To prevent costly and contentious litigation is one of the most urgent problem in large construction projects. The article describes most typical construction disputes concerning incorrect documentation, construction defects, additional scope of works, schedule delays, subcontractor substitution, additional payments etc. The key problem to be solved in such situations – is there are real reasons for changes and increasing of the contract price? Only Neutral Expert provides all parties with an independent and professional analysis of the claim. The Neutral Expert can also be used to resolve disputes that occur during a project.
Neutral Experts are assigned to monitor the project’s progress, respond to disputes that are presented to them by the parties and provide independent expert opinions. Large investment projects contain a lot of facts, data and documents, the events and the agreements reached between parties. Therefore, a one-time involvement of neutral experts will be expensive. The article presents a new way to resolve construction disputes - real-time Neutral Expert Claim Service, and address the issues who can be a Neutral Expert, where the parties can find him and how can one party be sure that the expert will be really neutral.
The continuing escalation of litigation has prompted the parties in large investment projects to find other possibilities to resolve construction disputes in large projects outside of the courtroom.
The main problem is that during the contract performance the Contractor very often (to be more exact – Always) discover that design documentation, site geological survey documentation etc. are incorrect. In this case, many additional works have to be done. Moreover, a contract price should be increased accordingly. The key problem to be solved in such situation – is there a real reason for increasing the scope of works and contract price? This is mostly important in the contract with the fixed price where the Contractor must not only proof that there is an additional scope of works, but show that he has a right for additional payment. The answer can be find only after a special analysis of all the project documentation, contract, special codes, governing law and site inspection.
2. TYPICAL CONSTRUCTION DISPUTES
2.1 Plans and specifications/scope of work
Disputes over the contract scope of work, represented by the plans and specifications (as modified or amended), are some of the most significant areas of dispute on a construction project. Typically occurring between the owner and the general contractor/subcontractor, contractors and design professionals often interpret the documents differently, particularly if the description of the work in the plans/specifications is unclear or ambiguous — or when the plans are contradictory to the specifications. Typically, there is an implied warranty on the part of the owner that the plans/specifications are correct, adequate, accurate, and buildable. Of course, there are always exculpatory clauses in the contract by which the owner attempts to shift that responsibility to the contractor. The battle is often between the implied warranty and the enforcement of the exculpatory clause.
2.2 The scope of work between the contractor and subcontractor.
Often, the contractor will ask the subcontractor to bid a particular scope of work by identifying a specific sub trade of work without specifying in detail the plans and specifications applicable to that scope of work. Thus, the subcontractor is determining what that scope means. When the subcontractor bids only a portion of work — but the contractor had the expectation that the subcontractor bid a different and larger scope — a dispute arises.
2.3 Shop drawings and submittals.
A corollary to disputes arising from the plans/specifications are disputes arising over shop drawings and other submittals. Primary among these are delays, either in the timeliness of the contractor/subcontractor submitting shop drawings and submittals or in the design professionals responding back in a timely fashion. The other common problem is the interplay between the design professional and the contractor/subcontractor, with the design professional rejecting submittals without adequate explanation and the contractor/subcontractor providing inadequate submittals.
2.4 Change orders/extra or out-of-scope work.
Typically, disputes over change orders and extra work or out-of-scope work boil down to the change order price and whether or not the contractor/subcontractor is entitled to extra time. Frequently, the owner requests pricing for the changed work but then disagrees with that price and time extension request — ordering the work to proceed as scheduled. This situation leaves the parties to fight over the amount and time at project's end.
2.5 Differing site conditions.
There are two different approaches regarding the owner's responsibility for existing site conditions. The majority approach is that the owner has the duty to disclose all information in its possession. Even if there are no studies, the owner warrants that the construction is feasible and cannot contract away that implied warranty. Therefore, general exculpatory clauses arguably do not relieve the owner of its warranty.
2.6 Construction sequencing/project access.
The owner typically warrants that the contractor/subcontractor will have access to the project site. Disputes arise, for example, when the owner fails to provide access particularly in remodels of occupied buildings, to obtain required permits or easements, to coordinate multiple prime contractors, or to timely provide owner-supplied equipment.
