Introduction and Context (Chapter 1)
The Pyramid of Cheops at Gizeh in Egypt, the Taj Mahal in India, the Great Wall of China are amongst the greatest, most spectacular structures ever created, built in times when resources were inexpensive and abundant. Centuries later the world and its inhabitants have changed. Mega projects are still undertaken but the lack of resource, the cost of money and the profit motive in construction has resulted in projects being primarily commercially driven. When a new hospital, a telecommunication system, a railway or a power station is commissioned it will be expected to be commercially viable, however with advancements in society the commercial risk increases and intensifies. Will our current attitude and approach be adequate for a construction industry of the twenty first century?
This paper is a study of the management of the risk of dispute in construction and the influence of information technology. Why is this subject important and central to progression in the construction industry? One only needs to take a look at the characteristics of the construction process which are prototypical in nature, involves interface with existing infrastructure, involves site specificity, normally involves exposure to the element and the design is normally not complete when the contract is awarded, to name but a few, which requires that the scope of work be changed in its’ implementation, to realise the construction process is hugely dependant on the effective management of change. The combination of this environment involving change and the parties conflicting commercial interests creates a fertile ground for dispute. Pertinently Phillip Capper said in his paper titled “Why are there so many Arbitrations in Construction, commenting on the distinctive features of construction”.
“Whatever contractual documents are used there are a number of characteristics which are common to, and largely distinctive of, almost all construction projects. It is generally in these characteristics that the seeds of disputes lie, and which explain not only the higher occurrence of disputes in the industry, but also the traditional particular mechanisms for their resolution.”
If it is the nature and characteristics of construction where the seeds of dispute lie then is industry practise up to speed with techniques to manage this aspect adequately and is the industry adequately served with the necessary tools implemented by the latest law reforms to deal with the issue of disputes?
Recent Developments
The importance of a healthy construction industry was recognised by the government when they commissioned Sir Michael Latham to investigate the problems in the construction industry. The Latham report extolled the virtue of creating a conflict free climate for construction. The need for finding ways to deal with disputes and differences quickly and effectively in a way that has a minimum impact on the works has been recognised and manifested in a number of ways in recent years:
• Legislation in the form of the Housing Grants, Construction and Regeneration Act 1996 and the Late Payments of Commercial (Interest) Debts Act 1998 which have sought to create a fairer climate for doing business with the intention of reducing the number of disputes.
• The growth of partnering as a means to promote conflict free procurement of construction projects together with a commitment to fairer and simpler forms of contract.
• The Woolf Reforms is a major overhaul of the procedure of civil justice and seeks to simplify the administration of the court system and create a civil justice system which is quicker, fairer and more accessible.
• The reform of the arbitration system by the Arbitration Act 1996 which aims to create a more efficient climate within which to administer arbitration.
• The development of adjudication and ADR as means to resolve disputes without the need for full rigours of arbitration and litigation.
• The use of the Technology and Construction Court of the Pre Action Protocol for construction and engineering disputes. This requires the production of the intended claimant of a detailed letter of claim, setting out in detail the basis of the claim. The defendant is required to meet to attempt to narrow the issues of dispute. The purpose of this protocol is to encourage the parties to discuss their respective positions in detail prior to proceedings.
Two distinct themes have emerged from this new regime, firstly an attempt has been made to find ways to reduce the traditional adversarial approach and make way for collaborative ways of working in a partnering environment. Secondly the recognition that resolving differences and disputes that inevitably occur is a facet of commercial life in the construction industry, therefore machinery has been put in place to deal with disputes.
To what extent has this new regime achieved its aims and what more can or should be done in pursuance of a conflict free climate in the construction industry? For example to what extent has partnering achieved the goals that it set out to achieve and how has adjudication helped to deal with disputes quickly? Have any new problems emerged or have any deficiency points become evident from these reforms with the shift in dynamics in the construction industry?
The objectives and approach
This paper aims to analyse the implications of the new regime in the construction industry and identify the problem areas and deficiencies that have emerged as a consequence of the new regime or still in existence from the old regime. The paper then aims to make practical recommendations by using lessons learnt from the financial industry with consideration given to the special needs of the construction process, the theory of risk management and the legal principles used in the resolution of disputes. To achieve this, the paper has adopted the following process:
The process of risk management
An analysis of the theoretical process of risk management is made to be used as a baseline for a comparison with the current approach to risk management in the construction industry. This comparison is made to identify the weak link in the construction risk management process.
The construction process and the pathology of the arising disputes.
An analysis is made on the current risk management process in the construction industry and the manifestation of disputes and then how they are subsequently resolved. The types of dispute resolution processes are considered and what the law is aiming to achieve, with the aim of assessing where improvements can be made..
Risk management in the financial industry
The financial industry was chosen because of the recent advancements that have been made in operation risk management since the collapse of Barings bank in 1995 through the actions of a single rogue trader. The paper then explores to what extent the approach from the financial industry could be beneficial to the construction industry.
The process of claiming in the construction industry
This chapter looks at the unique challenges the construction industry faces and the need to understand these unique problems to manage them effectively. The unique characteristics of construction must be taken into account when consideration is given to adopting methods and techniques used in the financial industry.
The survey on managing the risk of dispute in construction
A survey was undertaken investigating the opinions of construction professions of the management of the risk of dispute in the construction and the influence of information technology.
