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Guide to Leading Practice for Dispute

Avoidance and Resolution

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CRC for Construction Innovation participants

Industry

Government

Research

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Guide to Leading Practice or DisputeAvoidance and Resolution

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PreaceThe Australian construction industry is a signicant sector o the economy in its own right, employing close to one million

people, and undertaking more than $120 billion worth o work annually. It is a critical part o the economy, providing shelterand acilities or all other parts o the economy. The people who work in the industry, whether clients, designersor constructors, are proud o their achievements.

However, the industry is bedevilled with a reputation or tough commercial behaviour, and a propensity to solve problemsusing ormal dispute resolution. This is the case in Australia, and it is refected in other developed economies with adversarial-based legal rameworks. Academic and industry journals are replete with studies o the behaviour o the industry, and itspredisposition to adversarial problem solving.

The aim o the CRC or Construction Innovations dispute avoidance and resolution research and implementation projectwas to identiy and communicate to key industry stakeholders recommended change management strategies strategiesto avoid contractual disputes between clients, contractors and other industry stakeholders, and where disputes cannot be

avoided, to manage disputes more eectively.

The project involved original research and an extensive review o local and overseas literature on dispute causation andavoidance, with the aim o identiying alternative issue resolution methods. It has resulted in this Guide to Leading Practiceor Dispute Avoidance and Resolution which incorporates suggested change strategies and implementation tools, to helppeople in the construction industry avoid the causes o disputes.

This publication is the culmination o signicant input rom the broader construction industry represented by clients, designersand contractors across the Australian inrastructure and building industry. The industry research leadership and primaryunding or the project was provided by Construction Innovation. Congratulations and thanks must go to ConstructionInnovations project team, led by Rick Collins, Manager, Contractual Services, Leighton Contractors, and includingrepresentatives o Brisbane City Council, Curtin University o Technology, John Holland Group, Queensland Department oPublic Works, Queensland Transport and Main Roads, RMIT University and Thiess.

Construction Innovation also convened a senior industry Dispute Avoidance and Resolution Taskorce, chaired by TonyBarry, Chie Executive Asia Pacic, Aurecon and representing the Association o Consulting Engineers Australia. We thankthe members o the Taskorce and participating member organisations Australian Constructors Association, AustralianProcurement and Construction Council, Civil Contractors Federation, Queensland Transport and Main Roads and MainRoads Western Australia who have contributed signicantly to the success o this important initiative.

Construction Innovations unique ability to bring together industry stakeholders has produced a signicant innovationdividend that will help combat the unacceptably high community costs rom disputes on construction projects in Australia.We encourage industry to implement the suggested strategies and turn presently wasted resources into additional wealthand productive investment to enhance the quality o lie or the Australian community.

We look orward to industry adopting the Guide and working together to improve the uture o Australias constructionindustry developing a new era o enhanced business practices and innovation.

Mr John V McCarthy AO Dr Keith Hampson

Chair Chie Executive OcerCRC or Construction Innovation CRC or Construction Innovation

3Guide to Leading Practice or Dispute Avoidance and Resolution

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PreambleI am delighted to present this Guide to Leading Practice or Dispute Avoidance and Resolution.

The global nancial crisis and its repercussions have reinorced or us the urgency to deliver every benet we can rom theAustralian Governments inrastructure stimulus package and the catch-up unding to secure much-needed communityacilities. Wasting resources on non-productive tasks cannot continue.

It has become increasingly clear that sustained improvements will not be achieved without signicant cultural and behaviouralchange to create a lasting culture that supports alternative methods to avoid disputes between clients, designers, contractorsand other industry stakeholders and where these cannot be avoided, to manage disputes more eectively, quickly and at alower cost.

Such change requires the active cooperation o all sectors o the industry. It is no coincidence that the best perormanceso the industry have been achieved where there is a high degree o leadership and commitment shown by each o the main

participants: the clients, designers and the contractors.

I oer my congratulations and thanks to everyone involved in the development o the Guide. In particular I would like to thankthe CRC or Construction Innovation or its research leadership and or its role in unding and managing the development othe Guide. I also thank those other participating member organisations and those who provided additional nancial support.

I hope and trust that the Guide will be embraced by the whole industry as a useul and practical tool that will help drive themuch needed improvement to the avoidance o contractual disputes.

