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E-DISPUTE RESOLUTION MODEL ON CONTRACTUAL VARIATIONS

CHONG HEAP YIH

UNIVERSITI TEKNOLOGI MALAYSIA


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PSZ 19:16 (Pind. 1/07)

UNIVERSITI TEKNOLOGI MALAYSIA

DECLARATION OF THESIS / UNDERGRADUATE PROJECT PAPER AND COPYRIGHT

Authors full name :CHONG HEAP YIH

Date of birth :17- APR-1983

Title : E-DISPUTE RESOLUTION MODEL ON

CONTRACTUAL VARIATIONS

Academic Session : 2010/2011

I declare that this thesis is classified as :

CONFIDENTIAL (Contains confidential information under the Official Secret

Act 1972)*

RESTRICTED (Contains restricted information as specified by the

organization where research was done)*

OPEN ACCESS I agree that my thesis to be published as online open access

(full text)

I acknowledged that Universiti Teknologi Malaysia reserves the right as follows:

1. The thesis is the property of Universiti Teknologi Malaysia.

2. The Library of Universiti Teknologi Malaysia has the right to make copies for the purpose of research only.

3. The Library has the right to make copies of the thesis for academic exchange.

Certified by :

SIGNATURE SIGNATURE OF SUPERVISOR

830417-08-6317 ASSOC. PROF. IR. DR. ROSLI MOHAMAD ZIN

(NEW IC NO. /PASSPORT NO.) NAME OF SUPERVISOR

:

Date : Date :

NOTES : * If the thesis is CONFIDENTAL or RESTRICTED, please attach with the letter from

the organization with period and reasons for confidentiality or restriction


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I hereby declare that I have read this thesis and in

my opinion this thesis is sufficient in terms of scope and

quality for the award of the degree of

Doctor of Philosophy (Civil Engineering).

Signature : ....................................................

Name of Supervisor : ASSOC. PROF. IR. DR. ROSLI MOHAMAD ZIN

Date :


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BAHAGIAN A Pengesahan Kerjasama*

Adalah disahkan bahawa projek penyelidikan tesis ini telah dilaksanakan melalui

kerjasama antara _______________________ dengan _______________________

Disahkan oleh:

Tandatangan : Tarikh :

Nama :

Jawatan :

(Cop rasmi)

* Jika penyediaan tesis/projek melibatkan kerjasama.

BAHAGIAN B Untuk Kegunaan Pejabat Sekolah Pengajian Siswazah

Tesis ini telah diperiksa dan diakui oleh:

Nama dan Alamat Pemeriksa Luar : Associate Professor Sr. Dr. Hamimah Adnan

Faculty of Architectural, Planning & Surveying,

Universiti Teknologi Mara (UiTM), 40450,

Shah Alam, Selangor, Malaysia.

Nama dan Alamat Pemeriksa Dalam : Associate Professor Dr. Aminah Md. Yusof

Faculty of Civil Engineering,

Universiti Teknologi Malaysia, 81310,

Skudai, Johor, Malaysia.

Nama Penyelia Lain (jika ada) :

Disahkan oleh Timbalan Pendaftar di SPS:

Tandatangan : Tarikh :

Nama :


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E-DISPUTE RESOLUTION MODEL ON CONTRACTUAL VARIATIONS

CHONG HEAP YIH

A thesis submitted in fulfilment of the

requirements for the award of the degree of

Doctor of Philosophy (Civil Engineering)

Faculty of Civil Engineering

Universiti Teknologi Malaysia

DECEMBER 2010


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DECLARATION STATEMENT

I declare that this thesis entitled E-DISPUTE RESOLUTION MODEL ON

CONTRACTUAL VARIATIONS is the result of my own research except as cited

in the references. The thesis has not been accepted for any degree and is not

concurrently submitted in candidature of any other degree.

Signature : ....................................................

Name : CHONG HEAP YIH

Date :


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Dedicated to my beloved family, friends, Joelie and Lord Jesus


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ACKNOWLEDGEMENT

The author would like to express his utmost gratitude to his supervisor,

Associate Professor Ir. Dr. Rosli Mohamad Zin for his guidance and assistance

throughout the study. The author would like to extend sincere appreciation to the

experts involved in this research for their contributions and helps in the research. The

completion of this dissertation would not have been possible without their

conscientious guidance and patience. Last but not least, deepest appreciation to

authors parents and friends for their continuous supports and encouragements

throughout the progress of this research.


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ABSTRACT

Construction contracts can be a complex subject if interpretation and

administration issues of the contract are not being handled properly. In this context,

variations are recognised as the most problematic issue in the construction contract.

Disputes may occur due to miscommunication, ignorance, and poor understanding

on the contractual obligations and expectations laid in the contracts. Dispute

resolution through the Alternative Dispute Resolution (ADR) methods have become

the mainstream option to litigation as the approach does not require full legalprocess. Despite the many advantages of ADR, the actual experience of ADR is very

low in the local construction industry. This research aims to address the need to

review existing contract administration and dispute resolution practices, and

subsequently propose and develop eDR model on contractual variations as an

alternative means for resolving disputes in construction projects. And, the objectives

are: (a) to classify the attributes of dispute resolution methods in Malaysian

construction industry; (b) to identify the behaviour and practice of dispute resolution

methods in Malaysian construction industry; (c) to establish the systematic way of

contract administration through identification of its contractual issues and approach

on clarity; (d) to examine and evaluate the previous approaches in dispute resolution

and contract administration; (e) to develop an eDR model in a generic approach for

construction industry; and (f) to develop an application of eDR prototype/system

based on contractual variations. Literature review, questionnaire survey, semi-

structured interview and Delphi study were carried out to achieve the objectives. The

results revealed that the practice of dispute resolution needs to be improved and eDR

was proposed based on 75 agreed guidelines of contractual variations identified

through the Delphi study. Subsequently, a prototype of the eDR was developed for

the agreed guidelines. The prototype has applied the approach of contractual issues

breakdown and Plain English that derived from the systematic way of contract

administration. The eDR developed in this research is able to facilitate end-users to

take better decisions compared to the conventional approach which uses a bunch ofcomplicated contract documents and provisions.


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ABSTRAK

Kontrak pembinaan merupakan satu subjek yang rumit jika isu interpretasi

dan pentadbiran kontrak tidak ditangani dengan tepat. Dalam konteks ini, perubahan

dikenalpasti sebagai isu yang paling bermasalah dalam kontrak pembinaan.

Bantahan-bantahan boleh berlaku berpunca daripada komunikasi yang tidak

berkesan, pengabaian dan kurang pemahaman ke atas kewajipan-kewajipan dan

harapan-harapan yang tertera dalam kontrak. Penyelesaian bantahan melalui kaedah

penyelesaian pertikaian alternatif (ADR) telah menjadi pengganti utama kepadaperbicaraan mahkamah kerana ia tidak memerlukan proses perundangan yang

sepenuhnya. Meskipun ADR mempunyai banyak kelebihan, pengalaman sebenar

ADR adalah sangat rendah dalam industri pembinaan tempatan. Penyelidikan ini

bertujuan menangani keperluan untuk menilai semula pentadbiran kontrak yang

sedia ada serta pelaksanaan penyelesaian bantahan dan seterusnya mencadang dan

membangunkan model eDR ke atas isu-isu perubahan dalam kontrak sebagai satu

kaedah alternatif untuk menyelesaikan bantahan-bantahan dalam projek-projek

pembinaan. Dengan itu, objektif penyelidikan adalah untuk: (a) mengklasifikasi

sifat-sifat kaedah penyelesaian bantahan di sektor pembinaan Malaysia; (b)

mengenalpasti sifat dan perihal kaedah penyelesaian bantahan di sektor pembinaan

di Malaysia; (c) memantapkan pentadbiran kontrak yang sistematik melalui

pengenalpastian isu-isu kontrak dan pendekatan untuk kejelasan; (d) memeriksa dan

menilai kaedah-kaedah sedia ada dalam penyelesaian bantahan dan pentadbiran

kontrak; (e) membangunkan satu model eDR yang berpendekatan generik untuk

industri pembinaan; dan (f) membangunkan prototaip/system penggunaan eDR

aplikasi yang berdasarkan isu-isu perubahan dalam kontrak. Kajian literatur, soal-

selidik, temuduga semi-struktur dan kajian Delphi telah dilaksanakan untuk

mencapai objektif-objektif tersebut. Hasil kajian menunjukkan amalan penyelesaian

bantahan perlu diperbaiki dan eDR telah dicadangkan berdasarkan 75 garis panduan

untuk isu-isu perubahan yang telah disetujui dan dikenalpasti melalui kajian Delphi.

