputes, with crippling consequences for project participants. The rising cost, delay and risk of litigating construction disputes has prompted the construction industry to look for more efficient ways to resolve these disputes outside of the courtroom. So the author founded that it is important for presenting a system to avoid converting construction claims into disputes as it can considered claims is the main source of disputes.

3. Objectives

The objectives of this research are outlined as follows:

1. Identifying the different factors that causing disputable claims from point of view of contractor.

2. Ranking these factors according to their relative importance to find out the most important factors.

3. Provide a proposed system and a comprehensive checklist to be used as a management tool for avoiding converting claims into disputes.

4. Conduct some practical case studies from actual projects.

5. Develop practical recommendations and guidelines to avoid or reduce construction disputes.

4. Research Methodology

The following sections present the research steps to The following sections present the research steps to achieve the objectives. An exploratory survey was carried out to identify factors that converting construction claims into construction disputes.

1. The different causes of disputable claims were gathered through a comprehensive literature review.

2. A questionnaire survey were conducted to identify the most important factors of those causing disputable claims

3. Some selected case study applications were considered.

Through this stage one hundred and fourteen of disputable claims factors were collected from literature ^[13].Also a brainstorming session was conducted from eight experts to get the most important factors from one hundred and fourteen factors that identified from literature session by making a pilot survey. The pilot survey included interviews schedules with (three consultant, three contractors and two owners).In these interviews we asked these questions: 1) add any other factor that is not listed, 2) remove any of the presented factors, 3) keep factors as they are, 4) keep factors but modifying them and 5) any other suggestions. Thirty one factors were classified into three different categories as shown in Table 1. Such factors were identified based on this brainstorming exercise. These categories mainly include behavioral, contractual, and operational problems. These thirty one factors will be used to develop the first survey to get the most important factors that converting claims into disputes.

Table 1. Classification of factors which causing disputable claims, Soliman [13]

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5. Questionnaire Survey

In this survey, the causes of disputable claims are categorized into three main categories (behavioral, contractual and operational Problems). Then, the selected thirty one factors were ranked according to their relative importance to find out the most important factors of causing disputable claims. Also the sample size were computed.

5.1. Sample Size

According to Easterby-Smith et al. ^[3] which using equation (1) to compute the required sample size for unlimited population:

(1)

Where:

n: is the required sample size for infinite population,

E: is acceptable standard error is less than 5% which used as percent

By substituting of these parameters in the equation (1), then the required sample size of this study for infinite population is 102 samples, and sample size not be less than n' which can be determined by equation (2)

(2)

Where:

n': is the smallest sample size can be used for finite population

N: is the total population size

n: is the required sample size for infinite population, if population is 1.37 time n, so by substituting of these parameters in the equation (2), then the required limited sample size of this study for finite population is 58 samples

5.2. Data Analysis

One hundred and fourteen questionnaires (see appendix B) were administered to professionals and experts in different construction projects. A total of one hundred and two questionnaires representing 72.86% of the total questionnaires administered were returned. Table 2 shows details of questionnaires administered and the rate of return.

Table 2. Details of questionnaires administered and the rate of return, Soliman [13]

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The respondents’ job titles were classified into three categories in construction projects. The first category form contractor point of view (cost estimators, civil engineers and project managers) represented 53%. The second category from consultant point of view represented 19% and the third category form owner point of view represented 30%. Figure 2 illustrates the number of each category.

Figure 2. Classification of respondents based on their job title category, Soliman [13]

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The respondents to the questionnaire were classified according to their experience Table 3. A closer inspection to Figure 3 clearly shows that about 16.67% of the respondents have experience Less than 10 years, around 36.27% have experience greater than or equals to 10 years and less than 20, around 26.47 have experience greater than or equal 20 years and less than 30 and finally, 20.59% of respondents have experience greater than or equals to 30 years.

