Designing Buildings - User contributions [en]

User:University College of Estate Management (UCEM)

2017-05-25T14:44:00Z

The College of Estate Management:

== The College of Estate Management - Learn today, lead tomorrow ==

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Established in 1919, the University College of Estate Management (UCEM) and formerly College of Estate Management (CEM) is the leading provider of supported online learning for the Built Environment with over 90 years’ experience in providing the highest quality learning opportunities for the profession. At any one time there are some 4,000 students from around 100 countries benefiting from UCEM programmes of study - all taught by tutors with extensive industry experience. Designed for part-time study around work, UCEM courses offer practical skills which build on a student’s workplace experience and have a direct benefit in their professional life.

UCEM covers almost every property and construction-related topic at foundation, diploma, degree and postgraduate levels, as well as providing apprenticeship programmes, tailor-made corporate training solutions, professional and continuing professional development (CPD) courses. Its active research programme contributes to knowledge across the profession, benefiting businesses, practitioners and policymakers alike.

UCEM was granted taught degree awarding powers in November 2012 and will be launched new UCEM degree programmes from autumn 2013.

* About UCEM [online]. Available at [https://www.ucem.ac.uk/about-ucem/ https://www.ucem.ac.uk/about-ucem/]
* What makes UCEM special [online]. Available at [https://www.ucem.ac.uk/about-ucem/what-makes-ucem-special/ https://www.ucem.ac.uk/about-ucem/what-makes-ucem-special/]
* Our heritage [online]. Available at https://www.ucem.ac.uk/about-ucem/our-heritage/
* Sustainability [online]. Available at [https://www.ucem.ac.uk/about-ucem/sustainability/ https://www.ucem.ac.uk/about-ucem/sustainability/]
* UCEM’s e-Library [online]. Available at [https://www.ucem.ac.uk/supported-online-learning/elibrary/ https://www.ucem.ac.uk/supported-online-learning/elibrary/]

[website correct as at 25 May 2017]

The University College’s patron is His Royal Highness The Prince of Wales.

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UCEM articles on Designing Buildings Wiki include:

* [[Alternative_Dispute_Resolution|Alternative Dispute Resolution]].

* [[Alternative_Dispute_Resolution_legislation|Alternative Dispute Resolution legislation]].

* [[Case_notes_for_rating_valuation|Case notes for rating valuation (Garton V Hunter)]].

* [[Causes_of_construction_disputes|Causes of construction disputes.]]

* [[Choice_of_method_for_rating_valuation|Choice of method for rating valuation]].

* [[Comparison_of_SMM7_with_NRM2|Comparison of SMM7 with NRM2]].

* [[Contractor%E2%80%99s_basis_for_rating_valuation|Contractor’s basis for rating valuation]].

* [[Conciliation|Conciliation]].

* [[Dispute_Resolution_Boards|Dispute resolution boards]].

* [[Does_the_past_have_a_future|Does the past have a future?]]

* [[Energy_Efficiency_and_conservation_strategies_among_retailers_in_Jamaica_and_beyond|Energy Efficiency and conservation strategies among retailers in Jamaica and beyond]].

* [[Glossary_of_property_law_terms|Glossary of property law terms]].

* [[Mediation|Mediation]].

* [[Profits_method_of_rating_valuation|Profits method of rating valuation]].

* [[Rating_valuation|Rating valuation]].

* [[Rental_method_of_rating_valuation|Rental method of rating valuation]].

* [[Statutory_formulae_for_rating_valuation|Statutory formulae for rating valuation]].

* [[Structural_systems_for_offices|Structural systems for offices]].

User:The College of Estate Management

2013-09-09T09:17:37Z

The College of Estate Management:

== The College of Estate Management - Learn today, lead tomorrow ==

----

Established in 1919, the College of Estate Management (CEM) is the leading provider of supported distance learning for real estate and construction professionals. At any one time there are some 4,000 students from around 100 countries benefiting from CEM courses - all taught by tutors with extensive industry experience. Designed for part-time study around work, CEM courses offer practical skills which build on a student’s workplace experience and have a direct benefit in their professional life.

CEM covers almost every property-related topic at diploma, degree and postgraduate level, as well as providing professional development courses and tailor-made corporate training solutions. Its active research programme contributes to knowledge across the profession, benefiting businesses, practitioners and policymakers alike.

CEM was granted taught degree awarding powers in November 2012 and will be launching new CEM degree programmes from autumn 2013.

The College’s patron is His Royal Highness The Prince of Wales.

----

College of Estate Management articles on Designing Buildings Wiki include:

*[[Alternative%20Dispute%20Resolution|Alternative Dispute Resolution]].

*[[Alternative%20Dispute%20Resolution%20legislation|Alternative Dispute Resolution legislation]].

*[[Case%20notes%20for%20rating%20valuation|Case notes for rating valuation (Garton V Hunter)]].

*[[Causes%20of%20construction%20disputes|Causes of construction disputes.]]

*[[Choice%20of%20method%20for%20rating%20valuation|Choice of method for rating valuation]].

*[[Comparison%20of%20SMM7%20with%20NRM2|Comparison of SMM7 with NRM2]].

*[[Contractor%E2%80%99s%20basis%20for%20rating%20valuation|Contractor’s basis for rating valuation]].

*[[Conciliation|Conciliation]].

*[[Dispute%20Resolution%20Boards|Dispute resolution boards]].

*[[Does%20the%20past%20have%20a%20future|Does the past have a future?]]

*[[Energy%20Efficiency%20and%20conservation%20strategies%20among%20retailers%20in%20Jamaica%20and%20beyond|Energy Efficiency and conservation strategies among retailers in Jamaica and beyond]].

*[[Glossary%20of%20property%20law%20terms|Glossary of property law terms]].

*[[Mediation|Mediation]].

*[[Profits%20method%20of%20rating%20valuation|Profits method of rating valuation]].

*[[Rating%20valuation|Rating valuation]].

*[[Rental%20method%20of%20rating%20valuation|Rental method of rating valuation]].

*[[Statutory%20formulae%20for%20rating%20valuation|Statutory formulae for rating valuation]].

*[[Structural%20systems%20for%20offices|Structural systems for offices]].

User:The College of Estate Management

2012-12-12T10:57:42Z

The College of Estate Management:

== The College of Estate Management - Learn today, lead tomorrow ==

Established in 1919, the College of Estate Management (CEM) is the leading provider of supported distance learning for real estate and construction professionals. At any one time there are some 4,000 students from around 100 countries benefiting from CEM courses - all taught by tutors with extensive industry experience. Designed for part-time study around work, CEM courses offer practical skills which build on a student’s workplace experience and have a direct benefit in their professional life.

CEM covers almost every property-related topic at diploma, degree and postgraduate level, as well as providing professional development courses and tailor-made corporate training solutions. Its active research programme contributes to knowledge across the profession, benefiting businesses, practitioners and policymakers alike.

CEM was granted taught degree awarding powers in November 2012 and will be launching new CEM degree programmes from autumn 2013.

The College’s patron is His Royal Highness The Prince of Wales.

Click here to [http://www.cem.ac.uk/ Visit our website]

[[File:CEM-logo2.jpg|217x70px|alt=CEM-logo2.jpg|link=http://www.cem.ac.uk/]]

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College of Estate Management articles on Designing Buildings Wiki include:
*[[Alternative%20Dispute%20Resolution|Alternative Dispute Resolution]].
*[[Alternative%20Dispute%20Resolution%20legislation|Alternative Dispute Resolution legislation]].
*[[Case%20notes%20for%20rating%20valuation|Case notes for rating valuation (Garton V Hunter)]].
*[[Causes_of_construction_disputes|Causes of construction disputes.]]
*[[Choice_of_method_for_rating_valuation|Choice of method for rating valuation]].
*[[Contractor’s_basis_for_rating_valuation|Contractor’s basis for rating valuation]].
*[[Conciliation|Conciliation]].
*[[Dispute_Resolution_Boards|Dispute resolution boards]].
*[[Glossary%20of%20property%20law%20terms|Glossary of property law terms]].
*[[Mediation|Mediation]].
*[[Profits_method_of_rating_valuation|Profits method of rating valuation]].
*[[Rating_valuation|Rating valuation]].
*[[Rental_method_of_rating_valuation|Rental method of rating valuation]].
*[[Statutory_formulae_for_rating_valuation|Statutory formulae for rating valuation]].

----

User:The College of Estate Management

2012-12-12T10:54:35Z

The College of Estate Management:

== The College of Estate Management - Learn today, lead tomorrow ==

Established in 1919, the College of Estate Management (CEM) is the leading provider of supported distance learning for real estate and construction professionals. At any one time there are some 4,000 students from around 100 countries benefiting from CEM courses - all taught by tutors with extensive industry experience. Designed for part-time study around work, CEM courses offer practical skills which build on a student’s workplace experience and have a direct benefit in their professional life.

CEM covers almost every property-related topic at diploma, degree and postgraduate level, as well as providing professional development courses and tailor-made corporate training solutions. Its active research programme contributes to knowledge across the profession, benefiting businesses, practitioners and policymakers alike.

CEM was granted taught degree awarding powers in November 2012 and will be launching new CEM degree programmes from autumn 2013.

The College’s patron is His Royal Highness The Prince of Wales.

Click here to [http://www.cem.ac.uk/ Visit our website]

[[File:CEM-logo2.jpg|217x70px|alt=CEM-logo2.jpg|link=http://www.cem.ac.uk/]]

----

College of Estate Management articles on Designing Buildings Wiki include:
*[[Alternative_Dispute_Resolution|Alternative Dispute Resolution]].
*[[Alternative_Dispute_Resolution_legislation|Alternative Dispute Resolution legislation]].
*[[Case_notes_for_rating_valuation|Case notes for rating valuation (Garton V Hunter)]].
*[http://www.designingbuildings.co.uk/w/Causes%20of%20construction%20disputes Causes of construction disputes].
*[http://www.designingbuildings.co.uk/w/Choice%20of%20method%20for%20rating%20valuation Choice of method for rating valuation].
*[http://www.designingbuildings.co.uk/w/Contractor%E2%80%99s%20basis%20for%20rating%20valuation Contractor’s basis for rating valuation].
*[[Conciliation|Conciliation]].
*[http://www.designingbuildings.co.uk/w/Dispute%20Resolution%20Boards Dispute resolution boards].
*[[Glossary_of_property_law_terms|Glossary of property law terms]].
*[[Mediation|Mediation]].
*[http://www.designingbuildings.co.uk/w/Profits%20method%20of%20rating%20valuation Profits method of rating valuation].
*[http://www.designingbuildings.co.uk/w/Rating%20valuation Rating valuation].
*[http://www.designingbuildings.co.uk/w/Rental%20method%20of%20rating%20valuation Rental method of rating valuation].
*[http://www.designingbuildings.co.uk/w/Statutory%20formulae%20for%20rating%20valuation Statutory formulae for rating valuation].

----

Alternative Dispute Resolution legislation

2012-12-12T10:50:00Z

The College of Estate Management:

= Introduction =

The Civil Procedure Rules 1998, which apply only to litigation in England and Wales, contain several references to Alternative Dispute Resolution (ADR), including mediation. The courts are now more and more insisting that the parties attempt to settle their dispute by some means of ADR, generally by mediation, before the matter is brought to trial. Failure of a party to attempt some form of ADR may adversely affect its entitlement to costs, even if it succeeds in the action.

Some very important judgments on mediation have come out of the courts, especially the Court of Appeal, during the past few years. Perhaps the most important is ''Halsey'' ''v. Milton Keynes NHS Trust'' (May 2004). The Court made the following points:
#The value and importance of ADR have been established within a remarkably short time. All members of the legal profession who conduct litigation should now routinely consider with their clients whether their disputes are suitable for ADR.
#The fundamental principle is that a departure from the general rule that costs follow the event is not justified unless it is shown (the burden being on the unsuccessful party) that the successful party acted ''unreasonably'' in refusing to agree to ADR.
#The fact that a party unreasonably believes that his case is watertight is no justification for refusing mediation. But the fact that a party ''reasonably'' believes he has a watertight case may well be a sufficient justification for a refusal to mediate.

Other important cases concerning cost sanctions arising out of a refusal to partake in ADR are as follows:

=== '''Burchell v. Bullard (2005) Court of Appeal.''' ===

This arose from a building dispute where a claim of £18,300 by the builder was met by a counterclaim of £100,000 by the house-owner. In the event the builder succeeded very substantially with his claim but the counterclaim succeeded only to the extent of £14,300. The costs of both parties amounted to over £185,000. Ward LJ said:

‘The defendants behaved unreasonably in believing, if they did, that their case was so watertight that they need not engage in attempts to settle … The stated reason for refusing mediation, that the matter was too complex for mediation, is plain nonsense.’

=== '''McMillan Williams v. Range (2004) Court of Appeal. ''' ===

A solicitor who received advance salary in excess of her actual earnings had to repay the excess to her employers when she left the firm. The Court at first instance advised mediation, but both parties refused. The Court ordered both parties to bear their own costs.

=== '''Dunnett v. Railtrack (2002) Court of Appeal. ''' ===

A successful party was denied its costs because it had earlier flatly refused to mediate. This case was a benchmark in the requirement to mediate and followed earlier cases warning of likely costs sanctions (see ''Cowl v. Plymouth City Council'' below).

=== '''Hurst v. Leeming (2002)''' ===

In appropriate cases, it is acceptable to refuse to mediate, but it is a high risk strategy. The critical factor in coming to a decision on the reasonableness to mediate is whether the mediation had any real prospect of success. A refusal will only be reasonable if, objectively, that prospect does not exist. This decision has, however, been modified by Halsey in that whilst Hurst placed the burden on the successful party who refused mediation to justify that refusal, Halsey places the burden on the unsuccessful party to show that mediation had a reasonable prospect of success.

=== '''SITA v. Watson Wyatt and Maxwell Batley (2002). ''' ===

A successful party in litigation who refused mediation escaped costs sanctions because the invitation to mediate was made at short notice in an effort to ‘dragoon, browbeat and bully’ and in a way that was ‘disagreeable and off-putting’. The mediation proposal was a litigation tactic rather than genuinely designed to seek settlement.

=== '''Cable & Wireless v. IBM United Kingdom Ltd (2002). ''' ===

A mediation clause in a contract was enforced by the court and the litigation stayed. The clause was not a mere agreement to negotiate and therefore unenforceable, but a real contractual commitment to find solutions which were mutually commercially acceptable at the time of the mediation. Mediation is described as ‘a firmly established, significant and growing facet of English procedure’.

=== '''Cowl v. Plymouth City Council (2001) Court of Appeal. ''' ===

Lord Woolf said: ‘Without the need for the vast costs which must have been incurred in this case … the parties should have been able to come to a sensible conclusion as to how to dispose of the issues which divided them. If they could not do this without help, then an independent mediator should have been recruited to assist. That would have been a far cheaper course to adopt. Today, sufficient should be known about ADR to make the failure to adopt it, in particular where public money is involved, indefensible.’

In addition to the long line of cases concerning cost sanctions, there has been a recent important case concerning privilege in mediation proceedings:

=== '''Brown v. Rice and Patel and ADR Group (2007) Chancery Division ''' ===

The question before the court was: Can a court hear evidence of without prejudice negotiations in a mediation in order to determine whether or not there was a concluded agreement to settle?
#What is the consequence of the provisions of the mediation agreement?
#That any agreement to settle reached in the mediation is not complete until reduced to writing and signed by, or on behalf of, the parties?
#If an offer, made at the mediation, is left open for acceptance on the following day, is any such acceptance within the mediation for the purposes of creating a concluded agreement to settle?

The judge had no difficulty in deciding that the court had to look at without prejudice material in order to decide whether or not there was a concluded agreement to settle. That was on the basis of the existing without prejudice rules, including the exception to it, and not any special category of mediation privilege.

He also decided that an agreement to settle, which was not reduced to writing and signed by, or on behalf of, the parties, could not be a binding agreement by reason of the term of the mediation agreement providing otherwise (and because the agreement was incomplete).

Finally, he said, albeit ''obiter'', that an offer left open for acceptance after the mediation day and then accepted was ‘as much made in the mediation as if it were made at the hearing itself’.

=== '''Multiplex Constructions Ltd v. Cleveland Bridge UK Ltd and Cleveland Bridge Dorman Long Engineering Limited (2006)''' ===

The encouragement by the courts to parties to resolve their disputes by means of mediation or other forms of ADR is clearly illustrated by the words of Mr Justice Jackson in the case of Multiplex Constructions Ltd v. Cleveland Bridge UK Ltd and Cleveland Bridge Dorman Long Engineering Limited (2006) when, after a long series of cases concerning preliminary issues arising out of the construction of the new Wembley Stadium, he ended his judgment as follows:

‘Finally I wish to say something directly to the parties. It has been obvious to me that no settlement could be achieved whilst certain fundamental issues were unresolved. The present set of preliminary issues was drafted by counsel precisely in order to break that deadlock. Both parties have had a measure of success on the preliminary issues. Neither party has won an outright victory. With the assistance of this court’s decision on the 10 preliminary issues, it may now be possible for both parties to arrive at an overall settlement of their disputes, either through negotiation or else with the help of a mediator, who is unconnected with this court.

‘I commend this course to the parties, if only as a means of saving costs and management time. If, however, the parties would prefer the court to resolve all remaining issues, then so be it. This court encourages sensible commercial settlements, but nevertheless stands ready to determine every issue which the parties wish to litigate.’

=== '''Cumbria Waste Management Limited, Lakeland Waste Management Limited v. Baines Wilson (a Firm) (2008)''' ===

This case illustrates dealing with confidentiality in mediation.

In two separate mediations both ''Cumbria'' and ''Lakeland'' had settled disputes relating to the foot and mouth epidemic in 2001 with the Department for the Environment, Food and Rural Affairs (DEFRA). Both then sought to recover damages from their solicitors, ''Baines Wilson'', who were not a party to the mediations for negligence in connection with the original agreements with DEFRA. ''Baines Wilson'' asked the court to order disclosure of the documents created in the mediations which they said related to the reasonableness of the mediation settlements. Disclosure was objected to by DEFRA who, while not a party to the litigation, nevertheless made submissions to the court.

The court refused to order disclosure, distinguishing the situation from that in the Court of Appeal decision in '''''Muller v. Lindsay & Mortimer'' (1996)'''. In passing, the court also expressed the view that mediators themselves may have privilege in their own documents that cannot in normal circumstances be waived by the parties.

The relevant extracts from the Civil Procedure Rules that refer to ADR are set out as follows:

=== '''CPR 1.1''' ===

(1) These Rules are a new procedural code with the overriding objective of enabling the court to deal with cases justly.

=== '''CPR 1.4 ''' ===

(1) The court must further the overriding objective by actively managing cases.

(2) Active case management includes –
*a) encouraging the parties to co-operate with each other in the conduct of the proceedings;
*e) encouraging the parties to use an alternative dispute resolution procedure if the court considers that appropriate and facilitating the use of such procedure;

=== '''CPR 26.4''' ===

(1) A party may, when filing the completed allocation questionnaire, make a written request for the proceedings to be stayed while the parties try to settle the case by alternative dispute resolution or other means.

(2) Where –
*(a) all parties request a stay under paragraph (1); or
*(b) the court, of its own initiative, considers that such a stay would be appropriate,

the court will direct that the proceedings, either in whole or in part, be stayed for one month, or for such specified period as it considers appropriate.

(3) The court may extend the stay until such date or for such specified period as it considers appropriate.

(4) Where the court stays the proceedings under this rule, the claimant must tell the court if a settlement is reached.

(5) If the claimant does not tell the court by the end of the period of the stay that a settlement has been reached, the court will give such directions as to the management of the case as it considers appropriate.

=== '''CPR 44.3''' ===

'''Court’s discretion and circumstances to be taken into account when''' '''exercising its discretion as to costs'''

(4) In deciding what order (if any) to make about costs, the court must have regard to all the circumstances, including –
*(a) the conduct of all the parties;

(5) The conduct of the parties includes –
*(a) conduct before, as well as during, the proceedings and in particular the extent to which the parties followed any relevant pre-action protocol;
*(b) whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue;
*(c) the manner in which a party has pursued or defended his case or a particular allegation or issue;

=== '''CPR 44.5''' ===

'''Factors to be taken into account in deciding the amount of costs'''

(3) The court must also have regard to –

(a) the conduct of all the parties, including in particular –
*(i) conduct before, as well as during, the proceedings; and
*(ii) the efforts made, if any, before and during the proceedings in order to

try to resolve the dispute;’

The following provision of the Civil Procedure Rules – Practice Direction – Protocol is also relevant:

4.7 The parties should consider whether some form of alternative dispute resolution procedure would be more suitable than litigation, and if so, endeavour to agree which form to adopt. Both the Claimant and the Defendant may be required by the Court to provide evidence that alternative means of resolving their dispute were considered. The Courts take the view that litigation should be the last resort, and that claims should not be issued prematurely when a settlement is still actively being explored. Parties are warned that if the protocol is not followed then the court must have regard to such conduct when determining costs.

It is not practicable here to address in detail how the parties might decide which method to adopt to resolve their particular dispute. However, summarised below are some of the options for resolving disputes without litigation:
*Discussion and negotiation.
*Early neutral evaluation by an independent third party (for example, a lawyer experienced in that field or an individual experienced in the subject matter of the claim).
*Mediation – a form of facilitated negotiation assisted by an independent neutral party.’

On 22 April 2005 the following practice advice was issued jointly by the Law Society’s civil litigation committee and its alternative dispute resolution committee.

‘This practice advice relates to the giving of information on mediation and other dispute resolution (ADR) options to clients before, and during the process of resolving any disputes between the client and third parties. The principle of why this advice and information should be given is to be found in the ''dicta'' of Lord Justice Dyson in the case of ''Halsey v. Milton Keynes NHS Trust ''and ''Steel v. Joy'' [2004] EWCA 576:

''“All members of the legal profession should now routinely consider with'' ''their clients whether their disputes are suitable for ADR.” ''

‘Solicitors should note that the court has a duty to encourage parties to co-operate with each other in the conduct of the proceedings – Civil Procedure Rules 1998 (CPR), rule 1.4(a) – and to likewise encourage parties to use mediation or some other alternative dispute resolution technique in appropriate cases – CPR rule 1.4(d). Where the parties cannot agree to use mediation or another ADR process, the obligation is on the party wishing to use mediation or another process to say why it is appropriate in the circumstances. Section 2 of the guidance summarises the factors to consider in ascertaining whether a case is suitable for ADR.

‘The term ADR means both mediation and any other alternative to formal litigation or arbitration that might be an appropriate alternative means of resolving the dispute in the particular circumstances of the case. This might include expert evaluation, early neutral evaluation or conciliation, as well as mediation.

‘This practice advice applies to advice and information at the appropriate time, which may be at the commencement of a dispute within the initial advice, or at any later stage of the dispute.

‘Practitioners should keep these options under review throughout the course of the matter. Solicitors should:
*in appropriate cases, and at appropriate times, explain to clients whether there are ADR techniques that might be used other than litigation, arbitration or other formal processes, what those alternative processes involve, and whether they are suitable in the circumstances; and
*keep the suitability of mediation and other ADR techniques under review during the case and advise clients accordingly.

‘In assessing whether a case is suitable for mediation or some other form of ADR, the solicitor should have in mind:
*the nature of the dispute;
*the merits of the case;
*the extent to which other settlement methods have been attempted;
*whether the costs of the ADR process would be disproportionately high;
*whether any delay in setting up and attending the ADR process would have been prejudicial to the client; and
*whether the ADR process had a reasonable prospect of success.

Solicitors should be aware that failure to provide information and advice at the appropriate stage may have costs or other consequences.’

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This article was created by --[[User:The College of Estate Management|The College of Estate Management]] 10:50, 12 December 2012 (UTC)

= Find out more =

=== Related articles on Designing Buildings Wiki ===
*Adjudication.
*Alternative dispute resolution.
*Arbitration.
*Causes of construction disputes.
*Conciliation
*Contract claims.
*Dispute resolution boards.
*Housing Grants, Construction and Regeneration Act.
*Mediation.
*Scheme for Construction Contracts.

=== External references ===
*Tiered ADR, [http://www.ciarb.org/ Chartered Institute of Arbitrators], "Catch All" Dispute Resolution Clause.
*‘Alternative Dispute Resolution – A Discussion Paper’, The Lord Chancellor’s Department.
*Dignan, Sorsby and Hibbert (1996) ‘Neighbour Disputes – Comparing the cost-effectiveness of mediation and alternative approaches’, Centre for Criminological and Legal Research, University of Sheffield. ISBN: 1872998364.
*''[http://webarchive.nationalarchives.gov.uk/+/http://www.dca.gov.uk/research/1998/598esfr.htm The Central London County Court Pilot Mediation Scheme]– '' Evaluation Report by Professor Hazel Genn.
*''The Institution of Civil Engineers’ Conciliation Procedure 1999'' (1999) London: Thomas Telford Publishing.
*Tait J N and Cottam G (1994) ‘The ICE Conciliation Procedure 1994’, ''Civil'' ''Engineering Surveyor'', November.
*[http://www.cedr.com/ The Centre for Effective Dispute Resolution]
*[http://www.mediationmatters.org.uk/ Mediation Matters].

Dispute resolution boards

2012-12-12T10:47:26Z

The College of Estate Management:

= Introduction =

This article introduces the concept of Dispute Resolution Boards (sometimes referred to as Dispute Review Boards) and Dispute Adjudication Boards, how they are established, and how they operate in practice.

Dispute Resolution Boards (DRB) administer a type of dispute resolution without any specific description. DRBs have evolved over time and can be formulated in a number of different ways. The procedure is based on contract rather than statute, and the parties to a contract are able to agree to a formulation that suits their particular project. A few standard contracts have DRBs as part of their terms, of which the most prominent are the FIDIC contracts and the World Bank (Procurement of Works) contract.

It seems to be accepted that the first DRB was set up in 1975 for the Eisenhower Tunnel in Colorado, USA. This followed the first tunnel bore that had been constructed between 1968 and 1973. The project was a disaster, in that it overran in both time and money, with many disputes arising. When it came to the second bore, notice was taken of a study entitled ''Better Contracting for Underground Construction'' published in 1974. This report highlighted the incidence of claims, disputes and litigation together with the additional costs that inevitably flowed from those claims.

Based on the report, it was decided that the second bore of the Eisenhower Tunnel contract would incorporate a DRB. The hope was that the high level of cost overrun and disputes experienced on the first bore could be minimised by use of the DRB.

It was a tremendous success. Although disputes did arise, they were dealt with very swiftly and effectively by the DRB, to the extent that there was no ensuing litigation.

The DRB was set up in the form of a Review Board rather than an Adjudication Board, and their findings were recommendations rather than binding decisions. The losing party was not obliged to follow the recommendation. The dispute could thereafter be taken to a higher authority where a binding decision could be made.

The use of DRBs on major projects confined to the USA increased. The World Bank took note and in 1980 decided that a project known as the El Cajon Dam and Hydro Scheme in Honduras was a suitable candidate for a DRB. The World Bank were major funders of the project with a Honduran owner (who had not undertaken such a large project previously), an Italian contractor and a Swiss engineer. It is easy to see how misunderstandings could occur with such a diverse cultural mix, and the World Bank insisted that in order to obtain funding a DRB should be formed to deal with issues on the project as they arose.

That project was also a success. DRBs were launched into the international construction arena and broke out of their American birthplace.

As DRBs became more commonly used on international construction projects, various institutions began to take more notice of them. In 1990 the World Bank published its ''Procurement of Works'', which for the first time incorporated a procedure for DRBs in the form of a modified FIDIC contract. This procedure incorporated non-binding recommendations.

FIDIC itself followed this with the publication of an amendment to their form in which the concept of Dispute Adjudication Boards (DABs) was introduced. These differed from the Dispute Review Boards in that a temporarily binding decision was introduced, very much in the same way as domestic adjudication in the United Kingdom.

In 2000 the World Bank revised its DRB procedure, introducing the idea of interim binding recommendations, displacing the engineer from a former role in which decisions on disputes were required. In the same year FIDIC published a suite of contracts incorporating DABs, whereby interim binding decisions in respect of disputes could be made. The costs of the DAB are shared equally between the parties.

In 2003 the European Union published a directive that prescribed the use of these FIDIC contracts incorporating DABs on all construction projects that receive EEC funding.

The ICC rules allow for a choice of non-binding recommendations, adjudication decisions and a combined approach that allows the DAB to act as an adjudication board at the request of one party, with the proviso that if the other party objects, the board will decide in what capacity it is to hear the dispute.

To date, well over 1000 construction and engineering projects worldwide have used DRBs with a total construction cost of some US$100 billion. The success of DRBs is illustrated by the fact that fewer than 3 percent of disputes that arose became the subject of an arbitration or litigation.

DRBs are most suited to large, complex construction and engineering projects on an international scale, although more domestic projects are incorporating these ideals; for example the Channel Tunnel Rail Link had a DRB. This was a huge project. Two panels were appointed, one to deal with the technical issues (three engineers) and the other to deal with disputes concerning the financial provisions of the project.

= Composition of a Dispute Resolution Board =

The DRB is a creature of the contract. Usually the contract will provide for three members, two technical and one legal, usually the chairman. This formulation allows for technical disputes to be fully understood and resolved without the need for external advice, and similarly disputes involving or including legal issues being capable of resolution without external advice. The idea is for the board to be able to deal with any dispute that arises.

Clearly each Board member needs to be a respected member of their own professions, with qualifications and experience to match the project in hand.

Essentially the DRB can be likened to a project management tool that is used to ensure that the project remains on track, influencing the parties to the project to carry out their contractual obligations properly.

The three-member DRB will visit the project regularly and deal with any difficulties that have arisen. Occasionally it will have to convene outside of its regular visits if a particular dispute requires it. The advantage to the parties is that the DRB gains an ongoing knowledge of the project as the members are exposed to the facts of any emerging disputes at a very early stage.

The operational philosophy behind a DRB is to provide interim solutions that are in tune with the interests of the project in a quick and effective manner. It is a process that is intended to find solutions to problems rather than form an adversarial forum. DRBs are designed to keep the parties working constructively together while finding solutions to problems as they occur, rather than allowing those problems to escalate in an ultimately destructive manner.

= Selection of the Dispute Resolution Board =

The success of a DRB is dependent not only on the procedure that has been put in place but also on the members of the DRB itself. Of course the importance of the willingness of the parties themselves to work constructively with the DRB and make commercial compromises should not be forgotten.

The selection of the members of the DRB is crucially important to the parties, and therefore an appointment procedure is required within rules set out in the contract. Normally each party nominates one member and those members then choose a third member as chairman. This allows each party to have the comfort of a board member who is in tune with their thinking, whilst the chairman is independent of both. In default of agreement between the two members, a nominating body should independently select and appoint the chairman. Again, that procedure must be part of the written contract.

When appointing members for the DRB it is useful to consider their experience not only in construction and engineering but also in contract management and the applicable law of the contract. A mix of all these elements may be required in varying degrees. Ideally the Board should not consist entirely of like-minded individuals but be a combination, such as two construction or engineering professionals and a lawyer versed in construction and engineering law as well as the law of the contract.

= Dispute Resolution Board procedure =

Once the members of the DRB have been appointed, the procedure should allow for regular visits to site, including time to deal with any differences that have arisen. This should also allow for less formal ‘opinions’ to be given by the DRB in respect of what might be potential disputes.

The use of the DRB for informal discussions between the parties (together or separately), with or without the engineer should be encouraged. Where an opinion has been sought, the DRB may respond in writing (or orally if followed up in writing), and by that informal process the potential dispute may be avoided. If not, the formal dispute procedure requiring a written recommendation by the DRB, or a written reasoned decision by the DAB, will commence.

The formal procedure usually involves the dissatisfied party issuing a written notice containing details of the dispute to the other party and to the DRB. That notice may be dependent on timing should the contract so indicate. For example, FIDIC only allows 28 days after the engineer’s decision in which to issue a notice.

Having issued the notice, the claimant has to prepare a position statement in which they sets out their legal and factual arguments, supported by evidence. On receipt, the defendant will prepare his position statement responding to the claimant’s narrative, setting out his arguments and the evidence relied upon.

Having received the two position statements, the DRB will consider the matters raised. If necessary the members of the DRB will meet before the hearing to discuss procedural or substantive matters.

The DRB will prepare a list of questions or further documents required so that the hearing will be able to deal fully with all matters arising. The hearing will normally be held within 30 days (15 days in the ICC rules) of the defence being served, usually on or near the project. The length of the hearing is dependent on the complexity of the matters before the DRB, but is very unlikely to exceed one week. In fact, most hearings do not exceed two or three days.

The hearing follows the usual course: a submission by the claimant, a submission by way of reply from the defendant, with perhaps questions and points of clarification raised by the DRB. If necessary the engineer will be allowed to make submissions or answer questions.

After the hearing is brought to a close, the DRB will continue with their deliberations and a draft recommendation or adjudication decision will be prepared. This is necessary, as the three-man Board will thereafter return home to prepare their individual reports for later discussion and to finalise their recommendation or adjudication decision.

Time is always of the essence in making a recommendation or decision, as the parties will be continuing with the works, and the decision needs to be known sooner rather than later. In any event, the rules should have a time limit for the Board to make its decision, subject to the claimant being able to grant the DRB a limited extension to that time if special circumstances arise which prevent a recommendation or decision being made in the prescribed time. The recommendation or decision will be produced by way of a written report.

Where the Board provides recommendations, these can be without sanction or a time limit. To provide certainty, a time limit can be prescribed for any written objection to be made by either party. If no objection is raised, then the recommendation can become binding on the parties. In any event, the recommendation or decision should be stated in the contract to be acted upon immediately it is published.

= Procedural fairness =

As with any dispute resolution process, to be effective the decision-making process should be seen to be fair. Natural justice has been the source of much comment and legal analysis, especially in respect of statutory adjudication in the UK.

Dispute Review Boards are not a creature of statute; they are a creature of the contract. In this respect they seem to have more in common with expert determination than arbitration or adjudication. Expert determination has no remedies for procedural irregularity and cannot be set aside under those circumstances, unlike arbitration. An expert may investigate and come to his conclusions without reference to the parties.

His power is absolute, as it derives from the contract. Unless the contract states otherwise, the expert cannot be challenged if the parties have agreed to accept the determination as being final. Similarly, the only challenges to the DRB’s jurisdiction are those set out in the contract. If the parties wish the DRB’s decision to be final and binding, this should be reflected in the contract.

The courts may decide to follow the lead of adjudication practice in the UK and scrutinise DRB decisions for procedural fairness. An example of the courts refusing to accede to a DRB process for lack of procedural fairness can be found in the case of ''Sehulster Tunnels and Pre-Con (Joint Venture) v Traylor Brothers Inc and Obayashi'' ''Corporation (Joint Venture) ''(12 September 2003) Court of Appeals of California, Fourth Appellate District.

In this case a DRB had been set up on a large outfall system taking treated waste out by tunnel into the ocean in Southern San Diego County, California. The contract was worth some US$90 million. The DRB was to be by the appointment of the employer, the city of San Diego, and the contractor, Traylor Brothers Inc and Obayashi Corporation, a joint venture. The subcontract for the manufacture of the concrete rings forming the tunnel lining was with Sehulster Tunnels and Pre-Con, also a joint venture.

The subcontract reflected the DRB procedure found in the main contract, but importantly did not allow Sehulster to appoint one of the members to the DRB. When a dispute arose, the contractor and the employer insisted that the DRB be used but refused Sehulster’s request to appoint a member of the DRB. Sehulster therefore ignored the DRB provisions and litigated in the courts.

The court at first instance found in Sehulster’s favour. The matter went further. It was argued at the Court of Appeal that as the subcontract incorporated the DRB by reference, and in order for Sehulster’s claim to proceed, the DRB mechanism had to be used. In response, Sehulster argued that the first instance decision should be upheld and that the DRB was presumptively biased against Sehulster, as Sehulster was unable to appoint a member to the Board. Sehulster further argued that the condition precedent for the DRB contained within the subcontract could not be enforced and Sehulster had every right to litigate in the courts. The Court of Appeal agreed with Sehulster, saying:
*‘Sehulster in this context should not be required to pursue a charade characterised as meaningful ADR. Secondly, although the DRB’s recommendation is non-binding, it is not without influence because the Prime Contract provides for its admissibility into evidence in any later dispute resolution or legal proceeding. Finally, it does not follow that because the DRB process does not constitute binding arbitration, Graham’s notions [ '' Graham v Scissor-Tail Inc'' (1981) 28 Cal.3d 807, 817-819] regarding presumptive bias are inapplicable in this context, therefore permitting enforcement of the condition precedent of pursuing the DRB process to preclude resolution of Sehulster’s claim by litigation…
*‘… contractual ADR must operate within minimum levels of integrity to pass judicial muster, the court held that the minimum levels of integrity had not been achieved …’.

This case also makes observations in respect of DRBs in general, and these are worth repeating here:
*‘The DRB process constitutes a form of alternative dispute resolution (ADR) most commonly employed in tunnelling and other large, complex, heavy construction projects. First utilized in the mid-1970s, it has proven particularly advantageous in contracts performance of which will take a long period of time, and in which disputes are inevitable and multiple instalment payments are contractually required on completion of performance milestones or components of the work.
*‘Generally, the DRB serves as a safety net to resolve problems or matters about which reasonable people could differ before they harm the business relationship between the parties and result in acrimonious litigation. It is composed of three experts, selected by the parties at the beginning of the project, who become familiar with it, monitor its progress and are available to provide advisory decisions on short notice concerning disputes the parties are unable to resolve themselves. The availability of the DRB and its familiarity with the project enable prompt resolution of disputes, which furthers the goal of preserving cooperative relationships between the contracting parties.
*‘The DRB process resembles the arbitration process with several significant differences. First, the DRB is a standing tribunal contractually required to be formed and in place within a few months after the owner gives the contractor notice to proceed. Second, the process envisions: an introductory/orientation meeting for the DRB members to become acquainted with the owner, the contractor, and their key personnel; a brief history of the project, including significant potential technical, environmental, political or social issues that might arise from it; and the scope and anticipated schedule of construction. Third, the DRB meets regularly throughout construction of the project. The frequency of meetings is dictated by the project’s size, complexity, schedule and number of claims or problems. Fourth, unlike standing arbitrators who make immediately binding decisions, the DRB issues advisory opinions or non-binding recommendations.’

As exemplified here, the DRB is a creature of contract designed to provide recommendations to resolve particular disputes. Because the DRB’s recommendations are non-binding and may be rejected by either the owner or the contractor, it is important for the credibility of the DRB that the parties perceive its members as generally qualified and neutral. The DRB process is designed to promote the parties’ confidence in it by providing their equal involvement in the selection of the individual DRB members who have experience in that type of construction, contract interpretation and dispute resolution.

= Enforcement =

The recommendation or decision of a DRB is a contractual matter, and therefore any enforcement will be seen in the light of a breach of contract. Enforcement will usually be a matter of the jurisdiction within which the DRB is operating. In England and Wales the courts will not allow a party to avoid the DRB machinery, and summary judgement will recognise any express contractual provisions.

= Conclusion =

Those that have been involved with DRBs generally agree that on large projects they assist the parties to resolve their differences, enabling the project to be completed with much less chance of an acrimonious dispute developing into a major arbitration or litigation.

When a difference does become a dispute, it is dealt with quickly and so prevents the matter getting out of hand. The parties remain focused on the project rather than the dispute.

As to the members of the DRB, they are familiar with the progress and technical issues associated with the project; when a recommendation or decision is needed it is made on the basis of the submissions but also on the knowledge that has been built up by the DRB.

DRBs provide a confidential forum in which difficulties or disputes can be resolved. They are not set up to apportion blame but rather to resolve issues that have arisen in a way that allows the project to proceed smoothly.

----

This article was created by --[[User%3AThe%20College%20of%20Estate%20Management|The College of Estate Management]] 14:12, 11 December 2012 (UTC)

= Find out more =

=== '''Related articles on Designing Buildings Wiki''' ===
*Adjudication.
*Alternative dispute resolution.
*Arbitration.
*Breach of contract.
*Causes of construction disputes.
*Contract claims.
*Mediation.
*The Housing Grants, Construction and Regeneration Act.
*The Scheme for Construction Contracts.

=== '''External references''' ===
*Sliwinski R A (Barrister, Attorney – New York) (2004) ‘Dispute Resolution Boards’, Occasional Paper.
*Groton J P, Rubin R A and Quintas B (2001) ‘A Comparison of Dispute Review Boards and Adjudication’, ''The International Construction Law Review'' pp.275–291.
*Knight P (2001) ''Alternative Dispute Resolution'' 3:720–3:723. The Rutter Group.
*Henn (1999) ‘Dispute Review Boards: ADR Form for the Construction Industry’, 28 Colo. Law 51–52.

[[Category:Contracts_/_payment]]
[[Category:Other_legislation]]
[[Category:Client_procedures]]
[[Category:Procurement]]

Alternative dispute resolution for construction ADR

2012-12-12T10:44:03Z

The College of Estate Management:

= Introduction =

Construction contracts usually provide for disputes to be dealt with by agreed dispute resolution procedures involving mediation, adjudication and arbitration. Often a combination of all three. See for example the [http://www.neccontract.com/ New Engineering Contract] (NEC) Engineering and Construction Contract, the [http://www.jctltd.co.uk/ Joint Contracts Tribunal] (JCT) 05 Standard Form of Building Contract, and the [http://www.fidic.org/ Fédération Internationale des Ingénieurs-Conseils] (FIDIC) Conditions of Contract.

The construction sector is also subject to statutory schemes which impose adjudication procedures in the absence of contractual agreement (such as the Housing Grants, Construction and Regeneration Act 1996 and the [http://www.legislation.gov.uk/ukpga/2009/20/contents Local Democracy, Economic Development and Construction Act 2009].

Many contracts for large and complex projects now have, in addition to the dispute resolution procedures set out above, tiered dispute resolution procedures with obligations to negotiate in good faith, dispute resolution boards, steering committees and partnering meetings under the nomenclature of 'Partnering Obligations' (see for example NEC & JCT contracts as well as [http://www.constructingexcellence.org.uk/pdf/fact_sheet/partnering.pdf Constructing Excellence: Partnering] and the report of the [http://www.cic.org.uk/activities/partnering.shtml Construction Industry Council (CIC) Industry Improvement Committee]). See also the [http://www.ciarb.org/dispute-resolution/dispute-resolution-contract-clauses Chartered Institute of Arbitrators] 'catch all' dispute resolution clause.

Contract disputes are a complex area of law and the choice of procedure is one which requires careful consideration.

= Definitions =

A very wide range of Alternative Dispute Resolution techniques are available.