Seterusnya, satu prototaip eDR telah dibangunkan untuk garis panduan itu. Prototaiptersebut telah menggunakan pendekatan isu-isu kontrak pemecahan dan Plain

Englishyang diperolehi melalui kaedah systematik pentadbiran kontrak. Penubuhan

eDR ini dapat membantu pengguna-pengguna mengambil keputusan yang lebih tepat

berbanding pendekatan tradisional yang merujuk kepada sekelompok dokumen dan

peruntukan kontrak yang kompleks.


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TABLE OF CONTENTS

CHAPTER TITLE PAGE

DECLARATION

DEDICATION

ACKNOWLEDGEMENTS

ABSTRACT

ABSTRAK

TABLE OF CONTENTS

LIST OF TABLES

LIST OF FIGURES

LIST OF SYMBOLS AND ABBREVIATIONS

LIST OF APPENDICES

ii

iii

iv

v

vi

vii

xv

xvii

xix

xxii

1 INTRODUCTION

1.1 Introduction

1.2 Problem Statements

1.3 Research Questions

1.4 Aim

1.5 Research Objectives

1.6 Scope of Research

1.7

Research Significance and Expectation

1.8 Research Methodology

1.9 Structure of the Thesis

1.10 Concluding Remarks

1

1

2

4

5

5

6

7

9

12

13

2 DISPUTE RESOLUTION

2.1

Introduction

2.2 Construction Conflicts and Disputes

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15

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2.2.1

Relationship between Conflicts and

Disputes

2.3 Sources of Construction Conflicts and Disputes

2.4 Contractual Provisions for Dispute Resolution

2.4.1 Public Work Department Form 203A

(Rev. 2007)

2.4.2 Pertubuhan Arkitek Malaysia Contract

2006

2.4.3 Construction Industry Development

Board Form of Building Contract 2000

2.4.4 Summary of Contract Forms

2.5 Stages of Dispute Resolution

2.6 Prevention Stage

2.6.1 Prevention Methods in Practice

2.7 Negotiation

2.7.1 The Process of Negotiation

2.7.2

Advantages

2.7.3 Disadvantages

2.8

Nonbinding Dispute Resolution

2.8.1 Mediation/Conciliation

2.8.2 The Process of Mediation

2.8.3 Advantages

2.8.4 Disadvantages

2.9

Binding Dispute Resolution

2.9.1 Adjudication

2.9.1.1

The Process of Adjudication

2.9.1.2Advantages

2.9.1.3Disadvantages

2.9.2 Arbitration

2.9.2.1

The Process of Arbitration

2.9.2.2Advantages


2.9.3

Litigation

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22

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26

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2.9.3.1

The Process of Litigation

2.9.3.2Advantages


2.10 Summary of Dispute Resolution Methods


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3 CONSTRUCTION CONTRACT

ADMINISTRATION

3.1 Introduction

3.2 Previous Alternative Approaches

3.2.1

DISCON, 1988

3.2.2 Expert System For Construction Contract

Interpretation, 1991

3.2.3 Prediction of Construction Disputes,

2000

3.2.4 Construction Negotiation Online

(CoNegO), 2004

3.2.5 Conflict Resolution in Construction

Disputes using Graph Model, 2006

3.2.6 Fuzzy Case-based Reasoning for Coping

with Construction Disputes, 2009

3.2.7 Summary of Critical Review of Expert

Systems/Models

3.3 Contractual Issues in Contract Administration

3.3.1 Pre-Construction Stage

3.3.2 Commencement and Construction Stage

3.3.3 Post-Commencement Stage

3.4 Understanding on Construction Contracts

3.4.1 The Need of Standard Form of Contract

3.4.2 Appreciation of Contractual Principles

and Obligations

3.5 Clarity of Constructions Contracts

3.5.1 Clarity Aspects

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3.5.2 Measures on Enhancing Clarity


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4 CONTRACTUAL VARIATIONS

4.1 Introduction

4.2 Background of Variations

4.3 Myths on Variations

4.4 Issuance of Variations

4.4.1 Authorized Person and Power

4.4.2 Period of Issuance

4.4.3 Provisional Sum

4.4.4 Summary of Issuance Variations

4.5 Validity of Variation

4.5.1 Written Instruction

4.5.2 Definition/Principle of Variation

4.5.2.1 Addition

4.5.2.2 Omission and Removal of the

Executed Works or Materials and

Goods

4.5.2.3 Substitution and Alteration of the

Kind or Standard of Materials or

Goods

4.5.2.4 Changes to the provisions in the

Contract

4.5.3 Summary of Validity of Variations

4.6

Valuation Rules

4.6.1 Rule 1 of Contracts Rates and Prices

4.6.2 Rule 2 of Fair Adjustment and Rule 3

of Fair Market Rates and Prices

4.6.3

Rule 4 of Daywork Rates

4.6.4 Rule 5 Omitted work

4.6.5 Rule 6 Re-measurement on Actual

Quantities (Provisional Quantity)

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4.6.6

Summary of Valuation Rules

4.7 Additional Expense and Subsequent

Circumstances Caused by Variations

4.7.1 Contract Sum

4.7.2 Summary of Additional Expenses and

Subsequent Circumstances


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5 RESEARCH METHODOLOGY

5.1 Introduction

5.2

Literature Review

5.3 Preliminary Semi-structured Interview and

Critical Review

5.3.1 Content Analysis

5.4 Documentary Analysis

5.5 Questionnaire

5.5.1

Questionnaire Design

5.5.2 Questionnaire Sample

5.5.3

Questionnaire Analysis

5.5.3.1Mean Analysis

5.5.3.2Factor Analysis

5.6 Development of eDR Model

5.6.1 Delphi Study

5.6.1.1 Fuzzy Delphi Method (FDM)

5.6.1.2 Delphi Study: Questionnaire

5.6.1.3 Delphi Sample

5.6.1.4 Delphi Calculation

5.6.1.5 Defuzzification and

Normalization

5.6.2 Process Flow Modelling of eDR

5.6.3 Prototype/Template of eDR

5.7 Research Framework


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6 DISPUTE RESOLUTION METHODS IN

MALAYSIA

6.1 Introduction

6.2 Results and Analysis

6.2.1 Background of Respondents

6.2.2 Position

6.2.3 Education Qualification

6.2.4 Working Experience

6.2.5 Project Involvement of Organisation

6.2.6 Conflicts and Disputes Involved

6.2.7

Factors Affecting the Selection of

Dispute Resolution Methods

6.3 Factor Analysis

6.4 Discussion


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7 DEVELOPMENT OF E-DISPUTE RESOLUTION

MODEL

7.1 Introduction

7.2 Model Development

7.3 DFD on eDR

7.4 Context Diagram of eDR

7.5 Level-0 DFD of eDR

7.6 Level-1 DFD of eDR

7.6.1 Activity 1.0

7.6.2 Activity 2.0

7.6.3 Activity 3.0

7.6.4 Activity 4.0

7.6.5 Activity 5.0

7.7 Online Portal of eDR

7.7.1 Context Diagram

7.7.2 Level-0 DFD

7.8 Discussion

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7.9 Concluding Remarks 177

8 APPLICATION OF EDR ON CONTRACTUAL

VARIATIONS AND PROTOTYPE

DEVELOPMENT

8.1 Introduction

8.2 Delphi with Fuzzy (DwF)

8.2.1 DwF Framework for eDR

8.3 Background of Experts

8.4 Round 1: Results and Feedback

8.4.1

Improvements and Corrections

8.4.2 Additional Information

8.5 Round 2: Statistical Analysis

8.5.1 Analysis on Issuance of Variations

8.5.2 Analysis on Validity of Variations

8.5.3 Analysis on Valuation Rules of

Variations

8.5.4 Analysis on Additional Expenses and

Subsequent Circumstances

8.6 Analysis on Expert Category

8.7 Discussion of Statistical Analysis

8.8 eDR Prototype Development

8.8.1 Database

8.8.2

Front Page

8.8.3 Main Menu

8.8.4

Issues Breakdown

8.8.5 Keyword Searching

8.9 Testing and Evaluation

8.10 Discussion of eDR Prototype


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9 CONCLUSIONS AND RECOMMENDATIONS