Tony Barry

Chie Executive Asia Pacic, Aurecon

Chair, Dispute Avoidance and Resolution Taskorce

Representing the Association o Consulting Engineers Australia

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ContentsPreace 3

Preamble 4

The challenge 7

Dispute avoidance checklist 8

A. The issues and costs 111. Characteristics o the construction industry2. Disputes and their costs3. Construction and problematic issues

B. Identiying the causes o disputes 141. Previous initiatives2. Causes o disputes embedded in project initiation processes

C. Avoiding disputes the role o project sponsors 201. Project denition and brieng2. Contractor input to design3. Selecting the head contractor and specialist subcontractors

D. Avoiding disputes the role o contractors and designers 24 1. Contractors response strategies

2. Management o change3. Project management processes4. Project start up

E. Managing disputes 28

F. Project defnition and briefng 301. The project initiation process2. Concept development3. Evaluation4. Denition

G. Selecting the project team 361. Project culture and relationships2. Choosing a procurement strategy3. Roles and responsibilities4. Time and cost contingencies5. Risk allocation and contract conditions6. Dispute resolution ramework

H. Managing the project team 461. Establishing the project team2. Subcontracting3. Project business planning4. Communication protocols5. Innovation and design6. Design development and coordination7. Changes in scope time, cost or quality8. Measuring perormance

Acknowledgements

Glossary and acronyms

The glossary includes the denition o certain terms used in the Overview and the Guide. It is suggested thatthese denitions should be noted prior to reading the main body o the documents. Particular regard should begiven to the denition o the ollowing terms: project sponsor, client, project team, contract maker, design teamand construction team.

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The challenge1. To avoid and resolve disputes a cultural change is required within the construction industry.

2. Research undertaken or this project showed that there are six actors critical to minimisation and avoidance o disputes:

i. Recognition that each construction project involves the creation o a new group o people with diverse interests.There is thus the need to create a culture within the group which is project oriented, but which recognises the nancialand social requirements o each participant, and acilitates the building o trust between them.

ii. In selecting project participants, signicant weight should be given to the attitude o a participant, as well as itscapacity and pricing.

iii. The early involvement o head contractors, specialist subcontractors and designers with the client and otherproject sponsors.

iv. Sensible risk allocation.

v. Appropriate delegation o authority, including nancial authority, to problem solve rapidly.

vi. Selecting a project delivery mechanism and contractual ramework that refects the matters above.

3. Without the cultural change inherent in adopting the concepts above, the Australian economy will continue to suerwastage rom disputes in the construction industry estimated at approximately $7 billion per annum.

4. Achieving cultural change will not be easy, but it is achievable and obviously worthwhile. It will require leadership anddirection rom the most senior executives o all industry participants.

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Dispute avoidance checklistThis CRC or Construction Innovations Dispute Avoidance and Resolution (DAR) research and implementation project ound

that there are readily available opportunities to improve the perormance o construction projects that could annually deliveran additional $7 billion o value to the Australian economy.

Those opportunities require the elimination or minimisation o causes o disputes within dierent phases o the project deliveryprocess, and are refected in the ollowing checklist.

The power to infuence the elimination or minimisation o causes o disputes changes as projects unold clients andother project sponsors (nanciers, end-users, operators) have the greatest ability to take advantage o opportunities at thebeginning o projects. Designers and contractors assume control through the design and construction o projects.

Early in a projects lie the project sponsors visionary and strategic activities include deciding whether a need is best met byconstruction o an asset, settling on an approach to risk management and deciding on a procurement strategy. It is here that

clients and project sponsors have the greatest ability to minimise disputes and maximise value.

Inormed leadership decisions, supported by in-house or consultant construction project skills, have the ability to minimisethe risk o disputes. They are similar to the decisions taken in the establishment o any ongoing enterprise.

The research undertaken or this DAR project identied a number o causes o disputes that occur again and again onconstruction projects, in Australia and other countries. Some are in the control o the client or its advisers, whilst othersare in the control o designers or contractors. Those causes, whether they lead to the need or ormal dispute resolutionor not, are wasteul and contribute to the inclusion o unnecessary business as usual contingencies in the cost structureo the industry.