A consultative document, ‘Alternative Dispute Resolution – A Discussion Paper’, produced by the Lord Chancellor’s Department (LCD) in 1999 provides a helpful summary of the wide range of Alternative Dispute Resolution (ADR) techniques and these are reproduced below.
*'''Arbitration''' is a procedure whereby both sides to a dispute agree to let a third party, the arbitrator, decide. In some instances, there may be a panel. The arbitrator may be a lawyer, or may be an expert in the field of the dispute. They will make a decision according to the law. The arbitrator’s decision, known as an award, is legally binding and can be enforced through the courts.
*'''Court-annexed non-binding arbitration''' is widely used in the United States. The finding of the arbitrator becomes a binding order of the court if neither party seeks a rehearing by a judge.
*'''Court settlement process''' – this is a combination of early neutral evaluation and mediation, which was recently introduced by the Technology and Construction Court (TCC) on a trial basis in 2006. It has been produced for use in those situations where, following a request from the parties, a case managing judge feels that the parties should be able to achieve an amicable settlement. In those circumstances, the case managing judge would then be at liberty to offer a court settlement process to the parties and, if accepted by all relevant parties to the case, that judge or another TCC judge would make a court settlement order embodying the parties’ agreement and fixing a date for a court settlement conference, with an estimated duration proportionate to the issues in the case. The judge would then conduct the court settlement process and if a settlement were not reached, then the case would proceed with another case management judge: the judge conducting the court settlement process (the settlement judge) would take no further part in the litigation.
*'''Early neutral evaluation''' is a process in which a neutral professional, commonly a lawyer, hears a summary of each party’s case and gives a non-binding assessment of the merits. This can then be used as a basis for settlement or for further negotiation.
*'''Expert determination''' is a process in which an independent third party who is an expert in the subject matter is appointed to decide the dispute. The expert’s decision is binding on the parties.
*'''Mediation''' is a way of settling disputes in which a third party, known as a mediator, helps both sides to come to an agreement that each considers acceptable. Mediation can be ‘evaluative’, where the mediator gives an assessment of the legal strength of a case, or ‘facilitative’, where the mediator concentrates on assisting the parties to define the issues. When a mediation is successful and an agreement is reached, it is written down and forms a legally binding contract, unless the parties state otherwise.
*'''Conciliation''' is a procedure like mediation but in which the third party, the conciliator, takes a more interventionist role in bringing the two parties together and in suggesting possible solutions to help achieve an agreed settlement. The term ‘conciliation’ is gradually falling into disuse and the process is regarded as a form of mediation. It remains, however, a specific process available under various Institution of Civil Engineers’ contracts.
*'''Med-arbitration (med-arb) '''is a combination of mediation and arbitration. The parties agree to a mediation initially but, if that fails to achieve a settlement, the mediator takes on the role of arbitrator, with powers to make a legally binding award. The same person may act as mediator and arbitrator in this type of arrangement.
*'''Neutral fact finding''' is a non-binding procedure used in cases involving complex technical issues. A neutral expert in the subject matter is appointed to investigate the facts of the dispute and make an evaluation of the merits of the case. This can form the basis of a settlement or a starting point for further negotiation.
*'''Ombudsmen''' are independent office holders who investigate and rule on complaints from members of the public about maladministration in Government and in particular services in both the public and private sectors. Some ombudsmen use mediation as part of their dispute resolution procedures. The powers of ombudsmen vary. Most ombudsmen are able to make recommendations; only a few can make decisions that are enforceable through the courts.
*'''Utility regulators''' are watchdogs appointed to oversee the privatised utilities such as water or gas. They handle complaints from customers who are dissatisfied by the way a complaint has been dealt with by their supplier.

In addition to those listed above by the LCD, the following may be added:
*'''Mini-trial''', also known as''' executive tribunal''', in which each party, often through its legal advisers, makes a presentation of its case to a ‘mini-trial panel’. An abbreviated version of the discovery process may have taken place in advance of the mini-trial. The panel generally consists of three members – a management executive from each party (with sufficient authority to reach a settlement), and a third party neutral who may act as a mediator or adviser. The executive members usually have not been involved in the particular dispute. After the submissions have been made, the executives seek to negotiate a settlement. The role of the third party neutral may vary. They may act as a mediator or may act as an adviser, assessing objectively both the facts and the merits of the case and advising on the most appropriate solution.
*'''Construction adjudication''' is a statutory right introduced into UK construction contracts by the Housing Grants, Construction and Regeneration Act 1996, applicable to all relevant contracts entered into after 1 May 1998. It provides a temporarily binding decision which must be complied with by the parties until overturned or varied by the courts, arbitration or agreement.
*'''Dispute board (also known as dispute review board or dispute resolution board (DRB) and dispute''' '''adjudication board (DAB))''' is a procedure where a panel, normally of three independent and well-established individuals, is appointed at the commencement of a large construction project and considers project issues and recommends resolutions of disputes. Normally the employer and contractor each appoint one member and the third member is chosen by the first two. The recommendations are normally non-binding.
*'''Judicial appraisal''' is a procedure where the parties appoint a judge to receive written representations from each side and make an appraisal of the likely result if the case goes to court. The parties must agree the form and extent of the submissions and whether the appraisal is to be binding or not.
*'''Med-adjudication (med-ad)''' is a process in which the appointed neutral begins conducting the process as if they were an adjudicator, but after meeting the parties’ key professionals and expert witnesses together, gives a preliminary view on the matter in dispute. If the parties settle, this is recorded in writing, but if no settlement is reached within a fixed period of time the neutral proceeds to make a decision in which they are not bound by their preliminary view.
*'''Michigan mediation''' is an interesting variation on the theme and, as the name suggests, is used in the US state of Michigan. In any civil case where the primary relief sought is monetary, the assigned judge may refer the case to process. The term ‘mediation’ is, however, something of a misnomer: it is more properly described as a ‘case valuation’ process. After disclosure has been completed, the parties meet with a panel of three neutrals who are all attorneys. They hear 15-minute presentations by each party and give a non-binding evaluation of the case.
*'''Project neutral''' is effectively a one-person dispute board.
*'''Summary jury trial''' is a non-binding, abbreviated mock trial using a panel of actual jurors. The normal rules of evidence and procedure are normally modified to expedite the process, and negotiations generally follow the trial. It is used so far only in the United States.

The above processes can be divided into two broad categories which the LCD has described as:
*'''alternative adjudication''', which comprises those processes whereby a neutral third party makes a decision, such as arbitration, construction adjudication, expert determination, ombudsmen and industry regulators;
*'''assisted settlement''', which comprises those processes whereby a neutral third party offers an opinion and/or seeks to bring the parties to an agreement, such as mediation, conciliation and early neutral evaluation.

Med-arb and med-ad are hybrids of these two categories.

Whether or not a particular form of ADR is suitable depends upon a number of factors including the nature and value of the dispute, the attitude and financial resources of the parties, the desired outcome, and the balance of representation.

Both (or all) parties must be willing to submit their dispute to a form of '''alternative''' '''adjudication''', or willing to try a form of '''assisted settlement '''as clearly, if both parties are not willing, there can be problems in enforcing an apparently contractual agreement to try mediation or conciliation.

Litigation is, of course, the only option where one party needs to set a legal precedent or obtain an injunction, or where one party is refusing to acknowledge the problem or engage in negotiations. Any form of ADR will be worth considering where the cost of court proceedings is likely to equal or exceed the amount of money at issue.

Where parties wish to preserve an existing relationship, mediation or conciliation may be helpful. A great advantage of mediation is that the mediator is not bound merely to consider the obvious disputes between the parties but can bring in other matters, perhaps unrelated to the particular dispute, provided they may help the parties towards settlement.

Arbitration may be suitable in cases where there is no relationship to preserve and a rapid decision is needed.

Where available, trade association arbitration schemes, utility regulators and ombudsmen can provide a cheaper alternative for an individual seeking redress against a company or large organisation, but they may be limited in the redress they can provide.

Early neutral evaluation might be applicable in cases where there is a dispute over a point of law, or where one party appears to have an unrealistic view of their chances of success at trial.

Where there is a technical dispute with a great deal of factual evidence, mediation or determination by an expert in that area might be best. In addition, parties involved in a commercial dispute may prefer to use a form of ADR to keep sensitive commercial information private.

In many apparently intractable, large-scale and complex multi-party cases, mediation has achieved settlement. Where there is a significant imbalance of power, however, mediation might not be appropriate. Mediation is also now the preferred method of settlement of family disputes, such as divorce. Part III of the Family Law Act 1996 allows for the provision of publicly funded mediation in family proceedings. There has been a wide take-up of this service and the statistics for the six full years of operation are as shown in the following table:

{| style="width: 600px;" border="1" cellspacing="1" cellpadding="1"
|-
| '''Financial year'''
|
'''Number of mediations started'''

|-
| 1997/98
| 406
|-
| 1998/99
| 1,349
|-
| 1999/00
| 6,333
|-
| 2000/01
| 9,308
|-
| 2001/02
| 12,335
|-
| 2002/03
| 13,841
|}

Section 29 of the Act, which requires those seeking legal aid for representation in family proceedings to attend a meeting with a mediator to consider whether mediation might be suitable in their case, has now been implemented in over 60% of the country and was intended to be in force across England and Wales in 2000.

Figures for 2005 produced by the Legal Services Commission show that over 14,000 family mediations took place which were either wholly or partly publicly funded. The UK College of Family Mediation reports that for the same year some 4,000 privately funded family mediations took place, making a total of some 18,000 for that year.

Mediation is also frequently used in neighbour disputes. Not all disputes between neighbours are necessarily suited to mediation, however, particularly where there are issues of harassment or mental health problems. Mediation UK reports that, between 2004 and 2005, more than 40,000 people were involved in community mediation.

----

This article was created by --[[User%3AThe%20College%20of%20Estate%20Management|The College of Estate Management]] 16:32, 11 December 2012 (UTC)

= Find out more =

=== Related articles on Designing Buildings Wiki ===
*Adjudication.
*Arbitration.
*Breach of contract.
*Causes of construction disputes.
*Contract claims.
*Dispute resolution boards.
*Housing Grants, Construction and Regeneration Act.
*Mediation.
*Scheme for Construction Contracts.

=== External references ===
*[http://www.neccontract.com New Engineering Contract (NEC)].
*[http://Www.jctcontracts.com Joint Contracts Tribunal (JCT)].
*[http://Www.fidic.org Fédération Internationale des Ingénieurs-Conseils (FIDIC)].
*[http://www.legislation.gov.uk/ukpga/1996/53/contents Housing Grants, Construction and Regeneration Act 1996].
*[http://Www.legislation.gov.uk/ukpga/2009/20/contents Local Democracy, Economic Development and Construction Act 2009].
*Tiered ADR, [http://www.ciarb.org/ Chartered Institute of Arbitrators], "Catch All" Dispute Resolution Clause.
*‘Alternative Dispute Resolution – A Discussion Paper’, The Lord Chancellor’s Department.
*Dignan, Sorsby and Hibbert (1996) ‘Neighbour Disputes – Comparing the cost-effectiveness of mediation and alternative approaches’, Centre for Criminological and Legal Research, University of Sheffield. ISBN: 1872998364.
*''[http://webarchive.nationalarchives.gov.uk/+/http://www.dca.gov.uk/research/1998/598esfr.htm The Central London County Court Pilot Mediation Scheme]– '' Evaluation Report by Professor Hazel Genn.
*''The Institution of Civil Engineers’ Conciliation Procedure 1999'' (1999) London: Thomas Telford Publishing.
*Tait J N and Cottam G (1994) ‘The ICE Conciliation Procedure 1994’, ''Civil'' ''Engineering Surveyor'', November.
*[http://www.cedr.com/ The Centre for Effective Dispute Resolution]
*[http://www.mediationmatters.org.uk/ Mediation Matters].

[[Category:Contracts_/_payment]]
[[Category:Construction_management]]
[[Category:Contracts_/_payment]]
[[Category:Other_legislation]]
[[Category:Procurement]]

Alternative dispute resolution for construction ADR

2012-12-12T10:41:05Z

The College of Estate Management:

= Introduction =

Construction contracts usually provide for disputes to be dealt with by agreed dispute resolution procedures involving mediation, adjudication and arbitration. Often a combination of all three. See for example the [http://www.neccontract.com/ New Engineering Contract] (NEC) Engineering and Construction Contract, the [http://www.jctltd.co.uk/ Joint Contracts Tribunal] (JCT) 05 Standard Form of Building Contract, and the [http://www.fidic.org/ Fédération Internationale des Ingénieurs-Conseils] (FIDIC) Conditions of Contract.

The construction sector is also subject to statutory schemes which impose adjudication procedures in the absence of contractual agreement (such as the Housing Grants, Construction and Regeneration Act 1996 and the [http://www.legislation.gov.uk/ukpga/2009/20/contents Local Democracy, Economic Development and Construction Act 2009].

Many contracts for large and complex projects now have, in addition to the dispute resolution procedures set out above, tiered dispute resolution procedures with obligations to negotiate in good faith, dispute resolution boards, steering committees and partnering meetings under the nomenclature of 'Partnering Obligations' (see for example NEC & JCT contracts as well as [http://www.constructingexcellence.org.uk/pdf/fact_sheet/partnering.pdf Constructing Excellence: Partnering] and the report of the [http://www.cic.org.uk/activities/partnering.shtml Construction Industry Council (CIC) Industry Improvement Committee]). See also the [http://www.ciarb.org/dispute-resolution/dispute-resolution-contract-clauses Chartered Institute of Arbitrators] 'catch all' dispute resolution clause.

Contract disputes are a complex area of law and the choice of procedure is one which requires careful consideration.

= Definitions =

A very wide range of Alternative Dispute Resolution techniques are available.

A consultative document, ‘Alternative Dispute Resolution – A Discussion Paper’, produced by the Lord Chancellor’s Department (LCD) in 1999 provides a helpful summary of the wide range of Alternative Dispute Resolution (ADR) techniques and these are reproduced below.
*'''Arbitration''' is a procedure whereby both sides to a dispute agree to let a third party, the arbitrator, decide. In some instances, there may be a panel. The arbitrator may be a lawyer, or may be an expert in the field of the dispute. He will make a decision according to the law. The arbitrator’s decision, known as an award, is legally binding and can be enforced through the courts.
*'''Court-annexed non-binding arbitration''' is widely used in the United States. The finding of the arbitrator becomes a binding order of the court if neither party seeks a rehearing by a judge.
*'''Court settlement process''' – this is a combination of early neutral evaluation and mediation, which was recently introduced by the Technology and Construction Court (TCC) on a trial basis in 2006. It has been produced for use in those situations where, following a request from the parties, a case managing judge feels that the parties should be able to achieve an amicable settlement. In those circumstances, the case managing judge would then be at liberty to offer a court settlement process to the parties and, if accepted by all relevant parties to the case, that judge or another TCC judge would make a court settlement order embodying the parties’ agreement and fixing a date for a court settlement conference, with an estimated duration proportionate to the issues in the case. The judge would then conduct the court settlement process and if a settlement were not reached, then the case would proceed with another case management judge: the judge conducting the court settlement process (the settlement judge) would take no further part in the litigation.
*'''Early neutral evaluation''' is a process in which a neutral professional, commonly a lawyer, hears a summary of each party’s case and gives a non-binding assessment of the merits. This can then be used as a basis for settlement or for further negotiation.
*'''Expert determination''' is a process in which an independent third party who is an expert in the subject matter is appointed to decide the dispute. The expert’s decision is binding on the parties.
*'''Mediation''' is a way of settling disputes in which a third party, known as a mediator, helps both sides to come to an agreement that each considers acceptable. Mediation can be ‘evaluative’, where the mediator gives an assessment of the legal strength of a case, or ‘facilitative’, where the mediator concentrates on assisting the parties to define the issues. When a mediation is successful and an agreement is reached, it is written down and forms a legally binding contract, unless the parties state otherwise.
*'''Conciliation''' is a procedure like mediation but in which the third party, the conciliator, takes a more interventionist role in bringing the two parties together and in suggesting possible solutions to help achieve an agreed settlement. The term ‘conciliation’ is gradually falling into disuse and the process is regarded as a form of mediation. It remains, however, a specific process available under various Institution of Civil Engineers’ contracts.
*'''Med-arbitration (med-arb) '''is a combination of mediation and arbitration. The parties agree to a mediation initially but, if that fails to achieve a settlement, the mediator takes on the role of arbitrator, with powers to make a legally binding award. The same person may act as mediator and arbitrator in this type of arrangement.
*'''Neutral fact finding''' is a non-binding procedure used in cases involving complex technical issues. A neutral expert in the subject matter is appointed to investigate the facts of the dispute and make an evaluation of the merits of the case. This can form the basis of a settlement or a starting point for further negotiation.
*'''Ombudsmen''' are independent office holders who investigate and rule on complaints from members of the public about maladministration in Government and in particular services in both the public and private sectors. Some ombudsmen use mediation as part of their dispute resolution procedures. The powers of ombudsmen vary. Most ombudsmen are able to make recommendations; only a few can make decisions that are enforceable through the courts.
*'''Utility regulators''' are watchdogs appointed to oversee the privatised utilities such as water or gas. They handle complaints from customers who are dissatisfied by the way a complaint has been dealt with by their supplier.

In addition to those listed above by the LCD, the following may be added:
*'''Mini-trial''', also known as''' executive tribunal''', in which each party, often through its legal advisers, makes a presentation of its case to a ‘mini-trial panel’. An abbreviated version of the discovery process may have taken place in advance of the mini-trial. The panel generally consists of three members – a management executive from each party (with sufficient authority to reach a settlement), and a third party neutral who may act as a mediator or adviser. The executive members usually have not been involved in the particular dispute. After the submissions have been made, the executives seek to negotiate a settlement. The role of the third party neutral may vary. He may act as a mediator or may act as an adviser, assessing objectively both the facts and the merits of the case and advising on the most appropriate solution.
*'''Construction adjudication''' is a statutory right introduced into UK construction contracts by the Housing Grants, Construction and Regeneration Act 1996, applicable to all relevant contracts entered into after 1 May 1998. It provides a temporarily binding decision which must be complied with by the parties until overturned or varied by the courts, arbitration or agreement.
*'''Dispute board (also known as dispute review board or dispute resolution board (DRB) and dispute''' '''adjudication board (DAB))''' is a procedure where a panel, normally of three independent and well-established individuals, is appointed at the commencement of a large construction project and considers project issues and recommends resolutions of disputes. Normally the employer and contractor each appoint one member and the third member is chosen by the first two. The recommendations are normally non-binding.
*'''Judicial appraisal''' is a procedure where the parties appoint a judge to receive written representations from each side and make an appraisal of the likely result if the case goes to court. The parties must agree the form and extent of the submissions and whether the appraisal is to be binding or not.
*'''Med-adjudication (med-ad)''' is a process in which the appointed neutral begins conducting the process as if he were an adjudicator, but after meeting the parties’ key professionals and expert witnesses together, gives a preliminary view on the matter in dispute. If the parties settle, this is recorded in writing, but if no settlement is reached within a fixed period of time the neutral proceeds to make a decision in which he is not bound by his preliminary view.
*'''Michigan mediation''' is an interesting variation on the theme and, as the name suggests, is used in the US state of Michigan. In any civil case where the primary relief sought is monetary, the assigned judge may refer the case to process. The term ‘mediation’ is, however, something of a misnomer: it is more properly described as a ‘case valuation’ process. After disclosure has been completed, the parties meet with a panel of three neutrals who are all attorneys. They hear 15-minute presentations by each party and give a non-binding evaluation of the case.
*'''Project neutral''' is effectively a one-person dispute board.
*'''Summary jury trial''' is a non-binding, abbreviated mock trial using a panel of actual jurors. The normal rules of evidence and procedure are normally modified to expedite the process, and negotiations generally follow the trial. It is used so far only in the United States.

The above processes can be divided into two broad categories which the LCD has described as:
*'''alternative adjudication''', which comprises those processes whereby a neutral third party makes a decision, such as arbitration, construction adjudication, expert determination, ombudsmen and industry regulators;
*'''assisted settlement''', which comprises those processes whereby a neutral third party offers an opinion and/or seeks to bring the parties to an agreement, such as mediation, conciliation and early neutral evaluation.

Med-arb and med-ad are hybrids of these two categories.

Whether or not a particular form of ADR is suitable depends upon a number of factors including the nature and value of the dispute, the attitude and financial resources of the parties, the desired outcome, and the balance of representation.

Both (or all) parties must be willing to submit their dispute to a form of '''alternative''' '''adjudication''', or willing to try a form of '''assisted settlement '''as clearly, if both parties are not willing, there can be problems in enforcing an apparently contractual agreement to try mediation or conciliation.

Litigation is, of course, the only option where one party needs to set a legal precedent or obtain an injunction, or where one party is refusing to acknowledge the problem or engage in negotiations. Any form of ADR will be worth considering where the cost of court proceedings is likely to equal or exceed the amount of money at issue.

Where parties wish to preserve an existing relationship, mediation or conciliation may be helpful. A great advantage of mediation is that the mediator is not bound merely to consider the obvious disputes between the parties but can bring in other matters, perhaps unrelated to the particular dispute, provided they may help the parties towards settlement.

Arbitration may be suitable in cases where there is no relationship to preserve and a rapid decision is needed.

Where available, trade association arbitration schemes, utility regulators and ombudsmen can provide a cheaper alternative for an individual seeking redress against a company or large organisation, but they may be limited in the redress they can provide.

Early neutral evaluation might be applicable in cases where there is a dispute over a point of law, or where one party appears to have an unrealistic view of their chances of success at trial.

Where there is a technical dispute with a great deal of factual evidence, mediation or determination by an expert in that area might be best. In addition, parties involved in a commercial dispute may prefer to use a form of ADR to keep sensitive commercial information private.

In many apparently intractable, large-scale and complex multi-party cases, mediation has achieved settlement. Where there is a significant imbalance of power, however, mediation might not be appropriate. Mediation is also now the preferred method of settlement of family disputes, such as divorce. Part III of the Family Law Act 1996 allows for the provision of publicly funded mediation in family proceedings. There has been a wide take-up of this service and the statistics for the six full years of operation are as shown in the following table:

{| style="width: 600px;" border="1" cellspacing="1" cellpadding="1"
|-
| '''Financial year'''
|
'''Number of mediations started'''

|-
| 1997/98
| 406
|-
| 1998/99
| 1,349
|-
| 1999/00
| 6,333
|-
| 2000/01
| 9,308
|-
| 2001/02
| 12,335
|-
| 2002/03
| 13,841
|}

Section 29 of the Act, which requires those seeking legal aid for representation in family proceedings to attend a meeting with a mediator to consider whether mediation might be suitable in their case, has now been implemented in over 60% of the country and was intended to be in force across England and Wales in 2000.

Figures for 2005 produced by the Legal Services Commission show that over 14,000 family mediations took place which were either wholly or partly publicly funded. The UK College of Family Mediation reports that for the same year some 4,000 privately funded family mediations took place, making a total of some 18,000 for that year.

Mediation is also frequently used in neighbour disputes. Not all disputes between neighbours are necessarily suited to mediation, however, particularly where there are issues of harassment or mental health problems. Mediation UK reports that, between 2004 and 2005, more than 40,000 people were involved in community mediation.

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This article was created by --[[User%3AThe%20College%20of%20Estate%20Management|The College of Estate Management]] 16:32, 11 December 2012 (UTC)

= Find out more =

=== Related articles on Designing Buildings Wiki ===
*Adjudication.
*Arbitration.
*Breach of contract.
*Causes of construction disputes.
*Contract claims.
*Dispute resolution boards.
*Housing Grants, Construction and Regeneration Act.
*Mediation.
*Scheme for Construction Contracts.

=== External references ===
*[http://www.neccontract.com New Engineering Contract (NEC)].
*[http://Www.jctcontracts.com Joint Contracts Tribunal (JCT)].
*[http://Www.fidic.org Fédération Internationale des Ingénieurs-Conseils (FIDIC)].
*[http://www.legislation.gov.uk/ukpga/1996/53/contents Housing Grants, Construction and Regeneration Act 1996].
*[http://Www.legislation.gov.uk/ukpga/2009/20/contents Local Democracy, Economic Development and Construction Act 2009].
*Tiered ADR, [http://www.ciarb.org/ Chartered Institute of Arbitrators], "Catch All" Dispute Resolution Clause.
*‘Alternative Dispute Resolution – A Discussion Paper’, The Lord Chancellor’s Department.
*Dignan, Sorsby and Hibbert (1996) ‘Neighbour Disputes – Comparing the cost-effectiveness of mediation and alternative approaches’, Centre for Criminological and Legal Research, University of Sheffield. ISBN: 1872998364.
*''[http://webarchive.nationalarchives.gov.uk/+/http://www.dca.gov.uk/research/1998/598esfr.htm The Central London County Court Pilot Mediation Scheme]– '' Evaluation Report by Professor Hazel Genn.
*''The Institution of Civil Engineers’ Conciliation Procedure 1999'' (1999) London: Thomas Telford Publishing.
*Tait J N and Cottam G (1994) ‘The ICE Conciliation Procedure 1994’, ''Civil'' ''Engineering Surveyor'', November.
*[http://www.cedr.com/ The Centre for Effective Dispute Resolution]
*[http://www.mediationmatters.org.uk/ Mediation Matters].

[[Category:Contracts_/_payment]]
[[Category:Construction_management]]
[[Category:Contracts_/_payment]]
[[Category:Other_legislation]]
[[Category:Procurement]]

Construction disputes

2012-12-12T10:38:51Z

The College of Estate Management:

= Introduction =

In this paper you will be introduced to the main causes of construction and engineering disputes.

The former Director General of MI5 was Stella Rimmington. In her autobiography ''Open Secret'' (2002) she made this comparison:

’Like a huge building project, particularly in the public sector, the Thames House Refurbishment was fraught with difficulties. It was clear that dealing with the building industry was just as tricky as dealing with the KGB.’

There is enormous interest in construction disputes amongst the professions and industry generally, but that interest is focused mostly on the various techniques used to resolve construction disputes. It may be inevitable that disputes will arise on complex construction projects, but perhaps too little is done to avoid them.

= Why do construction disputes occur? =

A combination of environmental and behavioural factors can lead to construction disputes. Projects are usually long-term transactions with high uncertainty and complexity, and it is impossible to resolve every detail and foresee every contingency at the outset. As a result, situations often arise that are not clearly addressed by the contract. The basic factors that drive the development of construction disputes are uncertainty, contractual problems, and behaviour.

== '''Uncertainty ''' ==

Uncertainty is the difference between the amount of information required to do the task and the amount of information available (Galbraith, 1973). The amount of information required depends on the task complexity and the performance requirements, usually measured in time or to a budget. The amount of information available depends on the effectiveness of planning and requires the collection and interpretation of that information for the task

Uncertainty means that not every detail of a project can be planned before work begins (Laufer, 1991). When uncertainty is high, initial drawings and specification will almost certainly change and the project members will have to work hard to solve problems as work proceeds if disputes are to be avoided.

== Contractual problems ==

Standard forms of contract clearly prescribe the risks and obligations each party has agreed to take. Such rigid agreements may not be appropriate for long-term transactions carried out under conditions of uncertainty.

It is not uncommon to find amended terms or bespoke contracts that shift the risk and obligations of the parties, often to the party least capable of carrying that risk. Where amended terms or bespoke contracts are used, they may be unclear and ambiguous.

As a consequence, differences may arise in the parties’ perception of the risk allocation under the contract. Where the parties have agreed to amended or bespoke terms, those conditions take effect in addition to the applicable law of the contract, which is continually evolving and being refined to address new issues.

== Behaviour ==

Since contracts cannot cater for every eventuality, wherever problems arise either party may have an interest in gaining as much as they can from the other. Equally, the parties may have a different perception of the facts. At least one of the parties may have unrealistic expectations, affecting their ability to reach agreement. Alternatively, one party may simply deny responsibility in an attempt to avoid liability.

= Common causes of construction disputes =

Construction is a unique process which can give rise to some unusual and unique disputes. However, research in Australia, Canada, Kuwait, the United Kingdom and the United States suggests that a number of common themes occur quite frequently :

== Acceleration ==

It is not uncommon for commercial property owners to insist upon acceleration of a construction project. Such examples might include the completion of a major retail scheme, and the need to meet key opening dates or tenant occupation in an office development. The construction costs associated with acceleration are likely to be less than the commercial risk the developer may face if key dates are missed.

The circumstances surrounding acceleration are often not properly analysed at the time the decision is made, and that inevitably leads to disputes once the contractor has carried out accelerative measures and incurred additional costs only to find that the developer refuses to pay.

The construction of facilities in Athens for the Olympic Games 2004 were subject to acceleration, and a wealth of disputes were expected once the facilities were completed and the euphoria of the Games over.

== Co-ordination ==

In complex projects involving many specialist trades, particularly mechanical and electrical installations, co-ordination is key, yet conflict often arises because work is not properly co-ordinated. This inevitably leads to conflict during installation which is often costly and time-consuming to resolve, with each party blaming the other for the problems that have arisen.

Ineffective management control may result in a reactive defence to problems that arise, rather than a proactive approach to resolve the problems once they become apparent.

== Culture ==

The personnel required to visualise, initiate, plan, design, supply materials and plant, construct, administer, manage, supervise, commission and correct defects throughout the span of a large construction contract is substantial. Such personnel may come from different social classes or ethnic backgrounds. In the United Kingdom skill shortages have led to an influx of personnel from central and eastern Europe, a trend likely to continue with the growth of pre-accession states seeking access to the labour market in the European Union.

Major international construction projects may employ or engage people from different nationalities and cultures. For example, on a major pipeline contract in Kazakhstan the owner was a joint venture comprising Kazakh, Canadian and British companies, and the owner’s representatives on the project for day-to-day matters were of Canadian, French, Russian and British nationalities. The contractor was a Greek–Italian joint venture that employed labour from no fewer than 24 different countries throughout central and eastern Europe, the Middle East and the Indian sub continent. Forming a teamwork approach across cultures can be very difficult where each culture has its own values.

== Differing goals ==

Personnel engaged on a large construction contract are likely to be employed by one of many subcontracted firms, including those engaged as suppliers and manufacturers. Each of these firms may have their own commitments and goals, which may not be compatible with each other and could result in disputes.

== Delays ==

Disputes frequently arise in respect of delays and who should bear the responsibility for them. Most construction contracts make provision for extending the time for completion. The sole reason for this is that the owner can keep alive any rights to delay damages recoverable from the contractor. On international construction projects the question of any rights the contractor might have to extend the time for completion was a matter often addressed towards the end of the contract, when an overrun looked likely. From the owner’s point of view, this made the examination of the true causes of delay problematical and inevitably led to disputes between the contractor and the owner as to the contractor’s proper entitlement.

Under the FIDIC contracts the contractor is now required to give prompt notice of any circumstances that may cause a delay. If the contractor fails to do so, then any rights to extend the time for completion will be lost, both under the contract and at law. This may seem a harsh measure, but a better view is that this approach brings claims to the surface at a very early stage and gives the recipient an opportunity to examine the cause and effect of any delay properly as and when it arises, so that the owner has some say in what can be done to overcome the delay.

== Design ==

Errors in design can lead to delays and additional costs that become the subject of disputes. Often no planning or sequencing is given to the release of design information, which then impacts on construction. Equally, the design team sometimes abrogate their responsibilities for the design, leaving the contractor to be drawn into solving any design deficiencies by carrying out that part of the work itself to try to avoid delays, and, in doing so, innocently assuming the risk for any subsequent design failures.

== Engineer and Employer’s Representative ==

The personality of the Engineer or the Employer’s Representative and their approach to the proper and fair administration of the contract on behalf of the Employer is crucial to avoiding disputes, yet a substantial proportion of disputes have been driven by the Engineer or the Employer’s Representative exercising an uneven hand in deciding differences in favour of the Employer.

In domestic and international contracts, the Engineer traditionally had an independent and impartial role. This independence or impartiality was often not properly exercised, and in some cases there was clear evidence of bias by the Engineer towards the Employer. This practice was not limited to third world countries but also existed in developed countries.

It is a complete fiction to say that the Engineer under government contracts in the United Kingdom could possibly act independently of the Employer on every issue.

Some contracts are open as to the constraints imposed on the Engineer: in Hong Kong Engineers are subject to financial constraints in respect of variations and in the extensions of time that can be given. While this may be understandable from a public policy point of view, it is unacceptable for it to be done behind a veil so that the fiction of independence is preserved.

Under the FIDIC contracts the Engineer no longer has an impartial role but expressly acts for the Employer. This does not prevent the Engineer from taking a professional view on the merits of any difference that may be at issue, but in the event of a dispute the mechanism to resolve such matters quickly by independent means has been achieved by the introduction of a dispute adjudication board.

== Project complexity ==

In complex construction projects the need to carry out a proper risk assessment before a contract is entered into is paramount: yet this is often not done.

There are numerous examples of projects taking much longer than planned and contracted for because there was insufficient appreciation of the risks associated with the project’s complexity. Inevitably the delay and additional costs the contractor incurs, and the owner’s right to claim damages for delay, often develop into bitter disputes.

== Quality and workmanship ==

In traditional construction contracts, disputes often arise as to whether or not the completed work is in accordance with the specifications. The specification may be vague on the subject of the dispute in question, and each party to the contract may have a different view on whether the quality and workmanship is acceptable.

This is even more so in international contracts. Although great care may have been taken to prescribe the quality of the materials and their compliance with European standards, these standards may contradict the local laws and regulations in the country where the project is being constructed, and any dispute will be governed by the law of that country.

In design and build contracts, perhaps the greatest deficiency is in the contract documentation, particularly the Employer’s requirements. This inadequacy inevitably leads to claims by the contractor for additional costs, which, if not resolved, can lead in turn to costly disputes.

== Site conditions ==

If the contract inadequately describes which party is to take the risk for the site conditions, disputes are inevitable when adverse site or ground conditions impede the progress of work or require more expensive engineering solutions.

Even if the Employer, in good faith, provides detailed information on the site conditions to the contractor, if that information is discovered to be incorrect and the contractor has relied on it and acted upon it to his detriment, the Employer may be liable to the contractor for the consequences.

== Tender ==

The time allowed to scrutinise the tender documents, prepare an outline programme and methodology, carry out a risk assessment, calculate the price, and conclude the whole process with a commercial review is often impossibly short. Mistakes in this process may have an adverse effect on the successful commercial outcome of the project. A culture may be engendered in the contractor of pursuing every claim that has a prospect of redressing any ultimate financial shortfall. This approach does nothing to foster close and co-operative working relationships between the owner and the contractor during the progress of the work, and inevitably leads to disputes.

== Variations ==

Variations are a prime cause of construction disputes, particularly where there are a substantial number, or the variations impact on partially completed work or are issued as work is nearing completion. The nature and number of variations can transform a relatively straightforward project into one of unmanageable complexity. The new Parliament building in Edinburgh is such an example. The building was planned to house 329 people, but through variations the building increased in size and complexity to house 1200 people. It was perhaps not surprising that the total cost of construction exceeded £500 million, almost ten times more than the original budget.

== Value engineering ==

This term often lacks definition in construction contracts and can lead to disputes, particularly where the saving is to be shared between the contractor and the owner.

Savings in respect of the supply and installation of the material or product in question might be relatively easy to determine and agree, but these are not the only benchmarks, and a proper value engineering approach needs to take full account of the life cycle costs of any proposed change.

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This article was created by --[[User%3AThe%20College%20of%20Estate%20Management|The College of Estate Management]] 13:00, 11 December 2012 (UTC)

= Find out more =

=== '''Related articles on Designing Buildings Wiki''' ===
*Adjudication.
*Alternative dispute resolution.
*Alternative dispute resolution legislation.
*Arbitration.
*Compensation event.
*Contract claims.
*Defects.
*Dispute resolution board.
*Extension of time.
*Liquidated damages.
*Loss and expense.
*Mediation.
*Relevant event.
*Risk assessment.
*Value management.
*Variations.

=== '''External references''' ===
*Fenn P (2002) ‘Why Construction Contracts Go Wrong (an Aetiological Approach to Construction Disputes)’, ''Society of Construction Law'', London.
*Fenn P, Lowe D and Speck C (1997) ‘Conflict and Disputes in Construction’, ''Construction Management and Economics'', Volume 15, page 513.
*Al-Sabah SJ, Fereig SM and Hoare DJ (2002) ‘Construction Claims – The Results of Major Tribunal Findings in Kuwait’, ''Arbitration'', Volume 68, Number 1, page 11.

[[Category:Contracts_/_payment]]
[[Category:Construction_management]]
[[Category:Other_legislation]]
[[Category:Client_procedures]]
[[Category:Procurement]]

Framework contract

2012-12-12T09:43:54Z

The College of Estate Management:

Clients that are continuously commissioning construction work might want to reduce timescales, learning curves and other risks by using framework agreements. Such arrangements allow the client to invite tenders from suppliers of goods and services to be carried out over a period of time on a call off basis as and when required.

The framework contract documents should define the scope and possible locations for the works or services likely to be required during the defined time period.

The contract documents should describe the contract conditions that will be used for pre-construction services (such as design) and/or the contract conditions that will be used to execute the works. Depending on the size and complexity of the anticipated projects, the supplier might provide a pricing mechanism or risk adjustment mechanism for different types of contract that might be used, for example a minor works contract, a cost reimbursable contract, a design and build contract and so on. The options would then be selected by the client depending on the nature of the projects that emerged.

Detailed descriptions of the selection and tender process can be found in the article ‘appointments’ for pre-construction services and ‘procurement’ for construction, as well as in the appointment and tender stages of the free work plans available on the Designing Building home page.

Framework tender documents are likely to include:
*The starting and completion dates of the agreement.
*Requirements and obligations regarding insurance, bonds and warranties.
*A description of the contract conditions to be used and assumptions regarding preliminaries.
*A description of how the project will be managed in its various stages and the basis of remuneration.
*A description of the tender selection procedure and assessment procedure to be employed by the client.
*A description of inflation, interest and retention percentages to be applied.
*A description of incentive mechanisms to be applied.
*A description of dispute resolution procedures.
*Rates for travel and subsistence expenses.
*A request for schedules of rates and time charges to be submitted and a breakdown of resources and overheads to be applied to design, or manufacture and installation (including any proposed subcontractor or sub-consultant details).
*Any other criteria required from tenderers in order that the client can properly assess their suitability.

One or more suppliers are then selected and appointed. When specific projects arise the client is then able to simply select a suitable framework supplier and instruct them to start work.

Where there is more than one suitable supplier available, the client may introduce a secondary selection process to assess which supplier is likely to offer best value for a specific project. The advantage to the client of this process is that they are able instigate a selection procedure for individual projects without having to undertake a time-consuming pre-qualification process (which might be subject to OJEU procurement rules on public projects). This should also reduced tender costs.

The advantage to the supplier is that the likelihood of them being awarded a project when they are already on a framework contract should be higher than it would be under an open procurement process. Some suppliers however complain that having already been appointed on a framework agreement, they may then have to bid for individual projects anyway, and after a great deal of time and effort may not be awarded any projects.

= Find out more =

=== Related articles on Designing Buildings Wiki ===
*Procurement route.
*Appointment.
*Contract.
*Tender.

=== External references ===
*Construction Manager: [http://construction-manager.co.uk/features/building-better-frameworks/ Building better frameworks].

[[Category:Appointments]]
[[Category:Procurement]]

Glossary of property law terms

2012-12-12T09:33:48Z

The College of Estate Management:

'''This glossary defines some of the more difficult terms used in property law.'''

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'''Adverse possession '''

Occupation of land inconsistent with the rights of the owner, without the permission of the owner.

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'''Alienation '''

The transfer of property from one party to another.

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'''Beneficial interest '''

The rights of a beneficiary in respect of property under a trust. It is a particular type of equitable interest.

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'''Chattel '''

An item of personal property (as opposed to real property).

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'''Commonhold '''

A system of freehold ownership of units suitable for interdependent buildings such as blocks of flats, based on Australian strata title.

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'''Common law '''

Rules of law developed from the decisions of the courts of common law.

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'''Constructive trust '''

A trust imposed by equity (''qv'') to protect the interests of beneficiaries under a trust.

Unlike an implied trust, it is not normally based on the presumed intention of the parties, but is a device to prevent injustice.

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'''Contingent interest '''

An interest that can only come into existence on the occurrence of a specified event, e.g. marriage. It cannot be a legal estate, but takes effect as an equitable interest under a settlement.

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'''Covenant '''

A promise contained in a deed (e.g. a clause in a lease). The person with the benefit is the covenantee, the person with the burden is the covenantor.

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'''Deed '''

A special legal document that is clearly intended to be a deed and is signed, witnessed, attested and delivered.

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'''Determinable fee '''

An interest in land which will automatically come to an end on the occurrence of a specified event. After 1925 it can only exist as an equitable interest.

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'''Disposition '''

A creation or transfer of an estate or interest in land.

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'''Easement '''

The right of the owner of one piece of land (the dominant tenement) to a benefit from other land (the servient tenement).

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'''Equitable interest '''

A right recognised by the courts of equity, as distinct from a legal interest recognised by the courts of common law, e.g. an interest under a trust.

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'''Equity '''

The part of English law originating from decisions of the Lord Chancellor, and later the Courts of Chancery, which grew up to provide a remedy where the common law was inadequate. It is now a regulated set of legal principles.

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'''Estate '''

The character and duration of a person’s ownership of land.

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'''Estate contract '''

An agreement to create or convey a legal estate, e.g. an option to purchase.

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'''(Equitable) Estoppel '''

A principle which prevents a person going back on a representation. There are two forms of equitable estoppel:
*promissory estoppel, which prevents a party going back on a promise not to enforce contractual rights;
*proprietary estoppel, which prevents a landowner denying that a claimant has acquired rights in his land where he (the landowner) has acquiesced and the claimant has incurred expenditure.

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'''Execution '''

The process of signing, witnessing and attesting a deed.

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'''Fee simple absolute and in possession '''

A freehold estate in land.

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'''Hereditament '''

Real property capable of being passed.
*A corporeal hereditament is tangible property such as land or buildings.
*An incorporeal hereditament is intangible property such as an easement.

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'''Implied trust '''

A trust that arises from the presumed but unexpressed intention of the settlor, or by operation of law.

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'''Indefeasible '''

Incapable of being made void.

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'''Joint tenancy '''

Ownership of land by two or more persons with identical interests in the whole of it.

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'''Land charge '''

An obligation imposed on a landowner in favour of a third party’s interest in the land.

Registrable under the Land Charges Act 1972 at the Land Charges Registry if relating to unregistered land. Registrable at the Land Registry if relating to registered land.

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'''Legal estate '''

Freehold or leasehold ownership of land.

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'''Legal interest '''

A limited category of interests in land specifically stated by s.1(2) Law of Property Act 1925 to be legal interests, e.g. a legal mortgage.

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'''Licence '''

(In land law.) Permission to enter or occupy land for an agreed purpose. The licensor gives such permission, the licensee is in receipt of the permission.

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'''Life interest '''

An interest in property which only lasts as long as the life of a particular person. It creates a settlement and can only exist as an equitable interest.

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'''Minor interest '''

Interests in registered land which must be protected by registration.

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'''Mortgage '''

An interest in land created as security for a debt. The lender is the mortgagee, the borrower is the mortgagor.

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'''Natural rights '''

Fundamental rights which automatically belong to a landowner, breach of which will be actionable in nuisance, e.g. right to support from the soil.

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'''Overreaching '''

The process by which interests in land are converted on a sale of land into rights in the proceeds of sale.

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'''Overriding interest '''

A right or interest in registered land which is binding on the Registered Proprietor and third parties without being registered, e.g. the rights of persons in actual occupation of the land.

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'''Part performance '''

(Not to be confused with specific performance.) An equitable doctrine which allowed an imperfect contract to be perfected where it had been acted upon (i.e. partly performed) by one of the parties.

It was particularly applied to contracts for the sale of land, but has effectively been abolished in that context by the Law of Property (Miscellaneous Provisions) Act 1989.

----

'''Prescription '''

A method of acquiring an easement by long user.

----

'''Priority of mortgages '''

The order in which two or more mortgages over the same land will take effect.

----

'''Privity '''

The relationship between parties which results from them participating in the same transaction or occurrence; e.g. privity of contract (same agreement) and privity of estate (same legal estate).

----

'''Profit ''à prendre'' '''

The right to take produce from another’s land or to graze animals on it.

----

'''Puisne mortgage '''

A legal mortgage in unregistered land in which the mortgagee does not keep the title deeds as security, e.g. a second or subsequent legal mortgage. It must be protected by registration.

----

'''Rectification '''

Correction of a document.

----

'''Redemption (equity of) '''

The right of the mortgagor to redeem the property on repayment of the mortgage.

----

'''Registered land '''

Land of which the ownership and third party rights affecting it are registered (recorded) at the Land Registry. Proof of ownership is by reference to the Land Registry entries.

----

'''Remainder '''

An equitable interest in land which only takes effect in possession when a prior interest ends.

