Journal of Legal Affairs and Dispute Resolution in Engineering and Construction

This paper aims to propose a methodology for conducting third-party risk-based due diligence in an engineering and construction company. A case study presents the methodology for a multinational firm. Due diligence is necessary and often mandatory, depending on the client or project. It protects a company in case of an ill-intentioned third party conducting misconduct while under contract or relationship with the company, but has been overlooked in many industries, resulting in ethics- and compliance-related misconduct. This study reveals that risk-based due diligence methodology has been widely applied and discussed by brokers and accountants, but that no research has verified whether the methodology applies to the construction and engineering industry. The case study also highlights the importance of knowing and understanding the company’s business model, its appetite for risk, and its global interactions within its industry. The proposed methodology enables risk assessment and due diligence covering integrity-related risks among third parties. By adapting the model to their reality, construction and engineering companies manage third parties’ risks related to corruption and bribery, antitrust and competition, human rights, conflicts of interest, and compliance with regulations. The expected result of the methodology is a risk-tailored and resource-efficient process for conducting third-party due diligence in the construction and engineering industry.

Abstract

More than 2 years after the start of the COVID-19 pandemic, the construction industry worldwide still faces myriad challenges. One such challenge is project delays for reasons beyond the parties’ control that, in at least some instances, are due to government mandates and policies designed to control the spread of the COVID-19 outbreak. Such delays may provide contractors with contractual relief, including the right to file a claim for an extension of time (EOT) to perform its work on a given project. Based on our investigation and analysis, we believe that contractors could save time, effort, and money by using our decision-making framework (DMF) to evaluate, prepare, and submit their requests for extension of time claims due to events beyond their reasonable control, including force majeure events. We used thematic decision mapping to develop the framework and sought to validate the proposed decision-making framework in the field. Although our validation efforts were limited in scope, the decision-making framework provides contractors with a practical tool for contractors considering whether to submit a request for extension of the contract time due to force majeure events.

Practical Applications

Using thematic decision mapping to develop the decision-making, this study presents a practical tool for contractors who are considering preparing and submitting an EOT claim associated with force majeure events. The developed DMF describes a clear mechanism for contractors to explore the EOT claim decision-making process consisting of five steps, namely, identification, notification, preparation, submission, and negotiation. A real case study was provided to investigate the effectiveness of the DMF in guiding the contractor’s decision-making process. By utilizing this DMF, contractors can better prepare and submit their EOT claims following the systematic procedures presented. A better understanding of the EOT claim decision-making process is achieved through the structured visual representation, the distinction between activities and data, and the delineation of stakeholders’ interaction in the EOT claim decision-making process. Thus, the use of DMF is expected to improve the contractors’ performance in managing EOT claims. Finally, while the real case study demonstrates the potential of the DMF, it is recommended that its rigorous evaluation through systematic application in other scenarios is conducted to establish the generality of the DMF.

International construction is a significant element of world trade. In the international construction sector, forms of contract have become necessary and International Federation of Consulting Engineers (FIDIC) forms of contract have progressively emerged. Since 1999, under FIDIC forms, the dispute adjudication board (DAB) has been empowered to resolve disputes between parties to a contract by making a binding decision. Therefore, enforcement of the DAB’s decision attracts attention from practitioners. In regard to the enforcement of a dispute settlement decision, there are two important international treaties: the Singapore Convention on mediation and the New York Convention on the recognition and enforcement of foreign arbitral awards. Thus, the main focus of this paper is a response to the question: Should the FIDIC DAB’s decision be considered as an award to be enforced under the New York Convention 1958 or as a mediated settlement agreement under the Singapore Convention?

