Construction Disputes and Methods to Resolve Them

Regardless of where you are in the world, construction projects are characterised by multi-party contracts and various technical and logistical issues. It’s no wonder they are easily subject to disputes that can prove, at best, costly and, at worst, end up in expensive litigation. Incomplete projects fall by the wayside, sometimes causing permanent damage to vital commercial interests.

Singapore is a common law country like the UK, and its laws are based on a mix of legislation and common law decisions. Singapore has passed legislation such as the Building and Construction Industry Security Payment Act and created mechanisms like the Singapore Infrastructure Dispute-Management Protocol (SIDP), tailored for construction industry problems.

Because of its investment in construction industry regulation and dispute resolution, plus its location, Singapore has become a centre for resolving construction disputes across the Asia-Pacific region. Consequently, parties locked in conflict can be reassured that legislation, a solid amount of case law, and dispute resolution mechanisms are available to help reach a speedy settlement.

Why do construction disputes happen?

The proliferation of construction disputes reflects the complexity of most construction projects, and the number of parties involved. Invariably, there are changes to the design or working brief, faults, and delays from suppliers, all overlaid with misunderstandings, problems with payments, and external factors such as the weather.

When construction disputes happen, what started as a disagreement between two parties can have a knock-on effect down the line, causing problems with other contractors, and leading to delays and overruns. These all cost more money in terms of contractual penalties and adversely impact commercial expediency.

Common points of dispute

Construction contracts can have a lot in common when it comes to disputes. Here are some of the critical areas which typically cause problems.

Payment disputes

Payment disputes usually arise over the quality or value of the work completed, so part or all of an instalment payment can be withheld: the same applies if there are faults that need rectifying. The timing of payments is also a potential area of conflict, which can have a knock-on effect along the chain of contractors and suppliers in large construction projects.

Scope problems

A scope problem is when the owner and the contractor disagree on the exact nature of the work to be done or changes that need to be made, and there is disagreement over the scope or cost of these, and the contract is silent.

Delays and interruptions

Hold-ups and stoppages are one of the most predictable elements of any construction project. They can happen for various reasons, such as weather, supplier problems, unforeseen site problems, and difficulties with the workforce.

Interruptions impact the building schedule, leading to disputes because of the cost of overrunning and contractual penalties.

Quality problems

Disputes arise if the finished product or the end of a particular project stage does not deliver the intended quality. It could be because of defects (although most construction contracts allow a prescribed period to rectify any faults) or because the work is substandard when compared to building or other qualitative regulations.

Safety disputes

There is a plethora of safety legislation surrounding construction projects, as building sites are inherently dangerous environments to work in. Failure to adhere to safety standards or an accident on site will cause delays and disputes.

Resolving construction disputes in Singapore

Construction disputes are not unusual, even with the most well-drafted commercial contract; delays and disagreements are almost to be expected.

The two most common dispute resolution methods in Singapore are arbitration and litigation, but other options exist, such as mediation, adjudication, and dispute board determination.

Litigation

Litigation is usually the least preferable option to resolve a construction dispute because of the time and cost. A commercial contract can potentially be saved with quick and timely intervention via mediation or arbitration. Compare this with litigation, which can be slow and expensive and tends to entrench parties in their dispute position rather than resolve it, compounding the breakdown of commercial relationships.

Whilst there are no specialist construction courts in Singapore, cases are typically placed before judges experienced in construction disputes.

The Singapore International Commercial Court (SICC) brings together international judges with experience in civil and common law, plus a wealth of expertise in construction disputes. SICC has a specialist Technology, Infrastructure, and Construction List with expert judges and extra case management features to help support complex construction disputes.

Arbitration

Rather like in the UK, the Singaporean judiciary is pro-arbitration, so arbitration in Singapore is robust and well-established. The arbitration process in Singapore is governed by the International Arbitration Act and the Arbitration Act; the latter applies to domestic cases.

The Singapore International Arbitration Centre (SIAC) describes itself on its website as ‘where the world arbitrates’. Established in 1991, it is a not-for-profit organisation with a strong track record of providing neutral arbitration services recognised in Australia, China, Hong Kong SAR, India, Jordan, Indonesia, Vietnam, Thailand, the UK, and the US.

Mediation

Arbitration is a form of ADR or alternative dispute resolution, but Singapore also offers mediation via The Singapore International Mediation Centre (SIMC). Better still, SIMC and SIAC collaborate, so there is a blended mechanism combining mediation with arbitration called the Arb-Med-Arb process. So, how does this work?

The claimant files a notice of arbitration, and the respondent files their reply. A tribunal is constituted but it stays the proceedings. The parties then enter mediation, and if this successfully resolves the dispute, the tribunal produces a consent award. If the parties disagree, the case is referred back to arbitration.

The Singapore Mediation Centre administers the adjudication regime in Singapore, which is governed by the prevailing Building and Construction Industry Security of Payment Act, the Building and Construction Industry Security of Payment Regulations and SMC Adjudication Rules.

What is the Singapore Construction Mediation Centre?

In 2019, the Singapore Contractors Association (SCAL) set up the Singapore Construction Mediation Centre to help building companies and contractors stay out of court.

The driver for this new centre was demand from SCAL members for mediation services to resolve defects, payment disputes, and liquidated damage disputes between contractors and sub-contractors.

The panel of SCMC mediators includes 24 people with high-ranking positions within the construction industry, well versed in the difficulties these projects face, and with previous experience in mediation.

It’s pretty much unique to have mediators who are also experienced contractors, making dispute resolution much more straightforward with mediators who understand how the construction industry works.

What is the dispute board?

The dispute board is a concept enshrined by the Singapore Infrastructure Dispute-Management Protocol (SIDP), which is aimed at parties having difficulty with large, high-value infrastructure projects. The SIDP is designed for projects worth more than SGD 500 million.

At the start of a project, the contracted parties appoint a dispute board that monitors the project from start to completion. The idea is that the board manages issues as soon as they arise and prevents matters from escalating into a serious dispute, but this does come at a cost.

The dispute board is proactive and will establish a timetable of board meetings and site visits; this is not about sitting around and waiting for a problem to blow up – it is proactive management. The dispute board can raise potential issues, or the contracting parties can do this.

A dispute board can act as a kind of mediation service between contracting parties. The board can give a view or an opinion or they may just support contractors to carry on negotiating on their own behalf.

How Does the Building and Security of Payment Act Fit In?

Originally passed in 2005, amendments to the Building and Construction Industry Security of Payment Act came into effect in 2019. They reinforce the commitment to maintaining a fast and low-cost adjudication system for payment disputes on building projects.

Final thoughts

A well-drafted and forward-thinking construction contract will certainly reduce potential areas for dispute. However, even with that in place, problems can still arise as no contract can foresee every difficulty and issue. Disputes seem to be inherent in the nature and scope of construction contracts. It’s impossible to control weather events, contractor companies failing, or supply chain issues.

The motto, therefore, is, ‘Be prepared’. There are experienced and specialist solicitors who can draft comprehensive construction contracts that anticipate many of the classic difficulties that occur in building projects.

If there is a dispute, then which route to resolution is best? The answer to this depends on the unique circumstances of each case. Mediation is undoubtedly the least aggressive of the available options, making it easier to protect commercial interests both on the current project and in the future.

It is wise to expect disputes and set out in the contract what will happen in the event of a disagreement and include the all-important mechanisms of resolution. It’s the best way to avoid wasting time and spending large sums of money on legal costs, get everyone back on site, and working as quickly as possible.