Inormed clients and project sponsors (or wise buyers) understand that each construction project is essentially a prototype,and will be designed and constructed by a team o people brought together in a virtual organisation specically or thatpurpose. Unless key people in that team have previously worked together, and or the client, it is all but certain that therewill be little i any trust between them, or between the client and the team.

Research shows clearly that the level o trust present has a direct impact on team relationships and on the projectenvironment or culture. I the project environment is characterised by poor team relationships, there is likely to beconsiderable wasted eort on the project, and the likelihood o disputes over technical or commercial matters is greatlyincreased.

There are strategic decisions that clients and project sponsors can take during the earliest stages o project initiation to signalboth a level o trust, and trustworthiness. This is done to reduce the risk o disputes, and minimise wasted eort.

In the right circumstances, designers and contractors will willingly respond to the client signalling trusting behaviour, by

bringing their skills to bear to reduce cost, shorten construction time, and optimise unctionality. They will avoid opportunisticdecisions that could otherwise be taken to orce additional costs on the client.

There is nothing particularly complicated or dicult in the decisions that clients and other project sponsors, designers andcontractors can take to create trusting relationships and a positive project environment.

Client and project sponsor decisions

1. Identiy needThe need being addressed by unding a construction project should be clearly identied and articulated. The project maydeliver an asset that satises a business need (creating wealth measured in dollars) or a social need (improving services

to a community rom a new school, hospital, road or other acility). Designers and other advisers should have a clearunderstanding o the need to be able to suggest design options and develop concept designs.

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2. Project team selectionDesigners and other advisers are selected based on their ability to work well together as a team, as well as their technicalskills and track record. Particularly with more complex projects, greater certainty o cost and constructability is achievedwhen the client engages a head contractor and key subcontractors to work with engineers, architects and other advisers

on option development and early design and planning work.

3. Scope o workThe scope o the work and the unctionality or perormance characteristics to be delivered by the asset should be clearlydocumented. This should include the time within which the asset is required, and take into account the characteristics othe site on which it is to be constructed, including adequate geotechnical analysis.

4. Adequate fnanceSucient nance must be available to undertake the project. Given that construction projects demonstrate most o thecharacteristics o prototypes, and thereore changes in their technical or commercial parameters is common, the budget

should include prudent contingencies or possible changes in time or cost required, or changes in unctionality.

5. Risk managementA thorough risk register, identiying possible risks to achieving required time, cost and unctionality, and strategies tomitigate those risks, is shared with designers and contractors. Responsibility or managing each risk is clearly allocatedto the organisation or person best able to manage it, and that organisation or person is paid to assume the risk.

6. Procurement strategyThe procurement strategy or construction is adopted ater a considered analysis o available options, and the clients keystrategic drivers. Those drivers generally include:

how well the scope o the project has been denedthe time within which the asset is required, the likely time to construct it, and the purpose or which it is requiredthe complexity o the designthe level o certainty about market costs, and availability o necessary design and construction capabilitythe unding available, including contingenciesthe risk appetite o the client and project sponsorsthe clients experience o construction projects.

7. DesignThe level o design made available or the market to price is appropriate to the procurement strategy and the level o riskthe client expects contractors to take. As a general rule, the more design detail and inormation about the site o the project

made available to potential head contractors and subcontractors, the lower the risk to them.

8. Risk allocationThe head contract documentation or the project prepared by the client refects the clear and unambiguous risk allocationsthat were part o the package o inormation made available or the market to price. Any changes made necessary as a resulto rming up prices or the scope o the project are clearly identied. The introduction o integrated digital modelling or virtualprototypes early in the design process has signicantly reduced the need or contingencies, improved clash detection andreduced waste and wasted eort, and improved construction optimisation at design stage.

9. Client project management

The clients most senior representative charged with making decisions under the head contract is given a clear brie to actin the best interests o the project, including monitoring the quality o project team relationships. That representative maybe an employee o the client, or a consultant.

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10. Communication protocolsThe head contract will require communication protocols that encourage open communication and the solving o problemsor issues as quickly as possible. It will include a ramework or ormal, alternative, issue resolution, ocused on rapididentication o issues, and escalation o issues that cannot be resolved by agreement at site level, to the lowest possible

level o o-site negotiation and resolution.