9.1

Introduction

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9.2

Classification of Attributes of Dispute

Resolution Methods

9.3 Identification of the Behaviour and Practice of

Dispute Resolution Methods

9.4 Evaluation of Contractual Issues and Approach

on Clarity

9.5 Examination and Evaluation of Previous

Approaches in Dispute Resolution and Contract

Administration

9.6 Development of eDR Model

9.7

Development of eDR Prototype

9.8 Recommendations for Future Research

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REFERENCES

Appendices A F

232

247-267


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LIST OF TABLES

TABLE NO. TITLE PAGE

2.1

2.2

3.13.2

3.3

3.4

3.5

3.6

3.7

3.8

3.9

4.1

4.2

4.3

4.4

4.5

4.6

4.7

5.1

5.2

6.1

Literature on sources of construction conflicts or

disputes

Dispute resolution attributes

Categories and numbers of journals from 1990-2007Characteristics of previous expert systems/models

RIBA plans of work

Contractual issues in pre-contract award stage

Contractual issues in commencement and construction

stage

Contractual issues in post-commencement stage

Summary of problems of clarity

Summary of legalese aspects

Plain English usage and guidelines

Contract clauses of variation under different contract

forms in Malaysia

Misperceptions on variation claims by contractors

Misperceptions on variation claims by employers

Preliminary guidelines on issuance of variations

Preliminary guidelines on validity of variations

Preliminary guidelines on valuation rules

Preliminary guidelines on additional expenses and

subsequent circumstances

Fundamental features on traditional Delphi method

Explanation of DFD elements and notations

Conflict cases in a project and dispute cases involved

annually

18

47

5060

63

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65

66

73

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75

79

82

83

86

96

105

110

121

131

143


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6.2

6.3

6.4

6.5

7.1

7.2

8.1

8.2

8.3

8.4

8.5

8.6

8.7

8.8

8.9

8.10

8.11

8.12

8.13

8.14

8.15

8.16

8.17

Factors of selecting dispute resolution methods ranked

by mean score

Extracted Components based on Eigenvalues

Rotated component matrix - VARIMAX with Kaiser

Normalisation

Ranking of Factor Scale Rating

Contractual issues in the three work stages

Breakdown of characteristics of contractual variations

Main elements of existing approaches and DwF

Comparison on different characteristics

Background of the experts

Improvements and corrections on Part A

Improvements and corrections on Part B

Additional information on Part B

Additional information on Part D

Results on the geometric mean

Reliability test on all variables

Reliability test on agreed variables

Agreed guidelines on issuance of variations

Agreed guidelines on validity of variations

Agreed guidelines on valuation rules of variations

Agreed guidelines on additional expenses and

subsequent circumstances

Kruskal Wallis test on the agreed guidelines

Mann Whitney Utest on the discrepancy items

Analysis of eDR prototype evaluation

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147

149

151

164

167

179

180

185

187

188

189

190

192

194

194

195

198

201

205

207

209

222


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LIST OF FIGURES

FIGURE NO. TITLE PAGE

1.1

2.1

3.1

3.23.3

3.4

3.5

5.1

5.2

6.1

6.2

6.3

6.4

6.5

6.6

6.7

7.1

7.2

7.3

7.4

7.5

7.6

7.7

7.8

Research methodology flow

Stages of dispute resolution

Structure of DISCON expert system

Dispute prediction process modelFramework of Construction Negotiation Online,

CoNeO

Model of dispute development and resolution

Operating process of fuzzy case-based reasoning

Triangular fuzzy number

Research activities and outputs

Percentage of respondents from contractor and

developers

Position of respondents

Education qualification of respondents

Working experience of respondents

Project involvement of organizations

Sources of project funding

Scree plot

eDR model development on the contents and features

Splitting of DFD diagrams

Context Diagram of eDR

Level-0 DFD of eDR

Level-1 DFD of eDR Activity 1.0




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58

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7.9

7.10

7.11

8.1

8.2

8.3

8.4

8.5

8.6

8.7

8.8

8.9


Context Diagram of online portal

Levl-0 DFD of eDR online portal

DwF framework for eDR

Relationship between tables in eDR database

Front page of eDR

Main menu interface

Issue breakdown interface

Content of issue

Forum interface

Forum page in issue breakdown

Keyword searching interface

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175

182

212

215

216

217

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219

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221


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xix

LIST OF SYMBOLS AND ABBREVIATIONS

SYMBOLS:

A(x)

A

AL

AR

A(SR)ij

ai

am

ain

ai1

ai2

a1

a2

Fi(SR)

I

MA

X

x

xi

Y

Membership function

Triangular number

Left triangular number

Right triangular number

The mean scale rating of thej-th

Value of score

The peak point

Score rated by the nthexpert

Score rated by the 1stexpert

Score rated by the 2ndexpert

Left interval point (minimum)

Right interval point (maximum)

The factor score based on scale rating

Total sum up of the interval within the Likert scale

Geometric mean

Interval/range value for the category of disagreement and

agreement

Fuzzy value (mean)

Respondent frequency

Interval/range value for the category of neutral.


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ABBREVIATIONS :

Adj

ADR

AI

Arb

BQ

CDA

CIDB

CMA

CoNegO

CPC

DFD

DRT

DwF

eDR

FCBR

FDM

IEM

IT

JCT

KMO

Lit

Med

MO

Neg

PAM

PC

PCA

PWD

R

RIBA

SD

Adjudication

Alternative dispute resolution

Architects Instruction

Arbitration

Bill of Quantities

Conflict and dispute analysis

Construction Industry Development Board

Contract management and administration

Construction Negotiation Online

Certificate of Practical Completion

Data Flow Diagram

Dispute resolution techniques

Delphi with Fuzzy

e-Dispute Resolution

Fuzzy Case-based reasoning

Fuzzy Delphi Method

Institution of Engineers, Malaysia

Application of information technology

Joints Contract Tribunal

Kaiser-Meyer-Olkin

Litigation

Mediation

Modeling

Negotiation

Pertubuhan Arkitek Malaysia

Prime Cost

Principal component analysis

Public Work Department

Rank

Royal Institute of British Architects

Standard deviation


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SMM

SO

SPSS

SR

VO

Standard Method of Measurement

Superintending Officer

Statistical Packages for Social Sciences

Scale Rating

Variations order


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LIST OF APPENDICES

APPENDIX TITLE PAGE

A

B

C

DE

F

Awards and publications as to the research

List of journals in the critical review

Questionnaire survey: dispute resolution

Complete Delphi questions on contractual variationsPrototype demonstration and evaluation form

List of respondents from questionnaire survey

247

250

255

259264

265


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1

CHAPTER 1

INTRODUCTION

1.1 Introduction

Construction industry is a fragmentation process and adversarial in nature

(Cheung et al., 2004). Every construction project is bound to have conflicts.

Conflicts would exist when incompatibility of interest happened (Fenn et al.,1998).

Construction contracts are drafted to regulate the risks as well as conflicts in a

project. Yet, construction contracts can be a complex subject if interpretation and

administration issues of the contract are not being handled properly. Disputes would

occur due to miscommunication, ignorance, and poor understanding on the

contractual obligations and expectations laid in the contracts. Contractual

disagreements are one of the main sources of disputes in construction industry. Then,dispute resolution methods are designed to resolve disputes. Alternative dispute

resolution (ADR) techniques do not require a full legal process and become the

mainstream option to traditional dispute resolution, i.e., arbitration and litigation. Yet,

the actual experience of ADR is very low in the Malaysian construction industry

based on the studies by Zulhabri et al.(2008).