Hypothesis for an integrated construction management system
Based on the above elements a hypothesis is developed using the approach from the financial industry adjusted to dovetail with the special needs of construction, which results in an integrated project management system using information technology to manage information effectively. An example is then provided illustrating the benefits that can be achieved in day to day management using factual data.
Conclusion
The future of risk management construction industry and the role of information management is considered.
This paper is a study of the management of the risk of dispute in construction and the influence of information technology. Why is this subject important and central to progression in the construction industry? One only needs to take a look at the characteristics of the construction process which are prototypical in nature, involves interface with existing infrastructure, involves site specificity, normally involves exposure to the element and the design is normally not complete when the contract is awarded, to name but a few, which requires that the scope of work be changed in its’ implementation, to realise the construction process is hugely dependant on the effective management of change. The combination of this environment involving change and the parties conflicting commercial interests creates a fertile ground for dispute. Pertinently Phillip Capper said in his paper titled “Why are there so many Arbitrations in Construction, commenting on the distinctive features of construction”.
“Whatever contractual documents are used there are a number of characteristics which are common to, and largely distinctive of, almost all construction projects. It is generally in these characteristics that the seeds of disputes lie, and which explain not only the higher occurrence of disputes in the industry, but also the traditional particular mechanisms for their resolution.”
If it is the nature and characteristics of construction where the seeds of dispute lie then is industry practise up to speed with techniques to manage this aspect adequately and is the industry adequately served with the necessary tools implemented by the latest law reforms to deal with the issue of disputes?
Recent Developments
The importance of a healthy construction industry was recognised by the government when they commissioned Sir Michael Latham to investigate the problems in the construction industry. The Latham report extolled the virtue of creating a conflict free climate for construction. The need for finding ways to deal with disputes and differences quickly and effectively in a way that has a minimum impact on the works has been recognised and manifested in a number of ways in recent years:
• Legislation in the form of the Housing Grants, Construction and Regeneration Act 1996 and the Late Payments of Commercial (Interest) Debts Act 1998 which have sought to create a fairer climate for doing business with the intention of reducing the number of disputes.
• The growth of partnering as a means to promote conflict free procurement of construction projects together with a commitment to fairer and simpler forms of contract.
• The Woolf Reforms is a major overhaul of the procedure of civil justice and seeks to simplify the administration of the court system and create a civil justice system which is quicker, fairer and more accessible.
• The reform of the arbitration system by the Arbitration Act 1996 which aims to create a more efficient climate within which to administer arbitration.
• The development of adjudication and ADR as means to resolve disputes without the need for full rigours of arbitration and litigation.
• The use of the Technology and Construction Court of the Pre Action Protocol for construction and engineering disputes. This requires the production of the intended claimant of a detailed letter of claim, setting out in detail the basis of the claim. The defendant is required to meet to attempt to narrow the issues of dispute. The purpose of this protocol is to encourage the parties to discuss their respective positions in detail prior to proceedings.
Two distinct themes have emerged from this new regime, firstly an attempt has been made to find ways to reduce the traditional adversarial approach and make way for collaborative ways of working in a partnering environment. Secondly the recognition that resolving differences and disputes that inevitably occur is a facet of commercial life in the construction industry, therefore machinery has been put in place to deal with disputes.
To what extent has this new regime achieved its aims and what more can or should be done in pursuance of a conflict free climate in the construction industry? For example to what extent has partnering achieved the goals that it set out to achieve and how has adjudication helped to deal with disputes quickly? Have any new problems emerged or have any deficiency points become evident from these reforms with the shift in dynamics in the construction industry?
The objectives and approach
This paper aims to analyse the implications of the new regime in the construction industry and identify the problem areas and deficiencies that have emerged as a consequence of the new regime or still in existence from the old regime. The paper then aims to make practical recommendations by using lessons learnt from the financial industry with consideration given to the special needs of the construction process, the theory of risk management and the legal principles used in the resolution of disputes. To achieve this, the paper has adopted the following process:
The process of risk management
An analysis of the theoretical process of risk management is made to be used as a baseline for a comparison with the current approach to risk management in the construction industry. This comparison is made to identify the weak link in the construction risk management process.
The construction process and the pathology of the arising disputes.
An analysis is made on the current risk management process in the construction industry and the manifestation of disputes and then how they are subsequently resolved. The types of dispute resolution processes are considered and what the law is aiming to achieve, with the aim of assessing where improvements can be made..
Risk management in the financial industry
The financial industry was chosen because of the recent advancements that have been made in operation risk management since the collapse of Barings bank in 1995 through the actions of a single rogue trader. The paper then explores to what extent the approach from the financial industry could be beneficial to the construction industry.
The process of claiming in the construction industry
This chapter looks at the unique challenges the construction industry faces and the need to understand these unique problems to manage them effectively. The unique characteristics of construction must be taken into account when consideration is given to adopting methods and techniques used in the financial industry.
The survey on managing the risk of dispute in construction
A survey was undertaken investigating the opinions of construction professions of the management of the risk of dispute in the construction and the influence of information technology.
Hypothesis for an integrated construction management system
Based on the above elements a hypothesis is developed using the approach from the financial industry adjusted to dovetail with the special needs of construction, which results in an integrated project management system using information technology to manage information effectively. An example is then provided illustrating the benefits that can be achieved in day to day management using factual data.
Conclusion
The future of risk management construction industry and the role of information management is considered.
posted by Will at 19.10.06
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