11. Dispute resolutionFormal dispute resolution may be aided by the use o processes involving independent monitoring o project issues, andcoaching to assist in their resolution.

Project team decisions

12. Project team planningOnce the head contractor has been appointed, its task o building team relationships with designers and subcontractors,

and the clients representatives, begins in earnest. There are a series o planning, design, and other tasks that provideopportunities to the head contractor to build team relationships. Most importantly, as with any business or sporting team,objectives should be aligned and agreed i eort is not to be wasted and disputes avoided.

13. Subcontract risk allocationThe rst step is to make sure that subcontract documentation mirrors the technical and commercial elements o the headcontract, and is consistent with inormation made available or the market to price. Subcontract risk allocations or individualtrade packages should be consistent with those in the head contract.

14. Project team relationshipsThe head contract documentation should require the head contractor to take responsibility or, and to monitor and reporton, project team relationships. One approach to this is or the head contractor to develop a ormal project business plan,with the involvement o the designers and subcontractors.

The process o doing so does two things: rst, it documents the way the team will work together to undertake particulartasks including design coordination, programming, saety management, material handling, and so on; second, by agreeingon those practical tasks in a collaborative way, business relationships are developed, trust has the opportunity to be shown,and a set o agreed project objectives is established.

15. Integrated designSome head contractors are only engaging subcontractors that are prepared to produce digital models o their components(including ormwork, mechanical ductwork and pipework) at the same time as the design team, so enabling the integration

o all inormation into a single model. This provides clash detection and integrated data early in the design and constructionprocess.

16. Alternative issue resolutionThe project business plan will include communication protocols that encourage open communication, and the solving oproblems or issues as quickly as possible. The plan will include a ramework or ormal issue resolution, ocused on rapididentication o issues and escalation o issues that cannot be resolved by agreement at site level, to the lowest possiblelevel o o-site negotiation and resolution.

Formal resolution may be aided by the use o processes involving independent monitoring o project issues, and coachingto assist in their resolution.

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A. The issues and costsA1. Characteristics o the construction industryThe construction industry delivers vital inrastructure and buildings that are a oundation to the Australian economy. TheDAR project was primarily concerned with issues arising in the course o non-residential building (including oces, hospitals,schools, shopping centres, actories, sports venues, and hotels), and inrastructure (including roads, railways, mines, powerstations). It was not concerned with residential cottage building, although some o the characteristics o, and issues arisingon, non-residential building projects also apply to high density/high rise accommodation projects.

The Construction Forecasting Council reported in June 2009 that $120 billion worth o such work (non-residential building,engineering construction, and apartment building) would be carried out in the 2008-09 year. Approximately one millionpeople were employed in the industry in that year.

The construction o every capital asset involves unique design, procurement and construction challenges. Dierent locationand site conditions, construction methods, equipment and materials, and the assembly and management o a team o

people to design, procure and construct each asset invariably mean the construction process is one o creating a prototype.

By its very nature, the delivery o a prototype is a dynamic process, requiring members o the project team to work togetherto continually ne-tune and adjust the detailed project requirements, project designs and construction methods, sequence,resources and logistics. Project teams are created anew or each project. People rom dierent disciplines, and organisations,are engaged to design and construct dierent elements o each project. Problem solving is an integral part o managingconstruction projects to oster innovation, reduce rework, avoid waste, and reduce risks including those o issues escalatingto become disputes requiring arbitration or litigation to resolve.

The same challenges also lead to wasted eort evidenced by, amongst other things, unnecessary or inadequate designdocumentation, poor quality, mis-communication, sub-optimal materials handling on site, and poor allocation andmanagement o human and material resources.

A2. Disputes and their costsThe costs o contractual disputes, direct and indirect, are substantial. They are borne not only by clients, designers andcontractors, but also by the community through, or example, additional taxation revenue needed to provide essentialservices, and the management o the taxpayer-unded Federal, State and Territory court systems to deal with disputes.

There are direct costs in disputes such as legal services, arbitration, consultants, courts, and the diversion o in-houseresources (both legal and non-legal) to manage dispute resolution processes or clients, designers and contractors.When disputes proceed to arbitration or litigation, the direct costs can be signicantly high and are oten comparable tothe amount o the claim itsel.