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2

The results highlight an interesting dichotomy that the disputants are not

active in ADR even though they have great dissatisfaction on traditional dispute

resolution. Therefore, mitigation or prevention measure is necessary as it can be a

better approach to dispute resolution (Vallero and Vesilind, 2006). This research

addresses a proactive approach, namely e-Dispute Resolution (eDR) as a potential

area of improvement in contract administration and dispute resolution. Eventually,

the research renders an insight and assists in making inferences for a more clarified

and informative approach in the contract administration, and thereby contributes to

dispute prevention or mitigation.

1.2 Problem Statements

Dispute is a state of accelerated conflict, which the conflict goes into an

unresolved circumstance. Conflict requires the selection of a conflict resolution mode

such as confronting, compromising, smoothing, forcing, or avoiding (Kerzner, 2006),

while dispute resolution involves the next step, that of resolving the unsettled conflict

through the binding or nonbinding approach. Selection of an appropriate dispute

resolution method is vital as every construction project is bound to have

disagreements (Rosli and Zin, 2010). Besides, the low frequency of practicing ADR

in the local construction industry needs to be addressed (Zulhabri et al., 2008).

Consequently, a comprehensive study is necessary to understand and indentify the

behaviour of the dispute resolution methods. The philosophies and the selection

factors of the dispute resolution methods need to be re-examined.

Besides, contract administration is the process of administering a business

contract that governs contracting parties interests. Different interpretation could

denote a dispute regarding the contractual obligations and expectations between the

contracting parties. Interpretation error and misunderstanding of constructioncontracts can be traced to the illegibility of contract clauses (Broome and Hayes,


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1997; Cutts, 2004; Styllis, 2005) and legalese or technical legal terms/jargon

(Candlin et al., 2002; Cutts, 2004), which results in disagreements between the

contracting parties on their rights and responsibilities. This statement has been

justified by a recent local research (Mohamad and Zulkifli, 2006), in that contractors

reported having problems in understanding the contract documents based on the

results from the survey. The research concluded that the contractors should be well

versed in the interpretation of clauses stated in contracts. Hence this local research

has inspired the investigation on the detailed study of the lack of understanding,

especially on the technical aspect of the language structure within a contract form,

which also highlighted by a number of overseas literatures (Martin 1993; Thomas et

al., 1994; Broome and Hayes; 1997, Hill, 2001; Feinman, 2003; Cutts, 2004;

Shumway et al., 2004; Rameezdeen and Rajapakse, 2007). The form should be

written and presented in such a way as to be useful for easy reference by non-legal

site and consultancy personnel (Robinson and Lavers, 1988).

Subsequently, dispute resolution and contract administration are associated

with construction law after all, for instance, disputes on contractual variations. The

variations are recognised as the most litigious and problematic issue in the

construction industry (Charles and Bruce, 1990; Semple et al.,1994; Zaneldin, 2006).

In Malaysia, the variations or changes are inevitable, even though the project was

carefully planned many misperceptions on variation claims by the contracting parties

(Harbans Singh and Kandan, 2004). It could simply lead to unresolved circumstances

or disputes, particularly for the procedure, validity and valuations of variations

(Harbans Singh, 2003c). Therefore, the existing allocated contractual provisions on

variations need to be reviewed and addressed to a possible alternative means of

application or approach to reduce the disputes.

Apart from that, disputants behaviour is a hindrance in attaining dispute

avoidance. Jahren and Dammeier (1990) identified that people issues were main keys

to avoiding disputes, for instance, being fair, reasonable and respectful. The human

factor issues like unrealistic expectations, culture or work habits would have a greatimpact on a project and lead to adversarial attitudes (Pena-Mora et al., 2003). Human


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factor is agreed and recognised as an important aspect in dispute resolution and

contract administration. Part and parcel of the human factor is considered in the

research, although it is not fall into the scope of the research.

To Malaysian construction context, it is found that poor understanding and

lack of clarity are common problems in construction contracts. Interpretation of

clauses may vary among the construction users. It is contributed by personal and

human factors in contract administration, besides some hidden agendas exist in

contract documents and the poor understanding problems. Since the real practice of

alternative dispute resolutions is very low, a different approach in contract

administration needs to be considered. The conditions of contract can be served as a

basis or tool to prevent/mitigate the conflicts or disputes when the contract clauses

are always being referred during negotiation or dispute resolution. Therefore, the

different approach, namely, eDR is proposed to address the problem statements as

highlighted.

1.3 Research Questions

The literature review and semi-structured interview highlighted many issues

on contract administration and dispute resolution. It is vital to organise the issues into

research questions as to formulate and design the research aim and objectives

according to its sequence. The research questions that need to be addressed are:

1. What are dispute resolution methods and their attributes in Malaysian

construction industry?

2.

How the practice and trend of dispute resolution methods in

Malaysian construction industry and lead to the need of alternativemeans of contract administration?


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3. What and how the alternative means of contract administration apart

from dispute resolution?

4.

What are the previous alternative approaches toward the subsequent

critical review on dispute resolution and contract administration?

5. What is the alternative means for the research gap found from the

previous approaches and how it works in general?

6. How the real application of the alternative means toward the

contractual variations?

1.4 Aim

The research has highlighted the problem statements and research questions

on low practice of ADR and poor understanding of contract administration toward

the most litigious issue on contractual variations. Therefore, the aim of this research

is to addresses the need to review existing contract administration and dispute

resolution practices and subsequently propose and develop eDR model on

contractual variations as an alternative means for resolving disputes in construction

projects.

1.5 Research Objectives

This research concentrates on the contract administration and dispute

resolution toward contractual variations. Specifically, the following research

questions and objectives are suggested in order to achieve the aim of the research:


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1. To classify the attributes of dispute resolution methods in Malaysian

construction industry;

2.

To identify the behaviour and practice of dispute resolution methods

in Malaysian construction industry;

3. To establish the systematic way of contract administration through

identification of its contractual issues and approach on clarity;

4. To examine and evaluate the previous approaches in dispute

resolution and contract administration;

5.

To develop an eDR model in a generic approach for construction

industry; and

6. To develop an application of eDR prototype/system based on

contractual variations.

1.6 Scope of Research

A different approach applies to the dispute resolution research areas after

reviewing the previous studies. The dispute resolution methods are grouped and

discussed together, which based on the similarity of their characteristics or attributes.

This research approach is different from the earlier studies, which mostly focused on

a single dispute resolution method, for instance, negotiation (Cheung et al., 2004;

Cheung et al., 2006), mediation (Yiu et al., 2006; Cheung and Yiu, 2007),

adjudication (Dancaster, 2008; Owens, 2008; Teo, 2008), and arbitration (Armstrong

and Hurley, 2002; Harmon, 2004). Some studies have discussed ADR, but it is still

limited to the method individually (Treacy, 1995; Keith, 1997; Rubin and Quintas,

2003) or the ADR itself (Cheung, 1999). The approach of grouping could render a

wider perspective and comprehensive view on the dispute resolution methods.

Construction law is a very broad research topic. This research focuses oncontractual variations in construction contracts. The contractual variations are served


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as a research subject for the application of eDR. The selection of this area is because

none of the contractual variations studies are related to the Delphi method either

locally or internationally based on the literature review, where the Delphi in

construction related research were in selection of procurement systems (Chan et al.

2001) and team selection in public private partnership (Kumaraswamy, and Anvuur,

2008).

Besides, the contract forms need to be sorted as many forms are available in

Malaysian construction industry. Pertubuhan Arkitek Malaysia (PAM) contract form

is the most popular and familiar form in private sector. The public sector contract

form Public Work Department (PWD) forms is not selected as the scope of research

because the latest version of PWD 203 (2007) standard form is very new and just

launched . Therefore, this research focuses on the PAM 2006 standard form, which a

revised version of PAM contract for the eDR research. The court cases and literature

materials are referred to support and enhance the content of the contract provisions

on the contractual variations.

1.7 Research Significance and Expectation

The research significance highlights four important aspects that would be

achieved in this study, i.e., appreciation of fundamental contract principles, clarity

approach towards contract administration, the sophisticated model of eDR, and the

application of eDR.