Figure 3. Classification of the surveyed experts based on their experience, Soliman [13]

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Table 3. Classification of the surveyed experts based on their experience, Soliman [13]

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Four practical case studies were carefully collected from actual projects implemented. The aim of thee studies were to demonstrate and check how actual claim procedures by contractor and owner and validate the results obtained from the data collection and analysis of questionnaire.

5.3. Most Effective Factors

The respondents have inserted two scores in front of each factor. The first represented the frequency (probability) of occurrence of each factor. The second is the expected impact of each factor. Such analysis includes many important steps that can be summarized at the follows steps: First, calculate the total score of frequency and total score of impact. Second, calculate frequency and impact indexes, then calculate importance index for the previously identified thirty one factors, finally all factors are ranked in a descending order according to their importance index according to Equation (3),(4),(5),(6) and Equation (7), EL-Touny ^[5].

(3)

(4)

(5)

(6)

Where:

N: is total number of respondents to each factor, (N=102).

10: represented the upper scale of the measurement.

The importance index calculated using the following formula:

(7)

The analysis also shows that the weight of all categories. Where (Behavioral Problems) represented 25.80% followed by (Contractual Problems) represented 41.93% and finally (Operational problems) represented 32.25%. as shown in Figure 4 and Table 4.

It shows that eight factors under behavioral problems were considered. Moreover, instead of thirteen factors, five factors were only considered under Contractual problems. Finally, for the category of factors related to operational problems shown that the total number of factors was decreased from ten to one factor only, it demonstrates that the weight of behavioral problems, Contractual problems and factors related to operational problems are 25%, 62.50% and 12.50% respectively.

Table 4. Factors converting claims to disputes before and after ranking, Soliman [13]

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Figure 4. Classification of factors causing disputes, Soliman [13]

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Table 5. Factors which causing construction claims, Soliman [13]

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The calculated importance indices are shown also in Table 5. All factors were then ranked according to their importance indices.

6. Results and Analysis

Figure 5 illustrates the most important eight factors that converting construction claims into disputes in the Egyptian construction market as a result of this research. This result indicated that delay interim payment from client was ranked in the first position with a (R.II) 27.27% as the most important cause of disputable claim because it may result in a financial problem to the contractor cash flow, qualification of team work (interpersonal skills, history together, experience in construction law, practices and management and etc,.), was ranked in the second position with a (R.II) 26.28%. This due to lack of interpersonal skills, low balance among project parties as a strong party may have advantage when it comes time to settle disputes. This tends to alienate one or more parties and does not help to solve disagreements and Poor team building. etc. Extension of time was ranked in the third position with a (R.II) 25.94%, the construction of a project or a part of the project is not completed within the time period originally intended and as specified in the contract. This can occur due to Failure to obtain necessary permits for the work, poor workmanship and site conditions which differ from what was expected, etc. Incomplete drawings and specification was ranked in the fourth position with a (R.II) 23.12%. This means that, drawings and specifications are important components for tendering process. Incomplete drawings and specifications lead to improper studying for the project quantity and price. The contractor should immediately report the deficiencies founded in the drawings and specifications to the owner otherwise, disputes will be increased later during construction stage between contract parties Poorly Written Contracts clauses were ranked in the fifth position with a (R.II) 19.93%. Poorly written contract clauses are incomplete because it is too costly to describe all the relevant contingencies and the exact behavior of the contracting parties, variation order s by owner was ranked in the six position with a (R.II) 19.56%, this means that, frequent changes caused by owner in design drawings, material type, addition and/or omission from the contract original scope, and modification of works during construction stage lead to increase project duration and costs which is highly undesirable for any of the contracting parties, cooperation and communication nature among project team was ranked in the seven position with a(R.II) 18.75%, good communication needs to be established from the start in order to prevent the problems escalating into disputes, late supply of equipment and materials was ranked in the eight position with a (R.II) 18.01%. this due to lack of clarity from supplier market, poor quality of material in construction and Shortage of construction materials in market which causes delays to project then lead to construction disputes.

Figure 5. The most important eight factors that converting claims to disputes, Soliman [13]

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