With so many stakeholders involved, it is almost inevitable that conflict will occur between stakeholders.
The following are some examples of potential sources of conflict in a construction project.
Scope Creep
Scope creep occurs when additional requirements are added to the project after the planning stage is complete without control measures. Scope creep can cause delayed completion, budget blowouts and quality issues.
Scope creep is often initiated by the client when they identify additional project requirements. If the project manager pushes back and refuses the changes, this can be a source of conflict. If the changes go ahead and the project is delivered later or over budget, this can also cause conflict between the construction company and the client.
Project Delays
There can be many reasons for project delays:
- initial unrealistic timeframes
- scope creep
- project changes
- funding delays
- supply shortages
- lack of trained staff
- contractual issues
- inspection failures.
A delayed project is likely to negatively impact the client which may lead to conflict with the construction company. The building contract may contain penalties for delayed completion which can cause a financial loss. If this occurs, there is a potential for blame to be apportioned, causing tension between the parties.
Project delays may cause conflict with contractors or subcontractors, as delays with the current project reduce their ability to move on to their next contract job.
Payment Issues
Late payments can cause conflict. If the client is late in providing payment, then all other parties will potentially be impacted. If contractors or subcontractors are not paid promptly, this can cause tension. At its most extreme, contractors may withhold their services until interim payments are made, potentially causing delays.
If suppliers are not paid as per the agreed terms, they may withhold their goods or services. Or the ensuing conflict may mean they refuse to enter into a supply contract in the future.
Similarly, if professionals such as engineers are not paid promptly, they may refuse to work with the construction company again.
Inspections Failure
All but the tiniest construction projects will require inspection and sign-off from the local authorities. Some reasons for a project to fail inspection include:
- non-compliance with building regulations
- poor quality workmanship
- incomplete documentation
- safety violations.
The failure might be challenged by the construction company which can lead to conflict with the local authority.
If a project fails an inspection, this can lead to delays and cost overruns while the issues are remedied. This can cause conflict with the client, who would expect the construction company to complete the build correctly the first time.
Ambiguity in Contract Terms
Contractual ambiguities are phrases that are unclear and open to more than one interpretation. They can lead to significant conflict in construction projects.
Incomplete Task Descriptions
If the task allocation described in the contract is incomplete or unclear, the contractor may not be aware of some of their responsibilities. Being called on to perform additional tasks may mean:
- They are not qualified for the additional tasks.
- They do not have enough time for the additional tasks.
- Remuneration does not match the additional tasks.
This can lead to conflict with other team members. They may be blamed for late, incomplete or defective work, even though the work was outside the original contract scope.
Unfair Termination Clauses
A termination clause details the rights and obligations of the contracting parties if the contract is ended before the contracted work is complete. If one party terminates the contract against the wishes of the other party, this can lead to conflict. The termination clause may specify circumstances under which the contract can be ended. The parties may disagree as to whether these conditions were met. They may also disagree on the amount of notice that was required and any consequences stemming from the cancellation.
Force Majeure Clauses
Tip
A Force Majure clause addresses unforeseeable events beyond the control of the parties that prevent one or more parties from fulfilling contract requirements.
When the New Zealand Government imposed a lockdown during the Covid-19 outbreak, work on all non-essential construction projects ceased. In some cases, Force Majure clauses were invoked because the project delays were caused by an unforeseeable event beyond the control of the contracting parties.
When a Force Majure clause is used, this can have major repercussions for the project. The project may be delayed, and costs may increase. In some cases, one of the parties can cancel the contract if an event is serious enough.
Parties may disagree as to whether an event does constitute a Force Majure. For example, is a bad storm in winter unforeseeable? They may also disagree on the length of delay or increase in cost blamed on the event.
Resolving construction conflicts quickly and amicably is in the best interests of all parties. Unaddressed conflict can disrupt the whole project leading to delays, financial loss and reputational damage. In some cases, a simple discussion is all that is required to resolve conflict. In other cases, a more formal process is required.
A range of dispute-resolution methods are available. The method selected will depend on the situation. Sometimes more than one resolution method is needed.
Click on each of the headings below to display information on dispute resolution methods relevant to the construction industry. (Ref: Building Performance)
With mediation, both parties try to come to an agreement with the help of a mediator. All parties must agree to the mediation process and the mediator. The mediator’s role is to facilitate discussions, they do not make decisions about the dispute. Mediation can be legally binding if the parties agree to that at the outset of the process.
With arbitration, an independent arbitrator is tasked with solving the dispute after listening to all parties. The arbitrator’s decision is binding and enforceable by the courts. The process is similar to but less formal than court. As with mediation, both parties must agree to arbitration and the arbitrator.
Unlike arbitration which requires the agreement of both parties, one party can submit a request for adjudication. The Construction Contracts Act 2002 provides a process for adjudication of disputes. Adjudication under this Act is faster and cheaper than other adjudication options. Most straightforward adjudications take less than 6 weeks to resolve.
Disputes that involve sums up to the value of $30,000 can be heard at the Disputes Tribunal. The hearing is run by a referee who makes a legally binding decision. A lawyer cannot represent you at the Tribunal. The Disputes Tribunal is faster, cheaper and less formal than court.
Disputes Tribunal decisions that are considered of interest are available online. The names of the parties are redacted to protect privacy.
Activity
Click on the link to view a Disputes Tribunal decision for a construction dispute. Read the findings of the Tribunal. Note the Applicant is the person bringing the case and the respondent is the person defending the claim.
If all other dispute-resolution measures fail, the case may end up in court. There the judge will make a binding decision after hearing all evidence. Litigation takes longer than other options and it is more costly. Most parties will engage a lawyer to represent them in court.
Contractual Provisions
Ideally, a contract will contain a dispute-resolution clause that describes what will happen if a dispute occurs between parties. This clause sets out what dispute-resolution methods will be undertaken if a dispute arises. The clause may also specify that all work on the project continues while mediation occurs.
The NZS 3910 construction contract includes a dispute-resolution clause that requires parties to use arbitration in the event of a dispute.
Discussions
Sometimes, you will be able to resolve a conflict simply by communicating with the party or parties involved. If a stakeholder has a complaint about a minor aspect of the building process, you may be able to solve the problem without resorting to professional intervention.
You will need to communicate with the stakeholders involved to identify exactly such aspects as:
- what is issue is
- who is involved
- the duration of the problem
- what the impact has been.
You may also need to have difficult conversations with suppliers or contractors who have failed to deliver goods or services.
Tips for Conflict Conversations
Consider the following tips when conversing with conflicting stakeholders.
- Stay calm and ensure you use polite, respectful language.
- Employ active listening to ensure you get all the information required from every party.
- Clarify the issues for all parties concerned.
- Work collaboratively to find a solution.
- Be positive and focus on the solution.
- Follow up with all parties once the issue is resolved.
Summary
This topic encouraged you to think about potential sources of conflict within a construction project. It also discussed some conflict resolution measures.
If you have any questions about this topic, add them to the Topic questions thread in the forum.
The next topic provides you with communication examples and exercises.