The fundamental contract principles allow construction players to

substantiate contractual obligations and procedures as laid in the contract. It would

oblige contracting parties to follow and obey the rules and regulations once thecontractual principles are made clear. The systematic approach to present contractual


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principles dealing with causes of conflicts/disputes enables the contracting parties to

understand and appreciate the spirit of contract conditions. This fundamental

knowledge of contract provision needs to be addressed in order to have a more

professionalism and healthier working behaviour in construction industry since the

industry have been plagued by rising of conflicts/disputes and unprofessional

practices.

Another aspect of this research is to render a better insight into the clarity of

construction contract. This clarity approach is the solution for legalese and

complicated language in construction contracts. Plain English could modify the

language to be a more understandable and it is important to construction players who

are not from legal background, particularly the construction naive users and partially

experts in a project. When construction people clearly understand the clauses

provided under the contract, the parties will perceive the importance of their

contractual obligations and rights in the contract as required. Meanwhile, it also

prevents the manifestation of construction conflicts/disputes.

Besides that, the eDR model is unique. The model could serve as a template

for future research, even though there are differences in the legal system and diverse

local scenario, it can provide a generic approach to dispute mitigation/prevention. It

describes how a clarified, organized and reliable source of reference would be

produced. It would cultivate self-learning and examination by the end-users. The

reference is important as the poor understanding of contracts and lack of

prevention/mitigation means of dispute resolution in the construction industry. This

functional modelling is value added to existing body of knowledge, particularly for

contract administration and dispute resolution.

Last but not least, the eDR renders a proactive approach in dispute resolution,

particularly in the contractual variations. The system is designed to provide a more

understandable and informative approach for preliminary references and alertness toend-users. It could help to make better decision-making. The system also serves as a


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platform of lifelong learning and self-examination for the end-users to improve their

understanding and knowledge. Once the users understood the operating clauses

provided under the contract and its consequences, they would appreciate the

importance of their contractual liabilities, duties, obligations and rights under the

contract.

1.8 Research Methodology

The research methodology is a guideline to the research to be completed in a

systematic way to achieve the research objectives. In this study, the research process

generally consisted of 4 stages, i.e. Stage A: initial study and confirmation of

research area, Stage B: research proposal, Stage C: data collection and analysis and

Stage D: write-up and conclusions as illustrated in Figure 1.1. The following was the

research process and the methods of approach used for this research, such as:

Stage A involves initial study and fixing of research area. Three

approaches were used in the initial study, i.e., literature review,

critical review and interview. These approaches tried to narrow down

research area. At the end of this stage, a rough idea of the research

topic was obtained.

After the initial study, Stage B of research methodology or a depth

literature review was conducted to strengthen and verify the research

area. The objective and scope of the research were decided. A

research outline was prepared in order to determine the type of data is

needed in this research. Also, data sources and gathering techniques

were identified as well. After that, research proposal was drafted and

confirmed.

Stage C involved data analysis, interpretation and data arrangement.

This stage was to process and convert the data collected to


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information that is useful for the research. Basically, questionnaire

and Delphi study were the main source of primary data collection.

Subsequently, the model and system are developed based on the data

collected. The validation was carried out with the experts in the

Delphi study.

Stage D was the last stage of the research process. It mainly involved

writing up and recommendations for future research.

These four stages are described the overall of the research methodology that

would be adopted in this research. The details of each research method are explained

in Chapter 5.


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Figure 1.1:Research methodology flow

Stage C:

Data Collection and Analysis

Stage D:

Write-up and Conclusions

Stage A:Initial Study and

Confirmation of

Research Area

Development of problem statements and research questions

Formation of objective and scope of research

Decision of research methodology

Data collection

Primary data Questionnaire

Delphi study

Secondary data Articles and books

Document analysis

Data analysis and discussion

Validation and evaluation

Conclusions &

recommendations

Critical review

Articles review

Interview with experts

Views from local

scenario

Research area

identification

Model and system development

Literature review

Stage B:

Research Proposal


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1.9 Structure of the Thesis

This thesis consists of ten chapters. The chapters are arranged according to

the sequence of the objectives and rationale of the research. The ten chapters

comprises 1 chapter on research proposal, 3 chapters on literature review, 1 chapter

research methodology, 4 chapters on data analysis and discussion and 1 chapter on

conclusions and recommendations.

Chapter 1 formulates the research proposal while a review of the relevant

literature is given in Chapter 2, 3, and 4. Chapter 2 describes the philosophy of

dispute resolution techniques in construction industry. At the end, it classifies all the

attributes of the dispute resolution methods as to the first research objective. It forms

the basic of reference in the questionnaire survey to identifying the behaviour and

practice of dispute resolution methods in Malaysian construction industry. The

results of the survey are analysed and discussed in Chapter 6 to achieve the second

objective.

Chapter 3 presents the exiting alternative approaches in contract

administration and subsequently it explains a systematic approach in contract

administration by looking at sources or root causes of contractual issues and the need

on contract clarity. It is to achieve the third objective of the research.

Chapter 4 examines a source of the contractual disputes in contract

administration, i.e., variations. The detail of the investigation is supported by leading

court cases as well as journals, articles and books. The content of this chapter and the

systematic way of contract administration learned from Chapter 3 formulate the

questions for the subsequent Delphi study. The Delphi study is carried out with the

local experts.


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Chapter 5 explains all the procedures and processes involved in this research.

Basically, the research consists of six main research activities, such as literature

review, document analysis, critical review, interview, questionnaire survey and the

Delphi study. All these method are equally important to achieve the research

objectives.

Chapter 6 presents the questionnaire data analysis. Mean and factor analysis

are applied to analyse the data collected from the survey. This enables the

establishment of the behavior of dispute resolution techniques in the construction

industry. Subsequently, Chapter 7 is about the development of eDR modeling. It

explains the generic approach on the contents and features of the eDR model.

Chapter 8 discusses the application of eDR on contractual variations. The

data were elicited from a mixture of experts. It shows how the clarified and reliable

references/guidelines are produced to the end-users. Finally the summary and

conclusions derived from this research are presented in Chapter 9. It also highlights

recommendations for future works.


The research aims to address the need to review existing contract

administration and dispute resolution practices and to develop eDR as an alternative

means for construction industry. The eDR is an electronic-based of self-examination

approach in contract administration toward contractual variations. It demonstrates the

clarified, organized and more resourceful of references regarding contractual

variations. It could assist the contacting parties appreciate their contractual

obligations and expectations as described in the contract. In the end of the research,the eDR would not jeopardise the roles of legal professions in dispute resolution


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process, rather it is aimed to provide preliminary references and alertness to the end-

users.


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CHAPTER 2

DISPUTE RESOLUTION

2.1 Introduction

Conflicts and disputes are co-related. The philosophy of conflicts and

disputes need to be clarified before understanding and classifying the attributes of

dispute resolutions techniques. Dispute resolution techniques are numerous and

varied among countries due to its background and legal practice. This chapter

reviews the dispute resolution techniques in local construction industry such as

negotiation, mediation, adjudication (going to be implemented), arbitration and

litigation. It mainly discusses the techniques procedure, characteristic, advantages

and disadvantages. Apart from that, an examination on contract clauses is carried out

for the dispute resolution. The scope is focused on the building contract forms, i.e.

Public Work Department (PWD), Pertubuhan Arkitek Malaysia (PAM) and

Construction Industry Development Board (CIDB) forms of contract. At the end, the

attributes of the five dispute resolution methods are classified to have a better

understanding on its philosophies. It would render useful information in the

identification of the behaviour and practice of dispute resolution in the local scenario.


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2.2 Construction Conflicts and Disputes

Construction industry is an adversarial in nature sector. Every participant

groups in a project has its individual objectives and concerns in terms of interest

conflicts and disputes (Cheng, et al., 2009). Conflict is a general English term. It

defines as a state of disharmony between incompatible or antithetical persons, ideas,

or interests; a clash, while dispute is defined as something argues about, debate,

quarrel and controversy (Oxford Advanced Learners Dictionary). The definition of

dispute is more understandable when looks into the legal definition on it. There are a

number of definitions for dispute according to Law Dictionary (Merriam-Webster's

Dictionary of Law 1996), for instance:

An assertion of opposing views or claims:a disagreement as to rights;

To oppose by argument or assertion; and

To engage in a dispute.

