CMPROMGT

Engr. Michael V. Almeida, CE, PMCE, MsCM

Assistant Professor
The Angelite Prayer

Almighty God, we glorify you for giving us the Angelite

Charism. We thank you for the gift of Your Son, Jesus
Christ, who is the Way, Truth and Life. We bless you for
the continuous guidance of the Holy Spirit. Grant us,
we pray, courage and strength that we may give
perpetual praise to you in whatever we do. We ask this
through Christ, our Lord. Amen. Oh, Holy Guardian
Angels, guide us and protect us! Laus Deo semper!
 CHAPTER
11
Construction Disputes
Intended Learning Outcomes

• Describe and explain concepts

on ethics, good governance,
labor relations and policy and
conflict resolutions in
construction projects
 Learning Assessments
• Recitations
• Assignments
• Quizzes
Handling Construction Disputes and How they are Resolved

I. MODULE OVERVIEW

A. Introduction
B. Dispute Management
C. Dispute Resolution
D. Construction Documents
Acceptable in Court and
Arbitration Proceedings

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Handling Construction Disputes and How they are Resolved

B. Dispute Management

What Triggers Disputes?

Source: Warner
Tree Analogy

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Handling Construction Disputes and How they are Resolved

B. Dispute Management

1. Procurement
2. Contract Formation
3. Project Execution
4. Change Clauses and Claims
5. Disputes Arising in the Context of Scheduling

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Handling Construction Disputes and How they are Resolved

B. Dispute Management

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Handling Construction Disputes and How they are Resolved

B. Dispute Management

1. Procurement Issues

- Client Issues
• Owner, Designer Issues
• Clearly Defined Scope? (number one source of disputes)

- Subcontractor Issues
• Un-level playing field among bidders

- Private Commercial Projects

• Flexible process, discretionary

- Public: Local Government

• Statutory regulations

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Handling Construction Disputes and How they are Resolved

B. Dispute Management

1. Procurement Management

 Manage by Formalizing the Process

- Create even playing field

• Same Bonding (limits, type: performance and payment
• Process for correction of bid mistakes
• Reduce Subjectivity
- Use of numeric winner (rate contractors on a scale)
• Scope Clarified –what is ordinary course of business

- Pre-bid conference to ensure communication of expectations

(remember the tree analogy)

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Handling Construction Disputes and How they are Resolved

B. Dispute Management

2. Contract Formation Issues

 Failure to:

- Identify Scope issues

• Match bid?
• Adequately described?
• Timing of performance adequately addressed?

- Duties of performance, roles defined

- Rights and Remedies described

- Warranties Provided

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Handling Construction Disputes and How they are Resolved

B. Dispute Management

2. Contract Formation Management

 Standardized Contract forms for Construction

 Reduce Clauses that Cause Disputes

 Clarify Clauses that Address Disputes

 Clauses that cause disputes

- Add vagueness to scope

• Ex: Miscellaneous Metals

- Add subjectivity to performance completion

• Ex: words like, “to the satisfaction of the Owner”

- Create non-typical roles

• OFCI: Owner furnished, contractor installed

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Handling Construction Disputes and How they are Resolved

B. Dispute Management

2. Contract Formation Management

 Clarify Clauses that Address Disputes

- Changes Clauses
• Owner/Client initiated changes
• Change Directives
• Requests for Change Orders (differing site conditions, etc.)

- Disputes Resolution Clauses

• Mandatory Arbitration Clauses
• Choice of Venue or Choice of Law Clauses

- Other Rights/ Responsibilities Clauses

• Termination
• Claim notice provisions

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Handling Construction Disputes and How they are Resolved

B. Dispute Management

3. Project Execution / Performance

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Handling Construction Disputes and How they are Resolved

B. Dispute Management

3. Project Execution Issues

 Design Alterations Due to Conflicts in the Plans

 Formal Scope Increases
 Informal Scope Creep

- a.k.a. Constructive Changes

 Delays to Project Schedule
 Suspension of the Work
• MANAGEMENT TIP = STICK TO THE CONTRACT

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Handling Construction Disputes and How they are Resolved

B. Dispute Management

4. Change Clauses and Claims

 Understanding Changes Clauses in the Contract

- Commonly missed contract clauses include:

• Notice issues
• Rights to Delay damages
• Claim Perfection;
- Specific Timing and Notice Requirements, Waivers,
Certifications
• Definition of Force Majeure
- (may vary from expected/normal definition)