There are also indirect costs incurred by the parties such as delays to the project, adverse perormance o the project,

distraction and over-burdening o sta on the project, reduced morale, erosion o condence and trust in workingrelationships, adverse impact on the reputation o the parties, emotional impact on people involved, lost opportunitiesor uture work, destruction o business relationships, and the loss o people to the industry because o wasted eort,disillusionment and rustration.

A 2006 Blake Dawson Waldron (BDW) report1

, based on an analysis o 183 responses received to an industry-wide survey,indicates an estimated industry-wide weighted average value o matters in dispute o about 8.4% o contract prices.

Construction Innovations project team estimated an industry-wide weighted average value o avoidable costs that end upin dispute o about 5.9% o contract price (i.e. 70% o the 8.4% o contract price identied by the BDW report).

1

Blake Dawson Waldron (2006) Scope or improvement A survey o pressure points in Australian construction and inrastructure projects.

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The DAR project teams analysis o available industry data regarding the direct cost o resolving disputes, and eedback romclients, contractors and legal practitioners, indicated that an industry-wide general magnitude estimate o the direct cost oresolving disputes o between about $560 million and $840 million per year.

When the direct cost o resolving disputes is added to the avoidable costs, the total waste exceeds $7 billion per year, givenconstruction industry turnover o $120 billion in 2008-09. This turnover gure includes the value o engineering projects, non-residential building and apartment building projects, but excludes the value o residential cottage building.

Disputes and a disruptive industry environment also contribute to infation o uture project cost through higher tenderedprices based on previous experience in similar work incorporated into a business as usual approach. This representsa tragic loss to the Australian community and the Australian economy in terms o the lost opportunity to deliver realvalue through improved transport, health, education, inrastructure, acilities and services. I the unnecessary cost canbe avoided by appropriate attitudes and practices, the same capital and human resource pool would be released toproduce signicantly more public and private inrastructure and services or the benet o the community as a whole.

The challenge or the industry, through this project, was to produce a set o guidelines that can be applied on every project,

regardless o size, delivery strategy, or location, to avoid contractual disputes. The evidence rom Australia and overseasis that dispute avoidance relies primarily on the technical and commercial skills o project managers and their ability topersonally interact with others in an impartial and non-adversarial manner.

A3. Construction and problematic issuesResearch in the United States

2

has shown that a combination o environmental and behavioural issues can lead to disputeson construction and engineering projects. The inherent degree o uncertainty that prevails within construction projects,given their character as prototypes, can result in planning being a problematic issue, especially when adequate inormationis not available. When uncertainty is high, initial drawings and specications will invariably change, and the project team willhave to solve problems as they occur during construction. I unctional requirements or design documentation are unclearor inadequate, or the resolution o a design problem does not satisy the needs o all who are aected by it, disagreementsbetween parties can materialise. This is particularly the case when design documentation is completed progressively duringconstruction, leading to potential contingencies not being able to be identied and assessed until they materialise.

Many o the problems that arise because o rework, scope changes and documentation quality are interrelated, and aretypically a product o a projects procurement strategy and the management practices implemented by organisations involvedwith the project. There is also the potential or one party to behave in an opportunistic way, when the contract does not oera straightorward answer to an issue. I there is no specic provision to deal unequivocally with an unoreseen event, or aprovision is interpreted to suit the particular circumstances that have arisen, then there is a potential or opportunism.

When procurement strategies include risk allocation provisions intended to avoid or minimise the clients exposure touncertain cost or time outcomes, they discourage integration, cooperation and collaboration between project participants.Further, they refect an incompatibility o interest arising rom diering norms and values, as well as the competing objectivesand goals o project participants. The end result is the anticipation o adversarial relations between the parties beore any

work has been done. This does nothing to create an environment in which collaborative problem solving can readily occur.

Worse, inappropriate risk allocation through disclaimer clauses in contracts has been shown to be a signicant driver oincreased construction costs

3

.

In the United Kingdom much o the construction industrys eorts to increase productivity and reduce disputes since themid-1990s have ocused on the ragmented structure o the industry, a characteristic shared with Australia and the UnitedStates. The ragmented structure has signicant impacts on risk allocation, working relationships, and the likelihood odisputes. A United Kingdom House o Commons Committee Report in 2008 assessed the perormance o the industryin the United Kingdom

4

:

2

Mitropoulos, P and Howell G (2001) Model or understanding, preventing, and resolving project disputesJournal o Construction Engineering and Management, ASCE127(3): 223-231.