In brief, construction conflicts and disputes could be concluded as the

misunderstanding or disagreement between two parties or more either in contractual

or non-contractual matter, which always arise as assertions for extra money or time.

2.2.1 Relationship between Conflicts and Disputes

Certainly, Conflict and dispute are two different notions although some

authors do not differentiate them (Fenn et al., 1997). The conflicts and disputes are in

inter-correlated relationship. In other words, the disputes would turn up if the

conflicts go into unresolved circumstance because the conflicts usually happen at the

early stage of disagreement or misunderstanding.


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In addition, Fenn et al.(1997) stated that conflict is manageable and possibly

to the extent of preventing a dispute resulting from the conflict. Meanwhile, dispute

is required to be resolved through dispute resolution techniques such as mediation,

arbitration and so on. It normally associated with official intervention by a third party.

Therefore, the conflicts always go for conflict management and prevention

means while disputes attach to dispute resolution for its binding or non-binding

decision. However, in some cases these two terms should group and categorise in one

entity, for example, to identify the causes or sources of the conflicts and disputes as

discussed in the following topics.

2.3 Sources of Construction Conflicts and Disputes

The purpose to review and identify the sources of conflicts and disputes for

the construction players is to avoid or forestall them or even to isolate and control the

root causes (Fenn et al., 1997; Kumarasamy, 1997). Kumarasamy (1997) also

reiterated that an appreciation of such causes or sources will be useful to revolve or

prevent any ongoing and unavoidable as well as avoidable disputes.

Recent empirical work about classification of sources of construction

conflicts and disputes has been summarized by many authors. Table 2.1 below has

been added some latest literatures as well as other relevant references to enhance the

understanding on sources of construction conflicts and disputes. It has been sorted

from year 1979 to 2009 and covered different areas concerning sources of

construction conflicts and disputes.


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Table 2.1:Literature on sources of construction conflicts or disputes

Research Sources of Conflicts or Disputes

Williamson (1979) Three categories: behavioral problems, contractual

problems, and technical problems due to uncertainty

and low experience.

Hellard (1987) Five key factors: contract conditions, design deficiency,

construction process, consumer reaction, and time.

Semple et al.(1994) Four common causes: acceleration, restricted access,

weather and changes.

Conlin et al. (1996) (as

cited in Fenn et al., 1997)

Six areas: payment, performance, delay, negligence,

quality and adminsitration

Sykes (1996) (as cited in

Fenn et al., 1997)

Two areas: misunderstanding and unpredictability

Kumaraswamy (1997) Two areas: proximate causes and root causes.

Fenn et al.(1997) Contract conditions cause dispute some contracts

cause more disputes than others.

Bristow (1998) (as cited in

Pena-Mora et al., 2003)

Five areas: unrealistic expectation, contract documents,

communication, lack of team spirit and changes.

Mitropoulos and Howell(2001)

Five main sources: project uncertainty, contractual

problem, opportunistic behavior, financial position, and

cost culture.

Pena-Mora et al.(2003) Two areas: organizational issues (people, process and

people) and uncertainty (external and internal).

Cheung and Yiu (2007) Three basic components: contract provisions, triggering

events and level of conflict.

Cheng et al.(2009) Four dispute causes: caused by owners, caused by

general contractor, caused by both parties and caused

by acts of God.

Although a number of sources or causes of conflicts and disputes have been

identified in the literature, a common source of conflict found is that the majority of

projects are a one-time experience. Even the contract is performed under similar


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nature for the same client, differing site condition, rules and regulations, market

conditions and project participants would change the development of the contract

(Pena-Mora et al., 2003). This is why the construction industry is so unique compare

to other industries and fields.

Nevertheless, it is still extremely important to identify and review all the

possible sources of conflicts and disputes for avoidance or controlling concerned. For

this reason, the following section discusses the detail sources of conflict and disputes

particularly in construction contract administration. All the previous researches on

sources of construction conflicts and disputes are related to contractual problems. An

addition to that, understanding and appreciation of construction contracts also one of

the main issues in contractual related problems (Pena-Mora et al., 2003; Zaghloul

and Hartman, 2003; Mohamad and Zulkifli, 2006; Chong et al., 2007; Chong and

Rosli, 2008a; Chong and Rosli, 2008b).

2.4 Contractual Provisions for Dispute Resolution

Unresolved conflicts or disputes need to be resolute using dispute resolution

methods. Contract provisions regarding the dispute resolution need to be reviewed.

The discussion is focused on the local contract forms that applied in building

construction contracts such as PWD 203A, PAM 2006 (With Quantities) and CIDB

Form of Building Contract 2000.


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2.4.1 Public Work Department Form 203A (Rev. 2007)

PWD 203A is a most popular standard form of contract for public sector. The

contract form has been revised in the year of 2007. Clause 65.0, Arbitration is the

only part of the contract for dispute resolution. There are eleven sub-clauses under

Clause 65.0.

Overall, if dispute or difference occurs between the prime parties, the

contracting parties shall refer such matter to an officer named in the contract for a

decision. The officers decision is binding on the parties until completion of the

project. If the parties failed to receive a decision or dissatisfied with the decision by

the officer, they shall refer to arbitration. The award or decision by the arbitrator

shall be final and binding to the parties, where the arbitration is governed by the

Arbitration Act 2005 and the laws of Malaysia.

All the disputes or differences in the contract can be referred to the officer

and the arbitrator for resolution except termination of contractors employment on

national interest as stated in Clause 65.1 and Clause 65.4. The officer (s) is

empowered to take action on behalf of the government.

In summary, the PWD 203A provides a formal dispute resolution method

provision in the contract, i.e., arbitration. However, the empowering officer as stated

in the appendix also could play a significant role on the informal dispute resolution

method such as negotiation.


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2.4.2 Pertubuhan Arkitek Malaysia Contract 2006

PAM standard form of contract is the most common type of contract used in

private sector. In year 2006, the contract form has been updated and revised. There

are two clauses found in the contract form for dispute resolution and discussed on

mediation, adjudication and arbitration. Clause 35.0, Mediation is allocated in the

contract form. The mediation requires both the disputants written agreement before

referring to this dispute resolution. This mediation is carried out in a voluntary basis.

There is no condition precedent in this dispute resolution for its reference to other

dispute resolutions like adjudication and arbitration. Appointment of mediator is

done by President of Pertubuhan Arkitek Malaysia when the parties failed to agree

on the mediator. Upon appointment, the mediation is governed by PAM Mediation

Rules or any modification to such rules.

Besides that, Adjudication and Arbitration are located at Clause 34.0.

Reference to adjudication is a condition precedent to arbitration when the dispute

deals with set-off done by employer. Besides, other matters also can be referred to

adjudication if the parties agree to do so by written agreement. The adjudications

decision shall be final and binding on the parties until practical completion if the

dispute on the decision not referred to arbitration within the stipulated time (6 weeks

from the date of making decision). Apart from that, if the set-off issue happens after

date of practical completion, the dispute must be referred to arbitration. In fact, any

matter arises in connection with the contract shall be referred to arbitration either

during the progress or after completion or abandonment of the project except for the

adjudication issue on set-off. As adjudication, the award or decision of such

arbitrator is final and binding on the parties. Appointment of adjudicator and

arbitrator is same as the rules of appointment for mediator. The only difference is the

adjudicator/arbitrator shall initiate the proceedings according to PAM Adjudication

Rules/PAM Arbitration Rules (Arbitration Act 2005) or any modification or revision

to such rules.


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2.4.3 Construction Industry Development Board Form of Building Contract

2000

CIDB Form of Building Contract 2000 is published by Construction Industry

Development Board, Malaysia. Clause 47 Settlement of Disputes is the provision of

the contract form for dispute resolution. The resolution consists of three stages of

reference, i.e., Clause 47.1, Reference to the Superintending Officer (SO), Clause

47.2,Reference to Mediationand Clause 47.3,Reference to Arbitration.

Firstly, if a dispute or difference arises between the employer or the SO and

the contractor in connection with the contract, the party shall refer to SO for his

decision except matter regarding termination, repudiation or abandonment of

contract and final certificate. The decision made by SO shall within 30 days and it is

final and binding to the parties.