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Handling Construction Disputes and How they are Resolved

B. Dispute Management

4. Change Clauses and Claims

 Understanding Changes Clauses in the Contract

- Determine what is Compensable (re: delay damages)

• Compensable delays include:

- Formal Changes or Differing Site Conditions
- Suspension of the Work

• Non Compensable but Excusable:

-”Acts of God” or “Force Majeure”

• Non Compensable and non excusable:

- Contractor caused or Subcontractor caused

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Handling Construction Disputes and How they are Resolved

B. Dispute Management

4. Change Clauses and Claims

 Claims v. Change

A change is an event or action by a party modifying the scope, timing,

or cost of the work from what was contracted. It may also be a change to
the conditions by which the work is performed, or a failure to meet a
contractual obligation. Changes may be compensable or non-
compensable.

A claim is a request for monetary compensation, time, or other

adjustment of the contract terms due to a change, a series of
changes, or a specific action or inaction by a party to the contract that
modifies conditions under which the contract was being performed. A
claim may be resolved through the change management process
(typically called a change order), or may be resolved outside of that
process.

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Handling Construction Disputes and How they are Resolved

B. Dispute Management

4. Change Clauses and Claims

 Understanding Legal Rights to a Claim

- Typically Need:
• Prove Entitlement (contract provision or law)
• Causation (answer the “how” question)
• Quantify Damages
- Understand the contracted method of dispute resolution
(may be statutory)
• Mediation clauses
• Arbitration clauses (enforceability issues)
• Others (mechanics lien, timing, etc.)
- Special considerations:
• No-damages-for-delay, Liquidated Damages, and Common-
law duties (such as non-interference with the work)

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Handling Construction Disputes and How they are Resolved

B. Dispute Management

5. Dispute Arising in the Context of Scheduling

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Handling Construction Disputes and How they are Resolved

B. Dispute Management

5. Dispute Arising in the Context of Scheduling

 General Conditions of the Contract

Section 5. Completion Period

Section 5.2 Delays in Completion. Time is of the essence of this

Contract. The Contractor shall complete every portion of the Works in a
prompt and diligent manner and shall do the several parts thereof at such
times and in such order as the Owner may agree, and in conformity with
the Milestone Dates. The Completion Period shall not be extended,
unless justified by the occurrence of Force Majeure provided, that the
Contractor files the necessary request for extension of Completion Period
within ten (10) days from the date of occurrence of the Force Majeure or
the Owner-attributable cause, and the Owner approves the extension in
writing.

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Handling Construction Disputes and How they are Resolved

B. Dispute Management

5. Dispute Arising in the Context of Scheduling

 General Conditions of the Contract

Section 5. Completion Period

Section 5.3 Slippage Without prejudice to the provision of the Contract,

if, at any time, the Contractor incurs a Slippage of at least five percent
(5%) in meeting any of the Milestone Dates, then the Contractor shall
submit a Recovery Schedule. If the Slippage continues to increase to ten
percent (10%), or if the Contractor cannot recover from the Slippage in
the Owner’s assessment, then the Owner has the option to terminate the
Contract in accordance with Section 18 of these Conditions, complete the
Work itself according to Section 21 of these Conditions, or take such
other measures as it may deem proper, without prejudice to the right of
Owner to call on the Performance Bond of the Contractor.

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Handling Construction Disputes and How they are Resolved

B. Dispute Management

5. Dispute Arising in the Context of Scheduling

 Simply put:

Delay
• Project does not complete as planned
Or

Acceleration
• Project completes faster than planned

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Handling Construction Disputes and How they are Resolved

B. Dispute Management

5. Dispute Arising in the Context of Scheduling

 Delay areas of dispute

- Causation
- Duration
- Damages resulting

 Acceleration

- Same as above, with a twist

• Causation may come from a failure to extend Project Deadline,
not just directed acceleration (constructive acceleration)

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Handling Construction Disputes and How they are Resolved

B. Dispute Management

5. Dispute Arising in the Context of Scheduling

Examples of Types of Analysis/Methodologies:

 Time Impact Analysis

 Total Time
 But For
 Impacted As-Planned
 Collapsed As-Built
 As-Planned As-Built Comparison

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Handling Construction Disputes and How they are Resolved

C. Dispute Resolution

1. Negotiation
2. Mediation
3. Arbitration
4. Litigation

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Handling Construction Disputes and How they are Resolved