----

'''Restrictive covenant '''

A covenant which imposes a restriction on the use of land.

----

'''Resulting trust '''

A trust created by operation of law, sometimes in order to give effect to the presumed but unexpressed intention of the settlor.

----

'''Reversion '''

The interest in land retained by a person who has granted someone else a lesser interest.

----

'''Specific performance '''

An order of the court forcing a person to fulfil their contractual obligations.

----

'''Strict settlement '''

A trust which creates successive beneficial interests in land (usually with the object of keeping land in a particular family) and which brings it under the control of the Settled Land Act 1925.

----

'''Tenure '''

The nature of a legal estate.

----

'''Term of years absolute '''

A leasehold estate in land.

----

'''Title '''

Rights of ownership.

----

'''Trust '''

A transfer of property to trustee(s) for them to hold it for the benefit of another person(s).

----

'''Trust for sale '''

A trust under which the trustees are obliged to sell the property and hold the proceeds of sale on trust for the beneficiaries.

----

'''Trust of land '''

A trust under which the trustees have the power, but no obligation to sell the property.

The property until sold and any subsequent proceeds of sale are held on trust for the beneficiary(ies).

----

'''Unregistered land '''

Land of which the ownership is not registered (recorded) at the Land Registry.

Ownership is proved by reference to title deeds.

----

This article was created by --[[User%3AThe%20College%20of%20Estate%20Management|The College of Estate Management]] 09:32, 12 December 2012 (UTC) 

= Find out more =

=== Related articles on Designing Buildings Wiki ===
*Acronyms

=== ===

[[Category:Other_legislation]]
[[Category:Property_law]]
[[Category:Property_development]]
[[Category:Contracts_/_payment_/_payment]]
[[Category:Cost_/_business_planning]]

Glossary of property law terms

2012-12-12T09:33:26Z

The College of Estate Management:

'''This glossary defines some of the more difficult terms used in property law.'''

----

'''Adverse possession '''

Occupation of land inconsistent with the rights of the owner, without the permission of the owner.

----

'''Alienation '''

The transfer of property from one party to another.

----

'''Beneficial interest '''

The rights of a beneficiary in respect of property under a trust. It is a particular type of equitable interest.

----

'''Chattel '''

An item of personal property (as opposed to real property).

----

'''Commonhold '''

A system of freehold ownership of units suitable for interdependent buildings such as blocks of flats, based on Australian strata title.

----

'''Common law '''

Rules of law developed from the decisions of the courts of common law.

----

'''Constructive trust '''

A trust imposed by equity (''qv'') to protect the interests of beneficiaries under a trust.

Unlike an implied trust, it is not normally based on the presumed intention of the parties, but is a device to prevent injustice.

----

'''Contingent interest '''

An interest that can only come into existence on the occurrence of a specified event, e.g. marriage. It cannot be a legal estate, but takes effect as an equitable interest under a settlement.

----

'''Covenant '''

A promise contained in a deed (e.g. a clause in a lease). The person with the benefit is the covenantee, the person with the burden is the covenantor.

----

'''Deed '''

A special legal document that is clearly intended to be a deed and is signed, witnessed, attested and delivered.

----

'''Determinable fee '''

An interest in land which will automatically come to an end on the occurrence of a specified event. After 1925 it can only exist as an equitable interest.

----

'''Disposition '''

A creation or transfer of an estate or interest in land.

----

'''Easement '''

The right of the owner of one piece of land (the dominant tenement) to a benefit from other land (the servient tenement).

----

'''Equitable interest '''

A right recognised by the courts of equity, as distinct from a legal interest recognised by the courts of common law, e.g. an interest under a trust.

----

'''Equity '''

The part of English law originating from decisions of the Lord Chancellor, and later the Courts of Chancery, which grew up to provide a remedy where the common law was inadequate. It is now a regulated set of legal principles.

----

'''Estate '''

The character and duration of a person’s ownership of land.

----

'''Estate contract '''

An agreement to create or convey a legal estate, e.g. an option to purchase.

----

'''(Equitable) Estoppel '''

A principle which prevents a person going back on a representation. There are two forms of equitable estoppel:
*promissory estoppel, which prevents a party going back on a promise not to enforce contractual rights;
*proprietary estoppel, which prevents a landowner denying that a claimant has acquired rights in his land where he (the landowner) has acquiesced and the claimant has incurred expenditure.

----

'''Execution '''

The process of signing, witnessing and attesting a deed.

----

'''Fee simple absolute and in possession '''

A freehold estate in land.

----

'''Hereditament '''

Real property capable of being passed.
*A corporeal hereditament is tangible property such as land or buildings.
*An incorporeal hereditament is intangible property such as an easement.

----

'''Implied trust '''

A trust that arises from the presumed but unexpressed intention of the settlor, or by operation of law.

----

'''Indefeasible '''

Incapable of being made void.

----

'''Joint tenancy '''

Ownership of land by two or more persons with identical interests in the whole of it.

----

'''Land charge '''

An obligation imposed on a landowner in favour of a third party’s interest in the land.

Registrable under the Land Charges Act 1972 at the Land Charges Registry if relating to unregistered land. Registrable at the Land Registry if relating to registered land.

----

'''Legal estate '''

Freehold or leasehold ownership of land.

----

'''Legal interest '''

A limited category of interests in land specifically stated by s.1(2) Law of Property Act 1925 to be legal interests, e.g. a legal mortgage.

----

'''Licence '''

(In land law.) Permission to enter or occupy land for an agreed purpose. The licensor gives such permission, the licensee is in receipt of the permission.

----

'''Life interest '''

An interest in property which only lasts as long as the life of a particular person. It creates a settlement and can only exist as an equitable interest.

----

'''Minor interest '''

Interests in registered land which must be protected by registration.

----

'''Mortgage '''

An interest in land created as security for a debt. The lender is the mortgagee, the borrower is the mortgagor.

----

'''Natural rights '''

Fundamental rights which automatically belong to a landowner, breach of which will be actionable in nuisance, e.g. right to support from the soil.

----

'''Overreaching '''

The process by which interests in land are converted on a sale of land into rights in the proceeds of sale.

----

'''Overriding interest '''

A right or interest in registered land which is binding on the Registered Proprietor and third parties without being registered, e.g. the rights of persons in actual occupation of the land.

----

'''Part performance '''

(Not to be confused with specific performance.) An equitable doctrine which allowed an imperfect contract to be perfected where it had been acted upon (i.e. partly performed) by one of the parties.

It was particularly applied to contracts for the sale of land, but has effectively been abolished in that context by the Law of Property (Miscellaneous Provisions) Act 1989.

----

'''Prescription '''

A method of acquiring an easement by long user.

----

'''Priority of mortgages '''

The order in which two or more mortgages over the same land will take effect.

----

'''Privity '''

The relationship between parties which results from them participating in the same transaction or occurrence; e.g. privity of contract (same agreement) and privity of estate (same legal estate).

----

'''Profit ''à prendre'' '''

The right to take produce from another’s land or to graze animals on it.

----

'''Puisne mortgage '''

A legal mortgage in unregistered land in which the mortgagee does not keep the title deeds as security, e.g. a second or subsequent legal mortgage. It must be protected by registration.

----

'''Rectification '''

Correction of a document.

----

'''Redemption (equity of) '''

The right of the mortgagor to redeem the property on repayment of the mortgage.

----

'''Registered land '''

Land of which the ownership and third party rights affecting it are registered (recorded) at the Land Registry. Proof of ownership is by reference to the Land Registry entries.

----

'''Remainder '''

An equitable interest in land which only takes effect in possession when a prior interest ends.

----

'''Restrictive covenant '''

A covenant which imposes a restriction on the use of land.

----

'''Resulting trust '''

A trust created by operation of law, sometimes in order to give effect to the presumed but unexpressed intention of the settlor.

----

'''Reversion '''

The interest in land retained by a person who has granted someone else a lesser interest.

----

'''Specific performance '''

An order of the court forcing a person to fulfil their contractual obligations.

----

'''Strict settlement '''

A trust which creates successive beneficial interests in land (usually with the object of keeping land in a particular family) and which brings it under the control of the Settled Land Act 1925.

----

'''Tenure '''

The nature of a legal estate.

----

'''Term of years absolute '''

A leasehold estate in land.

----

'''Title '''

Rights of ownership.

----

'''Trust '''

A transfer of property to trustee(s) for them to hold it for the benefit of another person(s).

----

'''Trust for sale '''

A trust under which the trustees are obliged to sell the property and hold the proceeds of sale on trust for the beneficiaries.

----

'''Trust of land '''

A trust under which the trustees have the power, but no obligation to sell the property.

The property until sold and any subsequent proceeds of sale are held on trust for the beneficiary(ies).

----

'''Unregistered land '''

Land of which the ownership is not registered (recorded) at the Land Registry.

Ownership is proved by reference to title deeds.

----

This article was created by --[[User%3AThe%20College%20of%20Estate%20Management|The College of Estate Management]] 09:32, 12 December 2012 (UTC) 

= Find out more =

=== Related articles on Designing Buildings Wiki ===
*
Acronyms

=== ===

[[Category:Other_legislation]]
[[Category:Property_law]]
[[Category:Property_development]]
[[Category:Contracts_/_payment_/_payment]]
[[Category:Cost_/_business_planning]]

Glossary of property law terms

2012-12-12T09:32:22Z

The College of Estate Management:

'''This glossary defines some of the more difficult terms used in property law.'''

----

'''Adverse possession '''

Occupation of land inconsistent with the rights of the owner, without the permission of the owner.

----

'''Alienation '''

The transfer of property from one party to another.

----

'''Beneficial interest '''

The rights of a beneficiary in respect of property under a trust. It is a particular type of equitable interest.

----

'''Chattel '''

An item of personal property (as opposed to real property).

----

'''Commonhold '''

A system of freehold ownership of units suitable for interdependent buildings such as blocks of flats, based on Australian strata title.

----

'''Common law '''

Rules of law developed from the decisions of the courts of common law.

----

'''Constructive trust '''

A trust imposed by equity (''qv'') to protect the interests of beneficiaries under a trust.

Unlike an implied trust, it is not normally based on the presumed intention of the parties, but is a device to prevent injustice.

----

'''Contingent interest '''

An interest that can only come into existence on the occurrence of a specified event, e.g. marriage. It cannot be a legal estate, but takes effect as an equitable interest under a settlement.

----

'''Covenant '''

A promise contained in a deed (e.g. a clause in a lease). The person with the benefit is the covenantee, the person with the burden is the covenantor.

----

'''Deed '''

A special legal document that is clearly intended to be a deed and is signed, witnessed, attested and delivered.

----

'''Determinable fee '''

An interest in land which will automatically come to an end on the occurrence of a specified event. After 1925 it can only exist as an equitable interest.

----

'''Disposition '''

A creation or transfer of an estate or interest in land.

----

'''Easement '''

The right of the owner of one piece of land (the dominant tenement) to a benefit from other land (the servient tenement).

----

'''Equitable interest '''

A right recognised by the courts of equity, as distinct from a legal interest recognised by the courts of common law, e.g. an interest under a trust.

----

'''Equity '''

The part of English law originating from decisions of the Lord Chancellor, and later the Courts of Chancery, which grew up to provide a remedy where the common law was inadequate. It is now a regulated set of legal principles.

----

'''Estate '''

The character and duration of a person’s ownership of land.

----

'''Estate contract '''

An agreement to create or convey a legal estate, e.g. an option to purchase.

----

'''(Equitable) Estoppel '''

A principle which prevents a person going back on a representation. There are two forms of equitable estoppel:
*promissory estoppel, which prevents a party going back on a promise not to enforce contractual rights;
*proprietary estoppel, which prevents a landowner denying that a claimant has acquired rights in his land where he (the landowner) has acquiesced and the claimant has incurred expenditure.

----

'''Execution '''

The process of signing, witnessing and attesting a deed.

----

'''Fee simple absolute and in possession '''

A freehold estate in land.

----

'''Hereditament '''

Real property capable of being passed.
*A corporeal hereditament is tangible property such as land or buildings.
*An incorporeal hereditament is intangible property such as an easement.

----

'''Implied trust '''

A trust that arises from the presumed but unexpressed intention of the settlor, or by operation of law.

----

'''Indefeasible '''

Incapable of being made void.

----

'''Joint tenancy '''

Ownership of land by two or more persons with identical interests in the whole of it.

----

'''Land charge '''

An obligation imposed on a landowner in favour of a third party’s interest in the land.

Registrable under the Land Charges Act 1972 at the Land Charges Registry if relating to unregistered land. Registrable at the Land Registry if relating to registered land.

----

'''Legal estate '''

Freehold or leasehold ownership of land.

----

'''Legal interest '''

A limited category of interests in land specifically stated by s.1(2) Law of Property Act 1925 to be legal interests, e.g. a legal mortgage.

----

'''Licence '''

(In land law.) Permission to enter or occupy land for an agreed purpose. The licensor gives such permission, the licensee is in receipt of the permission.

----

'''Life interest '''

An interest in property which only lasts as long as the life of a particular person. It creates a settlement and can only exist as an equitable interest.

----

'''Minor interest '''

Interests in registered land which must be protected by registration.

----

'''Mortgage '''

An interest in land created as security for a debt. The lender is the mortgagee, the borrower is the mortgagor.

----

'''Natural rights '''

Fundamental rights which automatically belong to a landowner, breach of which will be actionable in nuisance, e.g. right to support from the soil.

----

'''Overreaching '''

The process by which interests in land are converted on a sale of land into rights in the proceeds of sale.

----

'''Overriding interest '''

A right or interest in registered land which is binding on the Registered Proprietor and third parties without being registered, e.g. the rights of persons in actual occupation of the land.

----

'''Part performance '''

(Not to be confused with specific performance.) An equitable doctrine which allowed an imperfect contract to be perfected where it had been acted upon (i.e. partly performed) by one of the parties.

It was particularly applied to contracts for the sale of land, but has effectively been abolished in that context by the Law of Property (Miscellaneous Provisions) Act 1989.

----

'''Prescription '''

A method of acquiring an easement by long user.

----

'''Priority of mortgages '''

The order in which two or more mortgages over the same land will take effect.

----

'''Privity '''

The relationship between parties which results from them participating in the same transaction or occurrence; e.g. privity of contract (same agreement) and privity of estate (same legal estate).

----

'''Profit ''à prendre'' '''

The right to take produce from another’s land or to graze animals on it.

----

'''Puisne mortgage '''

A legal mortgage in unregistered land in which the mortgagee does not keep the title deeds as security, e.g. a second or subsequent legal mortgage. It must be protected by registration.

----

'''Rectification '''

Correction of a document.

----

'''Redemption (equity of) '''

The right of the mortgagor to redeem the property on repayment of the mortgage.

----

'''Registered land '''

Land of which the ownership and third party rights affecting it are registered (recorded) at the Land Registry. Proof of ownership is by reference to the Land Registry entries.

----

'''Remainder '''

An equitable interest in land which only takes effect in possession when a prior interest ends.

----

'''Restrictive covenant '''

A covenant which imposes a restriction on the use of land.

----

'''Resulting trust '''

A trust created by operation of law, sometimes in order to give effect to the presumed but unexpressed intention of the settlor.

----

'''Reversion '''

The interest in land retained by a person who has granted someone else a lesser interest.

----

'''Specific performance '''

An order of the court forcing a person to fulfil their contractual obligations.

----

'''Strict settlement '''

A trust which creates successive beneficial interests in land (usually with the object of keeping land in a particular family) and which brings it under the control of the Settled Land Act 1925.

----

'''Tenure '''

The nature of a legal estate.

----

'''Term of years absolute '''

A leasehold estate in land.

----

'''Title '''

Rights of ownership.

----

'''Trust '''

A transfer of property to trustee(s) for them to hold it for the benefit of another person(s).

----

'''Trust for sale '''

A trust under which the trustees are obliged to sell the property and hold the proceeds of sale on trust for the beneficiaries.

----

'''Trust of land '''

A trust under which the trustees have the power, but no obligation to sell the property.

The property until sold and any subsequent proceeds of sale are held on trust for the beneficiary(ies).

----

'''Unregistered land '''

Land of which the ownership is not registered (recorded) at the Land Registry.

Ownership is proved by reference to title deeds.

----

This article was created by --[[User:The College of Estate Management|The College of Estate Management]] 09:32, 12 December 2012 (UTC) 

= Find out more =

=== Related articles on Designing Buildings Wiki ===
*Acronyms
=== ===

=== ===

[[Category:Other_legislation]]
[[Category:Property_law]]
[[Category:Property_development]]
[[Category:Contracts_/_payment_/_payment]]
[[Category:Cost_/_business_planning]]

Alternative Dispute Resolution legislation

2012-12-11T18:01:24Z

The College of Estate Management: Created page with " = Introduction = The Civil Procedure Rules 1998, which apply only to litigation in England and Wales, contain several references to Alternative Dispute Resolution (ADR), includ..."

Mediation in construction

2012-12-11T17:59:08Z

The College of Estate Management:

= Introduction =

Mediation is a consensual process of dispute resolution in which a third party mediator, appointed by the parties to the dispute, assists in the negotiated resolution of the dispute.

Tthere are basically two types of mediation, ‘'''facilitative''' '''mediation'''’ and ‘'''evaluative mediation'''’ – although, in practice, there are many shades of grey in between.

'''Facilitative mediation''' involves the participation of a neutral third party (the mediator) whose primary role is to assist the parties to reach a negotiated solution. As a facilitator, the mediator manages the negotiation process, assisting the parties to overcome deadlock and encouraging them to think creatively about solutions. The mediator will also encourage the parties to focus on their underlying interests and concerns and to move away from the fixed positions that often obscure the real issues. They will assist the parties in identifying common ground and may act as a reality tester, encouraging parties to reflect realistically upon their position and upon the consequences of failing to reach a negotiated solution.

Where '''evaluative mediation''' is used, the mediator learns the facts of the case and each party’s position. The mediator then expresses to each party a view on the overall merits as they see them. Conciliation, as practised under the ICE Conciliation Procedure, may be considered as a form of evaluative mediation in so far as, if a settlement is not reached with the conciliator acting in facilitative mode, then they issue a ‘recommendation’ setting out how, in their opinion, the matter should be resolved. NB ICE contracts have now been withdrawn in favour of NEC contracts ([http://www.ice.org.uk/topics/lawandcontracts/ICE-Conditions-of-Contract Ref]). The term ‘conciliation’ is gradually falling into disuse and the process is regarded as a form of mediation.

= Techniques =

The range of procedures provided by the [http://www.cedr.com/ Centre for Effective Dispute Resolution] (CEDR), a leading mediation organisation, includes:
*Assisted negotiation and independent chairing.
*Coaching.
*Early neutral evaluation.
*Expert determination.
*Independent intervention.
*Independent investigation and review.

Mediations have no rigid procedure but a typical one might proceed along the following lines:
*The first step is for a mediator to be chosen, either by agreement between the parties, or by selection by an organisation such as CEDR or CIArb. A proposed mediator should not accept an appointment unless all parties have agreed to the appointment.
*A date, time and venue for the mediation meeting will be fixed. Commonly the venue will comprise a large room capable of accommodating all the participants, which is used for joint sessions, and a separate room for each of the parties involved in the mediation.
*At a set time (usually two to three weeks) before the date fixed for the mediation meeting, the parties simultaneously produce written statements, together with any documents which they wish the mediator to see, and serve these on the other party or parties and the mediator. There is commonly a limit on the length of the written submissions and the numbers of documents.
*On the appointed day for the mediation meeting, the mediator will meet all the parties in an initial joint session at which each will present a brief oral summary of their case, possibly through their legal advisers. A limit on the time allowed for each party is common.
*Each party will then retire to their separate rooms and the mediator will talk to each party in turn, either by visiting them in their separate rooms or by calling them into the main room. Such private meetings are known as ‘caucuses’ in the jargon of ADR practitioners. Everything that takes place in the caucuses is private and confidential and their purpose is to enable the mediator to establish his understanding of the possibilities for reaching agreement and the approach most likely to encourage settlement.
*The mediator will then shuttle between the various parties as required in an effort to find a settlement to the dispute. Nothing disclosed to the mediator in confidence in the caucuses will be disclosed to any other party without the express permission of the party disclosing the information. Private meetings between the mediator and only some of the parties may take place.
*Working with the parties, the mediator will examine the issues arising in the dispute. The mediator does not take sides but they may challenge a position being adopted by one or other party. The mediator may suggest looking at the dispute from a different angle. They may test out possible ways of resolving the dispute. In short, they will examine the dispute and work with the parties to find an acceptable solution.
*During the various joint and private sessions, the mediator will be using the conventional negotiating techniques such as:
#separating the people from the problem – being easy on the people and hard on the problem;
#getting behind the position to find the interest;
#encouraging a constructive problem-solving approach rather than dwelling on past quarrels and arguments.
*The mediator may decide at any time to bring the parties together in joint session to report progress and seek mutually agreeable ways forward.
*When and if the mediator reaches the position at which a settlement has been achieved, they will bring the parties together in joint session for a final time and will work with the parties to reduce the settlement to writing by means of a binding legal agreement and/or a consent order.
*If no settlement can be reached at the meeting, but some progress has been made, it is still open to the parties to adjourn to another time and place. The evidence is that even when no settlement is reached at the meeting itself, the parties will often reach an agreement shortly afterwards as a consequence of the discussions and progress made at the meeting.

The process is voluntary, confidential, non-binding and without prejudice to the parties’ legal positions. The fact that legal action is underway does not prevent mediation although the cost benefits of achieving settlement through mediation are obviously greater the earlier mediation is employed to resolve the dispute.

= Adoption =

Mediation is now very much a core procedure in construction contracts and, whilst it must of necessity remain consensual, the courts will enforce mediation clauses in contracts. The courts cannot insist that the parties reach an agreement, however they will order parties to engage in the mediation process if there is a contractual obligation and can stay legal proceedings pending mediation. An unreasonable refusal to mediate may prejudice the right of a successful litigant to an award of legal costs.

Mediation has strong public policy support from the UK Government, public authorities and the private sector.

= '''Case study 1: Pre-litigation mediation ''' =

This dispute concerned an artificial sports pitch that was not performing as anticipated in that it flooded during heavy rain. Initially the argument was between the main contractor, subcontractor and consulting engineer; but, in all, six parties were affected by the dispute:
*the local authority which originally commissioned the works;
*an educational trust who inherited the pitch;
*a main contractor;
*a specialist subcontractor;
*a consulting engineer;
*a sports surfaces consultant.

Various tests and attempts at curing the problem had been undertaken, none of which were conclusive or resolved the problem. The cost of taking up and completely relaying the surface, including the sub-base and drainage, would have been in the order of £250,000.

At the instigation of counsel consulted by the local authority’s in-house solicitor, mediation was suggested, as the prospect of six parties in dispute, some of whom had arbitration clauses in their contracts and some of whom did not, was extremely daunting.

All the parties agreed to refer the dispute to mediation and, unusually, the local authority agreed to pay all the mediator’s fees. A mediator was agreed and he required written submissions and responses, each party being given the opportunity to respond to all the other parties’ submissions. This took about eight weeks.

A mediation meeting was held about four weeks after close of written submissions and it lasted all day. All the parties represented themselves and the only lawyer present was the local authority’s in-house solicitor. The mediator was an experienced civil engineer.

The mediation meeting followed the usual format, commencing with a joint session, at which each party made brief oral submissions followed by the mediator shuttling between the parties. The meeting concluded successfully in the late afternoon with a draft agreement having been reached which required formal approval by the local authority’s elected members before it could be finalised, but which had the support of their solicitor who attended the meeting.

The settlement included the waiving of claims and fees by some of the parties and undertakings concerning the guaranteed life of the surface together with a contribution by the contractor/subcontractor towards additional maintenance of the pitch.

Formal approval was obtained about six weeks later and the settlement concluded.

Apart from the internal costs of the parties’ own staff, the only external costs were those of the mediator, which were about £3,500.

= '''Case study 2: Post-pleadings mediation ''' =

The dispute concerned an industrial building in the UK which had developed a defect about six months after practical completion. The main contractor for the work was a major UK contractor who had subcontracted – to a small, local specialist contractor – the work which was apparently the cause of the defect. Several attempts to correct the defect were made without success and eventually the architect issued an instruction requiring the whole of the subcontractor’s work to be taken out and re-executed strictly in accordance with the specification. Both the main contractor and the subcontractor were by this time convinced, that the problem lay with the design, and refused to carry out the instruction.

The building owner then employed a consultant architect to advise him about the problem and in due course employed another contractor to strip out and re-execute the defective work to what was, in effect, a different design.

The building owner then commenced proceedings in the High Court naming the architect as first defendant and the main contractor as second defendant. The basis of the building owner’s claim was failure by the architect to design and supervise the works and alternatively failure by the main contractor to carry out the works in accordance with the specification.

The main contractor then issued third party proceedings against the subcontractor, but the subcontractor was successful in applying to the court for those proceedings to be stayed to arbitration, as there was an arbitration clause in the subcontract.

The situation was clearly very complex with the main contractor having the additional problem of having to fight both the litigation and the arbitration. Mediation was suggested by solicitors, for one of the parties at the stage in the proceedings when an eight-week hearing had been fixed in the High Court at a date about 10 months in the future. Pleadings had been exchanged in the main action and the commencement of discovery was the next major step to be taken.

A without prejudice meeting was then held between solicitors for all the parties, including that of the subcontractor. It was agreed to explore the possibility of attempting to resolve the matter by mediation and an exploratory meeting for the solicitors was arranged under the auspices of CEDR, following which, all four parties agreed to take part in a mediation.

CEDR proposed that the mediation tribunal should comprise both a mediator and a pupil mediator, and in due course suggested the names of two persons, both of whom had dual technical and legal qualifications. All four parties agreed to both the names suggested and a date for the mediation meeting was agreed.

Each party was allowed to submit a written statement of its case (plus whatever supporting documents it required to be appended) to CEDR not later than 14 days before the mediation meeting. These were then simultaneously circulated to all the other parties.

The mediation itself commenced at about 9.30 a.m. The mediator, pupil mediator and the parties with their respective solicitors and advisers first met in joint session. In all, 16 people were present. After a brief introduction to the proceedings by the mediator and the mutual introduction of all those present, each party was allowed 10 minutes to make a brief, oral presentation of its case, following which each party was given an opportunity to comment on the other parties’ presentations. This phase took no longer than one hour.

Each party then retired to separate rooms and the mediator and his pupil commenced their meetings with each party in turn. The process was very protracted. There were three major matters to be resolved:
#The building owner was clearly the ‘innocent’ party and had to be persuaded to accept a figure less than he had expended in remedying the defect. Arguments concerning some potential ‘betterment’ of the revised design and the irrecoverable legal costs of the litigation were no doubt advanced by the mediator.
#The question as to whether the defect was due to a failure in design or workmanship and the risk to both the architect and the main contractor of the court finding against them. The mediator had the task of persuading both parties to make a contribution.
#The split of any responsibility for defective work between main and subcontractor. In practice, this matter was resolved between the main and subcontractor without assistance from the mediator.

The mediators had at least three private sessions with each party and a greater number with the building owner and architect. Some of the private sessions were very long, lasting over one hour each. At no stage did the mediator overtly express his own opinion as to the merits of the respective parties’ cases. He concentrated on the costs and risks of litigating and the difficulties of proving in court the various allegations each party sought to advance in its favour.

By 10 p.m., the parties were getting close to a settlement, but some needed to take further instructions from their respective head offices – by then closed for the evening. The meeting was terminated on the understanding that discussions would continue the following day by telephone via the mediator.

The dispute was finally settled about 48 hours later. The building owner accepted significantly less than the amount of his claim. The architect, main contractor and subcontractor each contributed amounts which were far less than they would individually have had to pay had they had been found to be 100% liable by the Court.

Each party no doubt thought that it had conceded too much!

The amount in dispute was about £500,000 and it was generally agreed that the total litigation costs would amount to a similar figure if the matter went to trial.

The estimated costs of the mediation process were about £10,000 per party.

This mediation was a good example of how a mediation process was still viable even though litigation had already commenced, and the process was easily ‘slotted in’ during a quiet period in the litigation, without in any way adversely affecting the litigation timetable.

----

This article was created by --[[User%3AThe%20College%20of%20Estate%20Management|The College of Estate Management]] 16:23, 11 December 2012 (UTC)

= Find out more =

=== Related articles on Designing Buildings Wiki ===
*Adjudication.
*Alternative dispute resolution.
*Arbitration.
*Causes of construction disputes.
*Contract claims.
*Dispute resolution boards.
*Housing Grants, Construction and Regeneration Act.
*Scheme for Construction Contracts.

=== External references ===
*Tiered ADR, [http://www.ciarb.org/ Chartered Institute of Arbitrators], "Catch All" Dispute Resolution Clause.
*‘Alternative Dispute Resolution – A Discussion Paper’, The Lord Chancellor’s Department.
*Dignan, Sorsby and Hibbert (1996) ‘Neighbour Disputes – Comparing the cost-effectiveness of mediation and alternative approaches’, Centre for Criminological and Legal Research, University of Sheffield. ISBN: 1872998364.
*''[http://webarchive.nationalarchives.gov.uk/+/http://www.dca.gov.uk/research/1998/598esfr.htm The Central London County Court Pilot Mediation Scheme]– '' Evaluation Report by Professor Hazel Genn.
*''The Institution of Civil Engineers’ Conciliation Procedure 1999'' (1999) London: Thomas Telford Publishing.
*Tait J N and Cottam G (1994) ‘The ICE Conciliation Procedure 1994’, ''Civil'' ''Engineering Surveyor'', November.
*[http://www.cedr.com/ The Centre for Effective Dispute Resolution]
*[http://www.mediationmatters.org.uk/ Mediation Matters].

[[Category:Contracts_/_payment]]
[[Category:Construction_management]]
[[Category:Contracts_/_payment]]
[[Category:Other_legislation]]
[[Category:Procurement]]

Mediation in construction

2012-12-11T17:54:58Z

The College of Estate Management:

Mediation is a consensual process of dispute resolution in which a third party mediator, appointed by the parties to the dispute, assists in the negotiated resolution of the dispute.

Tthere are basically two types of mediation, ‘'''facilitative''' '''mediation'''’ and ‘'''evaluative mediation'''’ – although, in practice, there are many shades of grey in between.

'''Facilitative mediation''' involves the participation of a neutral third party (the mediator) whose primary role is to assist the parties to reach a negotiated solution. As a facilitator, the mediator manages the negotiation process, assisting the parties to overcome deadlock and encouraging them to think creatively about solutions. The mediator will also encourage the parties to focus on their underlying interests and concerns and to move away from the fixed positions that often obscure the real issues. They will assist the parties in identifying common ground and may act as a reality tester, encouraging parties to reflect realistically upon their position and upon the consequences of failing to reach a negotiated solution.

Where '''evaluative mediation''' is used, the mediator learns the facts of the case and each party’s position. The mediator then expresses to each party a view on the overall merits as they see them. Conciliation, as practised under the ICE Conciliation Procedure, may be considered as a form of evaluative mediation in so far as, if a settlement is not reached with the conciliator acting in facilitative mode, then they issue a ‘recommendation’ setting out how, in their opinion, the matter should be resolved. NB ICE contracts have now been withdrawn in favour of NEC contracts ([http://www.ice.org.uk/topics/lawandcontracts/ICE-Conditions-of-Contract Ref]). The term ‘conciliation’ is gradually falling into disuse and the process is regarded as a form of mediation.

The range of procedures provided by the [http://www.cedr.com/ Centre for Effective Dispute Resolution] (CEDR), a leading mediation organisation, includes:
*Assisted negotiation and independent chairing.
*Coaching.
*Early neutral evaluation.
*Expert determination.
*Independent intervention.
*Independent investigation and review.

Mediations have no rigid procedure but a typical one might proceed along the following lines:
*The first step is for a mediator to be chosen, either by agreement between the parties, or by selection by an organisation such as CEDR or CIArb. A proposed mediator should not accept an appointment unless all parties have agreed to the appointment.
*A date, time and venue for the mediation meeting will be fixed. Commonly the venue will comprise a large room capable of accommodating all the participants, which is used for joint sessions, and a separate room for each of the parties involved in the mediation.
*At a set time (usually two to three weeks) before the date fixed for the mediation meeting, the parties simultaneously produce written statements, together with any documents which they wish the mediator to see, and serve these on the other party or parties and the mediator. There is commonly a limit on the length of the written submissions and the numbers of documents.
*On the appointed day for the mediation meeting, the mediator will meet all the parties in an initial joint session at which each will present a brief oral summary of their case, possibly through their legal advisers. A limit on the time allowed for each party is common.
*Each party will then retire to their separate rooms and the mediator will talk to each party in turn, either by visiting them in their separate rooms or by calling them into the main room. Such private meetings are known as ‘caucuses’ in the jargon of ADR practitioners. Everything that takes place in the caucuses is private and confidential and their purpose is to enable the mediator to establish his understanding of the possibilities for reaching agreement and the approach most likely to encourage settlement.
*The mediator will then shuttle between the various parties as required in an effort to find a settlement to the dispute. Nothing disclosed to the mediator in confidence in the caucuses will be disclosed to any other party without the express permission of the party disclosing the information. Private meetings between the mediator and only some of the parties may take place.
*Working with the parties, the mediator will examine the issues arising in the dispute. The mediator does not take sides but they may challenge a position being adopted by one or other party. The mediator may suggest looking at the dispute from a different angle. They may test out possible ways of resolving the dispute. In short, they will examine the dispute and work with the parties to find an acceptable solution.
*During the various joint and private sessions, the mediator will be using the conventional negotiating techniques such as:
#separating the people from the problem – being easy on the people and hard on the problem;
#getting behind the position to find the interest;
#encouraging a constructive problem-solving approach rather than dwelling on past quarrels and arguments.
*The mediator may decide at any time to bring the parties together in joint session to report progress and seek mutually agreeable ways forward.
*When and if the mediator reaches the position at which a settlement has been achieved, they will bring the parties together in joint session for a final time and will work with the parties to reduce the settlement to writing by means of a binding legal agreement and/or a consent order.
*If no settlement can be reached at the meeting, but some progress has been made, it is still open to the parties to adjourn to another time and place. The evidence is that even when no settlement is reached at the meeting itself, the parties will often reach an agreement shortly afterwards as a consequence of the discussions and progress made at the meeting.

The process is voluntary, confidential, non-binding and without prejudice to the parties’ legal positions. The fact that legal action is underway does not prevent mediation although the cost benefits of achieving settlement through mediation are obviously greater the earlier mediation is employed to resolve the dispute.

Mediation is now very much a core procedure in construction contracts and, whilst it must of necessity remain consensual, the courts will enforce mediation clauses in contracts. The courts cannot insist that the parties reach an agreement, however they will order parties to engage in the mediation process if there is a contractual obligation and can stay legal proceedings pending mediation. An unreasonable refusal to mediate may prejudice the right of a successful litigant to an award of legal costs.

Mediation has strong public policy support from the UK Government, public authorities and the private sector.

= '''Case study 1: Pre-litigation mediation ''' =

This dispute concerned an artificial sports pitch that was not performing as anticipated in that it flooded during heavy rain. Initially the argument was between the main contractor, subcontractor and consulting engineer; but, in all, six parties were affected by the dispute:
*the local authority which originally commissioned the works;
*an educational trust who inherited the pitch;
*a main contractor;
*a specialist subcontractor;
*a consulting engineer;
*a sports surfaces consultant.

Various tests and attempts at curing the problem had been undertaken, none of which were conclusive or resolved the problem. The cost of taking up and completely relaying the surface, including the sub-base and drainage, would have been in the order of £250,000.

At the instigation of counsel consulted by the local authority’s in-house solicitor, mediation was suggested, as the prospect of six parties in dispute, some of whom had arbitration clauses in their contracts and some of whom did not, was extremely daunting.

All the parties agreed to refer the dispute to mediation and, unusually, the local authority agreed to pay all the mediator’s fees. A mediator was agreed and he required written submissions and responses, each party being given the opportunity to respond to all the other parties’ submissions. This took about eight weeks.

A mediation meeting was held about four weeks after close of written submissions and it lasted all day. All the parties represented themselves and the only lawyer present was the local authority’s in-house solicitor. The mediator was an experienced civil engineer.

The mediation meeting followed the usual format, commencing with a joint session, at which each party made brief oral submissions followed by the mediator shuttling between the parties. The meeting concluded successfully in the late afternoon with a draft agreement having been reached which required formal approval by the local authority’s elected members before it could be finalised, but which had the support of their solicitor who attended the meeting.

The settlement included the waiving of claims and fees by some of the parties and undertakings concerning the guaranteed life of the surface together with a contribution by the contractor/subcontractor towards additional maintenance of the pitch.

Formal approval was obtained about six weeks later and the settlement concluded.

Apart from the internal costs of the parties’ own staff, the only external costs were those of the mediator, which were about £3,500.

= '''Case study 2: Post-pleadings mediation ''' =

The dispute concerned an industrial building in the UK which had developed a defect about six months after practical completion. The main contractor for the work was a major UK contractor who had subcontracted – to a small, local specialist contractor – the work which was apparently the cause of the defect. Several attempts to correct the defect were made without success and eventually the architect issued an instruction requiring the whole of the subcontractor’s work to be taken out and re-executed strictly in accordance with the specification. Both the main contractor and the subcontractor were by this time convinced, that the problem lay with the design, and refused to carry out the instruction.

The building owner then employed a consultant architect to advise him about the problem and in due course employed another contractor to strip out and re-execute the defective work to what was, in effect, a different design.

The building owner then commenced proceedings in the High Court naming the architect as first defendant and the main contractor as second defendant. The basis of the building owner’s claim was failure by the architect to design and supervise the works and alternatively failure by the main contractor to carry out the works in accordance with the specification.

The main contractor then issued third party proceedings against the subcontractor, but the subcontractor was successful in applying to the court for those proceedings to be stayed to arbitration, as there was an arbitration clause in the subcontract.

The situation was clearly very complex with the main contractor having the additional problem of having to fight both the litigation and the arbitration. Mediation was suggested by solicitors, for one of the parties at the stage in the proceedings when an eight-week hearing had been fixed in the High Court at a date about 10 months in the future. Pleadings had been exchanged in the main action and the commencement of discovery was the next major step to be taken.

A without prejudice meeting was then held between solicitors for all the parties, including that of the subcontractor. It was agreed to explore the possibility of attempting to resolve the matter by mediation and an exploratory meeting for the solicitors was arranged under the auspices of CEDR, following which, all four parties agreed to take part in a mediation.

CEDR proposed that the mediation tribunal should comprise both a mediator and a pupil mediator, and in due course suggested the names of two persons, both of whom had dual technical and legal qualifications. All four parties agreed to both the names suggested and a date for the mediation meeting was agreed.

Each party was allowed to submit a written statement of its case (plus whatever supporting documents it required to be appended) to CEDR not later than 14 days before the mediation meeting. These were then simultaneously circulated to all the other parties.

The mediation itself commenced at about 9.30 a.m. The mediator, pupil mediator and the parties with their respective solicitors and advisers first met in joint session. In all, 16 people were present. After a brief introduction to the proceedings by the mediator and the mutual introduction of all those present, each party was allowed 10 minutes to make a brief, oral presentation of its case, following which each party was given an opportunity to comment on the other parties’ presentations. This phase took no longer than one hour.

Each party then retired to separate rooms and the mediator and his pupil commenced their meetings with each party in turn. The process was very protracted. There were three major matters to be resolved:
#The building owner was clearly the ‘innocent’ party and had to be persuaded to accept a figure less than he had expended in remedying the defect. Arguments concerning some potential ‘betterment’ of the revised design and the irrecoverable legal costs of the litigation were no doubt advanced by the mediator.
#The question as to whether the defect was due to a failure in design or workmanship and the risk to both the architect and the main contractor of the court finding against them. The mediator had the task of persuading both parties to make a contribution.
#The split of any responsibility for defective work between main and subcontractor. In practice, this matter was resolved between the main and subcontractor without assistance from the mediator.

The mediators had at least three private sessions with each party and a greater number with the building owner and architect. Some of the private sessions were very long, lasting over one hour each. At no stage did the mediator overtly express his own opinion as to the merits of the respective parties’ cases. He concentrated on the costs and risks of litigating and the difficulties of proving in court the various allegations each party sought to advance in its favour.

By 10 p.m., the parties were getting close to a settlement, but some needed to take further instructions from their respective head offices – by then closed for the evening. The meeting was terminated on the understanding that discussions would continue the following day by telephone via the mediator.

The dispute was finally settled about 48 hours later. The building owner accepted significantly less than the amount of his claim. The architect, main contractor and subcontractor each contributed amounts which were far less than they would individually have had to pay had they had been found to be 100% liable by the Court.

Each party no doubt thought that it had conceded too much!

The amount in dispute was about £500,000 and it was generally agreed that the total litigation costs would amount to a similar figure if the matter went to trial.

The estimated costs of the mediation process were about £10,000 per party.

This mediation was a good example of how a mediation process was still viable even though litigation had already commenced, and the process was easily ‘slotted in’ during a quiet period in the litigation, without in any way adversely affecting the litigation timetable.

----

This article was created by --[[User%3AThe%20College%20of%20Estate%20Management|The College of Estate Management]] 16:23, 11 December 2012 (UTC)

= Find out more =

=== Related articles on Designing Buildings Wiki ===
*Adjudication.
*Alternative dispute resolution.
*Arbitration.
*Causes of construction disputes.
*Contract claims.
*Dispute resolution boards.
*Housing Grants, Construction and Regeneration Act.
*Scheme for Construction Contracts.

=== External references ===
*Tiered ADR, [http://www.ciarb.org/ Chartered Institute of Arbitrators], "Catch All" Dispute Resolution Clause.
*‘Alternative Dispute Resolution – A Discussion Paper’, The Lord Chancellor’s Department.
*Dignan, Sorsby and Hibbert (1996) ‘Neighbour Disputes – Comparing the cost-effectiveness of mediation and alternative approaches’, Centre for Criminological and Legal Research, University of Sheffield. ISBN: 1872998364.
*''[http://webarchive.nationalarchives.gov.uk/+/http://www.dca.gov.uk/research/1998/598esfr.htm The Central London County Court Pilot Mediation Scheme]– '' Evaluation Report by Professor Hazel Genn.
*''The Institution of Civil Engineers’ Conciliation Procedure 1999'' (1999) London: Thomas Telford Publishing.
*Tait J N and Cottam G (1994) ‘The ICE Conciliation Procedure 1994’, ''Civil'' ''Engineering Surveyor'', November.
*[http://www.cedr.com/ The Centre for Effective Dispute Resolution]
*[http://www.mediationmatters.org.uk/ Mediation Matters].

[[Category:Contracts_/_payment]]
[[Category:Construction_management]]
[[Category:Contracts_/_payment]]
[[Category:Other_legislation]]
[[Category:Procurement]]

Alternative dispute resolution for construction ADR

2012-12-11T16:36:54Z

The College of Estate Management:

= Introduction =

Construction contracts usually provide for disputes to be dealt with by agreed dispute resolution procedures involving mediation, adjudication and arbitration. Often a combination of all three. See for example the [http://www.neccontract.com/ New Engineering Contract] (NEC) Engineering and Construction Contract, the [http://www.jctltd.co.uk/ Joint Contracts Tribunal] (JCT) 05 Standard Form of Building Contract, and the [http://www.fidic.org/ Fédération Internationale des Ingénieurs-Conseils] (FIDIC) Conditions of Contract.

The construction sector is also subject to statutory schemes which impose adjudication procedures in the absence of contractual agreement (such as the Housing Grants, Construction and Regeneration Act 1996 and the [http://www.legislation.gov.uk/ukpga/2009/20/contents Local Democracy, Economic Development and Construction Act 2009].