If the SO fails to give his decision by the expiry of 30 days or if either party

be dissatisfied with any decision by the SO (within 90 days after receiving the SOs

decision), then the disputant shall refer the dispute to mediation. The mediation must

obtain written consent by the disputants, if the parties fail to achieve any settlement

then upon the termination of the mediation pursuant to the CIDB Mediation Rules,

either party may refer the dispute to arbitration and it shall be a condition precedent

to commencement of arbitration proceedings.

An arbitrator will be appointed by the employer or the contractor within 14

days after termination of the mediation. If the parties fail to agree on the appointment

then either party may request the Appointer of Arbitrator named in Appendix to

appoint another arbitrator. The award of the arbitrator shall be final and binding on

the parties under the Arbitration Act 1952 or any amendment or re-enactment of the

said act.


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2.4.4 Summary of Contract Forms

The local contract forms highlighted several dispute resolution methods such

as negotiation, mediation, adjudication, and arbitration. The negotiation is an indirect

of provisions in the contracts such as reference to the officer/SO regarding the

disputes. However, the mediation, adjudication and arbitration are the formal dispute

resolution techniques required in the contract. These formal and informal dispute

resolution methods together with litigation are the research subjects towards the

identification of the behaviour of dispute resolution in Malaysian construction

industry.

2.5 Stages of Dispute Resolution

Disputes may be resolved in a number of ways using various proceedings.

The stages of dispute resolution only start when the prevention means is over or

failed.

It would not be true to say that all disputes are resolved at court proceedings

or other formal settings of alternative dispute resolution methods. The stages of

dispute resolution should begin with a grievance. The grievance may be abandoned

where a person considers it to be trivial and not worth pursuing. The person may feel

unable to pursue the matter or may not realise that he/she may have legal recourse in

respect of it (Badman and Grimmett, 1996). This grievance is the least confrontation

and time consuming as the person would just follow or surrender due to his limited

knowledge or understanding about the dispute. In developing countries, the

grievance is very obvious and common although the parties may not realise it.


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After that, the stage is negotiation, which is a very popular informal method

in dispute resolution. This stage is to communicate the grievance and negotiate for a

settlement. This negotiation technique is a preferred choice of the disputants, with

most disputes being resolved through this process (Cheung et al., 2000). It is the least

expensive, and it can preserve the working relationship of the parties involved. In

negotiation, the parties have absolute freedom with respect to the form, process and

type of agreement. In order to make it successful, the negotiation demands

cooperative effort from the disputants (Cheung, 1999; Edwin and Henry, 2005).

However, increased project complexity and shortening of the project life

cycle have made contact administrating difficult. Negotiation is not always workable

and bringing consensus in the end. It is because projects will be diverging from what

has been anticipated and triggered to other more formal method of dispute resolution.

At this moment, mediation or conciliation would take place to reach a settlement

after the negotiation (Essex, 1996). Ironically, mediator has no power to impose a

solution and his/her function is to help or guide disputants to focus on their actual

objectives and resolve their matter consensually (Harmon, 2006).

Therefore, the next stage is the methods that could render a legal binding

decision, i.e. adjudication, arbitration and litigation. The alternative to arbitration is

to the use of adjudication (Owens, 2008; Dancaster, 2008; Hill and Wall, 2008).

Adjudication deals with the payment problem between the contracting parties in

particular (Noushad Ali and Lim, 2008; Teo, 2008). Usually, it is under a contractual

provision in the contract and enforceable in law (Thomas, 2001).

Subsequently, the next stage is the use of arbitration. Here it is clear that the

disputants need an arbitrator, an independent expert to act as the decision maker. The

parties must agree to the appointment and are bound by the arbitrators decision.

Arbitration is conducted in private and confidentially (Teo and Aibinu, 2007). Yet,

over the years, with the increase in procedural complexity, arbitration is regarded as


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a replicate of litigation (Cheung et al., 2000). Hence it is not considered one of the

ADR methods in this research.

Last but not least, litigation is the following stage of dispute resolution.

Litigation is costly, delaying and risky (Steen, 1994; Gebken and Gibson, 2006). It also

brings a number of variables and unable to satisfy the litigants (Harmon, 2004). On

the other hand, the court proceedings consist of several layers too, which is the

hierarchy of the courts. This is important and one kind of advantages for the

provision of an appeals structure (Badman and Grimmett, 1996).

In conclusion, the dispute should be resolved as early as possible in the stages

of dispute resolution. The contracting parties controversy and adversary would be

increased together with the consumption of cost and time once higher stage of

dispute resolution applied as illustrated in Figure 2.1. The figure is developed

according to the review on the stages of dispute resolution.

Figure 2.1: Stages of dispute resolution

Litigation

Arbitration

Adjudication

Mediation

Negotiation

Grievance

Amount of Controversy and Adversary

Consum

ptionofCostandTime


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2.6 Prevention Stage

The prevention method is to prevent aggravation of the negative impacts on

project performance, and it attempts to manage the dispute proactively and aim for

early settlement (Cheung et al., 2004). Vallero and Vesilind (2006) described that

dispute prevention is much better than even the best dispute resolution techniques.

The prevention stage is the most effective means at which to resolve disputes. This

stage offers a vast array of techniques for promoting dispute avoidance as well as

encouraging conflict settlement during construction (Pena-Mora et al., 2003).

The prevention stage is the earliest stage before any formal or informal

dispute resolution methods. In UK, Construction Industry Institute, Dispute

Prevention and Resolution Task Force has proposed start right and stay right

approach for the contracting parties. Start right is about starting with suitable

contract language and with appropriate alternative dispute resolution while stay

right requires the parties solve emerging disputes quickly before they accelerated

into complex legal problems (Diekmann and Girard, 1995). Therefore, this approach

could help the contracting parties to identify the disputes at the outset of a project.

After that identification, the parties could avoid them or even to isolate and control

the root causes (Fenn et al.,1997; Kumarasamy, 1997). This is how the prevention

works, i.e. preventing conflict before it happens.

2.6.1 Prevention Methods in Practice

There are two scenarios for prevention means in construction industry. Firstly,

the prevention method applies before the construction is begun, which the decision

making solely falls on the owner/client/employer. Another scenario for prevention


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method describes in the commencement of construction period, which includes the

contracting parties of the project.

For the first scenario, the prevention stage offers the greatest flexibility for

designing and creating ways to improve communication and job performance by

minimizing disagreement and helping the project team resolve those problems that

arise before they become disputes or claims. This approach applies to the

construction that has not begun yet. Therefore, the employer is the most crucial

participant in this stage. The techniques could be adopted are risk sharing, escrow bid

document, innovative project award and delivery systems, incentive programs,

constructability analysis and documentation, cost/schedule controls, and contract

implementation (Pena-Mora et al., 2003).

For commencement of construction, all the contracting parties are playing

important roles to prevent any conflicts or disputes happen. Predicting dispute

susceptibility on a construction project is a very complicated process. Therefore,

Diekmann and Girard (1995) identified three critical issues to avoid or reduce

likelihood of disputes, i.e., people issues, process issues and project issues. People

issues are considering the number of organizations, relationships, roles,

responsibilities and expectations of the people. Process issues are regarding to

contract and building process for planning of the project, financial and scope

definition, contractual obligation, contractual risk allocation and contract

administration. The technical nature of the work is the project issues, for example,

type and complexity of a project and the like.

In conclusion, the implementation of this prevention stage may need

additional investments, yet it is worthy by considering the negative consequences

that would be suffered from the project.


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form, process and type of agreement towards a successful negotiation demand

cooperative effort from the disputants (Cheung, 1999).

During the negotiation process, the disputants will exchange the information

and make up a solution which meets the objectives of all parities. The parties will

present its proposals with supporting facts and argument for an agreement. The

negotiator will attempt to understand and adjust their position. The way of

negotiation conducted will cause an impact to their relationship. Normally the

disputants will not want to continue compromise if the proposals suggested by one

party are kept banned by another party unless a compromise is reached among the

disputant parties (Cheung and Suen, 2002).