C. Dispute Resolution

1. Negotiation and Settlement Tactics

 Negotiation lives through all stages of a dispute

- Begin before formal negotiation sessions

 Determine goals from the onset

- Stick to objective goals

 How much are you able to concede

- Find the reasonable range of each issue before beginning the
negotiation
 Determine opposition’s positions, weaknesses, and possible
goals
- What are the resources of the opposition
- What is the knowledge base (do they need to be educated as to
certain details before they can make an informed decision)

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Handling Construction Disputes and How they are Resolved

C. Dispute Resolution

1. Negotiation and Settlement Tactics

 Determine how the negotiation is to be facilitated

- Neutral territory may be needed
- If 3rd party facilitator necessary then perhaps Mediation is more appropriate
- Rules of engagement / confidentiality

 Bring the right team to the negotiation

- Decision makers present or not?
- Lawyers are your spokesperson has advantages and disadvantages – pre- determine
his/her role
- Timing of when the Expert’s findings become revealed

 When to settle and when to continue pursuing

- What are limiting factors such as: time, cost of pursuing, political, limitations, and
other resource considerations
- Can the limiting factors be quantified
- Settlement when negotiation leverage is highest

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Handling Construction Disputes and How they are Resolved

C. Dispute Resolution

2. Mediation – should almost always be used

- Advantages
• Parties participation can result in a more accepted outcome
• More of the underlying issues come out
• Varying styles provides flexibility
• Easier to communicate the arguments of the case
• Either a more elaborate/in depth or simplified presentation depending on parties
desire
• A preview of what is to come at trial
• Potential for settlement; if not during the mediation then a more informed settlement
prior to trial
• Buy-in from the parties more likely than arms length negotiation through lawyers
• Parties maintain some control over their destiny
- Disadvantages
• Very few situation when better to not mediate: perhaps if weak on facts, heavy on
legal issues, and absolutely no chance of reconciliation (rare).
• Bad mediator can be a waste of time. Choose mediator carefully, be sure that
his/her style is the appropriate one for the case at hand, and they have a
background in construction or appropriate industry.

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Handling Construction Disputes and How they are Resolved

C. Dispute Resolution
3. Litigation

 Why go to trial
- Parties unable to negotiation settlement
- One party for political or economic reasons in unable to settle
- Legal issues that creates an impasse in negotiations
- Neither party is convinced of the other’s facts

 Advantages
- Provides an enforceable judgement
• Caveat: Appeals
- Can attach property as part of enforcement
 Disadvantages
- Parties loss of control over outcome
• Both parties may “loose”
• Blame for a loosing outcome
• Uninformed judge or jury may not provided equitable solution
• a) Cost of trial
• b) Public forum
• c) Difficulty in presenting facts heavy / evidentiary slim cases

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Handling Construction Disputes and How they are Resolved

C. Dispute Resolution
4. Arbitration
- Check enforceability of Arbitration clause; some States are specific about wording,
timing, waiver etc.
• Typically Arbitration is binding unless otherwise stated
• Arbitration Act
• Requires filings such as a Demand, and potentially witness statements

• Arbitration Advantages
- Non-binding
• Use like a mini trial
• Provides potential view of trial outcome
- Binding
• Cheaper/ faster than litigation
• May be required by Contract
• Ease of evidentiary rules
• Parties may chose industry specific educated arbiter (the right arbiter makes a
big difference in outcome)
• More likely to have an equitable ruling than inn litigation
• Not public forum; use of confidentiality forms

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 Handling Construction Disputes and How they are Resolved

C. Dispute Resolution
4. Arbitration
-Basis of Arbitration

• EXECUTIVE ORDER NO 1008

February 4, 1985
“CREATING AN ARBITRATION MACHINERY IN THE CONSTRUCTION
INDUSTRY OF THE PHILIPPINES “

• Republic Act No. 9285

April 2, 2004
“AN ACT TO INSTITUTIONALIZE THE USE OF AN ALTERNATIVE DISPUTE
RESOLUTION SYSTEM IN THE PHILIPPINES AND TO ESTABLISH THE
OFFICE FOR ALTERNATIVE DISPUTE RESOLUTION, AND FOR OTHER
PURPOSES”

• REPUBLIC ACT NO. 876

“AN ACT TO AUTHORIZE THE MAKING OF ARBITRATION AND SUBMISSION
AGREEMENTS, TO PROVIDE FOR THE APPOINTMENT OF
ARBITRATORS AND THE PROCEDURE FOR ARBITRATION IN CIVIL
CONTROVERSIES, AND FOR OTHER PURPOSES”