2.7 Construction defects.
During the course of construction, the owner may identify work that is not in conformance with the plans/specifications. If the contractor/subcontractor does not agree with the owner's assertion of that defective construction, a dispute arises. Typically, both the general contract and subcontracts allow the owner and general contractor, respectively, to order the removal and replacement or repair of the allegedly defective work. Assuming the contractor/subcontractor complies, it will have a claim against the owner at the conclusion of the project if the contractor/subcontractor had conformed to the plans and specifications.
High possible cost losses and reputation risks - are the main factors that forced to look for new dispute resolution methods to prevent disputes from the outset of a project.
As a result, preventing claims and, ultimately, costly and contentious litigation, is becoming a business imperative for project owners, engineers and architects.
3. RIGHT DECISION – THE USE OF NEUTRAL EXPERTS
In recent years, the construction industry has taken steps to avoid litigation and control disputes on projects through a variety of methods, which can be used at almost any stage of a construction project. They range from simple negotiation to Alternative Dispute Resolution (ADR) techniques. The primary goals are to resolve the conflict sooner rather than later and in a less confrontational manner.
In the past, the construction industry most often relied upon arbitration for resolving disputes. But complex contract disputes involving huge cost overruns, long schedule delays, and complicated technical specifications and requirements are, in many cases, do not best decided by arbitrators, who do not have special knowledge in the field of construction. In addition, lawyers, well trained in the law, but often without a practical understanding of the construction process, argue the legal merits of the case before a judge with a similar lack of technical knowledge.
Once regarded as the sole alternative to litigation, arbitration now is often considered just as much of a last resort as the courtroom and is utilized after other efforts have failed.
Most recently, the use of experts — a non-binding process — has been gaining more and more acceptance in large investment projects. Needless to say, the process is only as good as the parties’ commitment to use it and the skill of experts.
But now the construction industry is looking to an exciting new concept to prevent and resolve disputes that incorporates dispute resolution techniques from the outset of a project.
The Neutral Expert provides all parties to a dispute with an independent expert analysis of the claim. The Neutral Expert- actually a team comprised of construction industry experts — objectively and independently performs fact-finding technical analysis, delay and damage evaluations and provides recommendations so that the parties can settle their own differences and avoid the relationship-destroying results that frequently follow a claim.
The Neutral Expert team assigned to a dispute is headed by an expert who is experienced to help parties to understand the results of expert's research. Such expert also must have professional skills of-mediator, so that if so called "expert mediation" becomes necessary, the parties can move quickly to reach a mutually acceptable solution.
While the Neutral Expert is an innovative way to resolve existing claims, it can also be implemented at project inception to resolve disputes that occur during a project. The Neutral Expert concept is based upon one tenet: disputes are inevitable, but claims are not. How you deal with disputes during the project will determine whether or not you have a claim.
Neutral Experts are assigned to monitor the project’s progress, respond to disputes that are presented to them by the parties and provide independent expert opinions to both sides. Thus, the chance to solve the disputes amicably and quickly increases dramatically.
The use of Neutral Experts has several common benefits whether it is used as a preventive measure or when a dispute has surfaced:
• Construction industry experts — immediately available and already knowledgeable about the project and the people — who are committed to the project and available to act quickly.
• Independent fact-finding performed by technical specialists and experts with access to the documents and records of both parties — reducing duplication of effort and cost.
• Ability to objectively analyse and evaluate the specific issues of liability, costs, schedule impact and damages.
• Conclusions and recommendations provided to the parties and then active participation in resolution of the dispute, including expert mediation, already familiar with the issues and the project costs, delays and disruptions minimized allowing the primary focus to remain on the primary objective (i.e., the successful project).
• The parties maintain control in a private process, dealing only with knowledgeable professionals.
Now the Neutral Expert services have been used by both the public and private sector to resolve existing disputes, as well as to flag potential disputes and resolve them as they arise.
While the length of any resolution process depends upon the parties’ willingness, a typical period for the Neutral Expert process in large investment projects is only about 2 months.
