by Jeffrey C Kadlowec, Architect

Abstract

Construction projects have become more complex during the past century requiring more detailed contracts to facilitate the relationships between owners, designers and builders. Standard agreements and delivery methods should define the roles and procedures to minimize risks and resolve disputes. Clear and common language must be utilized to prevent misinterpretation or misunderstanding that can lead to conflicts. Successful completion of work relies significantly on balanced agreements to avoid conflicts from arising which threaten profitability and reputation. Contracts should be reviewed and revised to incorporate continuous changes in technology and techniques affecting the industry.

Keywords: construction contracts, standard agreements, conflict resolution

Conflict Resolution

Construction was organized by the Carpenter Company of Philadelphia in 1724 when the concept of a master builder was introduced, characterized by individuals and entities that could handle all aspects of a project. More complex construction emerged after the first industrial revolution, diminishing the role of the master builder and dividing craftsmen into specialized trades. Following the establishment of the American Institute of Architects (AIA) in 1857, the architect or engineer became the primary contract administrators to oversee and manage parties and relationships [Elazhary 2024]. Misunderstanding about the role and responsibilities of the lead designer result in negative perception, poor communication and insufficient monitoring leading to delays, cost overruns and even abandonment.

Standard agreements based on project delivery method have been developed to define the construction process through fair and comprehensive regulations by defining duties, obligations, terms, and conditions to minimize risks, avoid disputes and resolve conflicts. Misinterpretation of contract terms and clauses is the leading cause of legal action, making clarity in construction law a necessity. Litigation of disputes has a long duration and high cost, and adversely affects professional relationships and company resources, while arbitration is a faster but more expensive technique for resolution [Chan 2021]. Providing an effective mechanism of preventing claims and disputes should be considered best practice in construction contracting.

Inherent uncertainty, project complexity and increasing demands have given rise to a greater number of conflicts in the construction industry. Language barriers and cultural norms can further hinder interpretation between contracting parties and project administrators. Proper management of contracts requires an acceptable degree of commonality and clarification regarding the intricate language and technical terminology [Koc 2020]. Avoiding ambiguity and misunderstanding will prevent conflicts, claims and disputes that threaten successful achievement of project objectives. Low readability of clauses and provisions in the contract have a higher likelihood of inconsistent interpretation by different parties with varied perspectives and vested interests.

Contracts significantly impact productivity and efficiency of work on construction projects by defining obligations and allocating risks to establish a framework of trust and resolution. The primary function and purpose of a contract is to coordinate and control behavior and duties of parties by clearly defining responsibilities and reducing uncertainties for the implementation and execution of work [Koc 2021]. Commonality in meaning of the provisions and clauses is essential to avoid inconsistent interpretation that may lead to claim proceedings. Well designed and fairly balanced contracts are a catalyst for the better performance and quality improvements.

Owners and clients seek to complete projects on time and within budget with acceptable quality levels that meet design objectives in order to maximize profits. Traditional delivery systems do not properly address uncertainty resulting in contractors taking on excessive risks, leading to schedule delays and cost overruns. Aligning objectives towards project intentions and successful completion through the sharing of ‘pain and gain’ offers greater incentive and benefit [Shehadeh 2021]. Target cost contracts (TCCs) provide and maintain a more collaborative and productive relationship to avoid confrontational behavior that inhibits efficient performance through shared risk and reward by implementation of target value design (TVD).

Effectively managing disputes has become an essential part of construction management to avoid wasting time while maintaining cash-flow and liquidity. Contracting should include methods and techniques for identifying, preventing and eliminating probable claims before they arise. Provisions must also be made to swiftly resolve construction claims to ensure project success. Traditional thought is centered on proper contractor selection and dispute resolution mechanisms, while liberal ideas focus on equitable contracts and agreeable relations [Jagannathan 2020]. The changing economic climate and construction landscape will require reviewing and redrafting standard contracts to meet increasing demands by various stakeholders across the entire industry.

References

Chan, Ei; Nik-Bakht, Mazdak & Han, Sang. (2021). Sources of Ambiguity in Construction Contract Documents, Reflected by Litigation in Supreme Court Cases. Journal of Legal Affairs and Dispute Resolution in Engineering and Construction. 13(4). 10.1061/(ASCE)LA.1943-4170.0000498.

Elazhary, Mariam; Shiha, Ahmed; El-Adaway, Islam & Young, Sammi. (2024). Quantitative Assessment of the Architect’s Role under US Standard Construction Contracts: A Graph Theory Approach. Journal of Management in Engineering. 40(5). 10.1061/JMENEA.MEENG-6072.

Jagannathan, Murali & Delhi, Venkata. (2020). Perceptions of Stakeholders on the ‘Redraftability’ of Construction Contracts. IIM Kozhikode Society & Management Review. 9(2). 10.1177/2277975219885285.

Koc, Kerim & Gurgun, Asli. (2020). Ambiguity Factors in Construction Contracts Entailing Conflicts. Engineering Construction and Architectural Management. 29(5): 1946-1964. 10.1108/ECAM-04-2020-0254.

Koc, Kerim & Gurgun, Asli. (2021). Assessment of Readability Risks in Contracts Causing Conflicts in Construction Projects. Journal of Construction Engineering and Management. 147(6). 10.1061/(ASCE)CO.1943-7862.0002050

Shehadeh, Ali; Alshboul, Odey & Hamedat, Ola. (2021). Risk Assessment Model for Optimal Gain–Pain Share Ratio in Target Cost Contract for Construction Projects. Journal of Construction Engineering and Management. 148(2). 10.1061/(ASCE)CO.1943-7862.0002222.