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 Handling Construction Disputes and How they are Resolved

C. Dispute Resolution
4. Arbitration

 Procedure for Arbitration

(a) In the case of a contract to arbitrate future controversies by the service by

either party upon the other of a demand for arbitration in accordance with the
contract. Such demand shall be set forth the nature of the controversy, the amount
involved, if any, and the relief sought, together with a true copy of the contract providing
for arbitration. The demand shall be served upon any party either in person or by
registered mail. In the event that the contract between the parties provides for the
appointment of a single arbitrator, the demand shall be set forth a specific time within
which the parties shall agree upon such arbitrator. If the contract between the parties
provides for the appointment of three arbitrators, one to be selected by each party, the
demand shall name the arbitrator appointed by the party making the demand; and
shall require that the party upon whom the demand is made shall within fifteen days
after receipt thereof advise in writing the party making such demand of the
name of the person appointed by the second party; such notice shall require
that the two arbitrators so appointed must agree upon the third arbitrator within
ten days from the date of such notice.

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 Handling Construction Disputes and How they are Resolved

C. Dispute Resolution
4. Arbitration
 Procedure for Arbitration

(b)In the event that one party defaults in answering the demand, the aggrieved
party may file with the Clerk of the Court of First Instance having
jurisdiction over the parties, a copy of the demand for arbitration under the
contract to arbitrate, with a notice that the original demand was sent by
registered mail or delivered in person to the party against whom the claim is
asserted. Such demand shall set forth the nature of the controversy, the
amount involved, if any, and the relief sought, and shall be accompanied by a
true copy of the contract providing for arbitration.

(c) In the case of the submission of an existing controversy by the filing with the Clerk of
the Court of First Instance having jurisdiction, of the submission agreement,
setting forth the nature of the controversy, and the amount involved, if any. Such
submission may be filed by any party and shall be duly executed by both parties.

(d) In the event that one party neglects, fails or refuses to arbitrate under a submission
agreement, the aggrieved party shall follow the procedure prescribed in
subparagraphs (a) and (b).

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Handling Construction Disputes and How they are Resolved

D. Construction Documents Acceptable in Court and Arbitration

 Documents Needed

 How to make Construction Related Documents Acceptable in Court

and Arbitration Proceedings

 Situations

 Judicial Cases

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Handling Construction Disputes and How they are Resolved

D. Construction Documents Acceptable in Court and Arbitration

DOCUMENTS NEEDED

It is not necessary to name all the documents that are used in project implementation.

1. Complete set of invoices for labor and materials, purchase orders and receipts, which
are the best evidences of expenses.

2. Extra work orders, additional work orders and change orders, which are all properly
authorized.

3. Jobsite Log Book where all significant happenings of the day are recorded, especially field
orders for changes.
-What does not appear in this book is not presumed as not having
occurred.

4. Photographs showing the nature and location of changed work.

-A picture can speak more than a thousand words.

5. Weather chart, which is the basis for claiming compensation for delay and extension, if
applicable.

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Handling Construction Disputes and How they are Resolved

D. Construction Documents Acceptable in Court and Arbitration

DOCUMENTS NEEDED

6. Minutes of Management / Technical meetings which is the clearing house of

operational problems and a forum for exchange of ideas.

7. All correspondence of owner, owner’s representative, architects, contractors,

subcontractors, etc., be filed in their respective subject files.

8.Verbal orders, decisions, agreements and instructions should be confirmed by

those concerned, use the logbook of contractors and PM and the minutes of
the meeting.

9. Plans and Specifications:

 Bid Plans and Specifications

 Construction Plans and Specifications
 As-Built Plans and Specifications

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Handling Construction Disputes and How they are Resolved

D. Construction Documents Acceptable in Court and Arbitration

How to make Construction Related Documents Acceptable in

Court and Arbitration Proceedings
 Documentation System

- To ensure the production of a well-documented claim based on complete and

accurate facts and legal authority.
- To ensure the production of a well-prepared claim in case the owner denies it and the
contractor decides to appeal it to the proper court.

 Education and training of the personnel involved in the documentation work.

- Documentation in construction work is a little more complicated than in other industries.