3

Hartman, F (1998) The real cost o weasel clauses in your contract, 29th Annual Project Management Institute Seminars and Symposium.4

Construction matters United Kingdom House o Commons Business and Enterprise Committee, July 2008, p. 44.

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The power or infuence to eliminate or minimise causes o disputes changes as projects unold. Clients and other projectsponsors (or example, nanciers, end-users, operators) have greatest ability to take advantage o opportunities at thebeginning o projects. Designers and contractors assume control through the design and construction o projects.Figure 1 summarises the phases typical to most projects.

Early in a projects lie the project sponsors visionary and strategic activities include deciding whether a need is best metby construction o an asset, sett ling on an approach to risk management and deciding on a procurement strategy. It is herethat clients and project sponsors have the greatest ability to minimise disputes and maximise value.

Inormed leadership decisions, supported by in house or consultant construction project skills, have the ability to minimisethe risk o disputes. They are similar to the decisions taken in the establishment o any ongoing enterprise.

Figure 1: Project delivery phases and responsibilities

112. The construction industrys poor perormance is largely a consequence o its highly ragmented structure.

The main contractor will then subcontract the work to specialist contractors who are largely responsible or making

the original design a reality. This hierarchical structure oten leads to adversarial relationships, with most partiesoperating in silos, and the transerral o risk along the supply chain. Frequently delays occur because sub-

contractors have not had the chance to inuence the early design. Disputes and reworking impact on out-turn

costs and the quality o the end-product. This puts at risk the improved services or business perormance that

the project is meant to deliver.

PHASES

TYPICAL

ACTIVITIES

PRIMARY

PROJECT

CONTROL

VISIONARY STRATEGIC TACTICAL OPERATIONAL

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B. Identiying the causes o disputesB1. Previous initiativesThe Australian construction industry has undergone a series o introspective reviews over the last 20 years. They began in thelate 1980s when the then National Public Works Committee and the National Building and Construction Council spent morethan 12 months identiying the causes o disputes, and suggesting strategies to minimise disputes. The work culminated in areport published in 1990 called No Dispute.

No Dispute was widely acclaimed within the industry and by clients o the industry. However in much the same way that thethen Australian colonies agreed on something quite important in 1901 but have been squabbling ever since, so the causeso poor perormance and disputes identied in 1990 continue to bedevil the industry.

Clients and end-users complain that projects are delivered late, over budget, and with inadequate unctionality or quality,and that contractors have a take no prisoners mentality. Contractors and designers complain that clients dont dene theirneeds clearly, do not adequately scope their needs, expect contractors to take risks they cannot manage, and are reluctant

to pay a air price. The principal concerns addressed in No Dispute included:

unreasonable risk allocations imposed by clients in head contracts, and cascading down to sub-contractssystems or the selection o contractors and subcontractors placing too much emphasis on price and notenough on capability or the ability o disparate organisations to work well togetherinadequate scoping o work by clients through design documents.

Those concerns continue to be pointed as the apparent causes o disputes. Specic problems identied in the BDW report5

were inadequate scoping, unrealistic time and cost objectives, poor risk allocation and inappropriate procurement methods.It is no comort that in the intervening 20 years the list o problems has been added to, and is shared with counterpartsin the United Kingdom and the United States. The United Kingdom in particular has spent considerable time, intellectualhorsepower, and money on a series o inquiries, reports and programs, all ocused on reducing disputes and enhancingperormance. The literature is replete with data and analysis and recommendations.

6

Construction Innovations project team commissioned a review o the literature rom the University o Newcastle, and hadthe benet o urther reviews o past work in the reports it commissioned rom Curtin University o Technology

7

and theRMIT University.

8

It ound that some o the more recent work was seeking to go behind the more orthodox descriptions othe causes o disputes, to identiy the underlying causes o disputes the underlying reasons that create problems which,i eliminated, would prevent recurrence. The common sense thesis is that the best way to avoid disputes is to avoid theunderlying causes o disputes.