Many contracts for large and complex projects now have, in addition to the dispute resolution procedures set out above, tiered dispute resolution procedures with obligations to negotiate in good faith, dispute resolution boards, steering committees and partnering meetings under the nomenclature of 'Partnering Obligations' (see for example NEC & JCT contracts as well as [http://www.constructingexcellence.org.uk/pdf/fact_sheet/partnering.pdf Constructing Excellence: Partnering] and the report of the [http://www.cic.org.uk/activities/partnering.shtml Construction Industry Council (CIC) Industry Improvement Committee]). See also the [http://www.ciarb.org/dispute-resolution/dispute-resolution-contract-clauses Chartered Institute of Arbitrators] 'catch all' dispute resolution clause.

Contract disputes are a complex area of law and the choice of procedure is one which requires careful consideration.

= Definitions =

A very wide range of Alternative Dispute Resolution techniques are available.

A consultative document, ‘Alternative Dispute Resolution – A Discussion Paper’, produced by the Lord Chancellor’s Department (LCD) in 1999 provides a helpful summary of the wide range of Alternative Dispute Resolution (ADR) techniques and these are reproduced below.
*'''Arbitration''' is a procedure whereby both sides to a dispute agree to let a third party, the arbitrator, decide. In some instances, there may be a panel. The arbitrator may be a lawyer, or may be an expert in the field of the dispute. He will make a decision according to the law. The arbitrator’s decision, known as an award, is legally binding and can be enforced through the courts.
*'''Court-annexed non-binding arbitration''' is widely used in the United States. The finding of the arbitrator becomes a binding order of the court if neither party seeks a rehearing by a judge.
*'''Court settlement process''' – this is a combination of early neutral evaluation and mediation, which was recently introduced by the Technology and Construction Court (TCC) on a trial basis in 2006. It has been produced for use in those situations where, following a request from the parties, a case managing judge feels that the parties should be able to achieve an amicable settlement. In those circumstances, the case managing judge would then be at liberty to offer a court settlement process to the parties and, if accepted by all relevant parties to the case, that judge or another TCC judge would make a court settlement order embodying the parties’ agreement and fixing a date for a court settlement conference, with an estimated duration proportionate to the issues in the case. The judge would then conduct the court settlement process and if a settlement were not reached, then the case would proceed with another case management judge: the judge conducting the court settlement process (the settlement judge) would take no further part in the litigation.
*'''Early neutral evaluation''' is a process in which a neutral professional, commonly a lawyer, hears a summary of each party’s case and gives a non-binding assessment of the merits. This can then be used as a basis for settlement or for further negotiation.
*'''Expert determination''' is a process in which an independent third party who is an expert in the subject matter is appointed to decide the dispute. The expert’s decision is binding on the parties.
*'''Mediation''' is a way of settling disputes in which a third party, known as a mediator, helps both sides to come to an agreement that each considers acceptable. Mediation can be ‘evaluative’, where the mediator gives an assessment of the legal strength of a case, or ‘facilitative’, where the mediator concentrates on assisting the parties to define the issues. When a mediation is successful and an agreement is reached, it is written down and forms a legally binding contract, unless the parties state otherwise.
*'''Conciliation''' is a procedure like mediation but in which the third party, the conciliator, takes a more interventionist role in bringing the two parties together and in suggesting possible solutions to help achieve an agreed settlement. The term ‘conciliation’ is gradually falling into disuse and the process is regarded as a form of mediation. It remains, however, a specific process available under various Institution of Civil Engineers’ contracts.
*'''Med-arbitration (med-arb) '''is a combination of mediation and arbitration. The parties agree to a mediation initially but, if that fails to achieve a settlement, the mediator takes on the role of arbitrator, with powers to make a legally binding award. The same person may act as mediator and arbitrator in this type of arrangement.
*'''Neutral fact finding''' is a non-binding procedure used in cases involving complex technical issues. A neutral expert in the subject matter is appointed to investigate the facts of the dispute and make an evaluation of the merits of the case. This can form the basis of a settlement or a starting point for further negotiation.
*'''Ombudsmen''' are independent office holders who investigate and rule on complaints from members of the public about maladministration in Government and in particular services in both the public and private sectors. Some ombudsmen use mediation as part of their dispute resolution procedures. The powers of ombudsmen vary. Most ombudsmen are able to make recommendations; only a few can make decisions that are enforceable through the courts.
*'''Utility regulators''' are watchdogs appointed to oversee the privatised utilities such as water or gas. They handle complaints from customers who are dissatisfied by the way a complaint has been dealt with by their supplier.

In addition to those listed above by the LCD, the following may be added:
*'''Mini-trial''', also known as''' executive tribunal''', in which each party, often through its legal advisers, makes a presentation of its case to a ‘mini-trial panel’. An abbreviated version of the discovery process may have taken place in advance of the mini-trial. The panel generally consists of three members – a management executive from each party (with sufficient authority to reach a settlement), and a third party neutral who may act as a mediator or adviser. The executive members usually have not been involved in the particular dispute. After the submissions have been made, the executives seek to negotiate a settlement. The role of the third party neutral may vary. He may act as a mediator or may act as an adviser, assessing objectively both the facts and the merits of the case and advising on the most appropriate solution.
*'''Construction adjudication''' is a statutory right introduced into UK construction contracts by the Housing Grants, Construction and Regeneration Act 1996, applicable to all relevant contracts entered into after 1 May 1998. It provides a temporarily binding decision which must be complied with by the parties until overturned or varied by the courts, arbitration or agreement.
*'''Dispute board (also known as dispute review board or dispute resolution board (DRB) and dispute''' '''adjudication board (DAB))''' is a procedure where a panel, normally of three independent and well-established individuals, is appointed at the commencement of a large construction project and considers project issues and recommends resolutions of disputes. Normally the employer and contractor each appoint one member and the third member is chosen by the first two. The recommendations are normally non-binding.
*'''Judicial appraisal''' is a procedure where the parties appoint a judge to receive written representations from each side and make an appraisal of the likely result if the case goes to court. The parties must agree the form and extent of the submissions and whether the appraisal is to be binding or not.
*'''Med-adjudication (med-ad)''' is a process in which the appointed neutral begins conducting the process as if he were an adjudicator, but after meeting the parties’ key professionals and expert witnesses together, gives a preliminary view on the matter in dispute. If the parties settle, this is recorded in writing, but if no settlement is reached within a fixed period of time the neutral proceeds to make a decision in which he is not bound by his preliminary view.
*'''Michigan mediation''' is an interesting variation on the theme and, as the name suggests, is used in the US state of Michigan. In any civil case where the primary relief sought is monetary, the assigned judge may refer the case to process. The term ‘mediation’ is, however, something of a misnomer: it is more properly described as a ‘case valuation’ process. After disclosure has been completed, the parties meet with a panel of three neutrals who are all attorneys. They hear 15-minute presentations by each party and give a non-binding evaluation of the case.
*'''Project neutral''' is effectively a one-person dispute board.
*'''Summary jury trial''' is a non-binding, abbreviated mock trial using a panel of actual jurors. The normal rules of evidence and procedure are normally modified to expedite the process, and negotiations generally follow the trial. It is used so far only in the United States.

The above processes can be divided into two broad categories which the LCD has described as:
*'''alternative adjudication''', which comprises those processes whereby a neutral third party makes a decision, such as arbitration, construction adjudication, expert determination, ombudsmen and industry regulators;
*'''assisted settlement''', which comprises those processes whereby a neutral third party offers an opinion and/or seeks to bring the parties to an agreement, such as mediation, conciliation and early neutral evaluation.

Med-arb and med-ad are hybrids of these two categories.

Whether or not a particular form of ADR is suitable depends upon a number of factors including the nature and value of the dispute, the attitude and financial resources of the parties, the desired outcome, and the balance of representation.

Both (or all) parties must be willing to submit their dispute to a form of '''alternative''' '''adjudication''', or willing to try a form of '''assisted settlement '''as clearly, if both parties are not willing, there can be problems in enforcing an apparently contractual agreement to try mediation or conciliation.

Litigation is, of course, the only option where one party needs to set a legal precedent or obtain an injunction, or where one party is refusing to acknowledge the problem or engage in negotiations. Any form of ADR will be worth considering where the cost of court proceedings is likely to equal or exceed the amount of money at issue.

Where parties wish to preserve an existing relationship, mediation or conciliation may be helpful. A great advantage of mediation is that the mediator is not bound merely to consider the obvious disputes between the parties but can bring in other matters, perhaps unrelated to the particular dispute, provided they may help the parties towards settlement.

Arbitration may be suitable in cases where there is no relationship to preserve and a rapid decision is needed.

Where available, trade association arbitration schemes, utility regulators and ombudsmen can provide a cheaper alternative for an individual seeking redress against a company or large organisation, but they may be limited in the redress they can provide.

Early neutral evaluation might be applicable in cases where there is a dispute over a point of law, or where one party appears to have an unrealistic view of their chances of success at trial.

Where there is a technical dispute with a great deal of factual evidence, mediation or determination by an expert in that area might be best. In addition, parties involved in a commercial dispute may prefer to use a form of ADR to keep sensitive commercial information private.

In many apparently intractable, large-scale and complex multi-party cases, mediation has achieved settlement. Where there is a significant imbalance of power, however, mediation might not be appropriate. Mediation is also now the preferred method of settlement of family disputes, such as divorce. Part III of the Family Law Act 1996 allows for the provision of publicly funded mediation in family proceedings. There has been a wide take-up of this service and the statistics for the six full years of operation are as shown in the following table:

{| style="width: 600px;" border="1" cellspacing="1" cellpadding="1"
|-
| '''Financial year'''
|
'''Number of mediations started'''

|-
| 1997/98
| 406
|-
| 1998/99
| 1,349
|-
| 1999/00
| 6,333
|-
| 2000/01
| 9,308
|-
| 2001/02
| 12,335
|-
| 2002/03
| 13,841
|}

Section 29 of the Act, which requires those seeking legal aid for representation in family proceedings to attend a meeting with a mediator to consider whether mediation might be suitable in their case, has now been implemented in over 60% of the country and was intended to be in force across England and Wales in 2000.

Figures for 2005 produced by the Legal Services Commission show that over 14,000 family mediations took place which were either wholly or partly publicly funded. The UK College of Family Mediation reports that for the same year some 4,000 privately funded family mediations took place, making a total of some 18,000 for that year.

Mediation is also frequently used in neighbour disputes. Not all disputes between neighbours are necessarily suited to mediation, however, particularly where there are issues of harassment or mental health problems. Mediation UK reports that, between 2004 and 2005, more than 40,000 people were involved in community mediation.

----

This article was created by --[[User%3AThe%20College%20of%20Estate%20Management|The College of Estate Management]] 16:32, 11 December 2012 (UTC)

= Find out more =

=== Related articles on Designing Buildings Wiki ===
*Adjudication.
*Arbitration.
*Breach of contract.
*Causes of construction disputes.
*Contract claims.
*Dispute resolution boards.
*Housing Grants, Construction and Regeneration Act.
*Mediation.
*Scheme for Construction Contracts.

=== External references ===
*[http://www.neccontract.com New Engineering Contract (NEC)].
*[http://Www.jctcontracts.com Joint Contracts Tribunal (JCT)].
*[http://Www.fidic.org Fédération Internationale des Ingénieurs-Conseils (FIDIC)].
*[http://www.legislation.gov.uk/ukpga/1996/53/contents Housing Grants, Construction and Regeneration Act 1996].
*[http://Www.legislation.gov.uk/ukpga/2009/20/contents Local Democracy, Economic Development and Construction Act 2009].

[[Category:Contracts_/_payment]]
[[Category:Construction_management]]
[[Category:Contracts_/_payment]]
[[Category:Other_legislation]]
[[Category:Procurement]]

Alternative dispute resolution for construction ADR

2012-12-11T16:35:31Z

The College of Estate Management:

= Introduction =

Construction contracts usually provide for disputes to be dealt with by agreed dispute resolution procedures involving mediation, adjudication and arbitration. Often a combination of all three. See for example the [http://www.neccontract.com/ New Engineering Contract] (NEC) Engineering and Construction Contract, the [http://www.jctltd.co.uk/ Joint Contracts Tribunal] (JCT) 05 Standard Form of Building Contract, and the [http://www.fidic.org/ Fédération Internationale des Ingénieurs-Conseils] (FIDIC) Conditions of Contract.

The construction sector is also subject to statutory schemes which impose adjudication procedures in the absence of contractual agreement (such as the Housing Grants, Construction and Regeneration Act 1996 and the [http://www.legislation.gov.uk/ukpga/2009/20/contents Local Democracy, Economic Development and Construction Act 2009].

Many contracts for large and complex projects now have, in addition to the dispute resolution procedures set out above, tiered dispute resolution procedures with obligations to negotiate in good faith, dispute resolution boards, steering committees and partnering meetings under the nomenclature of 'Partnering Obligations' (see for example NEC & JCT contracts as well as [http://www.constructingexcellence.org.uk/pdf/fact_sheet/partnering.pdf Constructing Excellence: Partnering] and the report of the [http://www.cic.org.uk/activities/partnering.shtml Construction Industry Council (CIC) Industry Improvement Committee]). See also the [http://www.ciarb.org/dispute-resolution/dispute-resolution-contract-clauses Chartered Institute of Arbitrators] 'catch all' dispute resolution clause.

Contract disputes are a complex area of law and the choice of procedure is one which requires careful consideration.

= Definitions =

A very wide range of Alternative Dispute Resolution techniques are available.

A consultative document, ‘Alternative Dispute Resolution – A Discussion Paper’, produced by the Lord Chancellor’s Department (LCD) in 1999 provides a helpful summary of the wide range of Alternative Dispute Resolution (ADR) techniques and these are reproduced below.
*'''Arbitration''' is a procedure whereby both sides to a dispute agree to let a third party, the arbitrator, decide. In some instances, there may be a panel. The arbitrator may be a lawyer, or may be an expert in the field of the dispute. He will make a decision according to the law. The arbitrator’s decision, known as an award, is legally binding and can be enforced through the courts.
*'''Court-annexed non-binding arbitration''' is widely used in the United States. The finding of the arbitrator becomes a binding order of the court if neither party seeks a rehearing by a judge.
*'''Court settlement process''' – this is a combination of early neutral evaluation and mediation, which was recently introduced by the Technology and Construction Court (TCC) on a trial basis in 2006. It has been produced for use in those situations where, following a request from the parties, a case managing judge feels that the parties should be able to achieve an amicable settlement. In those circumstances, the case managing judge would then be at liberty to offer a court settlement process to the parties and, if accepted by all relevant parties to the case, that judge or another TCC judge would make a court settlement order embodying the parties’ agreement and fixing a date for a court settlement conference, with an estimated duration proportionate to the issues in the case. The judge would then conduct the court settlement process and if a settlement were not reached, then the case would proceed with another case management judge: the judge conducting the court settlement process (the settlement judge) would take no further part in the litigation.
*'''Early neutral evaluation''' is a process in which a neutral professional, commonly a lawyer, hears a summary of each party’s case and gives a non-binding assessment of the merits. This can then be used as a basis for settlement or for further negotiation.
*'''Expert determination''' is a process in which an independent third party who is an expert in the subject matter is appointed to decide the dispute. The expert’s decision is binding on the parties.
*'''Mediation''' is a way of settling disputes in which a third party, known as a mediator, helps both sides to come to an agreement that each considers acceptable. Mediation can be ‘evaluative’, where the mediator gives an assessment of the legal strength of a case, or ‘facilitative’, where the mediator concentrates on assisting the parties to define the issues. When a mediation is successful and an agreement is reached, it is written down and forms a legally binding contract, unless the parties state otherwise.
*'''Conciliation''' is a procedure like mediation but in which the third party, the conciliator, takes a more interventionist role in bringing the two parties together and in suggesting possible solutions to help achieve an agreed settlement. The term ‘conciliation’ is gradually falling into disuse and the process is regarded as a form of mediation. It remains, however, a specific process available under various Institution of Civil Engineers’ contracts.
*'''Med-arbitration (med-arb) '''is a combination of mediation and arbitration. The parties agree to a mediation initially but, if that fails to achieve a settlement, the mediator takes on the role of arbitrator, with powers to make a legally binding award. The same person may act as mediator and arbitrator in this type of arrangement.
*'''Neutral fact finding''' is a non-binding procedure used in cases involving complex technical issues. A neutral expert in the subject matter is appointed to investigate the facts of the dispute and make an evaluation of the merits of the case. This can form the basis of a settlement or a starting point for further negotiation.
*'''Ombudsmen''' are independent office holders who investigate and rule on complaints from members of the public about maladministration in Government and in particular services in both the public and private sectors. Some ombudsmen use mediation as part of their dispute resolution procedures. The powers of ombudsmen vary. Most ombudsmen are able to make recommendations; only a few can make decisions that are enforceable through the courts.
*'''Utility regulators''' are watchdogs appointed to oversee the privatised utilities such as water or gas. They handle complaints from customers who are dissatisfied by the way a complaint has been dealt with by their supplier.

In addition to those listed above by the LCD, the following may be added:
*'''Mini-trial''', also known as''' executive tribunal''', in which each party, often through its legal advisers, makes a presentation of its case to a ‘mini-trial panel’. An abbreviated version of the discovery process may have taken place in advance of the mini-trial. The panel generally consists of three members – a management executive from each party (with sufficient authority to reach a settlement), and a third party neutral who may act as a mediator or adviser. The executive members usually have not been involved in the particular dispute. After the submissions have been made, the executives seek to negotiate a settlement. The role of the third party neutral may vary. He may act as a mediator or may act as an adviser, assessing objectively both the facts and the merits of the case and advising on the most appropriate solution.
*'''Construction adjudication''' is a statutory right introduced into UK construction contracts by the Housing Grants, Construction and Regeneration Act 1996, applicable to all relevant contracts entered into after 1 May 1998. It provides a temporarily binding decision which must be complied with by the parties until overturned or varied by the courts, arbitration or agreement.
*'''Dispute board (also known as dispute review board or dispute resolution board (DRB) and dispute''' '''adjudication board (DAB))''' is a procedure where a panel, normally of three independent and well-established individuals, is appointed at the commencement of a large construction project and considers project issues and recommends resolutions of disputes. Normally the employer and contractor each appoint one member and the third member is chosen by the first two. The recommendations are normally non-binding.
*'''Judicial appraisal''' is a procedure where the parties appoint a judge to receive written representations from each side and make an appraisal of the likely result if the case goes to court. The parties must agree the form and extent of the submissions and whether the appraisal is to be binding or not.
*'''Med-adjudication (med-ad)''' is a process in which the appointed neutral begins conducting the process as if he were an adjudicator, but after meeting the parties’ key professionals and expert witnesses together, gives a preliminary view on the matter in dispute. If the parties settle, this is recorded in writing, but if no settlement is reached within a fixed period of time the neutral proceeds to make a decision in which he is not bound by his preliminary view.
*'''Michigan mediation''' is an interesting variation on the theme and, as the name suggests, is used in the US state of Michigan. In any civil case where the primary relief sought is monetary, the assigned judge may refer the case to process. The term ‘mediation’ is, however, something of a misnomer: it is more properly described as a ‘case valuation’ process. After disclosure has been completed, the parties meet with a panel of three neutrals who are all attorneys. They hear 15-minute presentations by each party and give a non-binding evaluation of the case.
*'''Project neutral''' is effectively a one-person dispute board.
*'''Summary jury trial''' is a non-binding, abbreviated mock trial using a panel of actual jurors. The normal rules of evidence and procedure are normally modified to expedite the process, and negotiations generally follow the trial. It is used so far only in the United States.

The above processes can be divided into two broad categories which the LCD has described as:
*'''alternative adjudication''', which comprises those processes whereby a neutral third party makes a decision, such as arbitration, construction adjudication, expert determination, ombudsmen and industry regulators;
*'''assisted settlement''', which comprises those processes whereby a neutral third party offers an opinion and/or seeks to bring the parties to an agreement, such as mediation, conciliation and early neutral evaluation.

Med-arb and med-ad are hybrids of these two categories.

Whether or not a particular form of ADR is suitable depends upon a number of factors including the nature and value of the dispute, the attitude and financial resources of the parties, the desired outcome, and the balance of representation.

Both (or all) parties must be willing to submit their dispute to a form of '''alternative''' '''adjudication''', or willing to try a form of '''assisted settlement '''as clearly, if both parties are not willing, there can be problems in enforcing an apparently contractual agreement to try mediation or conciliation.

Litigation is, of course, the only option where one party needs to set a legal precedent or obtain an injunction, or where one party is refusing to acknowledge the problem or engage in negotiations. Any form of ADR will be worth considering where the cost of court proceedings is likely to equal or exceed the amount of money at issue.

Where parties wish to preserve an existing relationship, mediation or conciliation may be helpful. A great advantage of mediation is that the mediator is not bound merely to consider the obvious disputes between the parties but can bring in other matters, perhaps unrelated to the particular dispute, provided they may help the parties towards settlement.

Arbitration may be suitable in cases where there is no relationship to preserve and a rapid decision is needed.

Where available, trade association arbitration schemes, utility regulators and ombudsmen can provide a cheaper alternative for an individual seeking redress against a company or large organisation, but they may be limited in the redress they can provide.

Early neutral evaluation might be applicable in cases where there is a dispute over a point of law, or where one party appears to have an unrealistic view of their chances of success at trial.

Where there is a technical dispute with a great deal of factual evidence, mediation or determination by an expert in that area might be best. In addition, parties involved in a commercial dispute may prefer to use a form of ADR to keep sensitive commercial information private.

In many apparently intractable, large-scale and complex multi-party cases, mediation has achieved settlement. Where there is a significant imbalance of power, however, mediation might not be appropriate. Mediation is also now the preferred method of settlement of family disputes, such as divorce. Part III of the Family Law Act 1996 allows for the provision of publicly funded mediation in family proceedings. There has been a wide take-up of this service and the statistics for the six full years of operation are as shown in the following table:

{| style="width: 600px;" border="1" cellspacing="1" cellpadding="1"
|-
| '''Financial year'''
|
'''Number of mediations started'''

|-
| 1997/98
| 406
|-
| 1998/99
| 1,349
|-
| 1999/00
| 6,333
|-
| 2000/01
| 9,308
|-
| 2001/02
| 12,335
|-
|
2002/03

| 13,841
|}

Section 29 of the Act, which requires those seeking legal aid for representation in family proceedings to attend a meeting with a mediator to consider whether mediation might be suitable in their case, has now been implemented in over 60% of the country and was intended to be in force across England and Wales in 2000.

Figures for 2005 produced by the Legal Services Commission show that over 14,000 family mediations took place which were either wholly or partly publicly funded. The UK College of Family Mediation reports that for the same year some 4,000 privately funded family mediations took place, making a total of some 18,000 for that year.

Mediation is also frequently used in neighbour disputes. Not all disputes between neighbours are necessarily suited to mediation, however, particularly where there are issues of harassment or mental health problems. Mediation UK reports that, between 2004 and 2005, more than 40,000 people were involved in community mediation.

----

This article was created by --[[User%3AThe%20College%20of%20Estate%20Management|The College of Estate Management]] 16:32, 11 December 2012 (UTC)

= Find out more =

=== Related articles on Designing Buildings Wiki ===
*Adjudication.
*Arbitration.
*Breach of contract.
*Causes of construction disputes.
*Contract claims.
*Dispute resolution boards.
*Housing Grants, Construction and Regeneration Act.
*Mediation.
*Scheme for Construction Contracts.

=== External references ===
*[http://www.neccontract.com New Engineering Contract (NEC)].
*[http://Www.jctcontracts.com Joint Contracts Tribunal (JCT)].
*[http://Www.fidic.org Fédération Internationale des Ingénieurs-Conseils (FIDIC)].
*[http://www.legislation.gov.uk/ukpga/1996/53/contents Housing Grants, Construction and Regeneration Act 1996].
*[http://Www.legislation.gov.uk/ukpga/2009/20/contents Local Democracy, Economic Development and Construction Act 2009].

[[Category:Contracts_/_payment]]
[[Category:Construction_management]]
[[Category:Contracts_/_payment]]
[[Category:Other_legislation]]
[[Category:Procurement]]

Alternative dispute resolution for construction ADR

2012-12-11T16:34:41Z

The College of Estate Management:

= Introduction =

Construction contracts usually provide for disputes to be dealt with by agreed dispute resolution procedures involving mediation, adjudication and arbitration. Often a combination of all three. See for example the [http://www.neccontract.com/ New Engineering Contract] (NEC) Engineering and Construction Contract, the [http://www.jctltd.co.uk/ Joint Contracts Tribunal] (JCT) 05 Standard Form of Building Contract, and the [http://www.fidic.org/ Fédération Internationale des Ingénieurs-Conseils] (FIDIC) Conditions of Contract.

The construction sector is also subject to statutory schemes which impose adjudication procedures in the absence of contractual agreement (such as the Housing Grants, Construction and Regeneration Act 1996 and the [http://www.legislation.gov.uk/ukpga/2009/20/contents Local Democracy, Economic Development and Construction Act 2009].

Many contracts for large and complex projects now have, in addition to the dispute resolution procedures set out above, tiered dispute resolution procedures with obligations to negotiate in good faith, dispute resolution boards, steering committees and partnering meetings under the nomenclature of 'Partnering Obligations' (see for example NEC & JCT contracts as well as [http://www.constructingexcellence.org.uk/pdf/fact_sheet/partnering.pdf Constructing Excellence: Partnering] and the report of the [http://www.cic.org.uk/activities/partnering.shtml Construction Industry Council (CIC) Industry Improvement Committee]). See also the [http://www.ciarb.org/dispute-resolution/dispute-resolution-contract-clauses Chartered Institute of Arbitrators] 'catch all' dispute resolution clause.

Contract disputes are a complex area of law and the choice of procedure is one which requires careful consideration.

= Definitions =

A very wide range of Alternative Dispute Resolution techniques are available.

A consultative document, ‘Alternative Dispute Resolution – A Discussion Paper’, produced by the Lord Chancellor’s Department (LCD) in 1999 provides a helpful summary of the wide range of Alternative Dispute Resolution (ADR) techniques and these are reproduced below.
*'''Arbitration''' is a procedure whereby both sides to a dispute agree to let a third party, the arbitrator, decide. In some instances, there may be a panel. The arbitrator may be a lawyer, or may be an expert in the field of the dispute. He will make a decision according to the law. The arbitrator’s decision, known as an award, is legally binding and can be enforced through the courts.
*'''Court-annexed non-binding arbitration''' is widely used in the United States. The finding of the arbitrator becomes a binding order of the court if neither party seeks a rehearing by a judge.
*'''Court settlement process''' – this is a combination of early neutral evaluation and mediation, which was recently introduced by the Technology and Construction Court (TCC) on a trial basis in 2006. It has been produced for use in those situations where, following a request from the parties, a case managing judge feels that the parties should be able to achieve an amicable settlement. In those circumstances, the case managing judge would then be at liberty to offer a court settlement process to the parties and, if accepted by all relevant parties to the case, that judge or another TCC judge would make a court settlement order embodying the parties’ agreement and fixing a date for a court settlement conference, with an estimated duration proportionate to the issues in the case. The judge would then conduct the court settlement process and if a settlement were not reached, then the case would proceed with another case management judge: the judge conducting the court settlement process (the settlement judge) would take no further part in the litigation.
*'''Early neutral evaluation''' is a process in which a neutral professional, commonly a lawyer, hears a summary of each party’s case and gives a non-binding assessment of the merits. This can then be used as a basis for settlement or for further negotiation.
*'''Expert determination''' is a process in which an independent third party who is an expert in the subject matter is appointed to decide the dispute. The expert’s decision is binding on the parties.
*'''Mediation''' is a way of settling disputes in which a third party, known as a mediator, helps both sides to come to an agreement that each considers acceptable. Mediation can be ‘evaluative’, where the mediator gives an assessment of the legal strength of a case, or ‘facilitative’, where the mediator concentrates on assisting the parties to define the issues. When a mediation is successful and an agreement is reached, it is written down and forms a legally binding contract, unless the parties state otherwise.
*'''Conciliation''' is a procedure like mediation but in which the third party, the conciliator, takes a more interventionist role in bringing the two parties together and in suggesting possible solutions to help achieve an agreed settlement. The term ‘conciliation’ is gradually falling into disuse and the process is regarded as a form of mediation. It remains, however, a specific process available under various Institution of Civil Engineers’ contracts.
*'''Med-arbitration (med-arb) '''is a combination of mediation and arbitration. The parties agree to a mediation initially but, if that fails to achieve a settlement, the mediator takes on the role of arbitrator, with powers to make a legally binding award. The same person may act as mediator and arbitrator in this type of arrangement.
*'''Neutral fact finding''' is a non-binding procedure used in cases involving complex technical issues. A neutral expert in the subject matter is appointed to investigate the facts of the dispute and make an evaluation of the merits of the case. This can form the basis of a settlement or a starting point for further negotiation.
*'''Ombudsmen''' are independent office holders who investigate and rule on complaints from members of the public about maladministration in Government and in particular services in both the public and private sectors. Some ombudsmen use mediation as part of their dispute resolution procedures. The powers of ombudsmen vary. Most ombudsmen are able to make recommendations; only a few can make decisions that are enforceable through the courts.
*'''Utility regulators''' are watchdogs appointed to oversee the privatised utilities such as water or gas. They handle complaints from customers who are dissatisfied by the way a complaint has been dealt with by their supplier.

In addition to those listed above by the LCD, the following may be added:
*'''Mini-trial''', also known as''' executive tribunal''', in which each party, often through its legal advisers, makes a presentation of its case to a ‘mini-trial panel’. An abbreviated version of the discovery process may have taken place in advance of the mini-trial. The panel generally consists of three members – a management executive from each party (with sufficient authority to reach a settlement), and a third party neutral who may act as a mediator or adviser. The executive members usually have not been involved in the particular dispute. After the submissions have been made, the executives seek to negotiate a settlement. The role of the third party neutral may vary. He may act as a mediator or may act as an adviser, assessing objectively both the facts and the merits of the case and advising on the most appropriate solution.
*'''Construction adjudication''' is a statutory right introduced into UK construction contracts by the Housing Grants, Construction and Regeneration Act 1996, applicable to all relevant contracts entered into after 1 May 1998. It provides a temporarily binding decision which must be complied with by the parties until overturned or varied by the courts, arbitration or agreement.
*'''Dispute board (also known as dispute review board or dispute resolution board (DRB) and dispute''' '''adjudication board (DAB))''' is a procedure where a panel, normally of three independent and well-established individuals, is appointed at the commencement of a large construction project and considers project issues and recommends resolutions of disputes. Normally the employer and contractor each appoint one member and the third member is chosen by the first two. The recommendations are normally non-binding.
*'''Judicial appraisal''' is a procedure where the parties appoint a judge to receive written representations from each side and make an appraisal of the likely result if the case goes to court. The parties must agree the form and extent of the submissions and whether the appraisal is to be binding or not.
*'''Med-adjudication (med-ad)''' is a process in which the appointed neutral begins conducting the process as if he were an adjudicator, but after meeting the parties’ key professionals and expert witnesses together, gives a preliminary view on the matter in dispute. If the parties settle, this is recorded in writing, but if no settlement is reached within a fixed period of time the neutral proceeds to make a decision in which he is not bound by his preliminary view.
*'''Michigan mediation''' is an interesting variation on the theme and, as the name suggests, is used in the US state of Michigan. In any civil case where the primary relief sought is monetary, the assigned judge may refer the case to process. The term ‘mediation’ is, however, something of a misnomer: it is more properly described as a ‘case valuation’ process. After disclosure has been completed, the parties meet with a panel of three neutrals who are all attorneys. They hear 15-minute presentations by each party and give a non-binding evaluation of the case.
*'''Project neutral''' is effectively a one-person dispute board.
*'''Summary jury trial''' is a non-binding, abbreviated mock trial using a panel of actual jurors. The normal rules of evidence and procedure are normally modified to expedite the process, and negotiations generally follow the trial. It is used so far only in the United States.

The above processes can be divided into two broad categories which the LCD has described as:
*'''alternative adjudication''', which comprises those processes whereby a neutral third party makes a decision, such as arbitration, construction adjudication, expert determination, ombudsmen and industry regulators;
*'''assisted settlement''', which comprises those processes whereby a neutral third party offers an opinion and/or seeks to bring the parties to an agreement, such as mediation, conciliation and early neutral evaluation.

Med-arb and med-ad are hybrids of these two categories.

Whether or not a particular form of ADR is suitable depends upon a number of factors including the nature and value of the dispute, the attitude and financial resources of the parties, the desired outcome, and the balance of representation.

Both (or all) parties must be willing to submit their dispute to a form of '''alternative''' '''adjudication''', or willing to try a form of '''assisted settlement '''as clearly, if both parties are not willing, there can be problems in enforcing an apparently contractual agreement to try mediation or conciliation.

Litigation is, of course, the only option where one party needs to set a legal precedent or obtain an injunction, or where one party is refusing to acknowledge the problem or engage in negotiations. Any form of ADR will be worth considering where the cost of court proceedings is likely to equal or exceed the amount of money at issue.

Where parties wish to preserve an existing relationship, mediation or conciliation may be helpful. A great advantage of mediation is that the mediator is not bound merely to consider the obvious disputes between the parties but can bring in other matters, perhaps unrelated to the particular dispute, provided they may help the parties towards settlement.

Arbitration may be suitable in cases where there is no relationship to preserve and a rapid decision is needed.

Where available, trade association arbitration schemes, utility regulators and ombudsmen can provide a cheaper alternative for an individual seeking redress against a company or large organisation, but they may be limited in the redress they can provide.

Early neutral evaluation might be applicable in cases where there is a dispute over a point of law, or where one party appears to have an unrealistic view of their chances of success at trial.

Where there is a technical dispute with a great deal of factual evidence, mediation or determination by an expert in that area might be best. In addition, parties involved in a commercial dispute may prefer to use a form of ADR to keep sensitive commercial information private.

In many apparently intractable, large-scale and complex multi-party cases, mediation has achieved settlement. Where there is a significant imbalance of power, however, mediation might not be appropriate. Mediation is also now the preferred method of settlement of family disputes, such as divorce. Part III of the Family Law Act 1996 allows for the provision of publicly funded mediation in family proceedings. There has been a wide take-up of this service and the statistics for the six full years of operation are as shown in the following table:

{| style="width: 600px;" border="1" cellspacing="1" cellpadding="1"
|-
| '''Financial year'''
|
== Number of mediations started ==

|-
| 1997/98
| 406
|-
| 1998/99
| 1,349
|-
| 1999/00
| 6,333
|-
| 2000/01
| 9,308
|-
| 2001/02
| 12,335
|-
|
2002/03

| 13,841
|}

Section 29 of the Act, which requires those seeking legal aid for representation in family proceedings to attend a meeting with a mediator to consider whether mediation might be suitable in their case, has now been implemented in over 60% of the country and was intended to be in force across England and Wales in 2000.

Figures for 2005 produced by the Legal Services Commission show that over 14,000 family mediations took place which were either wholly or partly publicly funded. The UK College of Family Mediation reports that for the same year some 4,000 privately funded family mediations took place, making a total of some 18,000 for that year.

Mediation is also frequently used in neighbour disputes. Not all disputes between neighbours are necessarily suited to mediation, however, particularly where there are issues of harassment or mental health problems. Mediation UK reports that, between 2004 and 2005, more than 40,000 people were involved in community mediation.

----

This article was created by --[[User%3AThe%20College%20of%20Estate%20Management|The College of Estate Management]] 16:32, 11 December 2012 (UTC)

= Find out more =

=== Related articles on Designing Buildings Wiki ===
*Adjudication.
*Arbitration.
*Breach of contract.
*Causes of construction disputes.
*Contract claims.
*Dispute resolution boards.
*Housing Grants, Construction and Regeneration Act.
*Mediation.
*Scheme for Construction Contracts.

=== External references ===
*[http://www.neccontract.com New Engineering Contract (NEC)].
*[http://Www.jctcontracts.com Joint Contracts Tribunal (JCT)].
*[http://Www.fidic.org Fédération Internationale des Ingénieurs-Conseils (FIDIC)].
*[http://www.legislation.gov.uk/ukpga/1996/53/contents Housing Grants, Construction and Regeneration Act 1996].
*[http://Www.legislation.gov.uk/ukpga/2009/20/contents Local Democracy, Economic Development and Construction Act 2009].

[[Category:Contracts_/_payment]]
[[Category:Construction_management]]
[[Category:Contracts_/_payment]]
[[Category:Other_legislation]]
[[Category:Procurement]]

Alternative dispute resolution for construction ADR

2012-12-11T16:32:49Z

The College of Estate Management:

= Introduction =

Construction contracts usually provide for disputes to be dealt with by agreed dispute resolution procedures involving mediation, adjudication and arbitration. Often a combination of all three. See for example the [http://www.neccontract.com/ New Engineering Contract] (NEC) Engineering and Construction Contract, the [http://www.jctltd.co.uk/ Joint Contracts Tribunal] (JCT) 05 Standard Form of Building Contract, and the [http://www.fidic.org/ Fédération Internationale des Ingénieurs-Conseils] (FIDIC) Conditions of Contract.

The construction sector is also subject to statutory schemes which impose adjudication procedures in the absence of contractual agreement (such as the Housing Grants, Construction and Regeneration Act 1996 and the [http://www.legislation.gov.uk/ukpga/2009/20/contents Local Democracy, Economic Development and Construction Act 2009].

Many contracts for large and complex projects now have, in addition to the dispute resolution procedures set out above, tiered dispute resolution procedures with obligations to negotiate in good faith, dispute resolution boards, steering committees and partnering meetings under the nomenclature of 'Partnering Obligations' (see for example NEC & JCT contracts as well as [http://www.constructingexcellence.org.uk/pdf/fact_sheet/partnering.pdf Constructing Excellence: Partnering] and the report of the [http://www.cic.org.uk/activities/partnering.shtml Construction Industry Council (CIC) Industry Improvement Committee]). See also the [http://www.ciarb.org/dispute-resolution/dispute-resolution-contract-clauses Chartered Institute of Arbitrators] 'catch all' dispute resolution clause.

Contract disputes are a complex area of law and the choice of procedure is one which requires careful consideration.

A consultative document, ‘Alternative Dispute Resolution – A Discussion Paper’, produced by the Lord Chancellor’s Department (LCD) in 1999 provides a helpful summary of the wide range of Alternative Dispute Resolution (ADR) techniques and these are reproduced below.

= Definitions =
*'''Arbitration''' is a procedure whereby both sides to a dispute agree to let a third party, the arbitrator, decide. In some instances, there may be a panel. The arbitrator may be a lawyer, or may be an expert in the field of the dispute. He will make a decision according to the law. The arbitrator’s decision, known as an award, is legally binding and can be enforced through the courts.
*'''Court-annexed non-binding arbitration''' is widely used in the United States. The finding of the arbitrator becomes a binding order of the court if neither party seeks a rehearing by a judge.
*'''Court settlement process''' – this is a combination of early neutral evaluation and mediation, which was recently introduced by the Technology and Construction Court (TCC) on a trial basis in 2006. It has been produced for use in those situations where, following a request from the parties, a case managing judge feels that the parties should be able to achieve an amicable settlement. In those circumstances, the case managing judge would then be at liberty to offer a court settlement process to the parties and, if accepted by all relevant parties to the case, that judge or another TCC judge would make a court settlement order embodying the parties’ agreement and fixing a date for a court settlement conference, with an estimated duration proportionate to the issues in the case. The judge would then conduct the court settlement process and if a settlement were not reached, then the case would proceed with another case management judge: the judge conducting the court settlement process (the settlement judge) would take no further part in the litigation.
*'''Early neutral evaluation''' is a process in which a neutral professional, commonly a lawyer, hears a summary of each party’s case and gives a non-binding assessment of the merits. This can then be used as a basis for settlement or for further negotiation.
*'''Expert determination''' is a process in which an independent third party who is an expert in the subject matter is appointed to decide the dispute. The expert’s decision is binding on the parties.
*'''Mediation''' is a way of settling disputes in which a third party, known as a mediator, helps both sides to come to an agreement that each considers acceptable. Mediation can be ‘evaluative’, where the mediator gives an assessment of the legal strength of a case, or ‘facilitative’, where the mediator concentrates on assisting the parties to define the issues. When a mediation is successful and an agreement is reached, it is written down and forms a legally binding contract, unless the parties state otherwise.
*'''Conciliation''' is a procedure like mediation but in which the third party, the conciliator, takes a more interventionist role in bringing the two parties together and in suggesting possible solutions to help achieve an agreed settlement. The term ‘conciliation’ is gradually falling into disuse and the process is regarded as a form of mediation. It remains, however, a specific process available under various Institution of Civil Engineers’ contracts.
*'''Med-arbitration (med-arb) '''is a combination of mediation and arbitration. The parties agree to a mediation initially but, if that fails to achieve a settlement, the mediator takes on the role of arbitrator, with powers to make a legally binding award. The same person may act as mediator and arbitrator in this type of arrangement.
*'''Neutral fact finding''' is a non-binding procedure used in cases involving complex technical issues. A neutral expert in the subject matter is appointed to investigate the facts of the dispute and make an evaluation of the merits of the case. This can form the basis of a settlement or a starting point for further negotiation.
*'''Ombudsmen''' are independent office holders who investigate and rule on complaints from members of the public about maladministration in Government and in particular services in both the public and private sectors. Some ombudsmen use mediation as part of their dispute resolution procedures. The powers of ombudsmen vary. Most ombudsmen are able to make recommendations; only a few can make decisions that are enforceable through the courts.
*'''Utility regulators''' are watchdogs appointed to oversee the privatised utilities such as water or gas. They handle complaints from customers who are dissatisfied by the way a complaint has been dealt with by their supplier.

In addition to those listed above by the LCD, the following may be added:
*'''Mini-trial''', also known as''' executive tribunal''', in which each party, often through its legal advisers, makes a presentation of its case to a ‘mini-trial panel’. An abbreviated version of the discovery process may have taken place in advance of the mini-trial. The panel generally consists of three members – a management executive from each party (with sufficient authority to reach a settlement), and a third party neutral who may act as a mediator or adviser. The executive members usually have not been involved in the particular dispute. After the submissions have been made, the executives seek to negotiate a settlement. The role of the third party neutral may vary. He may act as a mediator or may act as an adviser, assessing objectively both the facts and the merits of the case and advising on the most appropriate solution.
*'''Construction adjudication''' is a statutory right introduced into UK construction contracts by the Housing Grants, Construction and Regeneration Act 1996, applicable to all relevant contracts entered into after 1 May 1998. It provides a temporarily binding decision which must be complied with by the parties until overturned or varied by the courts, arbitration or agreement.
*'''Dispute board (also known as dispute review board or dispute resolution board (DRB) and dispute''' '''adjudication board (DAB))''' is a procedure where a panel, normally of three independent and well-established individuals, is appointed at the commencement of a large construction project and considers project issues and recommends resolutions of disputes. Normally the employer and contractor each appoint one member and the third member is chosen by the first two. The recommendations are normally non-binding.
*'''Judicial appraisal''' is a procedure where the parties appoint a judge to receive written representations from each side and make an appraisal of the likely result if the case goes to court. The parties must agree the form and extent of the submissions and whether the appraisal is to be binding or not.
*'''Med-adjudication (med-ad)''' is a process in which the appointed neutral begins conducting the process as if he were an adjudicator, but after meeting the parties’ key professionals and expert witnesses together, gives a preliminary view on the matter in dispute. If the parties settle, this is recorded in writing, but if no settlement is reached within a fixed period of time the neutral proceeds to make a decision in which he is not bound by his preliminary view.
*'''Michigan mediation''' is an interesting variation on the theme and, as the name suggests, is used in the US state of Michigan. In any civil case where the primary relief sought is monetary, the assigned judge may refer the case to process. The term ‘mediation’ is, however, something of a misnomer: it is more properly described as a ‘case valuation’ process. After disclosure has been completed, the parties meet with a panel of three neutrals who are all attorneys. They hear 15-minute presentations by each party and give a non-binding evaluation of the case.
*'''Project neutral''' is effectively a one-person dispute board.
*'''Summary jury trial''' is a non-binding, abbreviated mock trial using a panel of actual jurors. The normal rules of evidence and procedure are normally modified to expedite the process, and negotiations generally follow the trial. It is used so far only in the United States.