In December 2018, the United Nations General Assembly adopted the United Nations Convention on International Settlement Agreements Resulting from Mediation (also known as the Singapore Convention). The key feature of this convention is to make disputing parties enforce and invoke settlement agreements easily with different signatory states. This paper intends to investigate the possible effects from the ratification of the convention on dispute resolution practice in the Hong Kong construction sector. The authors conducted questionnaires and interviews with experienced construction mediators in Hong Kong. According to the data collected, the convention will be beneficial to the promotion of construction mediation, development of mediation in Hong Kong, and Hong Kong’s mediation status in global mediation. Meanwhile, it will also pose a certain degree of threat to the status of Hong Kong as a mediation center, such as higher competitiveness of other countries in serving as an international mediation seat and difficulties encountered by Hong Kong mediators in claiming relief under the convention. Because of the conservative attitude of the construction industry and unpopularity of mediation in cross-border construction projects, it is expected that both pros and cons brought by the Singapore Convention will be to a confined extent.

Abstract

Late payment is a recurring issue in the United Kingdom construction industry. While the existence of the problem is well known, there is a dearth of quantified evidence on the extent of the problem from a subcontractor point of view. This research sought to quantify the extent of late payment and late release of retention and their effects on construction subcontractors in the UK. A research design including the analysis of payment data of 30 selected projects (355 payments) from a case study and a supplementary questionnaire survey with 21 subcontractors were used to investigate the issues. Late payment was observed in most of the case study subcontract projects (77%) and nearly half of the payments (46%), suggesting it is common practice. Statistical analysis showed that while there was no statistically significant link between payment delay and contract sum, subcontractors are likely to experience longer payment delays in projects with a higher number of payments. It was found that the late release of the second half of the retention posed an even more significant problem to subcontractors, with a considerable portion of the income (upward of 2.5%); sometimes the entire profit, being held up for nearly 2 months from the due date. The findings highlight that while the regulatory and contractual measures over time have sought to address the issue of late payment, it remains a prevalent issue and that subcontractors often fail to rely on such measures. This necessitates subcontractors to factor late payment into their cash flow planning. The authors suggest that the recent and proposed initiatives such as the project bank accounts, central retention deposit scheme, and smart contracts offer potential to mitigate payment delays.

Practical Applications

This research investigated the nature of payment delays from main contractors to subcontractors within the construction industry. While numerous initiatives have been undertaken, late payments to subcontractors is still a recurrent phenomenon and a norm in UK construction projects. These include significant delays in releasing the payments retained by the main contractor (money held as a means to encourage correcting any snags of subcontractors’ work) that need to be released when the work is complete. Current standard formal contractual provisions (such as interest payments for delayed payments or agreed payment dates) between the main contractors and subcontractors does not seem to have shown a significant impact on reducing payment delays. While the Construction Act in the UK has provided some encouraging regulations, they are less observed during the administration of individual contracts between the main contractors and subcontractors. The findings provide much needed quantified evidence of payment practices that can be reflected in developing regulatory, contractual, and administrative countermeasures in the UK and beyond. The information will also enable small and medium-sized enterprises (SME) subcontractors to plan for the cash flow problems they could encounter due to late payments. Further external finance handling mechanism enforced through legislation (such as project bank accounts) could be more effective in supporting subcontractors cash flow and financial resilience.

Design-build (DB) project proposals generally require the designer on the DB team to advance the level of design provided by the owner in the request for proposals (RFP) to a stage where a firm fixed price can be proposed. The construction contractor on the team uses the designer’s work product to prepare the proposed bid price. Issues can arise if there are errors in the proposal designs that cause the contractor to spend more money than planned. The standards for determining a designer’s liability for errors in completed, signed, and sealed design documents are well understood. However, the standards for determining a designer’s liability to contractors for errors in proposal designs are neither clear nor well understood. This paper reviews several published cases addressing disputes between contractors and designers with respect to design errors arising from these proposal-based designs. It concludes that the question of whether a contractor can recover losses due to errors found in proposal-related design documents is largely dependent on what the agreement for proposal-related services provides as a standard of care and whether the contractor can adequately demonstrate that the losses are attributable to the proposal-related errors. This paper provides several recommendations on what issues should be covered when contractors and designers enter into a teaming agreement or other contract for proposal-related services.