Construction Innovations report commissioned rom Curtin included a review o previous studies into the cause o disputes,and concluded that the key causal actors contributing to disputes are:

poor contract documentation that arise rom the organisational system (e.g. inadequate/incomplete design

inormation, ambiguities in contract documents)scope changes that arise rom the innate uncertainty that exists within the project management system(e.g. variations due to client, design errors, site conditions)educational and behavioural adaptations o individuals within the people system (e.g. poor communication,poor management, skill and experience, and personality traits).

5

Blake Dawson Waldron (2006) Scope or improvement A survey o pressure points in Australian construction and inrastructure projects.6

Relationship Contracting (1998) Australian Constructors Association.

Constructing the Team (1994) United Kingdom Department o the Environment.

Rethinking Construction (1998) United Kingdom Construction Task Force.

Accelerating Change (2002) United Kingdom Strategic Forum or Construction.Construction Matters (2008) United Kingdom House o Commons Business and Enterprise Committee, Ninth Report o Session 2007-2008.

7

Love, P, Davis, P et al (2008) Causal ascription o disputes in construction projects.8

Blismas N, Jellie D, Wakeeld R and Harley J (2008) Strategies or Dispute Avoidance.

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Project sponsors (end-users, the client, nanciers, operators) make key strategic decisions at the outset o projects theproject initiation process involving the determination o their needs, the selection o a suitable procurement strategy tosatisy the needs, and the appointment o designers and contractors to do the work. These strategic decisions largelydetermine the quality o contract documentation, selection o the project management system, and appointment o the

project team.

The business as usual strategies adopted by many construction industry participants who prepare or infuence the termso contracts or building and construction projects (reerred to as the contract makers) do not avoid the underlying causeso disputes. This situation is exacerbated by some contract makers who erroneously believe that preventing disputes isbest achieved by adopting risk averse terms backed up by complex and convoluted contract administration requirementsreinorced by adversarial behaviour.

In this regard contract makers include, or example:

client organisations that prepare and administer the terms o head contractspublic sector treasury departments and private sector nanciers that may infuence the manner in

which contracts are administered through the creation o polices that are not congruent with a contractscommercial termshead contractors that prepare the terms o subcontractslegal advisers that advise on, and thus infuence, the terms o contracts.

This business as usual approach has historically been part o the culture or a large part o the industry. Typically thisresults in polarised positions being taken by the participants, oten causing distrust, disengagement, poor communication,antagonism, adversarial attitudes, competitive pressures and other counter-productive behaviours.

The research shows that (perhaps counter-intuitively) risk averse strategies do not avoid the underlying causes o disputes,and that these strategies are in themselves risky, uncertain and counterproductive or all project participants. For example,a tender document or a project may, at the tender box, produce what appears to be good price or the client, but it mayail to minimise uture claims, variations or disputes that may occur.

This adversarial and harmul culture is sel perpetuating and, in turn, is passed on to incoming participants. The cultureinfuences the development o organisational policies and practices. It provides the organisational ramework within whichorganisations and their people work. It binds them through both explicit and implicit rules that perpetuate the adversarialculture.

The choice o procurement strategy, and its implementation, rarely involves consideration o aligning the goals and objectiveso the project sponsors and the various organisations in the project team beore settling on the nal bundle o contractualrights and obligations. Conventionally, once the head contractor has been appointed and a contract agreed, project sponsorsexpect that the head contractor takes primary responsibility or all later required tactical and operational decisions. That beingso, there is the likelihood that diering goals and objectives may trigger adversarial relations that lead to unhappy projectsand disputes.

Furthermore, risk averse strategies greatly increase the cost o up-ront legal and risk management services incurred bythe client, head contractors, design consultants, and subcontractors when preparing, tendering, negotiating, perormingand administering risk averse contracts or a project as a result o the additional complexity and unreasonable nature o theproposed project risk allocation and contract processes.

The DAR project teams analysis o the costs o up-ront legal and risk management services or construction projectsindicates that an industry wide general magnitude estimate o these costs would be in the range rom about $500 millionto $750 million per year, a signicant share o which would be attributable to the up-ront legal and risk managementservices associated with risk averse contracts.

These up-ront legal and risk management costs are in addition to the $560 million to $840 million per year direct costs

o resolving disputes described in section A2.