The successful of the negotiation depends on the attitudes and expertise of the

representatives. Any settlements or resolutions are achieved only by the agreement

from both disputing parties (Essex, 1996). Thus, the disputing parties involve must

be willing to bind their respective parties to a settlement and never ask for a

representative to participate in the proceedings. In this negotiation, the quarrelling

parties will try to reach a suitable negotiated solution for the dispute without

involving any third-party. The parties will only consider other dispute solution

methods like neutral advice or mediation if the parties cannot solve the dispute

through negotiation the resolution is not reached within a predetermined length of

time (Koolwik, 2006).

2.7.2 Advantages

The discussion below focuses on the main advantages of the negotiation, such

as:


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Speedy - negotiation is the most cost efficient method to resolve

construction disputes because it is informal, speedy and non-complex

in nature resolution method (Cheung et al.,2006).

Preserve relationship - negotiation could preserve or enhance the

existing job relationships and as well as reduce other costs incurred in

proceedings (Jones, 2006). Negotiation helps the parties to improve

the communication and thereby the relationship is preserved and the

parties can continue to work together for mutual profits.

Third party - the disputing parties will try to reach a suitable

negotiated solution for the dispute without involving any third party

(Koolwik, 2006). The negotiator helps to clarify and narrow down the

issues of the disputes.

Risk free - negotiation is a communication without prejudice and the

parties can pursue other method if there is no agreement is reached. If

negotiation fails, they can seek for other alternative dispute resolution

methods (Mohammad, 2005).

2.7.3 Disadvantages

There are two main disadvantages of negotiation in this discussion, i.e., both

the disputing parities will face a relatively high risk in settling their disputes if the

negotiation fail; and if the negotiation fails due to the communication failures, bad

negotiation skill will lead to the delay (Mohammad, 2005).


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2.8 Nonbinding Dispute Resolution

The nonbinding dispute resolution, such as mediation/conciliation is the last

phrase in which the parties still have control over the outcome of the dispute. In this

formal proceedings, it usually engages a third and neutral party for settlement. The

proceedings are voluntary, while procedures are flexible. The selection of third party

is done by mutual consent (Pena-Mora, 2003).

2.8.1 Mediation/Conciliation

Mediation is a nonbinding process of dispute resolution technique. Cheung

and Suen (2002) defined mediation as a deliberate, non-binding process in where a

mediator is a neutral party helps the disputants towards an equally beneficial

resolution. Furthermore, Chau (1992) also defined mediation is a non offensive,

voluntary, informal and nonbinding way to resolve the disputes. It attempts to

prompt the parties to appreciate and consider each others points of view and turn up

with an agreement.

Nowadays, mediation is a widely used technique by the parties who want to

continue their negotiation with the assistance of a mediator (Essex, 1996). Mediation

is appropriate when a substantial measure of goodwill exists on both sides and there

is a continuing business relationship (Jones, 2006). The relationship will be

preserved and will not be broken off through mediation.

The disputants require minimum cost for mediation. Generally, the costs of

the mediation are shared partially by each party and the mediator has no lien on theview of his costs. The mediator plays an important role in assisting the parties to


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agree on a settlement which can reflect the true intention of both parties (Singh,

1995). The cooperation of both parties is critical to determine the success of this

mediation.

Lastly, mediation helps the disputing parties to minimize the risk of losing

costly litigation fees and helps the parties in developing a creative solution. Although

the chances for the mediation to win is not so much but the risk of losing and the

view of pursuing costly litigation encourage the parties to choose mediation (Jones,

2006).

2.8.2 The Process of Mediation

Mediation is nonbinding and voluntary process. A neutral third person is

engaged to facilitate the negotiation. The role of the mediator is to scrutinize the facts

and clearly set out the parties weaknesses and strengths of their claims (Chan, 1997).

A mediator will investigate the issues of the disputes and develop the strength and

weakness of the parties towards their claims.

Mediator is given the responsibility to listen, generate and facilitate the

settlement that they cannot solve on their own. Jones (2006) mentioned the mediator

must acts neutrality while handling the dispute so that the parties have positive

approach towards mediation and believe that they can trust the mediator and reach a

settlement through mediation. Fisk (2003) opined that a mediator is needed when the

following circumstances exist:

(a)

Parties are unable to narrow the gap and differences arise in thedispute and cause the inflexibility of other parties.


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(b) Parties do not manage proceed the movement since too many matters

are unsolved.

(c)

The parties wish the mediator to discover and give a solution to them.

(d) The parties wish to solve a problem reciprocally and end a dispute

harmoniously.

(e) It is desired to provide the parties with some suggestion of how their

positions look to an impartial person.

(f) The parties wish mediator is used in private and confidential

confessions without endanger their original positions.

(g) Mediator will avoid unenthusiastic significances like court case occur

during the mediation.

The process of mediation is to crate an environment where the parties can sit

down together to discuss and negotiate for a consensus agreement. The mediator also

helps both the parties to perceive a fair settlement and look for the alternative ways

to overcome obstacles through negotiation (Keith, 1997) or to simplify the issues

(Jones, 2006). Chan (1997) summarized the role of mediator as follow:

(a) To postpone the proceeding of arbitration if both the parties agree go

settle their dispute by using mediation method.

(b) To facilitate the communication between the parties.

(c) To investigate and understand the primary problems and intentions.

(d) The information obtained during the mediation process must not

salvaged by the mediator for other occasions.

(e) To assist in drafting a settlement agreement and hand it down as

enforceable arbitration award if settlement is agreed by both parties.

(f) If the parties do not want to carry on further, the mediator will finish

off the mediation stage and regress to arbitration.

During mediation, mediator facilitates and serves at the request of thedisputing parties but does not dictate the negotiation. The mediator undertakes to


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clarify each partys concept of the facts, priorities and positions. The mediator will

never advocate for either side, loosens rigid stances and he always helps the parties

find a fair resolution for the parties (Essex, 1996).

Overall, mediator has no power to impose a solution. Mediators role is to

identify, highlight and narrow the issues, focus on each sides interest, explore an

agreement from both parties. Unlike a judge or arbitrator, mediator has no power to

oblige a solution to the disputing parties. His role is to identify and narrow down the

issues and focus on the disputing parties underlying interests, convey messages

between the parties and explore areas of agreement (Treacy, 1995). Hence, mediator

is only giving advice, making recommendations for the disputing parties (Chau,

1992).

2.8.3 Advantages

The main advantages of mediation are summarised as below:

Nonbinding - mediation is non-binding. The parties can ignore the

mediators recommendation for the settlement if either party think the

mediators rule is unfair or biased. Then, the parties will precede the

case to the other dispute resolution methods. There is no risk of an

unappeasable unfair resolution (Patterson, 1997).

Speedy - mediation can be as speedy as the parties wish to be (Chau,

1992). The mediation takes very short time to settle most of the cases.

Preservation of relationship - mediation enables the disputing parties

to preserve a continuing business relationship (Keith, 1997).

Mediation produces a win- win settlement where the parties felt

contentment on mediation as a tool of dispute. The parties can


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maintain their business relationship if they are using mediation to

solve the settlement. According to Keith (1997), the successful of

using mediation to solve the dispute is more than 70% of the time in

the construction industry.

Flexible - the final jurisdiction in mediation vests in the parties

involved. If the parties are not satisfied with the decision made by

mediator, they can simply ignore the recommendation for settlement

and withdraw from continuing the mediation process (Chau, 1992).

The parties can reject the mediator anytime because it is based on the

willingness and cooperation of the parties.

2.8.4 Disadvantages

The disadvantages of the mediation are as following:

Mediation is lack of finality in its enforcement. It is because the

parties can simply ignore the solution made by mediator if they are

not satisfied with it (Chau, 1992).

If the mediation fails to present, the parties will have deserve for

losses in terms of time and money (Patterson, 1997).

The mediator has no authority to enforce a solution. He/she helps to

narrow the issues and focus on each partys interest (Treacy, 1995).

The parties may not be prepared to be directed by the mediator

towards productive negotiation when the parties do not have a good

faith on it (Chau, 2007).


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In Malaysian construction industry, only PAM 2006 contract form has a

provision for adjudication. One of possibility reasons may due to pending of

enactment of Malaysian Construction Industry Payment and Adjudication Act

(CIPAA). According to Noushad Ali and Lim (2008), the development of CIPAA is

chongheapyihpa07304702ttt (1).pdf

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