The construction industry is already finding that this next generation in ADR or the Neutral Expert — is a valuable and effective tool for dispute resolution whether disputes and claims have already occurred, or if used as a technique to avoid them in the future.
4. HOW TO USE NEUTRAL EXPERTS?
It is a common knowledge that large investment projects contain a lot of facts, data and documents, the events and the agreements reached between parties. Therefore, a one-time involvement of neutral experts will be as expensive as the court expertise. However, neutral experts will have the same independent view on the issue, as well as court experts. Because a significant number of facts from the project are unknown for such experts or cannot be used on procedural reasons- verbal agreements for example.
There is a new and innovative way to resolve construction disputes to prevent them from festering, becoming major claims and disrupting the successful completion of a project. This method we call real-time Neutral Expert Claim Service (NECS).
There are several approaches to real-time NECS. One is to have the parties, at the time of entering into the contract, designate a Neutral Expert. The Neutral Expert is a trained dispute resolution specialist who joins the project at its inception and follows the building process from ground-breaking to completion. The Neutral Expert, unlike any other player of the construction team, has only one client: the project itself.
The Neutral Expert is used to mediate and facilitate the resolution of disputes that cannot be resolved at the project management level and, if the parties agree, to actually rule on matters so that disputes can be resolved on an ongoing basis. Using a proactive approach, the Neutral Expert can also work with the project team to look ahead and avoid many disputes altogether by identifying and addressing potential problems before they happen.
However, there are some important problems to be solved.
1. Who can be a Neutral Expert and where the parties can find it?
Certain experts can be found in different experts registers, but today there are only official registers of experts according to the law of the certain country. There are no registers of ADR experts and Neutral Experts as well. To solve this problem the International Register of Experts for Arbitration and Alternative Dispute Resolution Procedures (ADR) was established and maintaining by International Centre for Judicial Expertise of the European Arbitration Chamber (Brussels). This register includes not only experts from EU countries, but experts from non-EU countries as well. This register was founded firstly for experts in cross-border projects and claims.
2. How can one party be sure that the expert will be really neutral?
It is a very complicated problem and there are many tasks to be solved especially and first of all - between the parties. Nevertheless, the fundamental principal is – the parties should make a trilateral contract with an Expert or Expert Team.
There are many examples from ASN Expert Group expert's practice where after appointing our team as a Neutral Expert the result was that the parties reached a negotiated settlement. Our expert report formed the basis of, and became an integral part of, the party's final decision and subsequent contract modification.
Neutral Expert Claim Service (NECS) is usually used in the following situations:
• Hindrance and delay by other contractors.
• Hindrance and delay from engineering and design.
• Changed conditions.
• Effects of additional scope.
• Cost of multiple changes.
• Neutral expert fact-finding and adjudication.
• Litigation and expert witness support.
Key questions to solve by NECS
• Who initiated certain changes?
• Scope change or minor change.
• When to use contingency funds.
• Change order amount approved versus funds spent.
• Duplicated or inaccurate costs.
• Inadequate documentation.
• Claimed delays versus actual time.
• Construction defects.
• Effect on general conditions and administration costs.
• Who caused the delays, when, where, why, what extent.
• Unknown conditions, claimed, verifiable.
• Adequacy of surveys, inspections, tests, etc.
• Design engineer, architect, project manager or contractor errors, who is responsible.
• Inadequate correspondence, meeting notes, etc.
 JAMES P. GROTON. Alternatives to the High Cost of Litigation, [online]. International Institute for Conflict Prevention & Resolution Vol. 27 No. 11 December 2009 Published online in Wiley InterScience (www.interscience.wiley.com). Alternatives DOI: 10.1002/alt.
 MARILYN KLINGER. Confronting Construction Conflicts [online]. Electrical Construction and Maintenance, 1 March 2009. Available from http://ecmweb.com/ops-amp-maintenance/confronting-construction-conflicts.
 IRVIN E. RICHTER. The Project Neutral: The Construction Industry's Newest Way to Resolve Construction Disputes. Construction Data & News, a McGraw Hill publication, Washington-Alaska Edition, Seattle, WA, 13 February, 1995.