In an unstable economy, construction disputes are likely to increase. New technology and advanced mediation services, however, are offering developers possible solutions to this age-old problem.
Deloitte & Touche, a New York-based consulting firm, recently conducted a survey of 350 senior executives in the real estate and construction industries on the use of Web-based technologies in those industries and their impact on disputes and litigation.
Peter Wallace, principal with Deloitte & Touche and a national leader of the firm’s Construction Advisory Practice, said about one-third of the executives worked as contractors and one-third at architect/engineer firms. They were asked how the number of construction disputes was changing. Almost one-half of the executives reported that the number of disputes had increased.
According to the survey, architect/engineering errors were the most important cause of disputes, cited by 43 percent of executives as a frequent cause of disputes. Change orders, owner/contractor interference and nonperformance of subcontractors were each cited by roughly one-third of executives as a frequent cause of disputes.
Executives were also asked how Web-based technology was aiding in disputes.
Forty percent of executives reported that their firms used such technology for project management or collaboration. Firms with larger projects were much more likely to use Web-based technologies for project management or collaboration than were firms with smaller projects. Throughout firms with projects of all sizes that used Web-based technologies, project management, document management and scheduling were the most common uses.
Roughly 40 percent of executives said that their firm had gained a significant or major benefit from Web-based technologies. Among executives at firms that employed Web-based technologies, the most common benefits – cited by roughly one-half of the executives – were faster turnaround, improved controls and increased accountability.
Roughly one-quarter of executives at firms that employed Web-based technologies said that their use had decreased disputes and litigation, while three-quarters said that their had been no change.
When executives at firms that employed Web-based technologies were asked about their impact on specific causes of disputes or litigation, they were most likely to report that disputes or litigation due to architect/engineering error, change orders and owner/contractor interference had decreased as a result of their use.
Between roughly two-thirds and four-fifths of executives at firms that employed Web-based technologies said that their use had not changed their firm’s method of dispute resolution. However, almost one-fifth said that the use of those technologies had increased their firm’s use of negotiation to resolve disputes.
“Our practice has been working with owners, contract engineers and developers on construction projects, helping deliver projects and deal with disputes, which are typically cost overruns and delays,” said Wallace. “We try to get a sense of what’s going on in the dispute arena given the fact that there have been some significant advances in construction technology in recent years.”
Wallace noted that construction has often been “way behind the curve” of other industries, and is typically very slow to adapt to higher technology and especially Web-based technology.
“I think that’s just the culture of the industry,” said Wallace. “Even use of computers was a slow process. We wanted to see how new Web-based tools are being used, and how they are being perceived by the industry.”
‘Significant Benefits’
Mark Blumkin, senior manager of the Construction Advisory Practice said, “We wanted to really test some of the claims by software companies to see whether technologies were really preventing disputes. We wanted to see what benefits contractors and owners are deriving from these software tools. In the end, we did find a lot of benefits.”
Some of these new tools help the business side of construction.
“Traditionally, when you’re building a project, you have the owner, the construction manager and series of trade contractors, designers, architects and so on. You used to have to FedEx everything around to the different parties,” said Wallace. “With a Web-based project site, you can share information quicker and cut down on cycle time.”
Blumkin added, “We actually found from our survey that many people on projects found benefit in communications, accountability and turnaround time on documents. These were seen as significant benefits. But when you look at the genesis of construction disputes, something like turnaround time is only one small part of the problem.”
Wallace and Blumkin agreed that architect omissions caused the highest incidence of construction disputes, and offered several reasons why this may be.
“One of things that’s pushing [architecture omissions] is the speeding up of projects,” said Wallace. “They really compress the design phase these days, especially with leisure facilities like hotels. You end up with a real compressed design frame.”
He added that design services are becoming a commodity, and that architects have to aggressively price their services and finish more quickly in order to stay ahead, which sometimes results in errors and conflicts in the design.
“You have an overlap of design and construction in a fast-track situation, and sometimes the design isn’t mature enough. Developers go out to bid during early stages but parts of the building aren’t designed yet,” said Wallace.
Blumkin said that the survey should be beneficial to executives in the industry.
“There are two things we take away from this,” he said. “Number one, I think we see it as encouraging that 40 percent of respondents are using these tools and benefiting on projects. Number two, it tells us that these tools should focus more on the design phase and trying to get drawings and documents more complete and better developed, working on that rather than just proving accountability and documentations.”
Wallace noted, “The survey is good in the sense that companies can benchmark against what other people are doing. It also points out that using some Web-based software isn’t the only answer. You can really only avoid disputes by reading your contract and proactively managing your job site; you can’t just rely on these tools. Technology can’t replace good project management.”
Lawrence J. Mix, president and chief executive officer of the American Dispute Resolution Center in New Britain, said his organization has observed that in the “busiest of times, there are probably fewer disputes because parties are focused on the job and are more likely to overlook certain things. There’s more work to come in the future, so they aren’t as worried. I would also suggest that in times that are a bit tougher and the economy isn’t as good, it’s possible there are more disputes because every dollar does count.”
Mix said he has seen a general shift in disputes away from the judicial system and toward mediation. While the courts are seen as time-consuming and expensive, mediation can be a quicker and cheaper form of resolution, he said.
The ADR Center even has a “FastTrac” mediation service geared toward construction disputes, guaranteed to get them back to work in fewer than seven business days.
Mix agreed with Wallace and Blumkin that a proactive solution is also a smart way to avoid costly disputes. He said a “neutral” or mediator could be involved with a construction project from the very beginning.
“They are someone knowledgeable about the construction industry and its issues, and they can guide developers, engineers and workers in an informal way before issues become full-fledged disputes,” said Mix.