The advent of technologies has created a need for a system that can provide better management and application of smart technologies in smart cities. The paper attempts to provide a review of legal and ethical considerations in adopting digital solutions for smart cities. There are challenges in terms of legal and ethical issues regarding the application of autonomous and near-autonomous vehicles, robotics technology, three-dimensional (3D) printing, mobile technology, and the Internet of Things that act as a primary or secondary source of new regulatory and legal challenges. The paper addresses the concerns through an extensive literature review and suggests a roadmap for better adoption of smart technologies in smart cities. The legal and ethical implications are observed in the examples of the digital payment, waste management, and contractual systems. This study focuses on the legal and ethical issues arising in the application of smart technologies in smart cities. The methodology focuses on the analysis of the literature review to derive some critical points to explain the impact of legal and ethical issues on smart city applications. The legal and ethical concerns are studied in terms of use of data, application of technology, proper functioning of technology, misuse of the data, commercialization of the data, and unwanted calls.

The Code of Federal Regulations (CFR) 49 Part 26 discusses the participation of disadvantaged business enterprises (DBEs) on a state department of transportation’s highway, transit, and airport contracts. Any highway or airport project exceeding the contract value of $250,000 should have a DBE program. Generally, the statute states that no less than 10% of the authorized funds are to be expended with DBEs. Due to this requirement, the prime contractors bidding for state DOT-owned highway contracts have recently set aside some percentage of work for DBE firms. There have been no empirical studies conducted to determine the impact of DBE participation on the cost and schedule performance of these projects. Therefore, this study will focus on determining the impact of DBE participation on the cost, schedule, change order, and construction intensity performance of highway projects. The study hypothesizes that the involvement of DBEs will improve the cost and schedule performance of the highway projects. To test the hypothesis, the authors collected and analyzed data from 109 recently completed highway projects from the Nevada Department of Transportation (NDOT). The study’s results show that the schedule growth of projects that involve DBEs are significantly higher than projects that have no DBE participation. However, the change order growth of projects that involve DBEs is significantly lower than projects that have no DBE participation. The authors are collecting more data to determine the reasons for increased schedule growth and decreased change order growth on DBE-participating highway projects.

Abstract

The delays in Cyprus’s judiciary system form an issue highlighted in recent years not only by the public but also by lawyers and judges themselves. Understaffing because of austerity measures and civil procedures that allow for a manipulation of the judiciary system are the main reasons behind these delays. The promising increasing use of arbitration, the main alternative method for dispute resolution, is ambushed by Cyprus arbitration law itself, the Cyprus Domestic Arbitration Law, also known as CAP.4. CAP.4 was enacted in 1944 and established a legal framework similar to that of the UK Arbitration Act 1950. This paper examines the weaknesses of this outdated law, and it furthermore investigates the options that are available for its improvement by comparing the existing CAP.4 with (1) the Cyprus International Commercial Arbitration Law 101/1987 (Law No. 101/87) also known as ICA, which is based on the UNCITRAL Model Law (1985), (2) the UK Arbitration Act 1979, and (3) the UK Arbitration Act 1996.

Abstract

“Justice delayed is justice denied” is the legal maxim that describes the criticality of the time taken for resolution of an issue to the justice experience of the person seeking justice. In Cyprus, delays are experienced not only in court proceedings, but also in arbitration. The introduction of arbitration, as an alternative dispute resolution method, is not as successful as it could be because instead of being a therapy to the problem of delay in dispute resolution, it likewise suffers from delays. The main problem for this is the primitive arbitration act CAP.4 still in use for domestic arbitrations in Cyprus. It allows for court interventions throughout the procedure, leaving the parties and the arbitral tribunal vulnerable to procedural actions, doomed to delays and cash flow problems. Even if an award is issued after a longer time than it should, its enforcement faces difficulties and delays since the legislation allows for appeals for minor procedural issues, thus delaying the successful parties receiving the justice they sought. Unfortunately, the recalcitrant parties manipulate the applicable procedures and primitive system to delay the outcome and the enforcement of an award. This article presents the problems of the Cyprus domestic arbitration act, investigates the options that are available for its improvement by comparing the existing law, and suggests specific solutions.