The above processes can be divided into two broad categories which the LCD has described as:
*'''alternative adjudication''', which comprises those processes whereby a neutral third party makes a decision, such as arbitration, construction adjudication, expert determination, ombudsmen and industry regulators;
*'''assisted settlement''', which comprises those processes whereby a neutral third party offers an opinion and/or seeks to bring the parties to an agreement, such as mediation, conciliation and early neutral evaluation.

Med-arb and med-ad are hybrids of these two categories.

Whether or not a particular form of ADR is suitable depends upon a number of factors including the nature and value of the dispute, the attitude and financial resources of the parties, the desired outcome, and the balance of representation.

Both (or all) parties must be willing to submit their dispute to a form of '''alternative''' '''adjudication''', or willing to try a form of '''assisted settlement '''as clearly, if both parties are not willing, there can be problems in enforcing an apparently contractual agreement to try mediation or conciliation.

Litigation is, of course, the only option where one party needs to set a legal precedent or obtain an injunction, or where one party is refusing to acknowledge the problem or engage in negotiations. Any form of ADR will be worth considering where the cost of court proceedings is likely to equal or exceed the amount of money at issue.

Where parties wish to preserve an existing relationship, mediation or conciliation may be helpful. A great advantage of mediation is that the mediator is not bound merely to consider the obvious disputes between the parties but can bring in other matters, perhaps unrelated to the particular dispute, provided they may help the parties towards settlement.

Arbitration may be suitable in cases where there is no relationship to preserve and a rapid decision is needed.

Where available, trade association arbitration schemes, utility regulators and ombudsmen can provide a cheaper alternative for an individual seeking redress against a company or large organisation, but they may be limited in the redress they can provide.

Early neutral evaluation might be applicable in cases where there is a dispute over a point of law, or where one party appears to have an unrealistic view of their chances of success at trial.

Where there is a technical dispute with a great deal of factual evidence, mediation or determination by an expert in that area might be best. In addition, parties involved in a commercial dispute may prefer to use a form of ADR to keep sensitive commercial information private.

In many apparently intractable, large-scale and complex multi-party cases, mediation has achieved settlement. Where there is a significant imbalance of power, however, mediation might not be appropriate. Mediation is also now the preferred method of settlement of family disputes, such as divorce. Part III of the Family Law Act 1996 allows for the provision of publicly funded mediation in family proceedings. There has been a wide take-up of this service and the statistics for the six full years of operation are as shown in the following table:

{| style="width: 600px;" border="1" cellspacing="1" cellpadding="1"
|-
| '''Financial year'''
|
== Number of mediations started ==

|-
| 1997/98
| 406
|-
| 1998/99
| 1,349
|-
| 1999/00
| 6,333
|-
| 2000/01
| 9,308
|-
| 2001/02
| 12,335
|-
|
2002/03

| 13,841
|}

Section 29 of the Act, which requires those seeking legal aid for representation in family proceedings to attend a meeting with a mediator to consider whether mediation might be suitable in their case, has now been implemented in over 60% of the country and was intended to be in force across England and Wales in 2000.

Figures for 2005 produced by the Legal Services Commission show that over 14,000 family mediations took place which were either wholly or partly publicly funded. The UK College of Family Mediation reports that for the same year some 4,000 privately funded family mediations took place, making a total of some 18,000 for that year.

Mediation is also frequently used in neighbour disputes. Not all disputes between neighbours are necessarily suited to mediation, however, particularly where there are issues of harassment or mental health problems. Mediation UK reports that, between 2004 and 2005, more than 40,000 people were involved in community mediation.

----

This article was created by --[[User:The College of Estate Management|The College of Estate Management]] 16:32, 11 December 2012 (UTC)

= Find out more =

=== Related articles on Designing Buildings Wiki ===
*Adjudication.
*Arbitration.
*Breach of contract.
*Causes of construction disputes.
*Contract claims.
*Dispute resolution boards.
*Housing Grants, Construction and Regeneration Act.
*Mediation.
*Scheme for Construction Contracts.

=== External references ===
*[http://www.neccontract.com New Engineering Contract (NEC)].
*[http://Www.jctcontracts.com Joint Contracts Tribunal (JCT)].
*[http://Www.fidic.org Fédération Internationale des Ingénieurs-Conseils (FIDIC)].
*[http://www.legislation.gov.uk/ukpga/1996/53/contents Housing Grants, Construction and Regeneration Act 1996].
*[http://Www.legislation.gov.uk/ukpga/2009/20/contents Local Democracy, Economic Development and Construction Act 2009].

[[Category:Contracts_/_payment]]
[[Category:Construction_management]]
[[Category:Contracts_/_payment]]
[[Category:Other_legislation]]
[[Category:Procurement]]

Mediation in construction

2012-12-11T16:23:34Z

The College of Estate Management:

Conciliation in construction disputes

2012-12-11T15:50:18Z

The College of Estate Management:

Conciliation using the Institution of Civil Engineers’ Conciliation Procedure (1999) is a process that may be used at any time by agreement of parties who have contracted under the ICE family of contracts and associated subcontracts. Once the parties have agreed to take part in the conciliation process, there is no right given under the ICE

Procedure for a party to object to the appointed conciliator. Overall, the process set out in the Procedure gives very wide discretion to the conciliator as to how the conciliation is to be conducted; but, in practice, the process adopted is usually very similar to that for a typical mediation as described above.

The principal difference between mediation and ICE conciliation arises when progress towards a settlement breaks down as, for example:
*when the conciliator is of the opinion that it is unlikely that a settlement will be achieved;
*a party fails to comply with some instruction of the conciliator; or z either party indicates they do not wish to proceed towards a negotiated settlement.
*In such circumstances the conciliator prepares a ‘recommendation’ which sets out his solution to the dispute. The various ICE contracts provide that if the conciliator makes a recommendation, and neither party dissents from that recommendation within one month of its issue by referring the dispute to adjudication or arbitration, then the recommendation becomes final and binding.

A similar situation applies when a dispute review board (DRB), appointed under the International Chamber of Commerce (ICC) Rules, issues a ‘recommendation’ with respect to any dispute referred to it. If no party expresses dissatisfaction with a recommendation within a stated time period, the parties contractually agree to comply with it. If a party does express dissatisfaction with the recommendation within such time period, that party may submit the entire dispute to arbitration, if the parties have so agreed, or the courts. Pending a ruling by the arbitral tribunal or the court, the parties may voluntarily comply with the recommendation, but are not bound to do so.

NB ICE contracts have now been withdrawn in favour of NEC contracts ([http://www.ice.org.uk/topics/lawandcontracts/ICE-Conditions-of-Contract Ref]). The term ‘conciliation’ is gradually falling into disuse and the process is regarded as a form of mediation.

----

This article was created by --[[User%3AThe%20College%20of%20Estate%20Management|The College of Estate Management]] 15:45, 11 December 2012 (UTC)

= Find out more =

=== Related articles on Designing Buildings Wiki. ===
*Alternative Dispute Resolution.
*Adjudication.
*Arbitration.
*Dispute resolution boards.
*Mediation.

=== External references ===
*ICE: [http://www.ice.org.uk/topics/lawandcontracts/ICE-Conditions-of-Contract Conditions of Contract replaced by Infrastructure Conditions of Contract].

[[Category:Contracts_/_payment]]
[[Category:Client_procedures]]

Conciliation in construction disputes

2012-12-11T15:45:15Z

The College of Estate Management: Created page with " Conciliation using the Institution of Civil Engineers’ Conciliation Procedure (1999) is a process that may be used at any time by agreement of parties who have contracted unde..."

Conciliation using the Institution of Civil Engineers’ Conciliation Procedure (1999) is a process that may be used at any time by agreement of parties who have contracted under the ICE family of contracts and associated subcontracts. Once the parties have agreed to take part in the conciliation process, there is no right given under the ICE

Procedure for a party to object to the appointed conciliator. Overall, the process set out in the Procedure gives very wide discretion to the conciliator as to how the conciliation is to be conducted; but, in practice, the process adopted is usually very similar to that for a typical mediation as described above.

The principal difference between mediation and ICE conciliation arises when progress towards a settlement breaks down as, for example:
*when the conciliator is of the opinion that it is unlikely that a settlement will be achieved;
*a party fails to comply with some instruction of the conciliator; or z either party indicates they do not wish to proceed towards a negotiated settlement.
*In such circumstances the conciliator prepares a ‘recommendation’ which sets out his solution to the dispute. The various ICE contracts provide that if the conciliator makes a recommendation, and neither party dissents from that recommendation within one month of its issue by referring the dispute to adjudication or arbitration, then the recommendation becomes final and binding.

A similar situation applies when a dispute review board (DRB), appointed under the International Chamber of Commerce (ICC) Rules, issues a ‘recommendation’ with respect to any dispute referred to it. If no party expresses dissatisfaction with a recommendation within a stated time period, the parties contractually agree to comply with it. If a party does express dissatisfaction with the recommendation within such time period, that party may submit the entire dispute to arbitration, if the parties have so agreed, or the courts. Pending a ruling by the arbitral tribunal or the court, the parties may voluntarily comply with the recommendation, but are not bound to do so.

----

This article was created by --[[User:The College of Estate Management|The College of Estate Management]] 15:45, 11 December 2012 (UTC)

= Find out more =

=== Related articles on Designing Buildings Wiki. ===
*Alternative Dispute Resolution.
*Adjudication.
*Arbitration.
*Dispute resolution boards.
*Mediation.

[[Category:Contracts_/_payment]]
[[Category:Client_procedures]]

User:The College of Estate Management

2012-12-11T14:34:25Z

The College of Estate Management:

== The College of Estate Management - Learn today, lead tomorrow ==

Established in 1919, the College of Estate Management (CEM) is the leading provider of supported distance learning for real estate and construction professionals. At any one time there are some 4,000 students from around 100 countries benefiting from CEM courses - all taught by tutors with extensive industry experience. Designed for part-time study around work, CEM courses offer practical skills which build on a student’s workplace experience and have a direct benefit in their professional life.

CEM covers almost every property-related topic at diploma, degree and postgraduate level, as well as providing professional development courses and tailor-made corporate training solutions. Its active research programme contributes to knowledge across the profession, benefiting businesses, practitioners and policymakers alike.

CEM was granted taught degree awarding powers in November 2012 and will be launching new CEM degree programmes from autumn 2013.

The College’s patron is His Royal Highness The Prince of Wales.

Click here to [http://www.cem.ac.uk/ Visit our website]

[[File:CEM-logo2.jpg|217x70px|alt=CEM-logo2.jpg|link=http://www.cem.ac.uk/]]

----

College of Estate Management articles on Designing Buildings Wiki include:
*[[Rating%20valuation|Rating valuation]].
*[[Rental%20method%20of%20rating%20valuation|Rental method of rating valuation]].
*[[Contractor%E2%80%99s%20basis%20for%20rating%20valuation|Contractor’s basis for rating valuation]].
*[[Profits%20method%20of%20rating%20valuation|Profits method of rating valuation]].
*[[Statutory%20formulae%20for%20rating%20valuation|Statutory formulae for rating valuation]].
*[[Choice%20of%20method%20for%20rating%20valuation|Choice of method for rating valuation]].
*[[Case%20notes%20for%20rating%20valuation|Case notes for rating valuation (Garton V Hunter)]].
*[[Causes_of_construction_disputes|Causes of construction disputes]].
*[[Dispute_Resolution_Boards|Dispute resolution boards]].

----

Mediation in construction

2012-12-11T14:33:02Z

The College of Estate Management:

Mediation is a consensual process of dispute resolution in which a third party mediator, appointed by the parties to the dispute, assists in the negotiated resolution of the dispute.

The mediator’s role is to facilitate negotiations between the parties by way of general discussion and negotiation with all parties present, ''facilitative mediation'' or alternating general discussion with private meetings, or caucuses, where the mediator mandated to express views on merits ''evaluative mediation''.

The range of procedures provided by the [http://www.cedr.com/ Centre for Effective Dispute Resolution] (CEDR), a leading mediation organisation, includes:
*Assisted negotiation and independent chairing.
*Coaching.
*Early neutral evaluation.
*Expert determination.
*Independent intervention.
*Independent investigation and review.

The process is non-binding until the settlement agreement is signed by the parties. No legal costs are awarded.

Mediation is now very much a core procedure in construction contracts and, whilst it must of necessity remain consensual, the courts will enforce mediation clauses in contracts. The courts cannot insist that the parties reach an agreement, however they will order parties to engage in the mediation process if there is a contractual obligation and can stay legal proceedings pending mediation. An unreasonable refusal to mediate may prejudice the right of a successful litigant to an award of legal costs.

Mediation has strong public policy support from the UK Government, public authorities and the private sector.

= Find out more =

=== Related articles on Designing Buildings Wiki ===
*Adjudication.
*Alternative dispute resolution.
*Arbitration.
*Causes of construction disputes.
*Contract claims.
*Dispute resolution boards.
*Housing Grants, Construction and Regeneration Act.
*Scheme for Construction Contracts.

=== External references ===
*Tiered ADR, [http://www.ciarb.org/ Chartered Institute of Arbitrators], "Catch All" Dispute Resolution Clause.

[[Category:Contracts_/_payment]]
[[Category:Construction_management]]
[[Category:Contracts_/_payment]]
[[Category:Other_legislation]]
[[Category:Procurement]]

Mediation in construction

2012-12-11T14:32:41Z

The College of Estate Management:

Mediation is a consensual process of dispute resolution in which a third party mediator, appointed by the parties to the dispute, assists in the negotiated resolution of the dispute.

The mediator’s role is to facilitate negotiations between the parties by way of general discussion and negotiation with all parties present, ''facilitative mediation'' or alternating general discussion with private meetings, or caucuses, where the mediator mandated to express views on merits ''evaluative mediation''.

The range of procedures provided by the [http://www.cedr.com/ Centre for Effective Dispute Resolution] (CEDR), a leading mediation organisation, includes:
*Assisted negotiation and independent chairing.
*Coaching.
*Early neutral evaluation.
*Expert determination.
*Independent intervention.
*Independent investigation and review.

The process is non-binding until the settlement agreement is signed by the parties. No legal costs are awarded.

Mediation is now very much a core procedure in construction contracts and, whilst it must of necessity remain consensual, the courts will enforce mediation clauses in contracts. The courts cannot insist that the parties reach an agreement, however they will order parties to engage in the mediation process if there is a contractual obligation and can stay legal proceedings pending mediation. An unreasonable refusal to mediate may prejudice the right of a successful litigant to an award of legal costs.

Mediation has strong public policy support from the UK Government, public authorities and the private sector.

= Find out more =

=== Related articles on Designing Buildings Wiki ===
*Adjudication.
*Alternative dispute resolution.
*Arbitration.
*Causes of construction disputes.
*Contract claims.
*Dispute resolution boards.
*Housing Grants, Construction and Regeneration Act.
*Mediation.
*Scheme for Construction Contracts.

=== External references ===
*Tiered ADR, [http://www.ciarb.org/ Chartered Institute of Arbitrators], "Catch All" Dispute Resolution Clause.

[[Category:Contracts_/_payment]]
[[Category:Construction_management]]
[[Category:Contracts_/_payment]]
[[Category:Other_legislation]]
[[Category:Procurement]]

Contract claims in construction

2012-12-11T14:29:49Z

The College of Estate Management:

= '''Contractors''' =

Contractors and subcontractors should avoid unmerited and exaggerated claims which in extreme cases can lead to personal prosecution on charges of criminal fraud. Claims must be properly constituted and documented:
*Proper legal entitlement must be established.
*Cause and effect must be clearly demonstrated by contemporaneous records.
*Additional costs must be backed up by full supporting documents.

Claimants should avoid unnecessary optimism when reporting settlement figures to managers and should be willing to accept a reasonable offer of settlement without recourse to expensive legal action, which occupies management resources that would be better utilised elsewhere.

There is no guarantee of success in court.

= '''Clients and their agents''' =

The client should keep mind:
*The desirability of avoiding claims.
*Their obligation to resolve proper claim entitlements in an efficient and professional way.
*Investing in front end surveys, particularly ground investigation and topographical surveys, can help reduce the likelihood of claims. A National Economic Development Office (NEDO) report on 5000 industrial buildings, 8000 commercial buildings and 200 roads and bridges established that over 60% of claims arose from delays due to ground problems.
*It is important to ensure that all geotechnical data is made available to all parties in the bidding process.
*It is important to pick the most suitable method of procurement in relation to risk allocation and appropriate contract conditions. This includes deciding which elements of a project are to be designed by the contractor or subcontractors.
*Avoid drafting changes to standard forms of contract, which while attempting to re-allocate risk, can lead to ambiguity and uncertainty. The balance of marginal judgement will favour the party that had no hand in drafting the contract. The ‘contra proferentum’ rule may be applied against the interpretation of ambiguities.
*Usually the earlier a dispute is settled, the cheaper the settlement. In addition, there are considerable advantages to reducing the period of antagonism between parties to the contract.

= '''Tender documentation''' =

A number of strategies can be used in the preparation of tender documentation to help avoid claims:
*Avoid dealing with items post tender. Statements such as ‘to be agreed’ can lead to dispute without the leverage of competition.
*Phrases such as ‘to suit the contractor’s programme’ are open ended.
*Setting a conditional date such as, ‘in accordance with the architect’s instruction’ creates uncertainty for tendering contractors. It is not possible to enforce an ‘agreement to agree’.
*Avoid ambiguity in design responsibility, such as, ‘the contractor shall complete any design required after the consultants have finalised the drawings provided for tender purposes’.
*Ensure that programmes, resource charts and method statements supplied by contractors with their tenders are provided for tender assessment only and are not adopted as contract documents or as the basis for variations.
*If possible avoid ‘letters of intent’ as they encourage arguments over details in the contract not covered in the letter of intent. There are many cases where disputes have gone to Court with no signed contract in place. At the very least a letter of intent should limit activity to pre-construction activity, such as engineering design and pre-ordering of long-delivery items of manufacture. It is also beneficial to define payment terms in a letter of intent as this can be one of the most contentious matters of legal disputes. There is no exact legal definition of Quantum Merruit, and so a letter of intent should describe how overheads, profit and indirect costs are to be treated.

= '''Design''' =

Many claims are based on delays resulting from design consultants issuing schedules, drawings and specifications after construction has begun. Conflict can then arise due to arguable deficiencies in that information:
*Missing, or not produced.
*Late.
*Incorrect.
*Insufficient to order or build.
*Impractical.
*Unclear or conflicting.
*Inconsistent with pricing information.
*Inappropriate or not fit for purpose.
*Uncoordinated with other information.

Some flexibility is allowed by standard traditional contracts for the design team to issue further drawings and details reasonably necessary either to explain or amplify the contract drawings.

There can be an onus on the contractor to raise any queries on newly received information within 28 days of its receipt or forfeit their right to additional payment.

= '''Contractor’s master programme''' =

Many contracts require the contractor to draw up a contractor’s master programme after the execution of the contract. The contract documents should specify the level of detail required by the contractor's master programme, however, the contractor should make allowance for the following:
*Realistic time for carrying out each section of the work, with proper consultation and agreement with the major subcontractors involved.
*Sensible periods for specialist design and manufacture, including approval periods for checking conformity and co-ordination with other specialist input.
*Providing consultants with an even workload for the approval of specialist drawings.
*A stated system for recording progress against programme and future updating to reflect enforced changes.

Upon receipt of the contractor’s master programme, the client’s team should examine and challenge any aspects of the programme that cannot be justified. This programme is most likely to be the basis upon which all future claims for delay, extensions of time, disruption and loss and expense are based and judgments made. Challenging the contractor’s master programme at a later date when claims are submitted is arguing from a position of weakness.

The client should not ‘approve’ the contractor’s master programme, as approval might be considered to relieve the contractor of liability for programming the works in such a way as to achieve the completion date.

NB. As it is produced after the execution of the contract, the contractor’s master programme does not impose any obligation on the contractor beyond those imposed by the contract documents.

= '''Cause and effect''' =

Global claims, made by lumping together many different causes of delay to make a case for continuous disruption and cumulative effect, has not always found favour with the courts. This method of ‘death by a thousand cuts’ can be fairly easily counter-challenged by the client’s team, citing all the contractor’s deficiencies such as; labour shortages, poor management, plant breakdowns and subcontractor non-performance. This all leads to the argument of parallel, concurrent or contemporaneous delay.

It is better to be specific rather than generic. This is a more painstaking exercise requiring more intellectual rigour, as the claimant lists each alleged default, linking it against the consequential delay and its knock-on effect, backed by contemporary records. This approach is obviously a more precise way of establishing quantum and will lead to a more factually based judgement. In other words, to succeed, a claimant needs to establish a discernible nexus between the breaches pleaded and the consequential delay and/or associated costs.

= '''Notice and particulars''' =

Under UK commercial law and under all forms of building contract any party has to give the other notice as soon as a breach is apparent so that it can be remedied or its consequences mitigated. Failure to do this expunges the right to additional payment for loss or expense.

The delay or loss and expense notice should:
*Identify the specifics of the breach and legal entitlement clauses in the contract.
*Disclose as full information as possible, including the effect of the delay.
*Identify relevant dates and periods of delay involved.
*State any criticality and effect on the completion date.

The client team should immediately check the factual basis of such a notification and comment on any content that appears to be subjective.

= '''Concurrent delay''' =

Concurrent delay is a situation where several causes of delay are running in parallel. An example might be where consultants details were issued late, but an industrial dispute delayed progress of critical work at the same time. In more recent judgments the courts have disregarded arguments about which was the dominant delay and judgement has been made on the basis that the loss should lie where it falls.

In the above example the contractor may be entitled to an extension of time and relief from damages but not entitled to loss and expense.

= '''Quantifying claims''' =

Quantifying claims may involve a number of considerations:

== '''Costs''' ==

Actual cost is the proper basis for evaluating claims. It is a popular misconception that the contractor is bound by its tender rates as its full entitlement. Costs may include allowance for inflation resulting from delay.

== '''Preliminaries''' ==

Preliminaries include set-up costs, running costs and dismantling costs. Thus extensions of time should not include set-up or dismantling costs but merely running cost at the time of the breach and its associated period of delay.

== '''Disruption''' ==

Disruption describes loss due to inefficient productivity. It is extremely difficult to assess.

Often the most effective approach is to localise the claim to a specific area of breach. Then compare individuals productivity prior to and after the disruption occurred against the productivity during the period of disruption. Generic claims based on statements such as ‘this was the tender price and this is the outturn cost’ are unlikely to succeed.

== '''Head office or factory overheads''' ==

Hudson’s formula appears to be the one most readily accepted by the courts:

(HO Profit % / 100) X (contract sum / contract period (weeks)) X (delay (weeks))

In applying the above formula the following should be subtracted:
*Credit for staff time included in the project costs as visiting supervision.
*Any additional overhead recovered within the final account, such as the variation account.
*Credit where resources were re-deployed due to delay.

== '''Loss of profit / opportunity costs''' ==

This is only valid when the claimant can prove breaches of contract directly prevented it making a profit elsewhere. Deductions must be made for additional profit that has been paid on the project as a result of extra work instructed and priced within the final account.

== '''Finance charges and interest''' ==

Finance charges and interest on extra capital required to fund costs arising from breaches in the contract are recoverable providing:
*Interest rates are proven and reasonable (eg market rates prevailing during the period of breach).
*If financed within the corporate group, the rate will be that received from monies it has placed on deposit.

= Find out more =

=== Related articles on Designing Buildings Wiki ===
*Alternative dispute resolution.
*Adjudication.
*Arbitration.
*Causes of construction disputes.
*Contract sum.
*Contract.
*Contractor's master programme.
*Dispute resolution boards.
*Extension of time.
*Final account.
*Housing Grants, Construction and Regeneration Act.
*Liquidated damages.
*Loss and expense.
*Mediation.
*Scheme for Construction Contracts.
*Variation.

[[Category:Contracts_/_payment]]
[[Category:Other_legislation]]
[[Category:Client_procedures]]
[[Category:Procurement]]

Construction disputes

2012-12-11T14:26:46Z

The College of Estate Management:

= Introduction =

In this paper you will be introduced to the main causes of construction and engineering disputes.

The former Director General of MI5 was Stella Rimmington. In her autobiography ''Open Secret'' (2002) she made this comparison:

’Like a huge building project, particularly in the public sector, the Thames House Refurbishment was fraught with difficulties. It was clear that dealing with the building industry was just as tricky as dealing with the KGB.’

There is enormous interest in construction disputes amongst the professions and industry generally, but that interest is focused mostly on the various techniques used to resolve construction disputes. It may be inevitable that disputes will arise on complex construction projects, but perhaps too little is done to avoid them.

= Why do construction disputes occur? =

A combination of environmental and behavioural factors can lead to construction disputes. Projects are usually long-term transactions with high uncertainty and complexity, and it is impossible to resolve every detail and foresee every contingency at the outset. As a result, situations often arise that are not clearly addressed by the contract. The basic factors that drive the development of construction disputes are uncertainty, contractual problems, and behaviour.

== '''Uncertainty ''' ==

Uncertainty is the difference between the amount of information required to do the task and the amount of information available (Galbraith, 1973). The amount of information required depends on the task complexity and the performance requirements, usually measured in time or to a budget. The amount of information available depends on the effectiveness of planning and requires the collection and interpretation of that information for the task

Uncertainty means that not every detail of a project can be planned before work begins (Laufer, 1991). When uncertainty is high, initial drawings and specification will almost certainly change and the project members will have to work hard to solve problems as work proceeds if disputes are to be avoided.

== Contractual problems ==

Standard forms of contract clearly prescribe the risks and obligations each party has agreed to take. Such rigid agreements may not be appropriate for long-term transactions carried out under conditions of uncertainty.

It is not uncommon to find amended terms or bespoke contracts that shift the risk and obligations of the parties, often to the party least capable of carrying that risk. Where amended terms or bespoke contracts are used, they may be unclear and ambiguous.

As a consequence, differences may arise in the parties’ perception of the risk allocation under the contract. Where the parties have agreed to amended or bespoke terms, those conditions take effect in addition to the applicable law of the contract, which is continually evolving and being refined to address new issues.

== Behaviour ==

Since contracts cannot cater for every eventuality, wherever problems arise either party may have an interest in gaining as much as they can from the other. Equally, the parties may have a different perception of the facts. At least one of the parties may have unrealistic expectations, affecting their ability to reach agreement. Alternatively, one party may simply deny responsibility in an attempt to avoid liability.

= Common causes of construction disputes =

Construction is a unique process which can give rise to some unusual and unique disputes. However, research in Australia, Canada, Kuwait, the United Kingdom and the United States suggests that a number of common themes occur quite frequently :

== Acceleration ==

It is not uncommon for commercial property owners to insist upon acceleration of a construction project. Such examples might include the completion of a major retail scheme, and the need to meet key opening dates or tenant occupation in an office development. The construction costs associated with acceleration are likely to be less than the commercial risk the developer may face if key dates are missed.

The circumstances surrounding acceleration are often not properly analysed at the time the decision is made, and that inevitably leads to disputes once the contractor has carried out accelerative measures and incurred additional costs only to find that the developer refuses to pay.

The construction of facilities in Athens for the Olympic Games 2004 were subject to acceleration, and a wealth of disputes were expected once the facilities were completed and the euphoria of the Games over.

== Co-ordination ==

In complex projects involving many specialist trades, particularly mechanical and electrical installations, co-ordination is key, yet conflict often arises because work is not properly co-ordinated. This inevitably leads to conflict during installation which is often costly and time-consuming to resolve, with each party blaming the other for the problems that have arisen.

Ineffective management control may result in a reactive defence to problems that arise, rather than a proactive approach to resolve the problems once they become apparent.

== Culture ==

The personnel required to visualise, initiate, plan, design, supply materials and plant, construct, administer, manage, supervise, commission and correct defects throughout the span of a large construction contract is substantial. Such personnel may come from different social classes or ethnic backgrounds. In the United Kingdom skill shortages have led to an influx of personnel from central and eastern Europe, a trend likely to continue with the growth of pre-accession states seeking access to the labour market in the European Union.

Major international construction projects may employ or engage people from different nationalities and cultures. For example, on a major pipeline contract in Kazakhstan the owner was a joint venture comprising Kazakh, Canadian and British companies, and the owner’s representatives on the project for day-to-day matters were of Canadian, French, Russian and British nationalities. The contractor was a Greek–Italian joint venture that employed labour from no fewer than 24 different countries throughout central and eastern Europe, the Middle East and the Indian sub continent. Forming a teamwork approach across cultures can be very difficult where each culture has its own values.

== Differing goals ==

Personnel engaged on a large construction contract are likely to be employed by one of many subcontracted firms, including those engaged as suppliers and manufacturers. Each of these firms may have their own commitments and goals, which may not be compatible with each other and could result in disputes.

== Delays ==

Disputes frequently arise in respect of delays and who should bear the responsibility for them. Most construction contracts make provision for extending the time for completion. The sole reason for this is that the owner can keep alive any rights to delay damages recoverable from the contractor. On international construction projects the question of any rights the contractor might have to extend the time for completion was a matter often addressed towards the end of the contract, when an overrun looked likely. From the owner’s point of view, this made the examination of the true causes of delay problematical and inevitably led to disputes between the contractor and the owner as to the contractor’s proper entitlement.

Under the FIDIC contracts the contractor is now required to give prompt notice of any circumstances that may cause a delay. If the contractor fails to do so, then any rights to extend the time for completion will be lost, both under the contract and at law. This may seem a harsh measure, but a better view is that this approach brings claims to the surface at a very early stage and gives the recipient an opportunity to examine the cause and effect of any delay properly as and when it arises, so that the owner has some say in what can be done to overcome the delay.

== Design ==

Errors in design can lead to delays and additional costs that become the subject of disputes. Often no planning or sequencing is given to the release of design information, which then impacts on construction. Equally, the design team sometimes abrogate their responsibilities for the design, leaving the contractor to be drawn into solving any design deficiencies by carrying out that part of the work itself to try to avoid delays, and, in doing so, innocently assuming the risk for any subsequent design failures.

== Engineer and Employer’s Representative ==

The personality of the Engineer or the Employer’s Representative and their approach to the proper and fair administration of the contract on behalf of the Employer is crucial to avoiding disputes, yet a substantial proportion of disputes have been driven by the Engineer or the Employer’s Representative exercising an uneven hand in deciding differences in favour of the Employer.

In domestic and international contracts, the Engineer traditionally had an independent and impartial role. This independence or impartiality was often not properly exercised, and in some cases there was clear evidence of bias by the Engineer towards the Employer. This practice was not limited to third world countries but also existed in developed countries.

It is a complete fiction to say that the Engineer under government contracts in the United Kingdom could possibly act independently of the Employer on every issue.

Some contracts are open as to the constraints imposed on the Engineer: in Hong Kong Engineers are subject to financial constraints in respect of variations and in the extensions of time that can be given. While this may be understandable from a public policy point of view, it is unacceptable for it to be done behind a veil so that the fiction of independence is preserved.

Under the FIDIC contracts the Engineer no longer has an impartial role but expressly acts for the Employer. This does not prevent the Engineer from taking a professional view on the merits of any difference that may be at issue, but in the event of a dispute the mechanism to resolve such matters quickly by independent means has been achieved by the introduction of a dispute adjudication board.

== Project complexity ==

In complex construction projects the need to carry out a proper risk assessment before a contract is entered into is paramount: yet this is often not done.

There are numerous examples of projects taking much longer than planned and contracted for because there was insufficient appreciation of the risks associated with the project’s complexity. Inevitably the delay and additional costs the contractor incurs, and the owner’s right to claim damages for delay, often develop into bitter disputes.

== Quality and workmanship ==

In traditional construction contracts, disputes often arise as to whether or not the completed work is in accordance with the specifications. The specification may be vague on the subject of the dispute in question, and each party to the contract may have a different view on whether the quality and workmanship is acceptable.

This is even more so in international contracts. Although great care may have been taken to prescribe the quality of the materials and their compliance with European standards, these standards may contradict the local laws and regulations in the country where the project is being constructed, and any dispute will be governed by the law of that country.

In design and build contracts, perhaps the greatest deficiency is in the contract documentation, particularly the Employer’s requirements. This inadequacy inevitably leads to claims by the contractor for additional costs, which, if not resolved, can lead in turn to costly disputes.

== Site conditions ==

If the contract inadequately describes which party is to take the risk for the site conditions, disputes are inevitable when adverse site or ground conditions impede the progress of work or require more expensive engineering solutions.

Even if the Employer, in good faith, provides detailed information on the site conditions to the contractor, if that information is discovered to be incorrect and the contractor has relied on it and acted upon it to his detriment, the Employer may be liable to the contractor for the consequences.

== Tender ==

The time allowed to scrutinise the tender documents, prepare an outline programme and methodology, carry out a risk assessment, calculate the price, and conclude the whole process with a commercial review is often impossibly short. Mistakes in this process may have an adverse effect on the successful commercial outcome of the project. A culture may be engendered in the contractor of pursuing every claim that has a prospect of redressing any ultimate financial shortfall. This approach does nothing to foster close and co-operative working relationships between the owner and the contractor during the progress of the work, and inevitably leads to disputes.

== Variations ==

Variations are a prime cause of construction disputes, particularly where there are a substantial number, or the variations impact on partially completed work or are issued as work is nearing completion. The nature and number of variations can transform a relatively straightforward project into one of unmanageable complexity. The new Parliament building in Edinburgh is such an example. The building was planned to house 329 people, but through variations the building increased in size and complexity to house 1200 people. It was perhaps not surprising that the total cost of construction exceeded £500 million, almost ten times more than the original budget.

== Value engineering ==

This term often lacks definition in construction contracts and can lead to disputes, particularly where the saving is to be shared between the contractor and the owner.

Savings in respect of the supply and installation of the material or product in question might be relatively easy to determine and agree, but these are not the only benchmarks, and a proper value engineering approach needs to take full account of the life cycle costs of any proposed change.

----

This article was created by --[[User%3AThe%20College%20of%20Estate%20Management|The College of Estate Management]] 13:00, 11 December 2012 (UTC)

= Find out more =

=== '''Related articles on Designing Buildings Wiki''' ===
*Adjudication.
*Alternative dispute resolution
*Arbitration.
*Compensation event.
*Contract claims.
*Defects.
*Dispute resolution board.
*Extension of time.
*Liquidated damages.
*Loss and expense.
*Mediation.
*Relevant event.
*Risk assessment.
*Value management.
*Variations.

=== '''External references''' ===
*Fenn P (2002) ‘Why Construction Contracts Go Wrong (an Aetiological Approach to Construction Disputes)’, ''Society of Construction Law'', London.
*Fenn P, Lowe D and Speck C (1997) ‘Conflict and Disputes in Construction’, ''Construction Management and Economics'', Volume 15, page 513.
*Al-Sabah SJ, Fereig SM and Hoare DJ (2002) ‘Construction Claims – The Results of Major Tribunal Findings in Kuwait’, ''Arbitration'', Volume 68, Number 1, page 11.

[[Category:Contracts_/_payment]]
[[Category:Construction_management]]
[[Category:Other_legislation]]
[[Category:Client_procedures]]
[[Category:Procurement]]

Breach of contract

2012-12-11T14:26:06Z

The College of Estate Management:

If the one of the parties to a contract fails to perform as required by the contract, this may constitute a breach of contract. A breach of contract may entitle the innocent party to make a claim for damages for the losses it has suffered.

If the breach of contract is serious (a material breach), then the innocent party may also consider that it is discharged from any further obligations under the contract.

If the breach is less serious, (a non-material breach, sometimes referred to as a default) the innocent party may make a claim for damages, but may not consider it is discharged from any further obligations under the contract. This prevents the innocent party from excusing their performance because of a minor breach of just one part of the contract.

This is generally the position on construction contracts, where some works are likely to have been carried out, but one or more may remain undone, incomplete or defective. As building contracts are usually divided up in to parts (divisible), and include a series of separate payments, this sort of partial failure would not allow the innocent party to excuse their performance, ie a failure in one part will generally only mean that the client is not liable to pay for that part. Furthermore, if the works have been substantially performed, then the client must pay for them subject to a claim for the parts that have not been performed.

On construction contracts, it is generally in the interests of both parties for the contract to continue and for the works to proceed irrespective of minor problems. Whilst damages for breach of contract may seek to put the innocent party in the position it would have been in had there not been a breach of contract, the delay and disruption caused, for example, by having to appoint a new contractor can far outweigh the difficulties of proceeding, albeit under difficult circumstances.

Construction contracts generally make provisions for the contract to be varied without there being a breach. Variations, extensions of time, claims for loss and expense, liquidated damages, and the defects liability period all provide for the contract to be varied or for problems to be rectified.

Where one party behaves in such a way that it indicates it no longer intends to accept its obligations under the contract, this is considered to be a repudiatory beach (or fundamental breach) allowing the innocent party to terminate the contract and to sue for damages. Generally the contract will set out what those breaches are, but they might include:
*Refusal to carry out work.
*Abandoning the site.
*Removing plant from the site.
*Failure to make payments.
*Employing others to carry out the work.
*Failure to allow access to the site.
*Failure to proceed regularly and diligently.
*Failure to remove or rectify defective works.

Where repudiation is considered to have occurred, the innocent party can either affirm that the contract will continue or accept the repudiation and so terminate the contract. In either case, they will have the right to claim damages. Either way, it is important that there is some sort of response, as inaction may be considered to be an affirmation of the contract.

Assessing the seriousness of breaches of contract depends on the particular circumstances and terms of the contract. For example, if a contractor failed to carry out the work to an agreed timetable, this might be considered a relatively minor issue on some projects, whilst on others it could be an extremely serious breach. The innocent party must be careful therefore to establish that there has actually been a material breach before considering that the contract is terminated, otherwise they might find themselves in breach of contract.

This can lead to disputes, where for example, the client refuses to make payment, claiming that the contractor has failed to perform, whereas the contractor contends that they are not performing because the client has refused to make payment.

An anticipatory breach (or anticipatory repudiation) occurs when one of the parties to the contract declares to the other that they do not intend to perform their obligations under the contract.

The contract may also allow termination under other circumstances, such as frustration or insolvency. It may also allow termination for ‘convenience’, but this may leave the terminating party open to significant claims by the other party. See: Termination for more information.

Rescission is a process of returning both parties to the position they would have been in had they not entered into a contract, that might be appropriate for example if there is a serious error in the contract.

NB The term irremediable breach refers to a situation where there is a defect in the works for which the cost of rectification is unreasonable relative to the nature of the defect. Under these circumstances the contract administrator may issue a certificate of making good defects, with a deduction relative to the amount by with the value of the works has been reduced by the defect.

NB The Construction Act now gives contractors the right to suspend performance for non-payment.

= Find out more =

Related articles on Designing Buildings Wiki
*Alternative dispute resolution.
*Construction Act.
*Causes of construction disputes.
*Contract claims.
*Fair payment practices.
*Defects.
*Dispute resolution boards.
*Consequential losses.
*Concurrent delay.
*Extension of time.
*Variations.
*Liquidated damages.
*Loss and expense.
*Termination.

[[Category:Contracts_/_payment]]
[[Category:Contracts_/_payment]]
[[Category:Client_procedures]]

Arbitration in the construction industry

2012-12-11T14:24:25Z

The College of Estate Management:

Arbitration is a private, contractual form of dispute resolution. It provides for the determination of disputes by a third party arbitrator or arbitration panel, selected by the parties to the dispute. Disputes are resolved on the basis of material facts, documents and relevant principles of law.

The arbitration process is administered by an appointed arbitrator subject to any relevant contractual rules and subject to the statutory regulatory framework applied by the domestic courts. There are only limited rights of appeal and legal costs are usually awarded to the successful party.

English law does not insist on any formal requirements for an arbitration agreement (for example it can be verbal), however if the agreement is not in writing it will be outside the supervisory regime of the courts established by the [http://Www.legislation.gov.uk/ukpga/1996/23/contents Arbitration Act]. In addition, construction projects with complex disputes require properly constituted arbitration procedures in order for them to be effective.

Arbitration clauses are traditionally found in all standard form contracts used in the UK, often with related adjudication clauses (for example JCT 05, and ICE 7th Edition (now withdrawn in favour of NEC3)). In the last few years there has been a tendency to set the dispute resolution default at litigation rather than arbitration, leaving the parties to specifically agree to arbitration (for example JCT 05 Section 9 and NEC3 option W2). Arbitration remains the favoured method of dispute resolution for international projects (for example FIDIC contracts) and [http://www.uncitral.org UNCITRAL] are widely accepted in international commerce.

Arbitration commences with a notice to concur which provides for agreement on the appointment of an arbitrator, failing which an arbitrator may be appointed by a nominating body (which should be named in the contract). Arbitration is now usually combined with adjudication and mediation in tiered dispute resolution procedures (see for example the [http://www.ciarb.org/dispute-resolution/dispute-resolution-contract-clauses Chartered Institute of Arbitrators]' ‘catch all’ dispute resolution clause and the [http://www.jctcontracts.com/JCT/cimar.pdf Construction Industry Model Arbitration Rules 2005] (CIMAR).

= Find out more =

=== Related articles on Designing Buildings Wiki ===
*Adjudication.
*Alternative dispute resolution.
*Breach of contract.
*Causes of construction disputes.
*Contract claims.
*Dispute resolution boards.
*Housing Grants, Construction and Regeneration Act.
*Mediation.
*Scheme for Construction Contracts. 

=== External references ===
*[http://Www.ice.org.uk/topics/lawandcontracts/ICE-Conditions-of-Contract ICE contract].
*[http://Www.jctcontracts.com JCT contract].
*[http://Www.fidic.org FIDIC contract].
*JCT/CIMAR: [http://www.jctcontracts.com/JCT/cimar.pdf Construction Industry Model Arbitration Rules].
*PACE: [http://webarchive.nationalarchives.gov.uk/20100503135839/http://www.ogc.gov.uk/documents/PACE_-_GACC.pdf Guide to the Appointment of Consultants and Contractors] P549 and 384

[[Category:Contracts_/_payment]]
[[Category:Construction_management]]
[[Category:Contracts_/_payment]]
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Arbitration in the construction industry

2012-12-11T14:24:03Z

The College of Estate Management:

Arbitration is a private, contractual form of dispute resolution. It provides for the determination of disputes by a third party arbitrator or arbitration panel, selected by the parties to the dispute. Disputes are resolved on the basis of material facts, documents and relevant principles of law.

The arbitration process is administered by an appointed arbitrator subject to any relevant contractual rules and subject to the statutory regulatory framework applied by the domestic courts. There are only limited rights of appeal and legal costs are usually awarded to the successful party.

English law does not insist on any formal requirements for an arbitration agreement (for example it can be verbal), however if the agreement is not in writing it will be outside the supervisory regime of the courts established by the [http://Www.legislation.gov.uk/ukpga/1996/23/contents Arbitration Act]. In addition, construction projects with complex disputes require properly constituted arbitration procedures in order for them to be effective.

Arbitration clauses are traditionally found in all standard form contracts used in the UK, often with related adjudication clauses (for example JCT 05, and ICE 7th Edition (now withdrawn in favour of NEC3)). In the last few years there has been a tendency to set the dispute resolution default at litigation rather than arbitration, leaving the parties to specifically agree to arbitration (for example JCT 05 Section 9 and NEC3 option W2). Arbitration remains the favoured method of dispute resolution for international projects (for example FIDIC contracts) and [http://www.uncitral.org UNCITRAL] are widely accepted in international commerce.

