Negotiation in Construction Industry Disputes: UAE Situation

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Table of Contents

Introduction
Background of the study
Statement of the problem
Significance of the study
Limitations of the study
Conceptual framework
References

Introduction

This chapter presents the background of the study, statement of the problem, objectives of the study and research questions. It also presents the significance of the study, limitations and conceptual framework of the study.

Background of the study

An overview of the construction industry

In a global context, construction industry constitutes one of the largest sectors of any given economy. Within European Union, construction industry accounts for over 7 percent of the total employment among the industrial employers (European Union 2001).

The industry is arguably the largest employer among industrial employers in Europe. In the year 1999, the industry accounted for over 10 percent of European Union’s Gross Domestic Product (GDP). This phenomenon is not isolated to the European Union.

The construction industry constituted over 9 percent of the United States of America’s GDP in the year 2004 (Building Futures Commission (BFC) 2005). BFC estimated the value of construction work within 2004 at over $1 trillion (BFC 2005).

The United Arab Emirates (UAE) construction industry is a robust industry that competes favourably with the construction industry in different geographical entities. UAE’s construction industry valued at over $700 billion in 2010, accounts for a fifth of the construction industry in the Arab world (Malty &Dillon 2007; RNCOS 2011; Gulf News 2011).It is also the second largest contributor to UAE’s GDP (Gulf News 2011)

Despite the relatively positive outlook on the construction industry, disputes have the potential to derail any gains made in the industry. According to the American Bar Association (ABA) (n.d), litigation expenditure in the US construction industry amounts to over $5 billion annually.

This expenditure has been growing at the rate of 10 percent on a yearly basis (ABA n.d). The construction industry in the UAE has also seen an increase in the construction disputes. The growing demand for lawyers versed with construction disputes attests to the increasing construction disputes within UAE (Arabian Business 2011).

Causes of disputes within UAE construction industry

There are several causes of disputes within UAE’s construction industry. These are classified into three broad categories. The three categories include economic factors, legal factors and the human factors.

Economic factors as a cause of disputes within construction industry can be analysed within the context of the wider global economic crisis. Recent economic crisis resulted in cash strapped developers (Haddad 2009). The developers had limited cash liquidity to settle their debts from lenders and to pay their contractors, sub contractors and employees resulting into disputes.

Human factors can be understood from the three dimensions; disputes attributed to contractor, disputes attributed to clients and finally disputes attributed to the designer (Motsa 2006). These are construction disputes that can be directly associated with a given party’s failure to accomplish its part of the agreement. Such failure may be for example inadequate design drawings by the designer amongst other factors.

Disputes attributed to the legal factors often occur due to inadequate understanding or compliance with set legal provisions. The disputes may also occur because of abuse of powers or provisions of the construction laws.

Sometimes the disputes may occur due to loopholes inherent in the construction laws utilized. In the context of legal factors as a cause of construction disputes, Mansoor (2010) identifies several provisions within the FIDIC construction contracts that often lead to disputes.

He stated the Engineer’s powers to suspend construction works or recover lost time and an employer’s right to subcontract to third parties some of the construction works as some of the causes of disputes. Other legal provisions with potential of generating disputes include the ‘pay if paid’ legal provisions and the assignment of the engineer’s role amongst other legal provisions.

For the purposes of illustrating how legal provisions can degenerate into disputes, we will use the ‘pay if paid’ legal provision. The ‘back to back’ and ‘pay if paid’ payment provisions in the construction contracts are a major cause of construction disputes in UAE.

These legal provisions allow the subcontractor to receive payment for work done when the main contractor is paid money corresponding to that piece of work (Bin Shabib & Associate 2009). In this context, subcontractors can lose their money when the main contractor fails to be paid for any given reason.

Traditional ways of dispute resolution

Traditional ways of dispute resolution involves arbitration, adjudication and litigation methods. Arbitration uses experts with an appreciation of a dispute’s technical, legal perspective and technological perspectives to act as arbitrators.

There are several advantages associated with arbitration method of dispute resolution. In the arbitration method, any evidence that is relevant to the dispute is admitted.

This contrasts sharply with the litigation method where there are formal rules to be applied for the evidence to be accepted. Arbitration decisions are often not available for public records. This preserves the confidentiality of the nature of dispute and the disputing parties.

This often avoids the stigma associated with negative litigation records that may be available to the public. Arbitration also use specialists in the given dispute matters and as such root problems of the dispute are often addressed.

There are numerous disadvantages associated with the arbitration method of dispute resolution. Arbitration decisions often have to be ratified by the courts in order to be effective. Sometimes, lack of rigour associated by with litigation in admissibility of evidence and the rules of procedures may weaken arbitration decisions.

Litigation method is method that involves the use of courts to settle the disputes. Litigation is often used when all the other methods of dispute resolution have failed. There are several advantages associated with the litigation methods. The major advantage of the litigation method is the ease of enforcement of the decisions.

Litigation often uses formal rules in terms of evidence admissibility as well as procedural matters that are known or easily accessible to everybody.

On the other hand, there are some disadvantages in the litigation method. The method is often costly because disputing parties have to hire advocates. Litigation method also takes a lot of time to resolve disputes which often drive the costs up. The other major disadvantage of litigation is the destruction of the commercial relationship.

Negotiation as a means of dispute resolution

In the context of the challenges associated with arbitration and litigation methods, Alternative Dispute Resolution (ADR) is emerging as a popular dispute resolution mechanism. In particular, negotiation is increasingly becoming a preferred mode of settling construction related disputes in UAE (Al-Tamimi & Company 2011).

Negotiation falls within Alternative Dispute Resolution (ADR) dispute resolution mechanism. The other dispute resolution mechanism that forms ADR is the mediation mode of resolving disputes amongst other forms. Negotiation as a means of dispute resolution involves the disputing parties agreeing on an amicable solution to their problem.