Statutory adjudication is a swift dispute resolution platform to determine payment disputes within the building and construction industry security of payment legislation. In recent years, Australian courts have been more willing to intervene in the adjudication process due to the poor decision-making process and/or failure of some adjudicators to comply with the basic and essential requirements under the legislation. To improve the competence of adjudicators, Queensland has recently mandated continuing professional development (CPD) requirements for all registered adjudicators and required adjudicators to engage in predefined educational activities and obtain at least 10 CPD points every year to maintain their eligibility to adjudicate. This timely study explores the perceptions of Queensland adjudicators and the factors influencing the effective implementation of the mandatory CPD requirements. The study follows an inductive qualitative approach by adopting semistructured interviews with 11 registered adjudicators in Queensland. The study found that adjudicators generally support the notion of the CPD requirements but had mixed views regarding the content and dynamics of CPD activities. The study identified and discussed key factors influencing the effective implementation of the CPD policy, including the requirements for adjudicator registration and renewal, adjudication panel size, and adjudicator appointment criteria. The study findings are not only beneficial to inform future reforms in Queensland but also relevant to other comparable jurisdictions seeking to mandate similar CPD requirements for adjudicators.

Construction companies are facing unprecedented challenges in terms of coping with the new circumstances as well as understanding their legal and contractual impacts. Because the COVID-19 pandemic affected all businesses across the globe, identifying and analyzing the impact of COVID-19 on construction projects in terms of material supply disruption, labor shortage, construction delay, and disruption in cash flow is vital. The purpose of this study is to enhance construction companies’ ability to better tackle such situations in the future by identifying and addressing the impact of COVID-19 on the material supply disruptions and construction schedule. This research used a quantitative methodology using an online questionnaire as the instrument to collect data. The study analyzed responses from 32 construction company executive members across the United States. The survey collected cost and schedule impact due to material supply disruption in building construction divisions. The analysis shows that COVID-19 pandemic impacted project schedule, increased cost, and disrupted the supply chain of building materials. The findings can provide a better understanding and solution to reduce the pandemic’s impact on the construction industry in the future and understand the legal implications that can arise due to this pandemic disruption.

There is a long history of court judgments in the construction sector, providing a wealth of knowledge that can guide contract parties in preempting claims and disputes in construction projects. However, knowledge from case law findings does not seem to percolate to day-to-day contract management activities. This anecdotal statement needs empirical verification. Thus, the current study attempted to understand the extent of case-law-based legal knowledge percolation in day-to-day contract management and its impact on the dispute resolution climate. The study highlighted the gap between the need for and availability of case-law-based training/knowledge using data from India. There were four major observations from the research. First, questionnaire survey results highlighted the fact that engineers and managers in construction projects acknowledge the inevitability of legal awareness for day-to-day contract management. While about 72% of the respondents (76 out of 106) agreed that case-law-based training could have helped in managing disputes better, only 10% (11 out of 106 respondents) reported that their organizations offer regular case-law-based knowledge and training. Moreover, 65% of the respondents (69 out of 106) either confirmed that their organizations do not maintain a case-law learning repository or they are unaware of its availability. Therefore, the second observation is that there is a shortfall in avenues that help professionals gain case-law-based knowledge from training. Although pure experience-based learning can lead to a risky trial and error approach, opportunities for self-learning are also muted. Third, by highlighting a growing trend of expenses incurred for the arbitration and litigation of construction disputes—in other words, legalization—the study highlighted the importance of the development and administration of case-law-based professional training programs. Last, the study also illustrated the potential for case laws to guide engineers and managers in their day-to-day contract management activities. The findings from the study can help the construction industry collaborate closely with researchers and academicians to move a step closer to making legal knowledge easily accessible to contract managers and help them make decisions that can withstand legal scrutiny.

