Journal of Legal Affairs and Dispute Resolution in Engineering and Construction

Extension of arbitration agreement to nonsignatory third parties in international arbitration is not a new issue and there exists currently multiple theories on the basic of that the arbitral tribunal comes to this extension. However, the practice shows that this extension is facing with a dilemma causing the increase of setting aside or refusing enforcement of the arbitral awards. This raises the question of what is the reason causing this trouble. Regarding the intervention of third party, in the construction sector, it is notorious that the tripartite relationship is very popular and notably that between the employer, contractor, and subcontractor particularly at international level where no single contractor is able to carry out on its own a large international construction project. Therefore, the possibility of extension of arbitration agreement to nonsignatory third parties is considerable. Thus, this paper focuses on exploring practice in international construction sector as example to understand the reason causing the trouble as regards extension of arbitration agreement to nonsignatory third parties to find out a solution adequate to resolve this situation.

Abstract

In recent years, an increasing number of construction projects have encountered problems because employers have paid contractors late and/or have unjustifiably undercertified payments—to the point where courts and arbitral tribunals have begun to take notice and even laws have been enacted. Generally speaking, late payment claims focus on interest payments, additional costs for extending bonds, financing fees, etc. However, they disregard the negative effects when late and/or insufficient payments result in actual cash shortages that spread throughout the construction supply chain, affecting the procurement schedule, the timely delivery of materials and resources, and contractors’ efficiency and productivity, as well as their ability to deliver quality projects on time and within budget. Without sufficient funds to proceed normally, contractors face operational and supply chain restrictions that can cause significant disruption and delay damages. Although contractors instinctively understand that payment delays can affect the management, procurement, and construction processes, it is extremely difficult for them to isolate the causes and quantify the magnitude of the disruption and delay damages. A system dynamics simulation model originally developed to replicate the performance of an actual construction project in the Middle East was repurposed to identify the disruptive and delaying impact of a cash shortage, revealing that a severe cash shortage lasting 6 months can cause direct labor overruns of almost 15% and project delays of up to 9 months. The system dynamics analysis also used to investigate the sensitivity of disruption and delay to the intensity and the duration of the cash shortages; a feature that is useful for calculating the range and confidence intervals for damage estimates, particularly in arbitrations.

Practical Applications

In large complex projects, contractors often struggle to prove causal links between late and/or insufficient progress payments and disruptions or delays. Consequently, they often combine damages into global claims, invariably without a clear explanation of how the damages occurred; these claims are unlikely to succeed, especially in international arbitrations. The system dynamics method offers a solution by establishing causation and assessing damages quantitatively. This approach explains disruption and delay claims logically, leading to successful defense, as demonstrated in major claims involving major projects in the Middle East. It can be—and has been—used proactively to explore the impact of not making timely financial, managerial, technical decisions, enabling both contractors and employers to realize the full impact of their decisions, thus helping them avoid the kinds of problems addressed in this paper while playing a critical role in preventing disputes and resolving disputes—when they do arise—more effectively.

Delayed delivery of highway infrastructure could financially hurt businesses that rely on such facilities, disrupt the public commute, and increase road user costs. For these reasons, state highway agencies (SHAs) tend to use and enforce liquidated damages (LDs) for the contractor’s failure to meet the completion times. While SHAs may have similar experiences on how their standard specifications (SSs) are structured and written, there are differences among the states on how the LDs are articulated. Further, with their requirements, SHAs need to maintain that their LDs regulations follow and account for the Code of Federal Regulations, for example, CFR.635.127. Additionally, contractors may legally challenge the LDs enforceability as unreasonable, excessive, penalty statements, or concurrently caused. This work aims to critically examine and thoroughly analyze how LDs were articulated in the SSs. For that, the LDs sections, definitions, and contract times of the standard specifications of all departments of transportation in the United States were collected, thoroughly reviewed, compared, and analyzed. With commonalities and differences among the SSs, themes of LDs current practice were identified under LDs characterization, application periods, reference times, and implementation forms. A detailed account of the particulars of each theme and practice is discussed and explained. The work provides insights for SHAs to evaluate their current LDs practice to other states’ practices to improve how LDs provisions are articulated.