Arbitration commences with a notice to concur which provides for agreement on the appointment of an arbitrator, failing which an arbitrator may be appointed by a nominating body (which should be named in the contract). Arbitration is now usually combined with adjudication and mediation in tiered dispute resolution procedures (see for example the [http://www.ciarb.org/dispute-resolution/dispute-resolution-contract-clauses Chartered Institute of Arbitrators]' ‘catch all’ dispute resolution clause and the [http://www.jctcontracts.com/JCT/cimar.pdf Construction Industry Model Arbitration Rules 2005] (CIMAR).

= Find out more =

=== Related articles on Designing Buildings Wiki ===
*Adjudication.
*Alternative dispute resolution.
*Arbitration.
*Breach of contract.
*Causes of construction disputes.
*Contract claims.
*Dispute resolution boards.
*Housing Grants, Construction and Regeneration Act.
*Mediation.
*Scheme for Construction Contracts. 

=== External references ===
*[http://Www.ice.org.uk/topics/lawandcontracts/ICE-Conditions-of-Contract ICE contract].
*[http://Www.jctcontracts.com JCT contract].
*[http://Www.fidic.org FIDIC contract].
*JCT/CIMAR: [http://www.jctcontracts.com/JCT/cimar.pdf Construction Industry Model Arbitration Rules].
*PACE: [http://webarchive.nationalarchives.gov.uk/20100503135839/http://www.ogc.gov.uk/documents/PACE_-_GACC.pdf Guide to the Appointment of Consultants and Contractors] P549 and 384

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[[Category:Contracts_/_payment]]
[[Category:Other_legislation]]
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Alternative dispute resolution for construction ADR

2012-12-11T14:21:55Z

The College of Estate Management:

Construction contracts usually provide for disputes to be dealt with by agreed dispute resolution procedures involving mediation, adjudication and arbitration. Often a combination of all three. See for example the [http://www.neccontract.com/ New Engineering Contract] (NEC) Engineering and Construction Contract, the [http://www.jctltd.co.uk/ Joint Contracts Tribunal] (JCT) 05 Standard Form of Building Contract, and the [http://www.fidic.org/ Fédération Internationale des Ingénieurs-Conseils] (FIDIC) Conditions of Contract.

The construction sector is also subject to statutory schemes which impose adjudication procedures in the absence of contractual agreement (such as the Housing Grants, Construction and Regeneration Act 1996 and the [http://www.legislation.gov.uk/ukpga/2009/20/contents Local Democracy, Economic Development and Construction Act 2009].

Many contracts for large and complex projects now have, in addition to the dispute resolution procedures set out above, tiered dispute resolution procedures with obligations to negotiate in good faith, dispute resolution boards, steering committees and partnering meetings under the nomenclature of 'Partnering Obligations' (see for example NEC & JCT contracts as well as [http://www.constructingexcellence.org.uk/pdf/fact_sheet/partnering.pdf Constructing Excellence: Partnering] and the report of the [http://www.cic.org.uk/activities/partnering.shtml Construction Industry Council (CIC) Industry Improvement Committee]). See also the [http://www.ciarb.org/dispute-resolution/dispute-resolution-contract-clauses Chartered Institute of Arbitrators] 'catch all' dispute resolution clause.

Contract disputes are a complex area of law and the choice of procedure is one which requires careful consideration. Details of the different dispute resolution procedures are set out in separate articles on mediation, adjudication and arbitration.

= Find out more =

=== Related articles on Designing Buildings Wiki ===
*Adjudication.
*Arbitration.
*Breach of contract.
*Causes of construction disputes.
*Contract claims.
*Dispute resolution boards.
*Housing Grants, Construction and Regeneration Act.
*Mediation.
*Scheme for Construction Contracts.

=== External references ===
*[http://www.neccontract.com New Engineering Contract (NEC)].
*[http://Www.jctcontracts.com Joint Contracts Tribunal (JCT)].
*[http://Www.fidic.org Fédération Internationale des Ingénieurs-Conseils (FIDIC)].
*[http://www.legislation.gov.uk/ukpga/1996/53/contents Housing Grants, Construction and Regeneration Act 1996].
*[http://Www.legislation.gov.uk/ukpga/2009/20/contents Local Democracy, Economic Development and Construction Act 2009].

[[Category:Contracts_/_payment]]
[[Category:Construction_management]]
[[Category:Contracts_/_payment]]
[[Category:Other_legislation]]
[[Category:Procurement]]

Dispute resolution boards

2012-12-11T14:17:58Z

The College of Estate Management:

= Introduction =

This article introduces the concept of Dispute Resolution Boards and Dispute Adjudication Boards, how they are established, and how they operate in practice.

Dispute Resolution Boards (DRB) administer a type of dispute resolution without any specific description. DRBs have evolved over time and can be formulated in a number of different ways. The procedure is based on contract rather than statute, and the parties to a contract are able to agree to a formulation that suits their particular project. A few standard contracts have DRBs as part of their terms, of which the most prominent are the FIDIC contracts and the World Bank (Procurement of Works) contract.

It seems to be accepted that the first DRB was set up in 1975 for the Eisenhower Tunnel in Colorado, USA. This followed the first tunnel bore that had been constructed between 1968 and 1973. The project was a disaster, in that it overran in both time and money, with many disputes arising. When it came to the second bore, notice was taken of a study entitled ''Better Contracting for Underground Construction'' published in 1974. This report highlighted the incidence of claims, disputes and litigation together with the additional costs that inevitably flowed from those claims.

Based on the report, it was decided that the second bore of the Eisenhower Tunnel contract would incorporate a DRB. The hope was that the high level of cost overrun and disputes experienced on the first bore could be minimised by use of the DRB.

It was a tremendous success. Although disputes did arise, they were dealt with very swiftly and effectively by the DRB, to the extent that there was no ensuing litigation.

The DRB was set up in the form of a Review Board rather than an Adjudication Board, and their findings were recommendations rather than binding decisions. The losing party was not obliged to follow the recommendation. The dispute could thereafter be taken to a higher authority where a binding decision could be made.

The use of DRBs on major projects confined to the USA increased. The World Bank took note and in 1980 decided that a project known as the El Cajon Dam and Hydro Scheme in Honduras was a suitable candidate for a DRB. The World Bank were major funders of the project with a Honduran owner (who had not undertaken such a large project previously), an Italian contractor and a Swiss engineer. It is easy to see how misunderstandings could occur with such a diverse cultural mix, and the World Bank insisted that in order to obtain funding a DRB should be formed to deal with issues on the project as they arose.

That project was also a success. DRBs were launched into the international construction arena and broke out of their American birthplace.

As DRBs became more commonly used on international construction projects, various institutions began to take more notice of them. In 1990 the World Bank published its ''Procurement of Works'', which for the first time incorporated a procedure for DRBs in the form of a modified FIDIC contract. This procedure incorporated non-binding recommendations.

FIDIC itself followed this with the publication of an amendment to their form in which the concept of Dispute Adjudication Boards (DABs) was introduced. These differed from the Dispute Review Boards in that a temporarily binding decision was introduced, very much in the same way as domestic adjudication in the United Kingdom.

In 2000 the World Bank revised its DRB procedure, introducing the idea of interim binding recommendations, displacing the engineer from a former role in which decisions on disputes were required. In the same year FIDIC published a suite of contracts incorporating DABs, whereby interim binding decisions in respect of disputes could be made. The costs of the DAB are shared equally between the parties.

In 2003 the European Union published a directive that prescribed the use of these FIDIC contracts incorporating DABs on all construction projects that receive EEC funding.

The ICC rules allow for a choice of non-binding recommendations, adjudication decisions and a combined approach that allows the DAB to act as an adjudication board at the request of one party, with the proviso that if the other party objects, the board will decide in what capacity it is to hear the dispute.

To date, well over 1000 construction and engineering projects worldwide have used DRBs with a total construction cost of some US$100 billion. The success of DRBs is illustrated by the fact that fewer than 3 percent of disputes that arose became the subject of an arbitration or litigation.

DRBs are most suited to large, complex construction and engineering projects on an international scale, although more domestic projects are incorporating these ideals; for example the Channel Tunnel Rail Link had a DRB. This was a huge project. Two panels were appointed, one to deal with the technical issues (three engineers) and the other to deal with disputes concerning the financial provisions of the project.

= Composition of a Dispute Resolution Board =

The DRB is a creature of the contract. Usually the contract will provide for three members, two technical and one legal, usually the chairman. This formulation allows for technical disputes to be fully understood and resolved without the need for external advice, and similarly disputes involving or including legal issues being capable of resolution without external advice. The idea is for the board to be able to deal with any dispute that arises.

Clearly each Board member needs to be a respected member of their own professions, with qualifications and experience to match the project in hand.

Essentially the DRB can be likened to a project management tool that is used to ensure that the project remains on track, influencing the parties to the project to carry out their contractual obligations properly.

The three-member DRB will visit the project regularly and deal with any difficulties that have arisen. Occasionally it will have to convene outside of its regular visits if a particular dispute requires it. The advantage to the parties is that the DRB gains an ongoing knowledge of the project as the members are exposed to the facts of any emerging disputes at a very early stage.

The operational philosophy behind a DRB is to provide interim solutions that are in tune with the interests of the project in a quick and effective manner. It is a process that is intended to find solutions to problems rather than form an adversarial forum. DRBs are designed to keep the parties working constructively together while finding solutions to problems as they occur, rather than allowing those problems to escalate in an ultimately destructive manner.

= Selection of the Dispute Resolution Board =

The success of a DRB is dependent not only on the procedure that has been put in place but also on the members of the DRB itself. Of course the importance of the willingness of the parties themselves to work constructively with the DRB and make commercial compromises should not be forgotten.

The selection of the members of the DRB is crucially important to the parties, and therefore an appointment procedure is required within rules set out in the contract. Normally each party nominates one member and those members then choose a third member as chairman. This allows each party to have the comfort of a board member who is in tune with their thinking, whilst the chairman is independent of both. In default of agreement between the two members, a nominating body should independently select and appoint the chairman. Again, that procedure must be part of the written contract.

When appointing members for the DRB it is useful to consider their experience not only in construction and engineering but also in contract management and the applicable law of the contract. A mix of all these elements may be required in varying degrees. Ideally the Board should not consist entirely of like-minded individuals but be a combination, such as two construction or engineering professionals and a lawyer versed in construction and engineering law as well as the law of the contract.

= Dispute Resolution Board procedure =

Once the members of the DRB have been appointed, the procedure should allow for regular visits to site, including time to deal with any differences that have arisen. This should also allow for less formal ‘opinions’ to be given by the DRB in respect of what might be potential disputes.

The use of the DRB for informal discussions between the parties (together or separately), with or without the engineer should be encouraged. Where an opinion has been sought, the DRB may respond in writing (or orally if followed up in writing), and by that informal process the potential dispute may be avoided. If not, the formal dispute procedure requiring a written recommendation by the DRB, or a written reasoned decision by the DAB, will commence.

The formal procedure usually involves the dissatisfied party issuing a written notice containing details of the dispute to the other party and to the DRB. That notice may be dependent on timing should the contract so indicate. For example, FIDIC only allows 28 days after the engineer’s decision in which to issue a notice.

Having issued the notice, the claimant has to prepare a position statement in which he sets out his legal and factual arguments, supported by evidence. On receipt, the defendant will prepare his position statement responding to the claimant’s narrative, setting out his arguments and the evidence relied upon.

Having received the two position statements, the DRB will consider the matters raised. If necessary the members of the DRB will meet before the hearing to discuss procedural or substantive matters.

The DRB will prepare a list of questions or further documents required so that the hearing will be able to deal fully with all matters arising. The hearing will normally be held within 30 days (15 days in the ICC rules) of the defence being served, usually on or near the project. The length of the hearing is dependent on the complexity of the matters before the DRB, but is very unlikely to exceed one week. In fact, most hearings do not exceed two or three days.

The hearing follows the usual course: a submission by the claimant, a submission by way of reply from the defendant, with perhaps questions and points of clarification raised by the DRB. If necessary the engineer will be allowed to make submissions or answer questions.

After the hearing is brought to a close, the DRB will continue with their deliberations and a draft recommendation or adjudication decision will be prepared. This is necessary, as the three-man Board will thereafter return home to prepare their individual reports for later discussion and to finalise their recommendation or adjudication decision.

Time is always of the essence in making a recommendation or decision, as the parties will be continuing with the works, and the decision needs to be known sooner rather than later. In any event, the rules should have a time limit for the Board to make its decision, subject to the claimant being able to grant the DRB a limited extension to that time if special circumstances arise which prevent a recommendation or decision being made in the prescribed time. The recommendation or decision will be produced by way of a written report.

Where the Board provides recommendations, these can be without sanction or a time limit. To provide certainty, a time limit can be prescribed for any written objection to be made by either party. If no objection is raised, then the recommendation can become binding on the parties. In any event, the recommendation or decision should be stated in the contract to be acted upon immediately it is published.

= Procedural fairness =

As with any dispute resolution process, to be effective the decision-making process should be seen to be fair. Natural justice has been the source of much comment and legal analysis, especially in respect of statutory adjudication in the UK.

Dispute Review Boards are not a creature of statute; they are a creature of the contract. In this respect they seem to have more in common with expert determination than arbitration or adjudication. Expert determination has no remedies for procedural irregularity and cannot be set aside under those circumstances, unlike arbitration. An expert may investigate and come to his conclusions without reference to the parties.

His power is absolute, as it derives from the contract. Unless the contract states otherwise, the expert cannot be challenged if the parties have agreed to accept the determination as being final. Similarly, the only challenges to the DRB’s jurisdiction are those set out in the contract. If the parties wish the DRB’s decision to be final and binding, this should be reflected in the contract.

The courts may decide to follow the lead of adjudication practice in the UK and scrutinise DRB decisions for procedural fairness. An example of the courts refusing to accede to a DRB process for lack of procedural fairness can be found in the case of ''Sehulster Tunnels and Pre-Con (Joint Venture) v Traylor Brothers Inc and Obayashi'' ''Corporation (Joint Venture) ''(12 September 2003) Court of Appeals of California, Fourth Appellate District.

In this case a DRB had been set up on a large outfall system taking treated waste out by tunnel into the ocean in Southern San Diego County, California. The contract was worth some US$90 million. The DRB was to be by the appointment of the employer, the city of San Diego, and the contractor, Traylor Brothers Inc and Obayashi Corporation, a joint venture. The subcontract for the manufacture of the concrete rings forming the tunnel lining was with Sehulster Tunnels and Pre-Con, also a joint venture.

The subcontract reflected the DRB procedure found in the main contract, but importantly did not allow Sehulster to appoint one of the members to the DRB. When a dispute arose, the contractor and the employer insisted that the DRB be used but refused Sehulster’s request to appoint a member of the DRB. Sehulster therefore ignored the DRB provisions and litigated in the courts.

The court at first instance found in Sehulster’s favour. The matter went further. It was argued at the Court of Appeal that as the subcontract incorporated the DRB by reference, and in order for Sehulster’s claim to proceed, the DRB mechanism had to be used. In response, Sehulster argued that the first instance decision should be upheld and that the DRB was presumptively biased against Sehulster, as Sehulster was unable to appoint a member to the Board. Sehulster further argued that the condition precedent for the DRB contained within the subcontract could not be enforced and Sehulster had every right to litigate in the courts. The Court of Appeal agreed with Sehulster, saying:
*‘Sehulster in this context should not be required to pursue a charade characterised as meaningful ADR. Secondly, although the DRB’s recommendation is non-binding, it is not without influence because the Prime Contract provides for its admissibility into evidence in any later dispute resolution or legal proceeding. Finally, it does not follow that because the DRB process does not constitute binding arbitration, Graham’s notions [ '' Graham v Scissor-Tail Inc'' (1981) 28 Cal.3d 807, 817-819] regarding presumptive bias are inapplicable in this context, therefore permitting enforcement of the condition precedent of pursuing the DRB process to preclude resolution of Sehulster’s claim by litigation…
*‘… contractual ADR must operate within minimum levels of integrity to pass judicial muster, the court held that the minimum levels of integrity had not been achieved …’.

This case also makes observations in respect of DRBs in general, and these are worth repeating here:
*‘The DRB process constitutes a form of alternative dispute resolution (ADR) most commonly employed in tunnelling and other large, complex, heavy construction projects. First utilized in the mid-1970s, it has proven particularly advantageous in contracts performance of which will take a long period of time, and in which disputes are inevitable and multiple instalment payments are contractually required on completion of performance milestones or components of the work.
*‘Generally, the DRB serves as a safety net to resolve problems or matters about which reasonable people could differ before they harm the business relationship between the parties and result in acrimonious litigation. It is composed of three experts, selected by the parties at the beginning of the project, who become familiar with it, monitor its progress and are available to provide advisory decisions on short notice concerning disputes the parties are unable to resolve themselves. The availability of the DRB and its familiarity with the project enable prompt resolution of disputes, which furthers the goal of preserving cooperative relationships between the contracting parties.
*‘The DRB process resembles the arbitration process with several significant differences. First, the DRB is a standing tribunal contractually required to be formed and in place within a few months after the owner gives the contractor notice to proceed. Second, the process envisions: an introductory/orientation meeting for the DRB members to become acquainted with the owner, the contractor, and their key personnel; a brief history of the project, including significant potential technical, environmental, political or social issues that might arise from it; and the scope and anticipated schedule of construction. Third, the DRB meets regularly throughout construction of the project. The frequency of meetings is dictated by the project’s size, complexity, schedule and number of claims or problems. Fourth, unlike standing arbitrators who make immediately binding decisions, the DRB issues advisory opinions or non-binding recommendations.’

As exemplified here, the DRB is a creature of contract designed to provide recommendations to resolve particular disputes. Because the DRB’s recommendations are non-binding and may be rejected by either the owner or the contractor, it is important for the credibility of the DRB that the parties perceive its members as generally qualified and neutral. The DRB process is designed to promote the parties’ confidence in it by providing their equal involvement in the selection of the individual DRB members who have experience in that type of construction, contract interpretation and dispute resolution.

= Enforcement =

The recommendation or decision of a DRB is a contractual matter, and therefore any enforcement will be seen in the light of a breach of contract. Enforcement will usually be a matter of the jurisdiction within which the DRB is operating. In England and Wales the courts will not allow a party to avoid the DRB machinery, and summary judgement will recognise any express contractual provisions.

= Conclusion =

Those that have been involved with DRBs generally agree that on large projects they assist the parties to resolve their differences, enabling the project to be completed with much less chance of an acrimonious dispute developing into a major arbitration or litigation.

When a difference does become a dispute, it is dealt with quickly and so prevents the matter getting out of hand. The parties remain focused on the project rather than the dispute.

As to the members of the DRB, they are familiar with the progress and technical issues associated with the project; when a recommendation or decision is needed it is made on the basis of the submissions but also on the knowledge that has been built up by the DRB.

DRBs provide a confidential forum in which difficulties or disputes can be resolved. They are not set up to apportion blame but rather to resolve issues that have arisen in a way that allows the project to proceed smoothly.

----

This article was created by --[[User%3AThe%20College%20of%20Estate%20Management|The College of Estate Management]] 14:12, 11 December 2012 (UTC)

= Find out more =

=== '''Related articles on Designing Buildings Wiki''' ===
*Adjudication.
*Alternative dispute resolution.
*Arbitration.
*Breach of contract.
*Causes of construction disputes.
*Contract claims.
*Mediation.
*The Housing Grants, Construction and Regeneration Act.
*The Scheme for Construction Contracts.

=== '''External references''' ===
*Sliwinski R A (Barrister, Attorney – New York) (2004) ‘Dispute Resolution Boards’, Occasional Paper.
*Groton J P, Rubin R A and Quintas B (2001) ‘A Comparison of Dispute Review Boards and Adjudication’, ''The International Construction Law Review'' pp.275–291.
*Knight P (2001) ''Alternative Dispute Resolution'' 3:720–3:723. The Rutter Group.
*Henn (1999) ‘Dispute Review Boards: ADR Form for the Construction Industry’, 28 Colo. Law 51–52.

[[Category:Contracts_/_payment]]
[[Category:Other_legislation]]
[[Category:Client_procedures]]
[[Category:Procurement]]

Dispute resolution board

2012-12-11T14:17:06Z

The College of Estate Management: Redirected page to Dispute Resolution Boards

#redirect:[[Dispute_Resolution_Boards|Dispute_Resolution_Boards]]

Adjudication in construction contracts

2012-12-11T14:16:18Z

The College of Estate Management:

Adjudication is a contractual or statutory procedure for swift interim dispute resolution. Adjudication is provided by a third party adjudicator selected by the parties to the dispute. Adjuducation is often is subject to a strict timetable and may be based purely on documentary submissions (see for example [http://www.neccontract.com/ NEC Engineering and Construction Contract], option W2).

Adjudicators can adopt an inquisitorial role which may involve taking the initiative in ascertaining facts and law.

Adjudication decisions are binding unless and until they are revised by arbitration or litigation. There is no right of appeal and limited right to resist enforcement. Award of legal costs is at the discretion of the adjudicator unless this is excluded by the terms of the contract.

If parties to a construction contract do not agree an adjudication procedure, then one is imposed by statute (see the [http://www.legislation.gov.uk/ukpga/1996/53/part/II Housing Grants, Construction and Regeneration Act 1996 Part II Section 108] and the [http://www.legislation.gov.uk/ukpga/2009/20/part/8 Local Democracy, Economic Development and Construction Act 2009 Part 8], which took effect in England and Wales in October 2011 and in Scotland in November 2011). Contractual adjudication procedures must comply with [http://www.legislation.gov.uk/ukpga/1996/53/part/II Section 108 of the Housing Grants, Construction and Regeneration Act].

The adjudicator is either named in the contract, agreed by the parties or appointed by a nominating body, usually named in the contract (see for example, the [http://www.tecsa.org.uk/ Technology and Construction Solicitors Association (TeSCA)] which has developed its own Adjudication Rules (now version 3.1). If the parties do not agree procedural rules which comply with the Housing Grants, Construction and Regeneration Act then the Act imposes the rules set out in the [http://www.adjudication.co.uk/legislation/scheme.htm Scheme for Construction Contracts].

= Find out more =

=== Related Articles on Designing Buildings Wiki ===
*Alternative dispute resolution.
*Arbitration.
*Breach of contract.
*Contract conditions.
*Dispute resolution board.
*Mediation.
*The Housing Grants, Construction and Regeneration Act.
*The Scheme for Construction Contracts.

=== External references ===
*[http://www.neccontract.com NEC contract].
*[http://www.nec-adjudicators.org NEC adjudicators].
*[http://www.aica-adjudication.co.uk Association of Independent Construction Adjudicators].
*[http://www.ciarb.org/dispute-resolution/dispute-resolution-contract-clauses Tiered ADR].
*PACE [http://webarchive.nationalarchives.gov.uk/20100503135839/http://www.ogc.gov.uk/documents/PACE_-_GACC.pdf Guide to the Appointment of Consultants and][http://webarchive.nationalarchives.gov.uk/20100503135839/http://www.ogc.gov.uk/documents/PACE_-_GACC.pdf Contractors]P383.
*University of the West of England: [http://www.bne.uwe.ac.uk/flic/construction_site/6069/section1.htm Adjudication and Other Forms of Alternative Dispute Resolution].
*[http://www.tecsa.org.uk/ Technology and Construction Solicitors Association (TeSCA).]

[[Category:Contracts_/_payment]]
[[Category:Construction_management]]
[[Category:Contracts_/_payment]]
[[Category:Other_legislation]]

Dispute resolution boards

2012-12-11T14:12:47Z

The College of Estate Management:

= Introduction =

This article introduces the concept of Dispute Resolution Boards and Dispute Adjudication Boards, how they are established, and how they operate in practice.

Dispute Resolution Boards (DRB) administer a type of dispute resolution without any specific description. DRBs have evolved over time and can be formulated in a number of different ways. The procedure is based on contract rather than statute, and the parties to a contract are able to agree to a formulation that suits their particular project. A few standard contracts have DRBs as part of their terms, of which the most prominent are the FIDIC contracts and the World Bank (Procurement of Works) contract.

It seems to be accepted that the first DRB was set up in 1975 for the Eisenhower Tunnel in Colorado, USA. This followed the first tunnel bore that had been constructed between 1968 and 1973. The project was a disaster, in that it overran in both time and money, with many disputes arising. When it came to the second bore, notice was taken of a study entitled ''Better Contracting for Underground Construction'' published in 1974. This report highlighted the incidence of claims, disputes and litigation together with the additional costs that inevitably flowed from those claims.

Based on the report, it was decided that the second bore of the Eisenhower Tunnel contract would incorporate a DRB. The hope was that the high level of cost overrun and disputes experienced on the first bore could be minimised by use of the DRB.

It was a tremendous success. Although disputes did arise, they were dealt with very swiftly and effectively by the DRB, to the extent that there was no ensuing litigation.

The DRB was set up in the form of a Review Board rather than an Adjudication Board, and their findings were recommendations rather than binding decisions. The losing party was not obliged to follow the recommendation. The dispute could thereafter be taken to a higher authority where a binding decision could be made.

The use of DRBs on major projects confined to the USA increased. The World Bank took note and in 1980 decided that a project known as the El Cajon Dam and Hydro Scheme in Honduras was a suitable candidate for a DRB. The World Bank were major funders of the project with a Honduran owner (who had not undertaken such a large project previously), an Italian contractor and a Swiss engineer. It is easy to see how misunderstandings could occur with such a diverse cultural mix, and the World Bank insisted that in order to obtain funding a DRB should be formed to deal with issues on the project as they arose.

That project was also a success. DRBs were launched into the international construction arena and broke out of their American birthplace.

As DRBs became more commonly used on international construction projects, various institutions began to take more notice of them. In 1990 the World Bank published its ''Procurement of Works'', which for the first time incorporated a procedure for DRBs in the form of a modified FIDIC contract. This procedure incorporated non-binding recommendations.

FIDIC itself followed this with the publication of an amendment to their form in which the concept of Dispute Adjudication Boards (DABs) was introduced. These differed from the Dispute Review Boards in that a temporarily binding decision was introduced, very much in the same way as domestic adjudication in the United Kingdom.

In 2000 the World Bank revised its DRB procedure, introducing the idea of interim binding recommendations, displacing the engineer from a former role in which decisions on disputes were required. In the same year FIDIC published a suite of contracts incorporating DABs, whereby interim binding decisions in respect of disputes could be made. The costs of the DAB are shared equally between the parties.

In 2003 the European Union published a directive that prescribed the use of these FIDIC contracts incorporating DABs on all construction projects that receive EEC funding.

The ICC rules allow for a choice of non-binding recommendations, adjudication decisions and a combined approach that allows the DAB to act as an adjudication board at the request of one party, with the proviso that if the other party objects, the board will decide in what capacity it is to hear the dispute.

To date, well over 1000 construction and engineering projects worldwide have used DRBs with a total construction cost of some US$100 billion. The success of DRBs is illustrated by the fact that fewer than 3 percent of disputes that arose became the subject of an arbitration or litigation.

DRBs are most suited to large, complex construction and engineering projects on an international scale, although more domestic projects are incorporating these ideals; for example the Channel Tunnel Rail Link had a DRB. This was a huge project. Two panels were appointed, one to deal with the technical issues (three engineers) and the other to deal with disputes concerning the financial provisions of the project.

= Composition of a Dispute Resolution Board =

The DRB is a creature of the contract. Usually the contract will provide for three members, two technical and one legal, usually the chairman. This formulation allows for technical disputes to be fully understood and resolved without the need for external advice, and similarly disputes involving or including legal issues being capable of resolution without external advice. The idea is for the board to be able to deal with any dispute that arises.

Clearly each Board member needs to be a respected member of their own professions, with qualifications and experience to match the project in hand.

Essentially the DRB can be likened to a project management tool that is used to ensure that the project remains on track, influencing the parties to the project to carry out their contractual obligations properly.

The three-member DRB will visit the project regularly and deal with any difficulties that have arisen. Occasionally it will have to convene outside of its regular visits if a particular dispute requires it. The advantage to the parties is that the DRB gains an ongoing knowledge of the project as the members are exposed to the facts of any emerging disputes at a very early stage.

The operational philosophy behind a DRB is to provide interim solutions that are in tune with the interests of the project in a quick and effective manner. It is a process that is intended to find solutions to problems rather than form an adversarial forum. DRBs are designed to keep the parties working constructively together while finding solutions to problems as they occur, rather than allowing those problems to escalate in an ultimately destructive manner.

= Selection of the Dispute Resolution Board =

The success of a DRB is dependent not only on the procedure that has been put in place but also on the members of the DRB itself. Of course the importance of the willingness of the parties themselves to work constructively with the DRB and make commercial compromises should not be forgotten.

The selection of the members of the DRB is crucially important to the parties, and therefore an appointment procedure is required within rules set out in the contract. Normally each party nominates one member and those members then choose a third member as chairman. This allows each party to have the comfort of a board member who is in tune with their thinking, whilst the chairman is independent of both. In default of agreement between the two members, a nominating body should independently select and appoint the chairman. Again, that procedure must be part of the written contract.

When appointing members for the DRB it is useful to consider their experience not only in construction and engineering but also in contract management and the applicable law of the contract. A mix of all these elements may be required in varying degrees. Ideally the Board should not consist entirely of like-minded individuals but be a combination, such as two construction or engineering professionals and a lawyer versed in construction and engineering law as well as the law of the contract.

= Dispute Resolution Board procedure =

Once the members of the DRB have been appointed, the procedure should allow for regular visits to site, including time to deal with any differences that have arisen. This should also allow for less formal ‘opinions’ to be given by the DRB in respect of what might be potential disputes.

The use of the DRB for informal discussions between the parties (together or separately), with or without the engineer should be encouraged. Where an opinion has been sought, the DRB may respond in writing (or orally if followed up in writing), and by that informal process the potential dispute may be avoided. If not, the formal dispute procedure requiring a written recommendation by the DRB, or a written reasoned decision by the DAB, will commence.

The formal procedure usually involves the dissatisfied party issuing a written notice containing details of the dispute to the other party and to the DRB. That notice may be dependent on timing should the contract so indicate. For example, FIDIC only allows 28 days after the engineer’s decision in which to issue a notice.

Having issued the notice, the claimant has to prepare a position statement in which he sets out his legal and factual arguments, supported by evidence. On receipt, the defendant will prepare his position statement responding to the claimant’s narrative, setting out his arguments and the evidence relied upon.

Having received the two position statements, the DRB will consider the matters raised. If necessary the members of the DRB will meet before the hearing to discuss procedural or substantive matters.

The DRB will prepare a list of questions or further documents required so that the hearing will be able to deal fully with all matters arising. The hearing will normally be held within 30 days (15 days in the ICC rules) of the defence being served, usually on or near the project. The length of the hearing is dependent on the complexity of the matters before the DRB, but is very unlikely to exceed one week. In fact, most hearings do not exceed two or three days.

The hearing follows the usual course: a submission by the claimant, a submission by way of reply from the defendant, with perhaps questions and points of clarification raised by the DRB. If necessary the engineer will be allowed to make submissions or answer questions.

After the hearing is brought to a close, the DRB will continue with their deliberations and a draft recommendation or adjudication decision will be prepared. This is necessary, as the three-man Board will thereafter return home to prepare their individual reports for later discussion and to finalise their recommendation or adjudication decision.

Time is always of the essence in making a recommendation or decision, as the parties will be continuing with the works, and the decision needs to be known sooner rather than later. In any event, the rules should have a time limit for the Board to make its decision, subject to the claimant being able to grant the DRB a limited extension to that time if special circumstances arise which prevent a recommendation or decision being made in the prescribed time. The recommendation or decision will be produced by way of a written report.

Where the Board provides recommendations, these can be without sanction or a time limit. To provide certainty, a time limit can be prescribed for any written objection to be made by either party. If no objection is raised, then the recommendation can become binding on the parties. In any event, the recommendation or decision should be stated in the contract to be acted upon immediately it is published.

= Procedural fairness =

As with any dispute resolution process, to be effective the decision-making process should be seen to be fair. Natural justice has been the source of much comment and legal analysis, especially in respect of statutory adjudication in the UK.

Dispute Review Boards are not a creature of statute; they are a creature of the contract. In this respect they seem to have more in common with expert determination than arbitration or adjudication. Expert determination has no remedies for procedural irregularity and cannot be set aside under those circumstances, unlike arbitration. An expert may investigate and come to his conclusions without reference to the parties.

His power is absolute, as it derives from the contract. Unless the contract states otherwise, the expert cannot be challenged if the parties have agreed to accept the determination as being final. Similarly, the only challenges to the DRB’s jurisdiction are those set out in the contract. If the parties wish the DRB’s decision to be final and binding, this should be reflected in the contract.

The courts may decide to follow the lead of adjudication practice in the UK and scrutinise DRB decisions for procedural fairness. An example of the courts refusing to accede to a DRB process for lack of procedural fairness can be found in the case of ''Sehulster Tunnels and Pre-Con (Joint Venture) v Traylor Brothers Inc and Obayashi'' ''Corporation (Joint Venture) ''(12 September 2003) Court of Appeals of California, Fourth Appellate District.

In this case a DRB had been set up on a large outfall system taking treated waste out by tunnel into the ocean in Southern San Diego County, California. The contract was worth some US$90 million. The DRB was to be by the appointment of the employer, the city of San Diego, and the contractor, Traylor Brothers Inc and Obayashi Corporation, a joint venture. The subcontract for the manufacture of the concrete rings forming the tunnel lining was with Sehulster Tunnels and Pre-Con, also a joint venture.

The subcontract reflected the DRB procedure found in the main contract, but importantly did not allow Sehulster to appoint one of the members to the DRB. When a dispute arose, the contractor and the employer insisted that the DRB be used but refused Sehulster’s request to appoint a member of the DRB. Sehulster therefore ignored the DRB provisions and litigated in the courts.

The court at first instance found in Sehulster’s favour. The matter went further. It was argued at the Court of Appeal that as the subcontract incorporated the DRB by reference, and in order for Sehulster’s claim to proceed, the DRB mechanism had to be used. In response, Sehulster argued that the first instance decision should be upheld and that the DRB was presumptively biased against Sehulster, as Sehulster was unable to appoint a member to the Board. Sehulster further argued that the condition precedent for the DRB contained within the subcontract could not be enforced and Sehulster had every right to litigate in the courts. The Court of Appeal agreed with Sehulster, saying:
*‘Sehulster in this context should not be required to pursue a charade characterised as meaningful ADR. Secondly, although the DRB’s recommendation is non-binding, it is not without influence because the Prime Contract provides for its admissibility into evidence in any later dispute resolution or legal proceeding. Finally, it does not follow that because the DRB process does not constitute binding arbitration, Graham’s notions [ '' Graham v Scissor-Tail Inc'' (1981) 28 Cal.3d 807, 817-819] regarding presumptive bias are inapplicable in this context, therefore permitting enforcement of the condition precedent of pursuing the DRB process to preclude resolution of Sehulster’s claim by litigation…
*‘… contractual ADR must operate within minimum levels of integrity to pass judicial muster, the court held that the minimum levels of integrity had not been achieved …’.

This case also makes observations in respect of DRBs in general, and these are worth repeating here:
*‘The DRB process constitutes a form of alternative dispute resolution (ADR) most commonly employed in tunnelling and other large, complex, heavy construction projects. First utilized in the mid-1970s, it has proven particularly advantageous in contracts performance of which will take a long period of time, and in which disputes are inevitable and multiple instalment payments are contractually required on completion of performance milestones or components of the work.
*‘Generally, the DRB serves as a safety net to resolve problems or matters about which reasonable people could differ before they harm the business relationship between the parties and result in acrimonious litigation. It is composed of three experts, selected by the parties at the beginning of the project, who become familiar with it, monitor its progress and are available to provide advisory decisions on short notice concerning disputes the parties are unable to resolve themselves. The availability of the DRB and its familiarity with the project enable prompt resolution of disputes, which furthers the goal of preserving cooperative relationships between the contracting parties.
*‘The DRB process resembles the arbitration process with several significant differences. First, the DRB is a standing tribunal contractually required to be formed and in place within a few months after the owner gives the contractor notice to proceed. Second, the process envisions: an introductory/orientation meeting for the DRB members to become acquainted with the owner, the contractor, and their key personnel; a brief history of the project, including significant potential technical, environmental, political or social issues that might arise from it; and the scope and anticipated schedule of construction. Third, the DRB meets regularly throughout construction of the project. The frequency of meetings is dictated by the project’s size, complexity, schedule and number of claims or problems. Fourth, unlike standing arbitrators who make immediately binding decisions, the DRB issues advisory opinions or non-binding recommendations.’

As exemplified here, the DRB is a creature of contract designed to provide recommendations to resolve particular disputes. Because the DRB’s recommendations are non-binding and may be rejected by either the owner or the contractor, it is important for the credibility of the DRB that the parties perceive its members as generally qualified and neutral. The DRB process is designed to promote the parties’ confidence in it by providing their equal involvement in the selection of the individual DRB members who have experience in that type of construction, contract interpretation and dispute resolution.

= Enforcement =

The recommendation or decision of a DRB is a contractual matter, and therefore any enforcement will be seen in the light of a breach of contract. Enforcement will usually be a matter of the jurisdiction within which the DRB is operating. In England and Wales the courts will not allow a party to avoid the DRB machinery, and summary judgement will recognise any express contractual provisions.

= Conclusion =

Those that have been involved with DRBs generally agree that on large projects they assist the parties to resolve their differences, enabling the project to be completed with much less chance of an acrimonious dispute developing into a major arbitration or litigation.

When a difference does become a dispute, it is dealt with quickly and so prevents the matter getting out of hand. The parties remain focused on the project rather than the dispute.

As to the members of the DRB, they are familiar with the progress and technical issues associated with the project; when a recommendation or decision is needed it is made on the basis of the submissions but also on the knowledge that has been built up by the DRB.

DRBs provide a confidential forum in which difficulties or disputes can be resolved. They are not set up to apportion blame but rather to resolve issues that have arisen in a way that allows the project to proceed smoothly.

----

This article was created by --[[User:The College of Estate Management|The College of Estate Management]] 14:12, 11 December 2012 (UTC)

= Find out more =

=== '''Related articles on Designing Buildings Wiki''' ===
*Adjudication.
*Alternative dispute resolution.
*Arbitration.
*Breach of contract.
*Causes of construction disputes.
*Contract claims.
*Mediation.

=== '''External references''' ===
*Sliwinski R A (Barrister, Attorney – New York) (2004) ‘Dispute Resolution Boards’, Occasional Paper.
*Groton J P, Rubin R A and Quintas B (2001) ‘A Comparison of Dispute Review Boards and Adjudication’, ''The International Construction Law Review'' pp.275–291.
*Knight P (2001) ''Alternative Dispute Resolution'' 3:720–3:723. The Rutter Group.
*Henn (1999) ‘Dispute Review Boards: ADR Form for the Construction Industry’, 28 Colo. Law 51–52.

[[Category:Contracts_/_payment]]
[[Category:Other_legislation]]
[[Category:Client_procedures]]
[[Category:Procurement]]

Construction disputes

2012-12-11T13:01:42Z

The College of Estate Management: Removed protection from "Causes of construction disputes"

= Introduction =

In this paper you will be introduced to the main causes of construction and engineering disputes.

The former Director General of MI5 was Stella Rimmington. In her autobiography ''Open Secret'' (2002) she made this comparison:

’Like a huge building project, particularly in the public sector, the Thames House Refurbishment was fraught with difficulties. It was clear that dealing with the building industry was just as tricky as dealing with the KGB.’

There is enormous interest in construction disputes amongst the professions and industry generally, but that interest is focused mostly on the various techniques used to resolve construction disputes. It may be inevitable that disputes will arise on complex construction projects, but perhaps too little is done to avoid them.

= Why do construction disputes occur? =

A combination of environmental and behavioural factors can lead to construction disputes. Projects are usually long-term transactions with high uncertainty and complexity, and it is impossible to resolve every detail and foresee every contingency at the outset. As a result, situations often arise that are not clearly addressed by the contract. The basic factors that drive the development of construction disputes are uncertainty, contractual problems, and behaviour.

== '''Uncertainty ''' ==

Uncertainty is the difference between the amount of information required to do the task and the amount of information available (Galbraith, 1973). The amount of information required depends on the task complexity and the performance requirements, usually measured in time or to a budget. The amount of information available depends on the effectiveness of planning and requires the collection and interpretation of that information for the task

Uncertainty means that not every detail of a project can be planned before work begins (Laufer, 1991). When uncertainty is high, initial drawings and specification will almost certainly change and the project members will have to work hard to solve problems as work proceeds if disputes are to be avoided.

== Contractual problems ==

Standard forms of contract clearly prescribe the risks and obligations each party has agreed to take. Such rigid agreements may not be appropriate for long-term transactions carried out under conditions of uncertainty.

It is not uncommon to find amended terms or bespoke contracts that shift the risk and obligations of the parties, often to the party least capable of carrying that risk. Where amended terms or bespoke contracts are used, they may be unclear and ambiguous.

As a consequence, differences may arise in the parties’ perception of the risk allocation under the contract. Where the parties have agreed to amended or bespoke terms, those conditions take effect in addition to the applicable law of the contract, which is continually evolving and being refined to address new issues.

== Behaviour ==

Since contracts cannot cater for every eventuality, wherever problems arise either party may have an interest in gaining as much as they can from the other. Equally, the parties may have a different perception of the facts. At least one of the parties may have unrealistic expectations, affecting their ability to reach agreement. Alternatively, one party may simply deny responsibility in an attempt to avoid liability.

= Common causes of construction disputes =

Construction is a unique process which can give rise to some unusual and unique disputes. However, research in Australia, Canada, Kuwait, the United Kingdom and the United States suggests that a number of common themes occur quite frequently :

== Acceleration ==

It is not uncommon for commercial property owners to insist upon acceleration of a construction project. Such examples might include the completion of a major retail scheme, and the need to meet key opening dates or tenant occupation in an office development. The construction costs associated with acceleration are likely to be less than the commercial risk the developer may face if key dates are missed.

The circumstances surrounding acceleration are often not properly analysed at the time the decision is made, and that inevitably leads to disputes once the contractor has carried out accelerative measures and incurred additional costs only to find that the developer refuses to pay.

The construction of facilities in Athens for the Olympic Games 2004 were subject to acceleration, and a wealth of disputes were expected once the facilities were completed and the euphoria of the Games over.

== Co-ordination ==

In complex projects involving many specialist trades, particularly mechanical and electrical installations, co-ordination is key, yet conflict often arises because work is not properly co-ordinated. This inevitably leads to conflict during installation which is often costly and time-consuming to resolve, with each party blaming the other for the problems that have arisen.

Ineffective management control may result in a reactive defence to problems that arise, rather than a proactive approach to resolve the problems once they become apparent.

== Culture ==

The personnel required to visualise, initiate, plan, design, supply materials and plant, construct, administer, manage, supervise, commission and correct defects throughout the span of a large construction contract is substantial. Such personnel may come from different social classes or ethnic backgrounds. In the United Kingdom skill shortages have led to an influx of personnel from central and eastern Europe, a trend likely to continue with the growth of pre-accession states seeking access to the labour market in the European Union.

Major international construction projects may employ or engage people from different nationalities and cultures. For example, on a major pipeline contract in Kazakhstan the owner was a joint venture comprising Kazakh, Canadian and British companies, and the owner’s representatives on the project for day-to-day matters were of Canadian, French, Russian and British nationalities. The contractor was a Greek–Italian joint venture that employed labour from no fewer than 24 different countries throughout central and eastern Europe, the Middle East and the Indian sub continent. Forming a teamwork approach across cultures can be very difficult where each culture has its own values.

== Differing goals ==

Personnel engaged on a large construction contract are likely to be employed by one of many subcontracted firms, including those engaged as suppliers and manufacturers. Each of these firms may have their own commitments and goals, which may not be compatible with each other and could result in disputes.