- Unpredictable nature.
- Time-based with items of work ranging from several hundreds to several thousands
depending upon the type and size of the project.
- Personnel concerned should systematically do on-the-job documentation of changes or
extras including unforeseen conditions and costs until the desired skills have become
part of them.

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 Handling Construction Disputes and How they are Resolved

D. Construction Documents Acceptable in Court and Arbitration

How to make Construction Related Documents Acceptable in

Court and Arbitration Proceedings
 Proper documentation contributes to the growth and progress of the
company, particularly in pursuing and fighting for the equitable resolution of
claim or disputes.

- The existence of proper record keeping, proper organization of paperwork and

proper documentation of events or activities in project implementation can
make the contractor feel confident of having a better average in facing up to
litigation or arbitration regarding claims or disputes.

- Ultimately, a legal battle is reduced to battle of documents if the positions of

each party to the dispute are both legally tenable.

- The most solid evidences to support a position are complete and accurate on
a properly documented case.

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Handling Construction Disputes and How they are Resolved

D. Construction Documents Acceptable in Court and Arbitration

SITUATIONS

 Situation 1

In a project site where the owner rarely appears because of his full
trust in the capability of his Project Manager (PM) to do good job of it, the
PM may likely succeed in getting the contractor to do a change or
addition.

If the contractor did so because of his belief that the PM has been
authorized by the owner to order changes or extras, the contractor should have
first verified if the PM really has authority to act for and in behalf of the
owner.

For if the owner had not authorized the PM to order changes or extras,
the contractor may be barred from claiming payment for extra
compensation.

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Handling Construction Disputes and How they are Resolved

D. Construction Documents Acceptable in Court and Arbitration

SITUATIONS
 Situation 2

The contractor received a letter from the architect containing his written
instructions about his redesign of portion of the work.

The contractor simply assumed that the architect’s written instruction constitute
a change order.

Accordingly, he filed a claim for payment of a change order.

Some courts consider revised plans from an architect as constituting a

sufficient writing to satisfy the requirement of a written change order.

The safest move for the contractor is to require the architect concerned to
produce a written change order aside from the revised plans.

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Handling Construction Disputes and How they are Resolved

D. Construction Documents Acceptable in Court and Arbitration

JUDICIAL CASE: NON-PAYMENT OF FINAL BILLING

The Engineer appeared in court or arbitration board as a technical consultant or expert witness of
the contractor in a legal action he brought against the owner for non-payment of his final billing.
The consultant asked the contractor to provide him all the available records of his complaint.
The contractor submitted volumes of documents, including his assurance that everything needed
would be there.
To the dismay of the consultant, many of the documents were useless because they lacked the
data that mattered most.
Worse, the events that could shed light on what really happened in the field went unrecorded.
They were the events that could have cleared up the gray areas of the issues.
This made a big difference in the final outcome of the case.
This case is not isolated but one that reflects the sad state of documentation among our small
contractors.
However, whether a dispute is settled amicably or judicially, the parties should not be at the losing
end.
In a litigation between the contractor and the owner, either one of them may lose the case not
because it is legally untenable but because it is factually indefensible. Hence, the importance of
proper documentation cannot be ignored.

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Handling Construction Disputes and How they are Resolved

D. Construction Documents Acceptable in Court and Arbitration

JUDICIAL CASE: NON-PAYMENT OF FINAL BILLING

Proper documentation goes hand in hand with proper organization of paperwork.

If a change order claim is to be properly documented, facts or data supporting said claim are not
only complete but also accurate. A complete and accurate document tells the whole history of a
project or a specific item.

A project or an item has its own history. Thus, the documentation of a claim makes up its history.

It is relevant to ask what are some of the visible manifestations that the contractor’s system of
documentation and paperwork. It might not help the organization in providing a history for each
project and in pursuing successfully its construction claims.

The contractor’s system documentation is defective if he finds much difficulty in ascertaining the
status of a particular change order and if he cannot locate a memo for specified date.

If he could not produce the necessary documents to back up and defend his claims, the consultant
cannot support the claims and to make them acceptable in court and arbitration proceedings.

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Handling Construction Disputes and How they are Resolved

The End

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Handling Construction Disputes and How they are Resolved

References:

1. Civil Code of the Philippines

2. SCRA
3. Design Coordinates, Inc.
4. Sidney M. Levy, Project Management in Construction Fifth Edition
5. Scott I. Zucker, Handling Construction Disputes
6. Warner Lecture Series

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Handling Construction Disputes and How they are Resolved

THANK YOU !

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