The challenges imposed by the construction industry have, for decades, pressured research and practice to consider the adoption of innovations as means of constructive change. An increasingly emerging technique of construction that shifts key processes offsite is a construction methodology that maximizes control. Such an approach is described as the modern methods of construction (MMC), a term that has been widely utilized as a reference to practices that drive less site labor, fewer on-site activities, and maximum offsite and premanufactured value. Such fundamental change in how construction normally operates is logically accompanied by inconsistencies with the contractual arrangements. However, limited research focuses on how traditional arrangements are shaped and amended to suit the offsite anecdote in terms of contract form, contract type, procurement strategy, common changes, and legislation’s role. A change in traditional processes would reasonably mean a change in the formal agreements, a research gap that motivates this paper to deem this exploration as timely and necessary. A qualitative research method has been utilized to approach forty critical positions of influence in the United Kingdom such as chief executive officers (CEOs), chief operating officers (COOs), managing directors, managers, and other decision-makers in businesses categorized as MMC firms. This is considered the first study to explore leaders’ viewpoints to better understand how contractual arrangements flow to facilitate, or undermine, MMC in the construction industry. Results suggest that joint contracts tribunal (JCT), Design and Build, and bespoke amendments in the payment mechanisms are the preferred contractual arrangements when using MMC. Moreover, the findings indicate that the success of these arrangements is conditioned to early involvement and collaboration between supply and demand.

South Africa maintains a robust pro-arbitration policy which emphasizes the principle of finality. Despite the fact that this principle is well advocated in construction, engineering, and other aligned sector arbitration case law, insight into the broader historical discourse on arbitration in South Africa is more limited. Subsequently, in order to develop valuable and comprehensive insight into not only the theoretical foundations surrounding the finality principle in South African arbitration but also its future, this paper undertakes a historical account of the development of the principle of finality in South African domestic arbitration law. The paper suggests that pro-arbitration attitudes toward the finality principle espoused by the judiciary represent a hallmark of early formalization of English legal traditions through legislative frameworks which predate modern-day South Africa. The value of this study comes from the valuable insight it provides into past and existing theoretical and judicial debates surrounding the robustness of domestic arbitration frameworks in South Africa and the potential opportunities for their further improvement.

The issues of disputes in construction projects are unavoidable and result in many conflicts that impact the project’s performance, contribute to project cost overruns, and may lead to several delays in the project’s schedule. The outcome of a dispute is dependent on the stakeholders’ actions and preferences. To this end, this paper aims to model the interdependent decision-making of the owner and contractor during project disputes in the construction industry via game theory, based on the decision-makers’ criteria in evaluating the outcome of the dispute. As such, this paper sheds light on possible agreements before arbitration, avoiding judiciary disturbance and aiming to save time and cost and reduce the burden on the national courts. This may strengthen the principle of participation against competition through project execution and finding the optimal settlement values within the dispute procedures. The paper utilizes the analytic hierarchy process (AHP) to account for the heterogeneous criteria of the different players, which ultimately impact their decision-making and the equilibrium of the game. The model is able to define the equilibrium point that satisfies both players in a dispute using game theory. Ultimately, this model will impact the construction industry by providing a framework for estimating the claim’s possible outcome. This paper contributes to the body of knowledge by providing practitioners with a transformable model that can be used for different heterogenic stakeholders, to predict the expected outcome of a dispute.

Abstract

State-level legislation authorizing the use of alternative delivery is as diverse as the nation itself, and this paper reports on a benchmarking study aimed at identifying the content of the state statutes under which departments of transportation have implemented progressive design-build (PDB). PDB differs from classic DB procurement in that the contract is awarded principally on a basis of qualifications and past performance with the cost of design and construction being negotiated in much the same manner as construction manager-at-risk (CMAR) or construction manager/general contractor (CMGC). The major challenge for a public agency is to demonstrate value for money without a bid price. The study looked at enabling legislation from states that were authorized to use alternative delivery methods. The paper’s key contribution finds that PDB can be successfully implemented using a wide variety of approaches with different degrees of legislative constraints, including using existing DB authority without explicit PDB changes. Three summary case studies are provided to illustrate the spectrum of current approaches.

Practical Applications

The findings in this study indicate that agencies that are interested in implementing PDB should not automatically assume that explicit enabling legislation will be required. Before making that decision, the constraints extant in current DB legislation should be thoroughly explored and a determination by legal counsel be made as to whether PDB is inherently authorized, like the Utah DOT Case or if the current legislation can be modified by an administrative process as occurred in the Virginia DOT case. The investment in time in resources to identify possible alternatives short of introducing new legislation may potentially payoff in terms of being able to implement PDB earlier than thought.