== Delays ==

Disputes frequently arise in respect of delays and who should bear the responsibility for them. Most construction contracts make provision for extending the time for completion. The sole reason for this is that the owner can keep alive any rights to delay damages recoverable from the contractor. On international construction projects the question of any rights the contractor might have to extend the time for completion was a matter often addressed towards the end of the contract, when an overrun looked likely. From the owner’s point of view, this made the examination of the true causes of delay problematical and inevitably led to disputes between the contractor and the owner as to the contractor’s proper entitlement.

Under the FIDIC contracts the contractor is now required to give prompt notice of any circumstances that may cause a delay. If the contractor fails to do so, then any rights to extend the time for completion will be lost, both under the contract and at law. This may seem a harsh measure, but a better view is that this approach brings claims to the surface at a very early stage and gives the recipient an opportunity to examine the cause and effect of any delay properly as and when it arises, so that the owner has some say in what can be done to overcome the delay.

== Design ==

Errors in design can lead to delays and additional costs that become the subject of disputes. Often no planning or sequencing is given to the release of design information, which then impacts on construction. Equally, the design team sometimes abrogate their responsibilities for the design, leaving the contractor to be drawn into solving any design deficiencies by carrying out that part of the work itself to try to avoid delays, and, in doing so, innocently assuming the risk for any subsequent design failures.

== Engineer and Employer’s Representative ==

The personality of the Engineer or the Employer’s Representative and their approach to the proper and fair administration of the contract on behalf of the Employer is crucial to avoiding disputes, yet a substantial proportion of disputes have been driven by the Engineer or the Employer’s Representative exercising an uneven hand in deciding differences in favour of the Employer.

In domestic and international contracts, the Engineer traditionally had an independent and impartial role. This independence or impartiality was often not properly exercised, and in some cases there was clear evidence of bias by the Engineer towards the Employer. This practice was not limited to third world countries but also existed in developed countries.

It is a complete fiction to say that the Engineer under government contracts in the United Kingdom could possibly act independently of the Employer on every issue.

Some contracts are open as to the constraints imposed on the Engineer: in Hong Kong Engineers are subject to financial constraints in respect of variations and in the extensions of time that can be given. While this may be understandable from a public policy point of view, it is unacceptable for it to be done behind a veil so that the fiction of independence is preserved.

Under the FIDIC contracts the Engineer no longer has an impartial role but expressly acts for the Employer. This does not prevent the Engineer from taking a professional view on the merits of any difference that may be at issue, but in the event of a dispute the mechanism to resolve such matters quickly by independent means has been achieved by the introduction of a dispute adjudication board.

== Project complexity ==

In complex construction projects the need to carry out a proper risk assessment before a contract is entered into is paramount: yet this is often not done.

There are numerous examples of projects taking much longer than planned and contracted for because there was insufficient appreciation of the risks associated with the project’s complexity. Inevitably the delay and additional costs the contractor incurs, and the owner’s right to claim damages for delay, often develop into bitter disputes.

== Quality and workmanship ==

In traditional construction contracts, disputes often arise as to whether or not the completed work is in accordance with the specifications. The specification may be vague on the subject of the dispute in question, and each party to the contract may have a different view on whether the quality and workmanship is acceptable.

This is even more so in international contracts. Although great care may have been taken to prescribe the quality of the materials and their compliance with European standards, these standards may contradict the local laws and regulations in the country where the project is being constructed, and any dispute will be governed by the law of that country.

In design and build contracts, perhaps the greatest deficiency is in the contract documentation, particularly the Employer’s requirements. This inadequacy inevitably leads to claims by the contractor for additional costs, which, if not resolved, can lead in turn to costly disputes.

== Site conditions ==

If the contract inadequately describes which party is to take the risk for the site conditions, disputes are inevitable when adverse site or ground conditions impede the progress of work or require more expensive engineering solutions.

Even if the Employer, in good faith, provides detailed information on the site conditions to the contractor, if that information is discovered to be incorrect and the contractor has relied on it and acted upon it to his detriment, the Employer may be liable to the contractor for the consequences.

== Tender ==

The time allowed to scrutinise the tender documents, prepare an outline programme and methodology, carry out a risk assessment, calculate the price, and conclude the whole process with a commercial review is often impossibly short. Mistakes in this process may have an adverse effect on the successful commercial outcome of the project. A culture may be engendered in the contractor of pursuing every claim that has a prospect of redressing any ultimate financial shortfall. This approach does nothing to foster close and co-operative working relationships between the owner and the contractor during the progress of the work, and inevitably leads to disputes.

== Variations ==

Variations are a prime cause of construction disputes, particularly where there are a substantial number, or the variations impact on partially completed work or are issued as work is nearing completion. The nature and number of variations can transform a relatively straightforward project into one of unmanageable complexity. The new Parliament building in Edinburgh is such an example. The building was planned to house 329 people, but through variations the building increased in size and complexity to house 1200 people. It was perhaps not surprising that the total cost of construction exceeded £500 million, almost ten times more than the original budget.

== Value engineering ==

This term often lacks definition in construction contracts and can lead to disputes, particularly where the saving is to be shared between the contractor and the owner.

Savings in respect of the supply and installation of the material or product in question might be relatively easy to determine and agree, but these are not the only benchmarks, and a proper value engineering approach needs to take full account of the life cycle costs of any proposed change.

----

This article was created by --[[User:The College of Estate Management|The College of Estate Management]] 13:00, 11 December 2012 (UTC)

= Find out more =

=== '''Related articles on Designing Buildings Wiki''' ===
*Adjudication.
*Alternative dispute resolution
*Arbitration.
*Compensation event.
*Contract claims.
*Defects.
*Extension of time.
*Liquidated damages.
*Loss and expense.
*Mediation.
*Relevant event.
*Risk assessment.
*Value management.
*Variations.

=== '''External references''' ===
*Fenn P (2002) ‘Why Construction Contracts Go Wrong (an Aetiological Approach to Construction Disputes)’, ''Society of Construction Law'', London.
*Fenn P, Lowe D and Speck C (1997) ‘Conflict and Disputes in Construction’, ''Construction Management and Economics'', Volume 15, page 513.
*Al-Sabah SJ, Fereig SM and Hoare DJ (2002) ‘Construction Claims – The Results of Major Tribunal Findings in Kuwait’, ''Arbitration'', Volume 68, Number 1, page 11.

[[Category:Contracts_/_payment]]
[[Category:Construction_management]]
[[Category:Other_legislation]]
[[Category:Client_procedures]]
[[Category:Procurement]]

Construction disputes

2012-12-11T13:01:29Z

The College of Estate Management: Protected "Causes of construction disputes" ([move=author] (indefinite))

= Introduction =

In this paper you will be introduced to the main causes of construction and engineering disputes.

The former Director General of MI5 was Stella Rimmington. In her autobiography ''Open Secret'' (2002) she made this comparison:

’Like a huge building project, particularly in the public sector, the Thames House Refurbishment was fraught with difficulties. It was clear that dealing with the building industry was just as tricky as dealing with the KGB.’

There is enormous interest in construction disputes amongst the professions and industry generally, but that interest is focused mostly on the various techniques used to resolve construction disputes. It may be inevitable that disputes will arise on complex construction projects, but perhaps too little is done to avoid them.

= Why do construction disputes occur? =

A combination of environmental and behavioural factors can lead to construction disputes. Projects are usually long-term transactions with high uncertainty and complexity, and it is impossible to resolve every detail and foresee every contingency at the outset. As a result, situations often arise that are not clearly addressed by the contract. The basic factors that drive the development of construction disputes are uncertainty, contractual problems, and behaviour.

== '''Uncertainty ''' ==

Uncertainty is the difference between the amount of information required to do the task and the amount of information available (Galbraith, 1973). The amount of information required depends on the task complexity and the performance requirements, usually measured in time or to a budget. The amount of information available depends on the effectiveness of planning and requires the collection and interpretation of that information for the task

Uncertainty means that not every detail of a project can be planned before work begins (Laufer, 1991). When uncertainty is high, initial drawings and specification will almost certainly change and the project members will have to work hard to solve problems as work proceeds if disputes are to be avoided.

== Contractual problems ==

Standard forms of contract clearly prescribe the risks and obligations each party has agreed to take. Such rigid agreements may not be appropriate for long-term transactions carried out under conditions of uncertainty.

It is not uncommon to find amended terms or bespoke contracts that shift the risk and obligations of the parties, often to the party least capable of carrying that risk. Where amended terms or bespoke contracts are used, they may be unclear and ambiguous.

As a consequence, differences may arise in the parties’ perception of the risk allocation under the contract. Where the parties have agreed to amended or bespoke terms, those conditions take effect in addition to the applicable law of the contract, which is continually evolving and being refined to address new issues.

== Behaviour ==

Since contracts cannot cater for every eventuality, wherever problems arise either party may have an interest in gaining as much as they can from the other. Equally, the parties may have a different perception of the facts. At least one of the parties may have unrealistic expectations, affecting their ability to reach agreement. Alternatively, one party may simply deny responsibility in an attempt to avoid liability.

= Common causes of construction disputes =

Construction is a unique process which can give rise to some unusual and unique disputes. However, research in Australia, Canada, Kuwait, the United Kingdom and the United States suggests that a number of common themes occur quite frequently :

== Acceleration ==

It is not uncommon for commercial property owners to insist upon acceleration of a construction project. Such examples might include the completion of a major retail scheme, and the need to meet key opening dates or tenant occupation in an office development. The construction costs associated with acceleration are likely to be less than the commercial risk the developer may face if key dates are missed.

The circumstances surrounding acceleration are often not properly analysed at the time the decision is made, and that inevitably leads to disputes once the contractor has carried out accelerative measures and incurred additional costs only to find that the developer refuses to pay.

The construction of facilities in Athens for the Olympic Games 2004 were subject to acceleration, and a wealth of disputes were expected once the facilities were completed and the euphoria of the Games over.

== Co-ordination ==

In complex projects involving many specialist trades, particularly mechanical and electrical installations, co-ordination is key, yet conflict often arises because work is not properly co-ordinated. This inevitably leads to conflict during installation which is often costly and time-consuming to resolve, with each party blaming the other for the problems that have arisen.

Ineffective management control may result in a reactive defence to problems that arise, rather than a proactive approach to resolve the problems once they become apparent.

== Culture ==

The personnel required to visualise, initiate, plan, design, supply materials and plant, construct, administer, manage, supervise, commission and correct defects throughout the span of a large construction contract is substantial. Such personnel may come from different social classes or ethnic backgrounds. In the United Kingdom skill shortages have led to an influx of personnel from central and eastern Europe, a trend likely to continue with the growth of pre-accession states seeking access to the labour market in the European Union.

Major international construction projects may employ or engage people from different nationalities and cultures. For example, on a major pipeline contract in Kazakhstan the owner was a joint venture comprising Kazakh, Canadian and British companies, and the owner’s representatives on the project for day-to-day matters were of Canadian, French, Russian and British nationalities. The contractor was a Greek–Italian joint venture that employed labour from no fewer than 24 different countries throughout central and eastern Europe, the Middle East and the Indian sub continent. Forming a teamwork approach across cultures can be very difficult where each culture has its own values.

== Differing goals ==

Personnel engaged on a large construction contract are likely to be employed by one of many subcontracted firms, including those engaged as suppliers and manufacturers. Each of these firms may have their own commitments and goals, which may not be compatible with each other and could result in disputes.

== Delays ==

Disputes frequently arise in respect of delays and who should bear the responsibility for them. Most construction contracts make provision for extending the time for completion. The sole reason for this is that the owner can keep alive any rights to delay damages recoverable from the contractor. On international construction projects the question of any rights the contractor might have to extend the time for completion was a matter often addressed towards the end of the contract, when an overrun looked likely. From the owner’s point of view, this made the examination of the true causes of delay problematical and inevitably led to disputes between the contractor and the owner as to the contractor’s proper entitlement.

Under the FIDIC contracts the contractor is now required to give prompt notice of any circumstances that may cause a delay. If the contractor fails to do so, then any rights to extend the time for completion will be lost, both under the contract and at law. This may seem a harsh measure, but a better view is that this approach brings claims to the surface at a very early stage and gives the recipient an opportunity to examine the cause and effect of any delay properly as and when it arises, so that the owner has some say in what can be done to overcome the delay.

== Design ==

Errors in design can lead to delays and additional costs that become the subject of disputes. Often no planning or sequencing is given to the release of design information, which then impacts on construction. Equally, the design team sometimes abrogate their responsibilities for the design, leaving the contractor to be drawn into solving any design deficiencies by carrying out that part of the work itself to try to avoid delays, and, in doing so, innocently assuming the risk for any subsequent design failures.

== Engineer and Employer’s Representative ==

The personality of the Engineer or the Employer’s Representative and their approach to the proper and fair administration of the contract on behalf of the Employer is crucial to avoiding disputes, yet a substantial proportion of disputes have been driven by the Engineer or the Employer’s Representative exercising an uneven hand in deciding differences in favour of the Employer.

In domestic and international contracts, the Engineer traditionally had an independent and impartial role. This independence or impartiality was often not properly exercised, and in some cases there was clear evidence of bias by the Engineer towards the Employer. This practice was not limited to third world countries but also existed in developed countries.

It is a complete fiction to say that the Engineer under government contracts in the United Kingdom could possibly act independently of the Employer on every issue.

Some contracts are open as to the constraints imposed on the Engineer: in Hong Kong Engineers are subject to financial constraints in respect of variations and in the extensions of time that can be given. While this may be understandable from a public policy point of view, it is unacceptable for it to be done behind a veil so that the fiction of independence is preserved.

Under the FIDIC contracts the Engineer no longer has an impartial role but expressly acts for the Employer. This does not prevent the Engineer from taking a professional view on the merits of any difference that may be at issue, but in the event of a dispute the mechanism to resolve such matters quickly by independent means has been achieved by the introduction of a dispute adjudication board.

== Project complexity ==

In complex construction projects the need to carry out a proper risk assessment before a contract is entered into is paramount: yet this is often not done.

There are numerous examples of projects taking much longer than planned and contracted for because there was insufficient appreciation of the risks associated with the project’s complexity. Inevitably the delay and additional costs the contractor incurs, and the owner’s right to claim damages for delay, often develop into bitter disputes.

== Quality and workmanship ==

In traditional construction contracts, disputes often arise as to whether or not the completed work is in accordance with the specifications. The specification may be vague on the subject of the dispute in question, and each party to the contract may have a different view on whether the quality and workmanship is acceptable.

This is even more so in international contracts. Although great care may have been taken to prescribe the quality of the materials and their compliance with European standards, these standards may contradict the local laws and regulations in the country where the project is being constructed, and any dispute will be governed by the law of that country.

In design and build contracts, perhaps the greatest deficiency is in the contract documentation, particularly the Employer’s requirements. This inadequacy inevitably leads to claims by the contractor for additional costs, which, if not resolved, can lead in turn to costly disputes.

== Site conditions ==

If the contract inadequately describes which party is to take the risk for the site conditions, disputes are inevitable when adverse site or ground conditions impede the progress of work or require more expensive engineering solutions.

Even if the Employer, in good faith, provides detailed information on the site conditions to the contractor, if that information is discovered to be incorrect and the contractor has relied on it and acted upon it to his detriment, the Employer may be liable to the contractor for the consequences.

== Tender ==

The time allowed to scrutinise the tender documents, prepare an outline programme and methodology, carry out a risk assessment, calculate the price, and conclude the whole process with a commercial review is often impossibly short. Mistakes in this process may have an adverse effect on the successful commercial outcome of the project. A culture may be engendered in the contractor of pursuing every claim that has a prospect of redressing any ultimate financial shortfall. This approach does nothing to foster close and co-operative working relationships between the owner and the contractor during the progress of the work, and inevitably leads to disputes.

== Variations ==

Variations are a prime cause of construction disputes, particularly where there are a substantial number, or the variations impact on partially completed work or are issued as work is nearing completion. The nature and number of variations can transform a relatively straightforward project into one of unmanageable complexity. The new Parliament building in Edinburgh is such an example. The building was planned to house 329 people, but through variations the building increased in size and complexity to house 1200 people. It was perhaps not surprising that the total cost of construction exceeded £500 million, almost ten times more than the original budget.

== Value engineering ==

This term often lacks definition in construction contracts and can lead to disputes, particularly where the saving is to be shared between the contractor and the owner.

Savings in respect of the supply and installation of the material or product in question might be relatively easy to determine and agree, but these are not the only benchmarks, and a proper value engineering approach needs to take full account of the life cycle costs of any proposed change.

----

This article was created by --[[User:The College of Estate Management|The College of Estate Management]] 13:00, 11 December 2012 (UTC)

= Find out more =

=== '''Related articles on Designing Buildings Wiki''' ===
*Adjudication.
*Alternative dispute resolution
*Arbitration.
*Compensation event.
*Contract claims.
*Defects.
*Extension of time.
*Liquidated damages.
*Loss and expense.
*Mediation.
*Relevant event.
*Risk assessment.
*Value management.
*Variations.

=== '''External references''' ===
*Fenn P (2002) ‘Why Construction Contracts Go Wrong (an Aetiological Approach to Construction Disputes)’, ''Society of Construction Law'', London.
*Fenn P, Lowe D and Speck C (1997) ‘Conflict and Disputes in Construction’, ''Construction Management and Economics'', Volume 15, page 513.
*Al-Sabah SJ, Fereig SM and Hoare DJ (2002) ‘Construction Claims – The Results of Major Tribunal Findings in Kuwait’, ''Arbitration'', Volume 68, Number 1, page 11.

[[Category:Contracts_/_payment]]
[[Category:Construction_management]]
[[Category:Other_legislation]]
[[Category:Client_procedures]]
[[Category:Procurement]]

Construction disputes

2012-12-11T13:00:34Z

The College of Estate Management:

= Introduction =

In this paper you will be introduced to the main causes of construction and engineering disputes.

The former Director General of MI5 was Stella Rimmington. In her autobiography ''Open Secret'' (2002) she made this comparison:

’Like a huge building project, particularly in the public sector, the Thames House Refurbishment was fraught with difficulties. It was clear that dealing with the building industry was just as tricky as dealing with the KGB.’

There is enormous interest in construction disputes amongst the professions and industry generally, but that interest is focused mostly on the various techniques used to resolve construction disputes. It may be inevitable that disputes will arise on complex construction projects, but perhaps too little is done to avoid them.

= Why do construction disputes occur? =

A combination of environmental and behavioural factors can lead to construction disputes. Projects are usually long-term transactions with high uncertainty and complexity, and it is impossible to resolve every detail and foresee every contingency at the outset. As a result, situations often arise that are not clearly addressed by the contract. The basic factors that drive the development of construction disputes are uncertainty, contractual problems, and behaviour.

== '''Uncertainty ''' ==

Uncertainty is the difference between the amount of information required to do the task and the amount of information available (Galbraith, 1973). The amount of information required depends on the task complexity and the performance requirements, usually measured in time or to a budget. The amount of information available depends on the effectiveness of planning and requires the collection and interpretation of that information for the task

Uncertainty means that not every detail of a project can be planned before work begins (Laufer, 1991). When uncertainty is high, initial drawings and specification will almost certainly change and the project members will have to work hard to solve problems as work proceeds if disputes are to be avoided.

== Contractual problems ==

Standard forms of contract clearly prescribe the risks and obligations each party has agreed to take. Such rigid agreements may not be appropriate for long-term transactions carried out under conditions of uncertainty.

It is not uncommon to find amended terms or bespoke contracts that shift the risk and obligations of the parties, often to the party least capable of carrying that risk. Where amended terms or bespoke contracts are used, they may be unclear and ambiguous.

As a consequence, differences may arise in the parties’ perception of the risk allocation under the contract. Where the parties have agreed to amended or bespoke terms, those conditions take effect in addition to the applicable law of the contract, which is continually evolving and being refined to address new issues.

== Behaviour ==

Since contracts cannot cater for every eventuality, wherever problems arise either party may have an interest in gaining as much as they can from the other. Equally, the parties may have a different perception of the facts. At least one of the parties may have unrealistic expectations, affecting their ability to reach agreement. Alternatively, one party may simply deny responsibility in an attempt to avoid liability.

= Common causes of construction disputes =

Construction is a unique process which can give rise to some unusual and unique disputes. However, research in Australia, Canada, Kuwait, the United Kingdom and the United States suggests that a number of common themes occur quite frequently :

== Acceleration ==

It is not uncommon for commercial property owners to insist upon acceleration of a construction project. Such examples might include the completion of a major retail scheme, and the need to meet key opening dates or tenant occupation in an office development. The construction costs associated with acceleration are likely to be less than the commercial risk the developer may face if key dates are missed.

The circumstances surrounding acceleration are often not properly analysed at the time the decision is made, and that inevitably leads to disputes once the contractor has carried out accelerative measures and incurred additional costs only to find that the developer refuses to pay.

The construction of facilities in Athens for the Olympic Games 2004 were subject to acceleration, and a wealth of disputes were expected once the facilities were completed and the euphoria of the Games over.

== Co-ordination ==

In complex projects involving many specialist trades, particularly mechanical and electrical installations, co-ordination is key, yet conflict often arises because work is not properly co-ordinated. This inevitably leads to conflict during installation which is often costly and time-consuming to resolve, with each party blaming the other for the problems that have arisen.

Ineffective management control may result in a reactive defence to problems that arise, rather than a proactive approach to resolve the problems once they become apparent.

== Culture ==

The personnel required to visualise, initiate, plan, design, supply materials and plant, construct, administer, manage, supervise, commission and correct defects throughout the span of a large construction contract is substantial. Such personnel may come from different social classes or ethnic backgrounds. In the United Kingdom skill shortages have led to an influx of personnel from central and eastern Europe, a trend likely to continue with the growth of pre-accession states seeking access to the labour market in the European Union.

Major international construction projects may employ or engage people from different nationalities and cultures. For example, on a major pipeline contract in Kazakhstan the owner was a joint venture comprising Kazakh, Canadian and British companies, and the owner’s representatives on the project for day-to-day matters were of Canadian, French, Russian and British nationalities. The contractor was a Greek–Italian joint venture that employed labour from no fewer than 24 different countries throughout central and eastern Europe, the Middle East and the Indian sub continent. Forming a teamwork approach across cultures can be very difficult where each culture has its own values.

== Differing goals ==

Personnel engaged on a large construction contract are likely to be employed by one of many subcontracted firms, including those engaged as suppliers and manufacturers. Each of these firms may have their own commitments and goals, which may not be compatible with each other and could result in disputes.

== Delays ==

Disputes frequently arise in respect of delays and who should bear the responsibility for them. Most construction contracts make provision for extending the time for completion. The sole reason for this is that the owner can keep alive any rights to delay damages recoverable from the contractor. On international construction projects the question of any rights the contractor might have to extend the time for completion was a matter often addressed towards the end of the contract, when an overrun looked likely. From the owner’s point of view, this made the examination of the true causes of delay problematical and inevitably led to disputes between the contractor and the owner as to the contractor’s proper entitlement.

Under the FIDIC contracts the contractor is now required to give prompt notice of any circumstances that may cause a delay. If the contractor fails to do so, then any rights to extend the time for completion will be lost, both under the contract and at law. This may seem a harsh measure, but a better view is that this approach brings claims to the surface at a very early stage and gives the recipient an opportunity to examine the cause and effect of any delay properly as and when it arises, so that the owner has some say in what can be done to overcome the delay.

== Design ==

Errors in design can lead to delays and additional costs that become the subject of disputes. Often no planning or sequencing is given to the release of design information, which then impacts on construction. Equally, the design team sometimes abrogate their responsibilities for the design, leaving the contractor to be drawn into solving any design deficiencies by carrying out that part of the work itself to try to avoid delays, and, in doing so, innocently assuming the risk for any subsequent design failures.

== Engineer and Employer’s Representative ==

The personality of the Engineer or the Employer’s Representative and their approach to the proper and fair administration of the contract on behalf of the Employer is crucial to avoiding disputes, yet a substantial proportion of disputes have been driven by the Engineer or the Employer’s Representative exercising an uneven hand in deciding differences in favour of the Employer.

In domestic and international contracts, the Engineer traditionally had an independent and impartial role. This independence or impartiality was often not properly exercised, and in some cases there was clear evidence of bias by the Engineer towards the Employer. This practice was not limited to third world countries but also existed in developed countries.

It is a complete fiction to say that the Engineer under government contracts in the United Kingdom could possibly act independently of the Employer on every issue.

Some contracts are open as to the constraints imposed on the Engineer: in Hong Kong Engineers are subject to financial constraints in respect of variations and in the extensions of time that can be given. While this may be understandable from a public policy point of view, it is unacceptable for it to be done behind a veil so that the fiction of independence is preserved.

Under the FIDIC contracts the Engineer no longer has an impartial role but expressly acts for the Employer. This does not prevent the Engineer from taking a professional view on the merits of any difference that may be at issue, but in the event of a dispute the mechanism to resolve such matters quickly by independent means has been achieved by the introduction of a dispute adjudication board.

== Project complexity ==

In complex construction projects the need to carry out a proper risk assessment before a contract is entered into is paramount: yet this is often not done.

There are numerous examples of projects taking much longer than planned and contracted for because there was insufficient appreciation of the risks associated with the project’s complexity. Inevitably the delay and additional costs the contractor incurs, and the owner’s right to claim damages for delay, often develop into bitter disputes.

== Quality and workmanship ==

In traditional construction contracts, disputes often arise as to whether or not the completed work is in accordance with the specifications. The specification may be vague on the subject of the dispute in question, and each party to the contract may have a different view on whether the quality and workmanship is acceptable.

This is even more so in international contracts. Although great care may have been taken to prescribe the quality of the materials and their compliance with European standards, these standards may contradict the local laws and regulations in the country where the project is being constructed, and any dispute will be governed by the law of that country.

In design and build contracts, perhaps the greatest deficiency is in the contract documentation, particularly the Employer’s requirements. This inadequacy inevitably leads to claims by the contractor for additional costs, which, if not resolved, can lead in turn to costly disputes.

== Site conditions ==

If the contract inadequately describes which party is to take the risk for the site conditions, disputes are inevitable when adverse site or ground conditions impede the progress of work or require more expensive engineering solutions.

Even if the Employer, in good faith, provides detailed information on the site conditions to the contractor, if that information is discovered to be incorrect and the contractor has relied on it and acted upon it to his detriment, the Employer may be liable to the contractor for the consequences.

== Tender ==

The time allowed to scrutinise the tender documents, prepare an outline programme and methodology, carry out a risk assessment, calculate the price, and conclude the whole process with a commercial review is often impossibly short. Mistakes in this process may have an adverse effect on the successful commercial outcome of the project. A culture may be engendered in the contractor of pursuing every claim that has a prospect of redressing any ultimate financial shortfall. This approach does nothing to foster close and co-operative working relationships between the owner and the contractor during the progress of the work, and inevitably leads to disputes.

== Variations ==

Variations are a prime cause of construction disputes, particularly where there are a substantial number, or the variations impact on partially completed work or are issued as work is nearing completion. The nature and number of variations can transform a relatively straightforward project into one of unmanageable complexity. The new Parliament building in Edinburgh is such an example. The building was planned to house 329 people, but through variations the building increased in size and complexity to house 1200 people. It was perhaps not surprising that the total cost of construction exceeded £500 million, almost ten times more than the original budget.

== Value engineering ==

This term often lacks definition in construction contracts and can lead to disputes, particularly where the saving is to be shared between the contractor and the owner.

Savings in respect of the supply and installation of the material or product in question might be relatively easy to determine and agree, but these are not the only benchmarks, and a proper value engineering approach needs to take full account of the life cycle costs of any proposed change.

----

This article was created by --[[User:The College of Estate Management|The College of Estate Management]] 13:00, 11 December 2012 (UTC)

= Find out more =

=== '''Related articles on Designing Buildings Wiki''' ===
*Adjudication.
*Alternative dispute resolution
*Arbitration.
*Compensation event.
*Contract claims.
*Defects.
*Extension of time.
*Liquidated damages.
*Loss and expense.
*Mediation.
*Relevant event.
*Risk assessment.
*Value management.
*Variations.

=== '''External references''' ===
*Fenn P (2002) ‘Why Construction Contracts Go Wrong (an Aetiological Approach to Construction Disputes)’, ''Society of Construction Law'', London.
*Fenn P, Lowe D and Speck C (1997) ‘Conflict and Disputes in Construction’, ''Construction Management and Economics'', Volume 15, page 513.
*Al-Sabah SJ, Fereig SM and Hoare DJ (2002) ‘Construction Claims – The Results of Major Tribunal Findings in Kuwait’, ''Arbitration'', Volume 68, Number 1, page 11.

[[Category:Contracts_/_payment]]
[[Category:Construction_management]]
[[Category:Other_legislation]]
[[Category:Client_procedures]]
[[Category:Procurement]]

User:The College of Estate Management

2012-12-06T17:51:31Z

The College of Estate Management:

== The College of Estate Management - Learn today, lead tomorrow ==

Established in 1919, the College of Estate Management (CEM) is the leading provider of supported distance learning for real estate and construction professionals. At any one time there are some 4,000 students from around 100 countries benefiting from CEM courses - all taught by tutors with extensive industry experience. Designed for part-time study around work, CEM courses offer practical skills which build on a student’s workplace experience and have a direct benefit in their professional life.

CEM covers almost every property-related topic at diploma, degree and postgraduate level, as well as providing professional development courses and tailor-made corporate training solutions. Its active research programme contributes to knowledge across the profession, benefiting businesses, practitioners and policymakers alike.

CEM was granted taught degree awarding powers in November 2012 and will be launching new CEM degree programmes from autumn 2013.

The College’s patron is His Royal Highness The Prince of Wales.

Click here to [http://www.cem.ac.uk/ Visit our website]

[[File:CEM-logo2.jpg|217x70px|alt=CEM-logo2.jpg|link=http://www.cem.ac.uk/]]

----

College of Estate Management articles on Designing Buildings Wiki include:
*[[Rating%20valuation|Rating valuation]].
*[[Rental%20method%20of%20rating%20valuation|Rental method of rating valuation]].
*[[Contractor%E2%80%99s%20basis%20for%20rating%20valuation|Contractor’s basis for rating valuation]].
*[[Profits%20method%20of%20rating%20valuation|Profits method of rating valuation]].
*[[Statutory%20formulae%20for%20rating%20valuation|Statutory formulae for rating valuation]].
*[[Choice%20of%20method%20for%20rating%20valuation|Choice of method for rating valuation]].
*[[Case%20notes%20for%20rating%20valuation|Case notes for rating valuation (Garton V Hunter)]].

----

User:The College of Estate Management

2012-12-06T17:49:54Z

The College of Estate Management:

Established in 1919, the College of Estate Management (CEM) is the leading provider of supported distance learning for real estate and construction professionals. At any one time there are some 4,000 students from around 100 countries benefiting from CEM courses - all taught by tutors with extensive industry experience. Designed for part-time study around work, CEM courses offer practical skills which build on a student’s workplace experience and have a direct benefit in their professional life.

CEM covers almost every property-related topic at diploma, degree and postgraduate level, as well as providing professional development courses and tailor-made corporate training solutions. Its active research programme contributes to knowledge across the profession, benefiting businesses, practitioners and policymakers alike.

CEM was granted taught degree awarding powers in November 2012 and will be launching new CEM degree programmes from autumn 2013.

The College’s patron is His Royal Highness The Prince of Wales.

Click here to [http://www.cem.ac.uk/ Visit our website]

[[File:CEM-logo2.jpg|217x70px|link=http://www.cem.ac.uk/]]

----

College of Estate Management articles on Designing Buildings Wiki include:
*[[Rating%20valuation|Rating valuation]].
*[[Rental%20method%20of%20rating%20valuation|Rental method of rating valuation]].
*[[Contractor%E2%80%99s%20basis%20for%20rating%20valuation|Contractor’s basis for rating valuation]].
*[[Profits%20method%20of%20rating%20valuation|Profits method of rating valuation]].
*[[Statutory%20formulae%20for%20rating%20valuation|Statutory formulae for rating valuation]].
*[[Choice%20of%20method%20for%20rating%20valuation|Choice of method for rating valuation]].
*[[Case%20notes%20for%20rating%20valuation|Case notes for rating valuation (Garton V Hunter)]].

----

File:CEM-logo2.jpg

2012-12-06T17:48:59Z

The College of Estate Management:

User:The College of Estate Management

2012-12-06T17:47:00Z

The College of Estate Management:

Established in 1919, the College of Estate Management (CEM) is the leading provider of supported distance learning for real estate and construction professionals. At any one time there are some 4,000 students from around 100 countries benefiting from CEM courses - all taught by tutors with extensive industry experience. Designed for part-time study around work, CEM courses offer practical skills which build on a student’s workplace experience and have a direct benefit in their professional life.

CEM covers almost every property-related topic at diploma, degree and postgraduate level, as well as providing professional development courses and tailor-made corporate training solutions. Its active research programme contributes to knowledge across the profession, benefiting businesses, practitioners and policymakers alike.

CEM was granted taught degree awarding powers in November 2012 and will be launching new CEM degree programmes from autumn 2013.

The College’s patron is His Royal Highness The Prince of Wales.

Click here to [http://www.cem.ac.uk/ Visit our website]

----

College of Estate Management articles on Designing Buildings Wiki include:
*[[Rating_valuation|Rating valuation]].
*[[Rental_method_of_rating_valuation|Rental method of rating valuation]].
*[[Contractor’s_basis_for_rating_valuation|Contractor’s basis for rating valuation]].
*[[Profits_method_of_rating_valuation|Profits method of rating valuation]].
*[[Statutory_formulae_for_rating_valuation|Statutory formulae for rating valuation]].
*[[Choice_of_method_for_rating_valuation|Choice of method for rating valuation]].
*[[Case_notes_for_rating_valuation|Case notes for rating valuation (Garton V Hunter)]].

----

User:The College of Estate Management

2012-12-06T17:42:50Z

The College of Estate Management:

Established in 1919, the College of Estate Management (CEM) is the leading provider of supported distance learning for real estate and construction professionals. At any one time there are some 4,000 students from around 100 countries benefiting from CEM courses - all taught by tutors with extensive industry experience. Designed for part-time study around work, CEM courses offer practical skills which build on a student’s workplace experience and have a direct benefit in their professional life.

CEM covers almost every property-related topic at diploma, degree and postgraduate level, as well as providing professional development courses and tailor-made corporate training solutions. Its active research programme contributes to knowledge across the profession, benefiting businesses, practitioners and policymakers alike.

CEM was granted taught degree awarding powers in November 2012 and will be launching new CEM degree programmes from autumn 2013.

The College’s patron is His Royal Highness The Prince of Wales.

Click here to [http://www.cem.ac.uk/ Visit our website]

----

College of Estate Management articles on Designing Buildings Wiki include:
*Rating valuation
*Rental method of rating valuation.
*Contractor’s basis for rating valuation.
*Profits method of rating valuation.
*Statutory formulae for rating valuation.
*Choice of method for rating valuation.
*Case notes for rating valuation (Garton V Hunter).

Choice of method for rating valuation

2012-12-06T17:10:32Z

The College of Estate Management:

= Introduction =

Today rating valuers will use the rental method of valuation if adequate evidence is available, but they should not necessarily rely entirely on that method. They may well decide to investigate other methods of valuation to see how these support the rental valuation. There may be much dispute in evidence presented to a tribunal as to which method of valuation gives the most accurate result.

If the rental method is the best method of valuation, which is the second best? There is no absolute answer to this question. However, remember that the contractor’s method is based on the major fallacy that the cost of property is necessarily equal to its value. For example, if it cost a large sum of money to buy a piece of land and erect a building, the contractor’s method would presuppose that the completed building would let for a high rent - but this is not necessarily so. Many buildings would cost a great deal of money to build (or rebuild) but would not command a proportionately high rent. Property developers frequently have financial difficulties because a project has cost more than it can be sold for.

Although the contractor’s method may make allowance for the age and obsolescence of a building, it is based on this assumption: that cost and value are equal. The method makes no allowance for the fact that the value of any item is determined by its supply and demand. The profits or accounts method assumes that the rent a tenant will pay for a property depends on the profit he can make. This is probably a more reasonable assumption than that on which the contractor’s method is based, but it is not necessarily correct. In general, however, the profits or accounts method will produce a more correct assessment than the contractor’s method, though less accurate than the rental method.

Sometimes the profits method either cannot be used or will not result in an accurate answer - for example, where there are no profits or accounts on which a valuation can be based, such as a town hall or sewage disposal works. In other cases, despite the existence of a set of accounts or even a profit, profit-making is not the sole reason for occupying the hereditament. A local authority may operate a seaside pier, not primarily to make a profit but in order to attract visitors to the town. The pier may make a loss, but the local authority might be prepared to pay a rent for it in order to attract visitors. At one time the courts considered the profits method of valuation only if there was no rental evidence and if the hereditament enjoyed some element of monopoly. (See Robinson Bros (Brewers) Ltd v Houghton and Chester-le-Street AC (1937).) Those days have passed, following the case of Garton v Hunter (VO) (1968) already mentioned.

So although the rental method of valuation is, on the face of it, the best method of valuation, there are circumstances when one or more than one of the other methods of valuation must be used, for example when there is no valid rental evidence or where the validity of most or all of the rental evidence is in doubt.

As a general guide, in cases where there is no rental evidence, either direct or indirect, the profits or accounts method can be used in preference to the contractor’s method.

Note that:
*In Hoare (VO) v National Trust and National Trust v Spratling (VO) (1997), the profits method was used for valuing historic houses, confirmed by the Court of Appeal (1998).
*In Wealden DC and Eastbourne DC v Allen (VO) (2001), the contractor’s test was used by the Lands Tribunal for local authority leisure centres.

In considering a ‘tone of the list’ valuation, the information required (ie rents or, where appropriate, accounts for a profits method valuation) may be lacking. In this case it is usual to consider that other assessments appearing in the valuation list on comparable property are correct, and the assessment on the property in question can be compared by analysis with them. However, always remember that the content of the Rating List is simply the VO’s opinion of value for each hereditament, and can be challenged.

= More than one valuation =

From the above, it will be seen that it is not only possible but sometimes desirable to prepare two or even three valuations of one property, using different methods of valuation. For example, if there were some doubt as to the validity of the rent paid for a commercial caravan site, it would be possible to make three valuations:
*Rental valuation, based on the rent paid for the site or for similar sites.
*Profits valuation, based on the accounts of the occupier.
*Contractor’s test valuation, based on the cost of buying the land, erecting the site buildings, and providing hard-standing and services.

Where there is rental evidence on the property itself and/or comparable properties, this should be given greater reliance than the other two methods. Remember that in normal circumstances the three methods are likely to give substantially different answers - despite the impression given in the second Lands Tribunal decision in Garton v Hunter that the three methods would usually produce similar answers.

= One valuation but more than one method =

It is sometimes possible and even necessary to use more than one method within a single valuation. For example, a non-profit-making sports ground commonly comprises the land on which the sport takes place, together with a pavilion. The valuer may find rental evidence which he can use to value the land, but there will seldom be any evidence of the additional value created by the pavilion. This is because sports grounds are commonly let on terms that the tenant will erect a pavilion himself. In such a case the value of the land might be deducted from the rent paid (because rental evidence is available and because the rental method is the best method), and the pavilion might be valued by the contractor’s method (based on the cost of construction). See Example 6.

----

== Example 6 ==

Value for rating purposes the local cricket club ground. A rent of £2000 pa exclusive of all outgoings (agreed in 2003) is paid for the land, and the club erected a pavilion in the same year at a cost of £20,000.

{| style="width: 600px;" border="1" cellspacing="1" cellpadding="1"
|-
| Valuation
| £
| £
|-
| Land - net rent paid (close to antecedent valuation date)
|
| 20,000
|-
| Pavilion - ECV, say cost
| 2,000
|
|-
| @ 5.0% (1)
|
0.050

RV

|
1,000

1,000

|}

(1) This follows the 1994 regulations, which apply where a valuation is being ascertained by reference to the notional cost of constructing or providing the hereditament or any part of it.

----

As another example of two methods being used within a single valuation, a factory will normally be valued by the rental method, whilst the plant and machinery might be valued by the contractor’s method.

= Valuation of different types of property =

It is neither possible nor necessary in a course of this length to deal in detail with the valuation of every type of hereditament. However, you must be able to:
*choose the most suitable method or methods for each type of rateable hereditament;
*understand the principles underlying each of the methods.

= Use of the methods in practice =

Many if not most day-to-day rating valuations are done within the ambit of the rental method explained above. This does not diminish the importance of the other methods, but indicates only that most hereditaments can simply be valued by reference to direct or indirect rental evidence.

Sometimes the value of one of a series of hereditaments is settled by agreement between the parties. Subsequently this agreed assessment is analysed to a value per comparative unit, which is applied to the remaining hereditaments in turn to show how over-assessed they are. This is clearly advantageous as a means of achieving reduced assessments, especially where the first of the series is deliberately selected as having a low price per comparative unit from the outset.

This is not another method of valuation, even though it may be being held out as such. It might be a means of reaching an answer, but valuation for rating means just that:
*Rating valuations have to be done following one of the three basic methods, or by formula. Comparative units can assist but they cannot dictate values. Rating values are tied to rents and rents are always the starting point, provided they exist and are analysed correctly.

Agreed assessments simply demonstrate the opinion of rateable value of the two valuers (or VO and ratepayer) involved for a particular property. In fact, in the Wealden and Eastbourne v Allen (VO) cases, assessments of other local authority leisure centres had been settled by agreement between the VO and professional surveyors, but the Lands Tribunal specifically discounted these in favour of a fresh examination of the available evidence. The Lands Tribunal held that the motives of a ratepayer in agreeing to settle an appeal may not be purely the accuracy of the assessment, which therefore clouds the reliability of that agreement as evidence for other hereditaments.

= Summary of choice of methods =
*If a statutory formula has been prescribed for a particular class or hereditament, then that formula and no other method must be used.
*If there is no statutory formula but the hereditament is of a class which is generally let in the open market, or there is otherwise rental evidence available, then the rental method should be used. However, if there is a genuine scarcity of valid rental evidence, a profits or a contractor’s valuation may be made in addition.
*If there is no statutory formula, and the class of hereditament is seldom if ever let in the open market, and there is no rental evidence, then the valuation must be made by the profits and/or the contractor’s method. The profits method is more likely to be appropriate where there is an element of monopoly attached to the hereditament - either a statutory or factual monopoly. The profits method is also likely to be appropriate when one of the main objects of the occupier is to make a profit. The contractor’s method will be used if there are no suitable profits or accounts.

If there is doubt as to the correct method in the light of the decision in Garton v Hunter (VO) (1969), the valuer would produce more than one valuation, using a different method for each. He should, however, place greater reliance on the rental method where there is genuine rental evidence available.

This article was created by --[[User:The College of Estate Management|The College of Estate Management]] 17:10, 6 December 2012 (UTC)

= Find out more =

=== '''Related articles on Designing Buildings Wiki''' ===
*Rating valuation
*Rental method of rating valuation.
*Contractor’s basis for rating valuation.
*Profits method of rating valuation.
*Statutory formulae for rating valuation.
*Case notes for rating valuation (Garton V Hunter).

Statutory formulae for rating valuation

2012-12-06T17:09:55Z

The College of Estate Management:

Premises of certain public utility undertakings such as the electricity suppliers, British Gas, British Rail Board, Network Rail (ex-Railtrack) and water authorities may be valued by formula prescribed by statute. ‘Non-operational’ premises, eg electricity and gas showrooms and offices not on operational land, are rateable in the usual way. Dwelling houses are deemed to be excluded from the value arrived at by the formula.

Where a statutory formula is provided, no other method may be used.

The Government has made it clear that it intends to value all such properties by conventional methods of rating valuation as soon as practicable, and has already removed the use of a statutory formula from the hereditaments of British Waterways, British Telecom, Docklands Light Railway and many others. It is the Government’s intention that all formula-rated properties will be conventionally valued, and the current plans are for this to be completed by 2005. As at the date of writing (June 2005), this process is continuing.