Abstract

Prime contracting models for engineering and construction projects are described extensively in the literature, but models between prime contractors and subcontractors are less well known. This study examined the established and evolving subcontracting models in the US construction industry to not only document their utilization but also investigate their advantages and disadvantages when employed. The research followed a two-phase/two-step approach. During Phase 1, the authors completed a regionally based study to identify subcontracting practices in the Pacific Northwest. As part of Phase 2, the study was expanded across the United States to gain a greater understanding of each of the identified subcontracting models, including advantages, disadvantages, and variations. Both phases were organized into two steps: (1) an online survey instrument was sent to professionals with either general or specialty contracting firms, and (2) follow-up semistructured interviews were conducted with selected survey respondents to better evaluate each subcontracting model. The authors found that five subcontracting models address the most common scenarios and the characteristics of each are familiar to the nationwide participant sample. There are subtle variations to the main five models that are being employed to varying degrees across the country. The impetus for these variations appears to be founded on the need to find better contractual arrangements and that subcontracting practices are dynamic by nature. Although most of the participants were from western and central divisions of the US Census Bureau geographical classification, participants from all geographic areas participated in the study. Increasing knowledge on how project delivery systems may affect disputes and claims or conflicts and legal issues of procurement systems, this article uniquely contributes to defining a taxonomy of subcontracting models while giving insights into the current and emerging trends in subcontracting practices, including how subcontractors are integrated into a project team.

Practical Applications

The role of specialty contractors in the construction industry is rapidly changing as project delivery methods evolve to include more collaborative approaches and dynamic scopes for specialty contractors. Findings from the research indicate subcontracting practices occur along a continuum of options that fit within the current five subcontracting models identified in the literature; however, subtle variations in both integrated specialty work subcontracting and design-build subcontracting models are emerging. In addition, the complexity of contractual relationships between specialty trade partners and other parties is also growing because the existence of multiple agreements on a single project is increasing. Because the adoption of many of these emerging models seems limited to the Pacific, Mountain, and West North Central regions, this paper provides practical insight on these practices for practitioners who are interested in their implementation on their projects. This paper enhances understanding of subcontracting models so that practitioners may better evaluate the effect of project delivery systems on disputes and claims and the conflicts and legal issues of procurement systems. Understanding the breadth and depth of project delivery methods and subcontracting alternatives is becoming more important for those industry practitioners who look to undertake projects with increasing sophistication and collaboration.

Building information modeling (BIM) is a technology and process that creates profound changes in construction methods, directly affecting the optimization of the execution procedure and the methods outlined in construction project contracts. There is a lack of manuals for implementing BIM contracts in most developing countries. This lack of instruction has led to a slow acceptance and implementation of BIM in many developing countries. Previous studies have determined present challenges in relations, roles, and risks of a BIM-focused contract. Thus, this research investigates and determines how these contractual challenges may affect the implementation procedure and, ultimately, the successful execution of the contractual obligations relating to the use of BIM in projects. Accordingly, after a comprehensive literature review and listing the identified challenges, two sets of data collection from construction companies were used to define the effects of BIM contractual challenges. Consequently, data verification of the contractual challenges in these two case projects indicates a rise in BIM success due to its superior handling of project execution compared to how non-BIM projects handle similar challenges.

The construction industry has been adversely impacted by the COVID-19 pandemic including significant delays on projects and outbreaks of COVID-19 on site. UK legal cases interpreting contractual rights to COVID-19 remedies are analyzed in this paper. The analysis of UK legal cases regarding potential contractual rights to COVID-19 remedies including change in law, force majeure, and frustration has revealed the barriers to recovery of losses. Instead, construction companies could consider focusing on more commonly used contract provisions, for example, extensions of time and prolongation claims or compensation events. The UK Supreme Court has ruled on the possibility of payment from business interruption insurance. Even the UK government has failed to comply with public procurement law under pressure of the COVID-19 pandemic. The High Court in London has ruled that landlords are entitled to recover rent and service charges owed to them by tenants whose businesses were mandated to close by coronavirus restrictions.