Abstract

In construction projects, changes are inevitable and impact cost, schedule, and claims. There are limited studies on geotechnical investigations of factors affecting cost, schedule, and claim increases on the US roadway paving projects. This study’s primary objectives are to assess design standards and subsurface investigation techniques, explore the influence of geotechnical change orders (COs) on cost, schedule, and claim increases, and determine the appropriate cost for geotechnical investigation for roadway paving projects. Survey data was gathered from 53 individuals at the Department of Transportation (DOTs) and 43 consulting engineers. To rank the factors, the relative importance index (RII) was utilized, and Mann-Whitney U tests were conducted to see the differences between the groups since the data sets were not normally distributed. The results demonstrate that the six most important geotechnical COs that have an impact on cost, schedule, and claim increases were sub-grade mischaracterized or misclassified, higher ground water table than anticipated, design change in roadway pavement, insufficient borings, unsuitable soil remediation technique for specific site, and dewatering because of seepage issues. The group of six factors were statistically significantly different than the group of three other factors. The results also show that the appropriate geotechnical investigation cost should be at least three percent of the total project construction cost. In addition, this study also prioritized recommendations to lower the project costs, schedule delays, and claims. The findings may assist DOT engineers in taking measures to prevent cost, schedule, and claim increases, but their application is limited to roadway pavement projects.

Practical Applications

The practical implication of this study’s findings is that the DOTs can mitigate the major impacts of geotechnical COs on project cost, schedule, and claim increases that are related to roadway projects. Utilizing the study findings, state DOTs and consulting engineering firms can reduce the negative impacts of geotechnical COs in future roadway pavement projects. Focusing on the leading causes of geotechnical COs, cost, schedule, and claim increases, private consultant firms can improve geotechnical designs, which may help reduce cost and schedule overruns in future projects. The study findings also provide key recommendations that are to be conducted before the construction phase of a roadway project to reduce geotechnical COs and their negative impacts. Since this study focuses on roadway projects, the DOTs should take caution while applying their findings to other construction projects.

Unit-price contracts are common in public construction projects. Such contracts expose contractors to economic risks due to deviations between owner-estimated quantities and actual quantities of work. Contractors typically respond to such risks by submitting unbalanced bids that are opposed by owners and may lead to the rejection of the submitted bid. This paper presents the development of a legitimate alternative for unbalanced bids and proposes a bid adjustment procedure that can be used by bidders to adjust item rates before submitting the bid based on the envisioned quantities of work. The procedure can be used whether the bidding documents include a changed quantity clause or not and takes into consideration the terms of the changed quantity clause if such a clause exists in the bidding documents. The procedure protects the contractor from financial losses when the project experiences an underrun in quantities. Likewise, the procedure improves the competitiveness of the contractor when the project is expected to experience an overrun in quantities. The procedure is expected to help contractors submit a responsive and balanced bid and eliminate the need to submit an unbalanced bid. An illustrative example is analyzed to show the use of the procedure and its effectiveness in improving the profitability of the contract.

Jaggran-II hydroelectric project (JHPP-II), designed to produce 48 megawatts of green energy, is one of the largest projects constructed along the Jaggran hydel river energy corridor to contribute to renewable power generation in Pakistan. The contract agreement regime of JHPP-II is not administered through the famous Silver Book. Instead, it derives from the Silver Book authored by the financing agency itself. Incomplete data collection during the feasibility stage and a slow and inadequate land acquisition process led to several major design changes, resulting in cost and time overrun. This case study investigates the reasons for the dispute on an extension of time (EOT) between the employer and contractors. A retrospective delay analysis approach was adopted to ascertain the prolongation claim by collecting data from the project event logbook with short interviews of key project stakeholders. The study suggests an effective strategy to handle efficiently complex contract cases with multipartners on the consultants’ and contractors’ sides while taking benefits in favor of the contractor from the shortfalls in nonstandard Fédération Internationale Des Ingénieurs-Conseils (FIDIC) contract clauses.

Negligence is a common and expensive category of malpractice in the professional engineering community. To claim negligence, a plaintiff must prove all elements of negligence: duty, breach, causation, and damages. This paper aims to teach a broad audience how to avoid negligence by introducing each element of negligence for each party in the Ka Loko Dam dispute. For each element, the principles, analysis, and reflection of negligence will be applied. In 2006, the Ka Loko Dam failed on Kauai after the dam breached and flooded downstream houses. Numerous homes and people perished. The State of Hawaii did not thoroughly inspect the dam, the county of Kauai mayor prevented the Kauai engineer from stopping unpermitted dam construction activity, the dam owner illegally filled the dam’s emergency spillway, and no governmental objection was raised when the spillway was filled. Identifying elements of negligence is best learned from prior construction failures. The negligence from each party may serve as an example of what qualifies as negligence and the consequences of negligence in the construction industry.