This article was created by --[[User%3AThe%20College%20of%20Estate%20Management|The College of Estate Management]] 17:09, 6 December 2012 (UTC)

= Find out more =

=== '''Related articles on Designing Buildings Wiki''' ===
*Rating valuation.
*Rental method of rating valuation.
*Contractor’s basis for rating valuation.
*Profits method of rating valuation.
*Choice of method for rating valuation.
*Case notes for rating valuation (Garton V Hunter).

Statutory formulae for rating valuation

2012-12-06T17:09:37Z

The College of Estate Management:

Premises of certain public utility undertakings such as the electricity suppliers, British Gas, British Rail Board, Network Rail (ex-Railtrack) and water authorities may be valued by formula prescribed by statute. ‘Non-operational’ premises, eg electricity and gas showrooms and offices not on operational land, are rateable in the usual way. Dwelling houses are deemed to be excluded from the value arrived at by the formula.

Where a statutory formula is provided, no other method may be used.

The Government has made it clear that it intends to value all such properties by conventional methods of rating valuation as soon as practicable, and has already removed the use of a statutory formula from the hereditaments of British Waterways, British Telecom, Docklands Light Railway and many others. It is the Government’s intention that all formula-rated properties will be conventionally valued, and the current plans are for this to be completed by 2005. As at the date of writing (June 2005), this process is continuing.

This article was create by --[[User:The College of Estate Management|The College of Estate Management]] 17:09, 6 December 2012 (UTC)

= Find out more =

=== '''Related articles on Designing Buildings Wiki''' ===
*Rating valuation.
*Rental method of rating valuation.
*Contractor’s basis for rating valuation.
*Profits method of rating valuation.
*Choice of method for rating valuation.
*Case notes for rating valuation (Garton V Hunter).

Profits method of rating valuation

2012-12-06T17:09:05Z

The College of Estate Management:

= Use =

Some properties are of a type which are rarely let in the open market, and therefore there is insufficient rental evidence to reach a reliable valuation. Where such a property is used as a profit-making business, it may be possible to use the profits method. (This is sometimes called the accounts method.)

The profits method is used in the absence of rental evidence, and where there is a sufficient element of legal or factual monopoly, provided that the valuer feels the occupier’s accounts provide a reasonable guide. A modified profits test is applied to public houses, theatres and cinemas.

'''Legal monopoly''' exists where a licence is required to use the hereditament (eg Sandown Park Racecourse).

'''Factual monopoly '''exists where the hereditament clearly exhibits something unique about the trading concern and its location (eg Milford Haven Dock and Harbour Co).

Historic houses were considered in Hoare (VO) v National Trust (1997) and National Trust v Spratling (VO) (1997). The Lands Tribunal found that the National Trust was the only potential hypothetical tenant of a historic house (Petworth in West Sussex, and Castle Drogo in Cornwall). Having regard to the profits basis of assessment, the costs of repair and administration made the occupation of the hereditament unprofitable. Nonetheless, the Lands Tribunal held that it could have regard to the Trust’s overall financial resources, and its motive to preserve historic houses. The Lands Tribunal concluded that the National Trust would be prepared to pay a positive rent for the benefit (in terms of its motives) of occupying the hereditaments.

Although the Court of Appeal went on to reverse the Lands Tribunal’s decision, holding that the National Trust would not be prepared to pay a rent in addition to taking on the responsibility for repairs of the hereditament, the profits method was still applied. The Court of Appeal found that only a nominal value was appropriate under the profits method.

= Principles =

The principle behind this method is the ability of the property to provide the tenant with an income from his occupation that will compensate him sufficiently for operating the concern, and, in addition, provide him a surplus which he would be prepared to pay for the right to occupy the hereditament - ie rent. Having found the rent, this will be the rateable value - remember, the statutory definition of rateable value is an open market rent.

The method consists of taking the gross income from the concern and deducting purchases to produce gross profits. Net profit is then derived by deducting working expenses and repairs and renewals.

When valuing to RV, it is possible to use a sinking fund to replace the building in place of repairs to the structure. The method in such cases becomes:

{| style="width: 600px;" border="1" cellspacing="1" cellpadding="1"
|-
|
| £
| £
|-
|
Gross receipts

Less purchases

Gross profit

|
|
|-
|
Less
*Working expenses
*Sinking fund to replace structure
*Repairs to goods and chattels
*Net profit = Divisible balance

|
|
£

|}

From the net profit, or ‘divisible balance’, it was mandatory (following the House of Lords decision in Railway Assessment Authority v Southern Railway Co (1936)) to deduct the tenant’s share to cover his remuneration, risk and interest on his capital. This was frequently taken as a percentage of the capital employed by the tenant (say

15 percent). In recent years, however, particularly where divisible balances are small, it has been customary to deduct from the divisible balance interest on tenant’s capital (at a rate percent which he might obtain by placing the sum in a secure investment such as a building society). The remainder is then divided between the landlord and the tenant on an unspecified basis - frequently 50 percent each. The landlord’s share is the rent and, by definition, will be the rateable value.

----

== Example 5 ==

You are instructed by your client, the lessee and occupier of a licensed hotel in a prominent position in a busy provincial town, to give your opinion of a fair rating assessment for the 2000 list.

The premises are held on a full repairing and insuring lease for 21 years, 8 years of which are unexpired, at £8000 per annum.

The last full year’s accounts available in the year prior to 1 April 2003 have been made known to you and from these you have extracted the following information:

{| style="width: 500px;" border="1" cellspacing="1" cellpadding="1"
|-
|
'''Receipts:'''

Restaurant

Bar

Apartments

'''Stock:'''

Consumable stock as at 1 January

Consumable stock as at 31 December

'''Purchases:'''

Consumable stock

'''Expenses:'''

Wages, salaries and NI

Rates (paid y/e 31 Mar 1998)

Rent

Gas, electricity and solid fuel

Laundry and household cleaning materials

Advertising, stationery, postage and telephone

Insurance (Building)

Insurance (contents and third party)

Repairs and renewals to furniture

Repairs and renewals to building

Loan interest

|
£

113,420

250,500

127,230

.

52,000

48,000

.

224,260

.

107,170

14,120

16,000

16,720

13,470

5,910

1,750

1,850

13,150

9,420

9,000

|}

The furniture and equipment were valued recently at £240,000 but they are insured for £300,000.

Notes:

Remember that although the accounts of the actual occupier are being used as a basis, the object is to draw up a set of accounts for the hypothetical tenant. Expenditure on rent must not be allowed as a working expense - this depends on the answer and is included in the divisible balance. Ground rent or mortgage interest would similarly be excluded, since the hypothetical tenant would not be paying them. Anything in the nature of tenant’s remuneration or interest on his capital is excluded because this too belongs to the divisible balance.

Remember too that the hypothetical tenant is a prudent businessman of average competence. To the extent that the actual occupier may be above or below this standard, some adjustment in the expenses may be justified.

The last complete year’s audited accounts before 1 April 2003 should provide the basis of the valuation, but the valuer may take into account:
*any changes in the hereditament or the surroundings between the date of the last accounts and the year in which the valuation entry goes into the list;
*any information from previous years’ accounts which indicate that a particular item in the accounts being used is not an average annual expenditure.

{| style="width: 600px;" border="1" cellspacing="1" cellpadding="1"
|-
| '''Valuation'''
| £
| £
|-
|
'''1 Calculate net profit'''

Gross receipts

'''Less'''

Purchases

Decrease in stock

'''Gross Profit'''

.

'''Less'''

Working expenses

Wages, salaries and NI

Gas, electricity, solid fuel

Laundry etc

Advertising, stationery etc

Insurance (contents and third party)

Rates

Repairs and renewals of furniture

Repairs and insurance of buildings

'''Net trading profit = divisible balance'''

|
.

.

224,260

4,000

.

.

.

.

.

107,170

16,720

13,470

5,910

1,850

14,120

13,150

10,990

|
.

491,150

.

.

228,260-

'''262,890'''

.

.

.

.

.

.

.

.

.

.

183,380-

'''79,510'''

|-
|
'''2 Divide balance'''

'''Less''' Interest on tenant’s capital

Tenant’s capital

''Furniture and contents''

''Stock - average''

''Cash'' float

.

@ 7%

Divisible balance

|
.

.

.

.

240,000

50,000

20,000 

310,000

|
.

.

.

.

.

.

.

21,700

57,810

|}

Divisible balance is now apportioned as to:
*tenant’s share
*rent

Then if tenant’s share is 50 percent of the divisible balance:

Then if tenant’s share is 50 percent of the divisible balance:

Rent (1) = £28,905

RV= £28,905 (Rental value/rateable value/landlord’s share)

Notes:

(1) The figure to be calculated is 1 April 2003 rent.

----

It is instructive to note the expenses excluded in the calculation of the divisible balance. Purchases are adjusted by any increase or decrease in stock to find the effective total cost of stocks for the year.

The method used here, from net trading profit onwards, is the method approved by the Lands Tribunal in a number of cases. Interest of 5 and 7 percent on tenant’s capital is often used, reflecting current interest rates. 50 percent of the balance for tenant’s remuneration and risk is commonly used, although in this particular case it may be too large a reward to the tenant for running the business. Taking the total ‘tenant’s share’ we have:

{| style="width: 500px;" border="1" cellspacing="1" cellpadding="1"
|-
|
.

Interest on capital

Remuneration and risk

|
£

21,700

28,905

50,605

|}

which is 10 percent of the gross receipts: a high percentage for a stable and profitable business.

Rates are treated as any other working expense. Actual rates are used if the rates paid in previous years form a reliable guide to the rates payable in future years. This approach was approved in Thomason v Rowland (VO) (1995).

----

This article was created by --[[User:The College of Estate Management|The College of Estate Management]] 17:09, 6 December 2012 (UTC)

= Find out more =

=== '''Related articles on Designing Buildings Wiki''' ===
*Rating valuation.
*Rental method of rating valuation.
*Contractor’s basis for rating valuation.
*Statutory formulae for rating valuation.
*Choice of method for rating valuation.
*Case notes for rating valuation (Garton V Hunter).

Contractor’s basis for rating valuation

2012-12-06T17:08:22Z

The College of Estate Management:

= Use =

This method should be used only in the absence of rental evidence and where it is possible to estimate the cost of rebuilding of the hereditament. It is sometimes also used as a method of last resort where the profits method should be used but no reliable accounts are available.

It may be used on such properties as oil refineries, chemical works and cement works, all of which are rarely let, and for which the profits method is inapplicable. It may also be used on many properties occupied by local authorities that are not comparable with other property, and are not let, being owned by the authorities, and therefore cannot be valued by the rental method. Most of these occupations are unprofitable, so that the profits test cannot be applied.

This principle was upheld in Eastbourne BC v Allen (VO) 2001 and Wealden DC v Allen (VO) (2001), in which two local authority leisure centres were under consideration. The ratepayers wanted a profits test to be applied. However, receipts from customers were insufficient for the leisure centres to operate commercially, and the local authorities subsidised them both. The Lands Tribunal held that the profits method could not be applied. In this scenario the total income for the leisure centre would always be equal to the total outgoings, so that the local authority could ensure that the centre continued operating. The profits method, which is based on income, would therefore give a false picture. The Lands Tribunal instead applied the contractor’s test.

Such properties as town halls, sewage works, public conveniences, public libraries and swimming baths must therefore be valued on the contractor’s basis.

= Principles =

The contractor’s method relies on the theory that the hypothetical tenant might consider erecting a suitable alternative building for his own purposes if there is none to rent, or if he feels the landlord is asking an excessive rent for his present premises. It is assumed that the tenant would charge himself a ‘rent’ based upon a percentage of the cost (including land and rateable plant) of the property. The valuer is required to find what has been termed the ‘effective capital value’ of a suitable alternative site and equivalent buildings.

In Eastbourne BC and Wealden DC v Allen (VO) (2001), the Lands Tribunal explained the concept of the contractor’s test:

‘Rateable value is established through the assumption of a hypothetical tenancy; and the contractor’s basis is founded on a further hypothetical assumption - that the tenant has an alternative to leasing the hereditament because he can build similar premises; so that in the hypothetical transaction he would not pay more in rent, and might well pay somewhat less, than the interest charged or foregone on the capital sum employed in providing the “tenant’s alternative”.’

For the purposes of a rating valuation using the contractor’s basis, it is assumed that the hypothetical tenant has contracted for the hereditament to be ready for occupation, complete and fitted out with all rateable plant installed as at the AVD. Costs and values are therefore to be calculated at the AVD.

= Determination of effective capital value (ECV) =

To determine the ECV of the site it is necessary to estimate the current cost of providing a bare site suitable for the erection of the building in question, assuming that no other use of that site can be contemplated. The ECV of a site may also be reduced if old buildings are on site so that the full potential may not be realised. The percentage may be related to that used on the buildings.

The ECV of the building is based on either the cost either of reconstruction or of constructing a ‘simple substitute’ building (sometimes called a ‘modern substitute’). In the case of a new building erected to the occupier’s requirements, the ECV is likely to be the actual cost of construction. In the case of an old building, the cost of reconstruction must be reduced to take account of the difference in value between a newly constructed building and the actual building.

Where it is difficult or impossible to envisage the reconstruction of the existing building in its present form, the cost of providing a simple modern building, capable of performing the functions of the actual building, is taken. This figure will be reduced to take account of the difference between the substitute building and the actual building. In Hoare (VO) v National Trust (1998), reiterated in the Wealden and Eastbourne v Allen (2001) cases, it was held that, when valuing a hereditament, it is necessary ‘to adhere to reality subject only to giving full effect to the statutory hypothesis’.

The actual cost of the simple substitute hereditament, less the depreciation for obsolescence of the actual premises, produces the ‘effective capital value’. This may be thought of as the price which the hypothetical tenant would be prepared to pay for the hereditament if he were buying instead of renting it.

= Rate percent on effective capital value =

In the past, the choice of an appropriate decapitalisation rate was the source of much litigation. The general principle which evolved from the courts was that the appropriate rate should be related to the rate at which the occupier (or occupiers of a similar type) could borrow capital to finance his outlay.

However, the problem of choosing a decapitalisation rate has been solved. The rate was prescribed by the Non-Domestic Rating (Miscellaneous Provisions) (No 2) Regulations 1989 para.2 for the 1990 rating list. Amendment Regulations in 1994 and 1999 fixed the rates for the 1995 and 2000 rating lists.

The rate is related to the use made of the hereditament, irrespective of the type of occupier. The prescribed rates (all to rateable value) are:

{| style="width: 600px;" border="1" cellspacing="1" cellpadding="1"
|-
|
| 1990 list
| 1995 and 2000 lists
| 2005 list
|-
|
Educational hereditaments and hospitals (including maternity homes)

| 4%
| 3.67%
| 3.33%
|-
| All other hereditaments
| 6%
| 5.5%
| 5.0%
|}

(Note that the decapitalisation rate is a simple application of the percentage, not an application of a yield figure which would be used in a capital valuation. As for all rating methods of valuation, you are looking for a rental value.)

These rates apply also to the valuation by the contractor’s method of rateable plant and machinery within such hereditaments - the Regulations refer to ‘a hereditament the RV of which is being ascertained by reference to the notional cost of constructing or providing it or any part of it'.

With the change to a rate appropriate to use rather than to occupier, it is interesting to note that a particular type of occupier may have different rates applied to different hereditaments. For example, a local authority’s schools are now taken at 3.33 percent, but its sewage works, town hall etc are taken at 5.0 percent.

The various stages to ascertain the rateable value using the contractor’s test can be illustrated by two important cases.

In Imperial College of Science and Technology v J H Ebdon (VO) and Westminster City Council (1984) LT, the situation at the time was that assessments for every university hereditament in England and Wales outside the old London County Council area had been accepted and agreed. All were on the basis of a 3½ percent decapitalisation rate to gross value.

The case was agreed by all parties as a suitable test case for the University of London’s properties, since the approach to the valuations had been different in London compared with the provinces, where the approach was without prejudice to any decapitalisation rate applied.

The two main points of contention were:
*the appropriate decapitalisation rate to be used;
*the scale of age and obsolescence allowance to be deducted from the estimated replacement cost of individual buildings.

In addition, two further points were in debate:
*the propriety of using a deduction to depreciate site value;
*the end allowance, if any, to be used for occupational disadvantages.

The Tribunal accepted the College’s approach in calculating the decapitalisation rate, and referred to the fact that other universities had been valued on a 3½ percent basis. (The rate would now, of course, be 3.67 percent to RV as prescribed by the 1994 Regulations.)

A rate of 11 percent was used for depreciation on both buildings and land. Normally land is not subject to depreciation allowance in the contractor’s method of valuation, but in this case an allowance was given, since obsolescence of buildings was deemed to give rise to a depreciation in land value. This followed rebus sic stantibus which prevents the assumption of the use of land for another purpose.

The Tribunal’s approach was to base its decision on the stages in Gilmore (VO) v Baker-Carr and Others (1983), but to add a further stage and consider the relative bargaining position of the parties in determining the rent. Moreover, ‘effective capital value’ was a long-established misnomer and should be replaced by the term ‘adjusted replacement cost’.

The five stages in the Gilmore case were as follows:
#Estimate construction cost, preferably the modern substitute cost.
#Make the necessary deductions for age and obsolescence etc to arrive at the Effective Capital Value.
#Estimate the cost of the land, rebus sic stantibus.
#Apply the market rate for decapitalisation (now fixed by Regulations).
#Consider any remaining items in valuing the land and buildings such as poor site access and the inflexibility of a district heating scheme (Imperial College Case) - ie those items which would affect rental value rather than capital value.

The Imperial College Case also considered a sixth stage:
*Examine the relative bargaining strength of the hypothetical landlord and tenant and determine the effect on the result of the fifth stage.

The City of Westminster appealed against the decision (1986) but was unsuccessful.

The Eastbourne and Wealden v Allen (VO) cases also confirmed the five-stage method:
#Construction cost of a simple substitute building.
#Deduct an allowance for age and obsolescence, giving the effective capital value.
#Add the land value, for the use of the hereditament.
#Apply the statutory decapitalisation rate to reach the annual value.
#Adjust for factors which might be in the minds of the hypothetical landlord and hypothetical tenant, affecting the rental bid the hypothetical tenant might make, so that the rateable value in terms of the hypothesis is found.

----

== Example 4 ==

Value for the 2005 rating list the local civic hall. It stands on a site just off the main shopping street, with a frontage of 65m and a depth of 100m. The building has a total floor area of 4000m². At the rear of the building is a car-park for 40 cars. The building was erected in 1935. Although adequate for its purpose, it does not provide the facilities that would be expected in a new building.

Site values and building costs will be based on 2003 figures.

{| style="width: 600px;" border="1" cellspacing="1" cellpadding="1"
|-
|
| £
| £
|-
| ECV of site and improvements: Say, net
| 100,000
| 100,000*
|-
| ECV of buildings: 4000 m² at £215 per m²
| 860,000
|
|-
|
Less age and obsolescence

Say 27%

| 232,200
|
627,800

727,800 

|-
| @ 5.0% (ie 727,800 × 0.050)
|
| 36,390
|-
| RV
| say
| £36,400
|}

Notes:
#Site value may need to be reduced to reflect less than full potential realised in view of age and obsolescence of actual development.
#Replacement costs of buildings would be based on 2003 prices.
#The figures in these examples have been chosen purely for illustration purposes.

----

This article was created by --[[User:The College of Estate Management|The College of Estate Management]] 17:08, 6 December 2012 (UTC)

= Find out more =

=== '''Related articles on Designing Buildings Wiki''' ===
*Rating valuation.
*Rental method of rating valuation.
*Profits method of rating valuation.
*Statutory formulae for rating valuation.
*Choice of method for rating valuation.
*Case notes for rating valuation (Garton V Hunter).

Rental method of rating valuation

2012-12-06T17:07:38Z

The College of Estate Management:

The rental method should be used where the hereditament belongs to a class of property which is generally let in the open market - provided, of course, that the necessary evidence exists. The valuer is comparatively unfettered in the way in which he uses this method.

= Selection of evidence =

== Direct rental evidence ==

Direct rental evidence is the rent of the hereditament being valued. Although this is evidence of rental value, it is by no means conclusive. It is seen as prima facie evidence liable to be rebutted (Baker Britt & Co Ltd v Hampsher (VO) (1976)).

Rental evidence may be rebutted in several ways.
*The rent may not reflect the terms of the hypothetical tenancy under the definition of RV. For example, a yearly tenancy is unusual in most property markets.
*It is rare to find a rent that is on terms exactly matching the definition of rateable value. For example, the rent may not have been set at the antecedent valuation date (see elsewhere for an explanation of the antecedent valuation date).
*Even if the tenancy were on the statutory terms, it would not necessarily lead to acceptance of the rent as RV. In R v Paddington Valuation Officer ex parte Peachey Property Corporation Ltd (1964) the court went as far as to say that ‘the actual rent payable at the date of assessment is not conclusive … even if the terms of the current letting are the hypothetical statutory terms’.
*The rent may be between related parties.

Any rent is agreed in the (imperfect) property market. If the agreement were to be made again, a different rent might be agreed. Nevertheless, if no fault is found with the actual rent, it has to be the best guide to rateable value.

== Indirect rental evidence ==

Indirect rental evidence is evidence of lettings of comparable properties. If, for example, the hereditament is a shop or office, there is likely to be a body of evidence that can be analysed.

Again, however, it is unlikely that such lettings will conform to the statutory tenancy, and they are subject to the same cautions as outlined above.

= Use of evidence =

There are certain rents which are of very little use as evidence, either because -
*they are not open market rents - such as rents between family members or related companies; or because
*they cannot be made to conform to the rating hypothesis - such as a rent on long leases without review.

On the other hand, many open market rents, whilst not conforming to the terms of the rating hypothesis, can be adjusted to conform, being translated into a ‘rent in terms of rateable value’. This can then be analysed and reduced to a comparative basis such as £/m², or £/m² ITZA (in terms of Zone A) for retail properties - see elsewhere for zoning for shops.

= The basket of evidence =

The process of adjustment and analysis of relevant rents creates a ‘basket’ of evidence. Although the actual rent of any hereditament is prima facie evidence of its value, the valuer must always:
*look at the rental evidence as a whole;
*compare the results of analysis using adjusted rents;
*attach weight to each piece of evidence, depending on how reliable the valuer considers it to be;
*draw a conclusion from all the evidence available as to what rent a hypothetical landlord and tenant might agree under the rating terms.

The process of adjustment and analysis is considered below.

= Hierarchy of evidence =

Whether the rent is the actual rent in question, or a rent arising from a comparable property, or an assessment arising from a Profits/Receipts or Contractor’s Test valuation, the weight (or dependability) to be attached to it by tribunals and courts is reliant on its place in the hierarchy of evidence and its being tested against other evidence.

== Case law ==

The cases Robinson Bros (Brewers) Ltd v Houghton and Chester-le-Street Assessment Committee (1937) and Garton v Hunter (VO) (1969) have looked at the hierarchy of evidence.

In Robinson Bros, the Court of Appeal accepted that direct rental evidence on the subject hereditament (or on a truly comparable hereditament) was ‘the best evidence’; indirect evidence was admissible only in cases where direct evidence was lacking.

In Garton v Hunter (VO), the court adopted a ‘modern’ view and held that all relevant evidence was admissible, but the value put on the evidence had to be weighted. Winn LJ stated:

‘Where the particular hereditament is let on what is plainly a rack-rent and there are similar hereditaments and similar economic sites which are so let that they are truly comparable, that evidence should be classified in respect of cogency as a category of admissible evidence properly described as superior; in some, but not all, cases, that category may be exclusive. Any indirect evidence, albeit relevant, should be placed in a different category; reference to the latter category may or may not be proper, or indeed necessary, according to the degree of weight of the former kind of evidence.’

The hierarchy of evidence is as follows:
*Rents, where the lease is agreed at the AVD on identical terms cited by the statutory definition of RV.
*Rents, where the lease is agreed prior to the AVD on terms closely associated with the statutory definition.
*Rents, where the lease requires little adjustment to conform to the terms cited by the statutory definition.
*The more adjustments made to a rent to accord to the statutory definition, the ‘weaker’ it becomes.
*Rents from leases agreed after the AVD are less helpful, although they still form part of the ‘basket of evidence’. Such evidence may be best used as indicators of market trends since the AVD.

Rental evidence can arise following various transactions on a property - for example, open market lettings, lease renewals and rent reviews.
*Open market lettings are generally the strongest evidence, assuming that the property has been freely exposed to the market over a reasonable period of time. Care still needs to be taken that such transactions are representative of market value and do not, for example, reflect the desperation of a tenant to secure space, or the need for a landlord to secure immediate income. A range of evidence is therefore needed in order to help isolate such effects.
*lRent reviews and lease renewals (in England and Wales, where the tenant has rights to a new lease) are based on market value, as prescribed by the lease and statute respectively. Such transactions are generally representative of the level of rent achieved at open market letting, although they can be influenced by factors such as the availability of comparable evidence. This is a close second-best evidence to open market lettings.
*A contracted-out letting (in England and Wales, where the tenant has no security of tenure at lease expiry) and a lease renewal in Scotland (as the tenant has no rights to renew) are less reliable as open market evidence. A new letting on a contracted-out basis may command a lower rent than if security of tenure is provided, and therefore warrant an upward adjustment to the rent on the subject property which benefits from security of tenure. A renewal of the lease to the same tenant at expiry of the contracted-out letting could see the landlord exploit the tenant's lack of rights, and, with relocation not being feasible and/or expensive, a rent above market rent could be achieved and thus warrant a downward adjustment to the rent on the subject property.

Examples of transactions that are not representative of an arm’s-length, open-market letting include:
*a sale and lease-back (as the owner sets a rent to achieve the investment sale);
*surrender and renewal (as this usually reflects special requirements of one or both of the parties); and
*inter-company arrangements (where internal rent charging may simply be set by an accountant).

= Adjustments of rents =

Where property has to be valued to RV, the rents used for comparison should be adjusted to accord with ‘rent in terms of RV’.

Actual rents may have to be adjusted for any one of the following to accord with the definition of RV:

lRepairing and insuring liabilities.
*Service charges.
*Premium paid.
*Improvements not included in the rent passing.
*Year-to-year assumption.
*‘Turn over’ element, rent-free period or other concessions.
*VAT.
*Domestic element of rent.
*Date of rent.

= Repairs and insurance =

== Example 1 ==

A property was let on the open market on the antecedent valuation date for five years at a rent of £10,000 per annum. The lease required the tenant to repair the interior of the property only and to use the premises solely for offices in class A2 of the Use Classes Order (financial services etc). Estimate the likely assessment, based on the rent passing.
#Date of valuation. The date of the letting is the antecedent date; no adjustment for date.
#Repairing assumptions. For RV, it must be assumed that the tenant is responsible for all repairs and insurance, therefore deduct cost of external repairs and insurance to give net rent. Where the landlord is responsible for all repairs, then the usual deduction is 10 percent. This is not a hard and fast rule and circumstances may require the deduction of different percentages; for example, 5 percent if the landlord carries out external repairs only and 2½ percent if the landlord carries out insurance only.
#User restriction must be ignored under the definition of RV. The rent to be found is ‘vacant and to let’. Assume here that financial services are the highest and best use, therefore no adjustment of rent is needed to reflect ‘vacant and to let’ assumption.

{| style="width: 600px;" border="0" cellspacing="1" cellpadding="1"
|-
| Valuation
|
|-
|
Rent actually paid

|
£10,000 (IR terms)

|-
| Deduction for external repairs and insurance @ say 7½%
|
£ 750

|-
| Rent in terms of RV
|
£ 9,250

|}

= Service charges =

If a rent includes payment for services rendered by the landlord (other than the provision of accommodation), it must be reduced to find the net rent being paid for the premises alone.

If a separate service charge is made in addition to the rent, it is not usually necessary to adjust the rent. However, in recent years landlords have been criticised for setting excessive service charges, and it has been suggested that there is a hidden element of rent in such charges. It is important, therefore, to consider the reasonableness of the charge: excessively high or low charges may indicate that the rent requires adjustment, or may cast doubt on its reliability.

= Premiums =

If a tenant pays a premium in addition to rent, this normally means that the rent passing is below the open market rent (as required for RV) - that is, there is a profit rent. Alternatively the premium could represent ‘key money’.

Premiums are decapitalised and added to the rent passing. The period of amortisation requires great care. If the premium is truly capitalised profit rent, it should be amortised over the period to the first review or renewal where the basis is ‘open market rental value’ (OMRV).

The treatment of key money is a difficult area, and opinion is divided on how it should be approached. It could be argued that the interaction of supply and demand simply results in the payment of key money, in the same way that interaction determines rental values. Alternatively, key money can be seen as a payment solely to obtain occupation and, with it, the ability to trade and earn a profit. The premium therefore represents the opportunity cost of occupation and not profit rent.

It is suggested that any element of key money should be amortised over the expected occupancy of the tenant.

However, be aware that the discounting of a premium paid on an assignment is often unrepresentative of an equivalent market rent, because, in practice, the premium is more likely to relate to the current tenant’s wish to relinquish space and the relative unattractiveness to prospective occupiers of a short lease length and other non-

negotiable terms, compared with a direct letting to a landlord.

In Example 2, a tenant pays a premium of £10,000 and a net rent of £20,000 per annum; the lease is for 20 years with a review to OMRV after 5 years.

----

== Example 2 ==

{| style="width: 600px;" border="1" cellspacing="1" cellpadding="1"
|-
| Rent actually paid (net of repairs etc)
|
| £20,000
|-
| Premium
| £10,000
|
|-
| ÷ YP 5 years @ 8%
| 3.993
| £ 2,505
|-
| Rent in terms of RV
|
| £22,505
|}

It is understood that for the 1995 and 2000 rating lists the VO has adopted different single rate figures according to the type of properties concerned, varying from 8% for, say, shops to 11% for, say, factories in 1995, and 7% to 10% in 2000.

----

Note: Any rent which includes a significant element derived from an amortised premium must be treated with caution, as the reasons for the premium being paid are rarely clear and are often confidential.

An incoming tenant could also pay a premium to receive the fixtures and fittings left by the outgoing tenant. As this does not relate to rent, it should not be decapitalised.

= Improvements =

It is important to remember that rents actually paid often exclude works of improvement done by the tenant, whereas the value for rating is rebus sic stantibus (ie ‘as it stands’) and includes all rateable improvements (remember to exclude non-rateable plant).

Four main types of improvement are commonly encountered:
#Initial repairs. Where a tenant takes a property in a bad state of repair and, as a condition of the lease, puts the property into a reasonable state of repair, the initial rent will reflect the original state of the building. Clearly, the repairs increase the rental value of the property, and the passing rent should be adjusted to reflect the improved state. See below for a suggested period of amortisation.
#Extensions, alterations and improvements. Works carried out to extend the property will normally increase the rental value and can be taken into account. Alterations can be taken into account to the extent that they are rateable and enhance the rental value of the property. The suggested period of amortisation is set out below. However, although these adjustments can be made, it is frequently more useful to analyse the rent paid on the unimproved building, and then apply this pro-rata to the improved building.
#Fitting out a shell or new building. Where a property is let as a shell, the tenant is responsible for completing or ‘fitting out’ the property. The initial rent generally does not reflect the fitted-out unit. The costs of fitting out can be amortised and added to the initial rent, but may require some adjustment first. Fitting-out costs vary enormously and expenditure on purely personal features of no market value must be deducted from the cost. Non-rateable items must also be deducted.
#Fitting out an existing building. Such matters as shop-fitting, partitioning etc are done to the personal requirements of the tenant. It is essential that such improvements are considered on their merits. Whether or not particular improvements are likely to have general appeal in the market is a matter of judgement.

It is essential to remember that cost does not necessarily equate to value. In Edma Jewellers Ltd v Moore (VO) (1975) the Lands Tribunal considered this issue and concluded that ‘all expenditure must be looked at on its merits’. In the same way you must consider the validity and usefulness of amortised costs to your analysis.

== Period of amortisation ==

There are no hard and fast rules, but you may consider the following:
*Conditional improvements. The shorter of the following from the date of the improvements:
#the end of the useful life of the improvements; or
#either the next rent review where the improvements are not specified to be disregarded (this would be unusual); or the end of the lease.
*Voluntary improvements. The shorter of the following from the date of the improvements:
#the end of the useful life of the improvements; or
#the next rent review where the value of the improvements is included in the rent;
#the date of the next lease renewal which is neither the first renewal since the improvements were carried out nor within 21 years of their completion;
#exceptionally, where it is known that the lease will not be renewed, the end of the current lease.

= Year-to-year assumptions =

In the hypothetical world of rating we are assuming a tenancy from year to year, but there is no precedent to suggest that the rent must be reviewed at the end of each year. For rating purposes, rents which arise under leases with review patterns that conform to the market ‘norm’, or shorter review periods, can be accepted without adjustment, but those for longer periods might require adjustment in line with local evidence.

This approach is supported by decisions of the Lands Tribunal. In the absence of any firm evidence to the contrary, they have been reluctant to make adjustments where properties are subject to review patterns which are ‘normal’ in the open market. At present in the UK, rent review patterns are most commonly five-yearly.

The LT have also been willing to accept leases for a term of years certain as good evidence of value, and reluctant to adjust those rents on account of the security they offer. Remember that, in the rating world, the tenancy is not just for a year but has the prospect of continuance.

Be aware that the market ‘norm’ lease lengths can vary greatly between different types of properties. A 15-year lease of 10,000 sq.m city centre offices may be the market norm lease length which commands the best rent, but a 15-year lease of a 200 sq.m industrial unit would generally be regarded as an onerous commitment and warrant a discount, compared with the rents achieved on more flexible three-year leases.

Very short term leases, such as seasonal shops for the sale of fireworks leading to bonfire night, do not represent the demand and rental that tenants are prepared to pay for longer-term occupation, and can usually be rejected as comparable evidence.

Relevant cases are:
*BHS v Burton (VO) and Brighton CBC (1958)
*Walls (VO) v NCP Ltd (1978)
*Cresta Silks Ltd v Peak (VO) (1958)
*FW Woolworth & Co Ltd v Moore (VO) (1978).

= Rent-free periods and other concessions =

In recent years varying forms of rental incentives have become commonplace, including rent-free periods, stepped rents, and reverse premiums on taking over a tenant’s previous lease. These changes have made it much harder to interpret some market transactions and to determine exactly what the deal equates to, in rental terms.

A rent can be adjusted by amortising the incentives. Adjustments for some of the more common incentives are dealt with below, but remember that if a rent requires significant adjustment, this casts doubt on its worth as a useful piece of rental evidence.

== Adjustment periods ==

Views differ as to the period over which an incentive should be amortised. One view is that an incentive is a payment to the tenant for taking the lease and should be rentalised over the whole length of the lease. An alternative view is that, as the rent is normally subject to review to open market rental value (OMRV), the incentive should only be amortised to the first review. A third view is one of compromise, suggesting a period between the two. The ‘correct’ period over which to rentalise the incentive will ultimately be a question of judgement based upon the type of incentive and local market conditions.

== Rent-free periods ==

Short rent-free periods are often granted to tenants to enable them to complete the fitting out of the property. No adjustment should be made for such a rent-free period, as the concession is only given to allow a tenant to complete works which, in the world of rating, are assumed to be carried out by the landlord. Where the rent-free period does not relate to fitting out or putting into repair, this should be treated as an incentive from the landlord.

It is possible to make the adjustment for a rent-free period into a long and complex operation. However, the practical and accepted method of dealing with it is to consider the length of the rent-free period in the context of possible adjustment times. A long rent-free period may appear to be an incentive to take a long lease, whilst a short period may be a reflection of a slightly over-rented property. It may be necessary to do more than one calculation before drawing a conclusion.

----

== Example 3 ==

A warehouse is let for 10 years at a rent of £25,000 with a review after 5 years. A 6-month rent-free period has been granted by the landlord. This is not for fitting out (the unit is already fitted out), nor is it for disrepair.

From the above information, the rent-free period appears to be an incentive and should be amortised to find the true rental level.

{| style="width: 600px;" border="1" cellspacing="1" cellpadding="1"
|-
|
'''Over 5 years to review:'''

|
|
|-
| Rent
|
| £25,000
|-
| YP 4.5yrs 11%
| 3.3991
|
|-
| PV £1 in 0.5yrs 11%
| 0.9505
| × 3.2309
|-
|
|
| £80,773
|-
|
|
|
|-
| Divide by YP 5yrs 11%
|
| ÷ 3.6959
|-
|
|
| £21,855
|-
| '''Over whole lease:'''
|
|
|-
| Rent
|
| £25,000
|-
| YP 9.5yrs 11%
| 5.7131
|
|-
| PV £1 in 0.5yrs 11%
| 0.9505
| × 5.4303
|-
|
|
| £135,758
|-
|
|
|
|-
| Divide by YP 10yrs 11%
|
| ÷ 5.8892
|-
|
|
| £23,052
|}

With such a short rent-free period, it is advisable to take a conservative view of the true rental level by taking the first option.

----

== Reverse premiums ==

This is a sum of money given to the tenant, which can of course be used to pay the rent. It is therefore possible to adjust for such premiums as though they were an equivalent rent-free period, as outlined above. However, you should attach even more caution to amortising premiums and reverse premiums, as the reason for their being paid is often unclear. This also reduces the reliability of the analysed rent as evidence of rateable value.

= VAT =

Since 1989 landlords have had the option to tax rents - ie charge VAT. For rating purposes the rent has to be adjusted to a rent net of VAT. This is a simple arithmetical calculation. VAT is currently set at 17.5 percent, so if you have a rent which includes VAT, divide it by 1.175 to find the VAT-exclusive rent.

A far more complex issue is the effect of VAT on rental levels. A tenant who is able to recover VAT is relatively unaffected. However, for those tenants who cannot recover the VAT, their occupation costs are higher. These include such occupiers as banks and building societies as well as small businesses that are below the VAT registration threshold.

This has not yet proved to be an issue in the rating world, although a valuer looking at rental evidence must always be aware of the possible uneven effects of VAT on a particular market.

== Domestic element ==

Any part of a rent attributable to residential accommodation, such as in a shop let with a flat, is excluded from business rates and must be stripped out. The amount to be taken is the amount that is considered to be included in the total rent for the domestic part. It is not the amount that the residential accommodation could be sublet for.

== Date of rent ==

It would be unusual for the rental evidence to be conveniently dated at the AVD (although it frequently happens in exam questions!) Typically rents from up to a year either side of the AVD are worth adjusting and analysing (but rents post-AVD may carry less weight; see 2.4 above).

Rents agreed more than one year pre-AVD can still be helpful, because they can indicate trends in values. But agreements made a year or more post-AVD are less helpful, because, at the AVD, the hypothetical tenant could not have known of the later transactions.

The valuer must therefore consider whether the rent needs adjusting (upwards or downwards) to reflect rental movements over time. The amount of any adjustment may be derived from the basket of rental evidence gathered, or from other sources such as published data on rental movements - although these are less useful, as they are not specific to the location, nor to the type and quality of property.

= Analysis of rents =

Once the rents have been adjusted into ‘rent in terms of rateable value’, they can be analysed. In order to make any meaningful comparison of the evidence, the rents must be expressed in terms of a comparative unit, such as £/m², or £/m² ITZA (in terms of Zone A) for retail properties - see elsewhere for zoning for shops.

= Summary =

In order to value using the rental method, relevant evidence of open market rental value must be sought. It may be necessary to make adjustments to the rents in order to bring them to ‘rents in terms of rateable value’. It may also be necessary to adjust the comparable evidence to reflect the physical nature of the subject property, eg poor quality or different location. The rents should then be analysed to a comparative basis.

The creation of a basket of evidence is crucial when looking at rental evidence and making adjustments. Remember that the extent of these adjustments reflect the valuer’s opinion of value, not fact.

The results of any analysis using adjusted rents must be set against each other for comparison. Weight must be attached to each piece of evidence, depending on how reliable it is. Then conclusions can be drawn as to what is a reasonable and supportable opinion of Rateable Value for a hereditament.

----

This article was created by --[[User:The College of Estate Management|The College of Estate Management]] 17:07, 6 December 2012 (UTC)

= Find out more =

=== '''Related articles on Designing Buildings Wiki''' ===
*Rating valuation.
*Contractor’s basis for rating valuation.
*Profits method of rating valuation.
*Statutory formulae for rating valuation.
*Choice of method for rating valuation.
*Case notes for rating valuation (Garton V Hunter).

Rating valuation

2012-12-06T17:06:54Z

The College of Estate Management:

= Purpose of a rating valuation =

The aim of a valuation for rating is to find the annual rental value of a hereditament (property that can be inherited) at a particular time, in accordance with the definition of rateable value. Remember that you are trying to find a rental value, not a capital value, whichever method of valuation is used.

Four main methods of valuation for rating purposes are recognised by the courts and tribunals:
*[[The%20rental%20method%20of%20rating%20valuation|Rental method]] (using direct or indirect rental evidence).
*[[The%20contractor%E2%80%99s%20basis%20for%20rating%20valuation|Contractor’s method or test]].
*[[The%20profits%20method%20of%20rating%20valuation|Profits or accounts method]].
*[[Statutory%20formulae%20for%20rating%20valuation|Statutory formulae]].

Follow the links for detailed descriptions of the four methods

= Choice of method =

The choice of method is more limited than appears at first sight, because statute prescribes that certain hereditaments are to be valued by formula - mostly, although not exclusively, hereditaments which are in the central rating list. In those cases, once the formula has been laid down by Parliament, no other method may be used. However, formula rating is being phased out, and under the 2005 rating list there are relatively few hereditaments left that are valued by formula.

For other hereditaments one or more of the remaining three methods must be used: rental, contractor’s, profits/accounts.

Rating law requires the rental value of a hereditament to be found. Clearly, therefore the rental method is to be preferred over all other methods. However, this depends upon there being sufficient vital information to form a view.

It used to be thought that if direct rental evidence - that is, a rent on the hereditament itself - was available, no other method of valuation should be considered by the courts (Robinson Brothers (Brewers) Ltd v Durham County AC (1938). However, in later cases (notably Baker Britt v Hampsher (VO) (1976)) the courts have stressed the need to compare the rent actually passing on the premises with other rents on comparable hereditaments or, where there are no other rents, other methods of valuation (Garton v Hunter (VO) (1968)).

Where other rents or methods of valuation are used, tribunals and courts will weigh each one in order to decide how much reliance should be placed on them having regard to the particular circumstances of the case. It may be necessary to do more than one valuation, using different methods.

The choice is left with the valuer to decide which method or combination of methods is best in the circumstances. The courts will not take kindly to the presentation of numerous valuations by different methods - they feel that it is up to the valuer to choose the most suitable method in relation to precedent, his experience and his professional opinion. Nothing, however, should deter the valuer from exercising his judgement by comparing one method with others if he feels it will assist him.

Lord Denning MR in Garton v Hunter (VO) (1968) said: ‘Nowadays we do not confine ourselves to the best evidence. We admit all relevant evidence. The goodness or badness of it goes only to weight and not to admissibility.’

Therefore, when analysing rental evidence for use in a rating valuation, consider all the possible evidence, making adjustments where necessary (see discussion below), rather than just discarding evidence because it is not a perfect fit with the rating hypothesis.

For more information see: Choice of method for rating valuation.

----

This article was created by --[[User:The College of Estate Management|The College of Estate Management]] 17:06, 6 December 2012 (UTC)

= Find out more =

=== '''Related articles on Designing Buildings Wiki''' ===
*Rental method of rating valuation.
*Contractor’s basis for rating valuation.
*Profits method of rating valuation.
*Statutory formulae for rating valuation.
*Choice of method for rating valuation.
*Case notes for rating valuation (Garton V Hunter).

[[Category:Other_legislation]]
[[Category:Property_law]]
[[Category:Cost_/_business_planning]]