It often works best in instances where there is a provision of the same in the construction contract or where the conflicting parties mutually settle on negotiation process. Some of the construction issues that can be negotiated include project completion dates, arbitration dates and special work item compensation amongst other issues (Fleming 2003).

There are several advantages and disadvantages associated with negotiation as a mode of dispute resolution. This mode of dispute resolution offers a low cost mechanism of solving disputes. It also saves on time as the parties dictate their own timelines.

However, negotiation is not an ideal dispute resolution mechanism in instances where there are technical legal provisions that have to be interpreted (Al-Tamimi & Company 2011). It may also be difficult to enforce decisions arrived through negotiation unlike in the litigation mode of conflict resolution (Bin Shabib & Associate 2009).

This is primarily because compliance on the arrived decisions depends on the goodwill of the parties involved. Poor negotiation and skills adopted by one of the parties may lead to a stalemate. This may occur when one party is too demanding and the other party cannot compromise to the desired level. In this context, negotiation may not be an ideal dispute resolution mechanism.

Statement of the problem

ADR as a means of disputes resolution mechanism in the construction industry has been studied from a global perspective. In the context of UAE’s construction industry, there are several studies on ADR as a means of dispute resolution mechanism.

However, there is a shortage of studies exhaustively focusing on the negotiation as a means of dispute resolution mechanism within UAE’s construction industry. This paper seeks to address this gap.

Objectives of the study

The objectives of the study are divided into two broad categories; general objectives and specific objectives. Specific objectives are a subset of the broader general objectives.

General Objective

The main objective of the study is to examine negotiation methods within the context of UAE’s construction industry.

Specific Objectives

The study has four objectives as highlighted below.

To examine the constituents of successful negotiations in UAE’s construction industry disputes.
To examine the different types of negotiations in UAE’s construction industry disputes
To examine the historical context of the various negotiations used in UAE’s construction industry disputes.
To examine how negotiations affect contractor-employee and contractor-employer relationships.

Research questions

What are the constituents of successful negotiations in UAE’s construction industry disputes?
What are the different types of negotiation methods used in UAE’s construction industry disputes?
What is the historical context of the various negotiation methods used in UAE’s construction industry?
How do negotiations affect the contractor-employee and contractor-employer relationships in UAE’s construction industry?

Significance of the study

This study will be useful to a number of people including but not limited to construction employees, clients, contractors and researchers. The research will be beneficial to this diverse group of people in several ways.

Employees

Disputes between the employer and contractor or even directly between the contractor and the employees may affect the welfare of the employees in several ways. The employees may lose their wages and benefits or there may be a delay in the processing of the same.

Such scenarios are not desirable. Successful resolution of such disputes is of utmost importance to the employees. This research will educate the employees on the various negotiation options available to the clients whenever disputes arise.

Clients

Clients may get into various disputes with the contractor on either finished work or work-in-progress. Negotiation forms a critical way of solving those disputes whenever they arise.

This research will provide adequate negotiation types and methods within the context of UAE’s construction industry. The research will thus provide educative materials on the several negotiation options that the client can utilize in dispute resolution.

Contractors

Construction disputes often have negative financial consequences on the contractors. Such consequences may include loss of revenue for work done or reputational damage leading to loss of business. Successful dispute resolution is thus of critical importance to the contractors.

In this context, the paper will provide educative literature on the negotiation as means of dispute resolution. Such information will be useful in enumerating the various negotiation options available to the contractors embroiled in disputes.

Researchers

The study will expand the existing literature on the construction disputes resolution mechanisms. In particular, the study will provide literature on negotiation as a means of construction industry disputes resolution. In this context, the study will be useful to the researchers in several ways.

The study will provide relevant literature for the researchers on dispute resolution mechanism in UAE. The study will provide suggestions for further studies in the conclusion part of this report. Such suggestions can provide future researchers on relevant topics for research.

Limitations of the study

The research intends to discuss negotiation as a means of dispute resolution mechanism within the context of UAE’s construction industry. The paper does not intend to cover in detail other means of dispute resolution within UAE’s construction industry.

Several factors contributed into settling for the research proposal. The researcher considered researching on the dispute resolution mechanism within UAE’s construction industry. However, the topic was too broad to be tackled in depth.

Conceptual framework

In the study of the set objectives of the study, the researcher used several approaches. Studying of the relevant literature on the subject provided much needed background on the study and material facts on dispute resolution methods.

The study used questionnaires to collect data on several aspects. Such aspects included how negotiation affects contractor-employer and contractor-employee relationships among other issues. The collected data was then analysed and inferences deduced.

References

Al-Tamimi & Company 2011, Construction Law. Web.

Arabian Business 2011, Demand soars for UAE construction dispute lawyers. Web.

BFC 2005, Measuring productivity and evaluating innovation in the US construction industry. Web.

Bin Shabib & Associate 2009, United Arab Emirates. Web.

European Union 200, Competitiveness of the construction industry. Web.

Fleming, Q. 2003, Project procurement management: contracting, subcontracting, teaming. Pennsylvania: FMC Press.

Gulf News, 2011, UAE tops Gulf construction market. Web.

Haddad, J. 2009. Impact of the global financial crisis on the GCC’s construction Industry. Web.

Mansoor, M. 2010, The application of Alternative Dispute Resolution (ADR) in the UAE construction industry. Web.

Matly M., & Dillon L. 2007, Dubai strategy: Past, Present, Future. Web.

Motsa, C. D. 2006, Managing Construction disputes. Web.

RNCOS 2011, UAE Construction Industry Outlook to 2012. Web.

Weinberg, W. 2010, Recent developments in arbitration law in UAE. Web.

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