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B2. Causes o disputes embedded in project initiation processesThe Construction Innovation research identied and categorised many o the underlying causes o disputes, and therelationship between them and the underlying drivers o a successul project.

The categorisation o the causes o disputes acilitates understanding and helps in targeting strategies or addressingindustry, organisation and project team development.

Common symptoms o the causes o disputes on construction projects include the ailure to:

adequately speciy project scopethoroughly investigate and/or understand the actors relevant to the siteselect an appropriate procurement strategy or the projectprovide an adequate budget and time rame or the projectselect suitable organisations and provide sucient suitable people or the project teamdevelop a can-do project team attitude based on proactive, cooperative behaviour and truststructure the project team rewards to encourage win-win, best-or-project outcomes

use project strategies that eectively manage the issues, risks and opportunities created by the dynamicso project perormanceuse project management skills to overview and ne-tune the behavioural interaction o the project teamensure contracts include appropriate roles, relationships, risk allocation, contract processes and proceduresor eective project perormancemanage risk eectively and/or allocate risk appropriatelyadopt strategies that maximise operating fexibilityensure open eective communicationencourage initiative and innovationadopt eective strategies or digital modelling that allows early integration o discipline input or prototypetesting o design perormance, construction planning and buildability, clash detection, commissioningand operationuse resource based planning techniquesavoid urgent variations that do not add value to the projectadopt proactive issue resolution strategies.

Events and circumstances involving one or more o the above ailures will cause the project works to be carried out lesseciently and cause some or all o the project team to incur additional cost, delay, disruption, and/or cause mistakes and/orperorm poor quality work that requires rectication.

The Construction Innovation research9

makes the observation that a root cause o a potential dispute may lie hidden ordormant within systems and processes or a considerable period o time, and may become an integral part o everyday workpractice, but still causing a signicant adverse impact on a project. The adverse eects o these hidden actors are typicallyabsorbed into historical productivity data and higher industry tender unit prices. These hidden actors are oten the result oone or more o three categories o issues:

1. circumstance arising rom the projects operating environment, and can include external environment, projectlocation, client type, client expectations, procurement strategy and integration with other works

2. practice arising rom practices such as poor planning, poor resourcing, poor tender/award process, ailure tocheck designs, opportunistic behaviour, interpersonal relationships, ailure to hand over the site

3. task arising rom the nature o the task being perormed, or example poor documentation standards, deectivework, misinterpretation o contract requirements, persistent late payment and poor document control.

9

Love, P, Davis, P et al (2008) Causal ascription o disputes in construction projects

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These categories o issues are in turn oten the product o strategic decisions made by project sponsors at the outset oprojects and embedded in the commercial documentation o projects by contract makers. They condition the industry tobehave in particular ways, and lead to the environment or culture o each construction project having unique characteristics.As in any enterprise, the environment or culture o a project will have a undamental impact on the way people work, and the

way issues are addressed.10

A study o 28 very successul projects commissioned by the Property Council o Australia in 200111

identied decisionsmade about ve matters that largely determine the culture or environment o projects, and their commercial success. Thesedecisions are made by the client and, i made sub-optimally, contain the root causes o disputes. The clients decision maybe the product o its own experience or policy, or be the result o advice rom another project sponsor or contract maker.The ve matters relate to:

i. the level o trust shown in the skills and behaviour o the project team (particularly the head contractor) borneo previous experience or the advice o lawyers or other advisers

ii. the risk appetite/tolerance o the asset owner and nanciers

iii. the nancial management o the project, and the limit o construction risk each o the project sponsors is ableor prepared to take

iv. the project delivery strategy selected and its appropriateness to the asset, market conditions, and site conditions

v. the brie given to the client project director and the limitations it places on that person to deal equitably withother parties to the contract when solving problems.

Those strategic decisions substantially determine the project environment or culture, and the manner in which the projectteam is conditioned to behave. They determine the bounds within which later decisions regarding the nature and quality odocumentation, and the project management system, are made. They are at the heart o whether a collaborative approach tothe project is possible.

In many cases the project sponsors do not make a deliberate decision regarding these matters. The common business asusual or deault position is borne o previous experience or proessional advice, oten intended to win certainty o outcomes.

The choice made (or deault position adopted) in relation to each matter can be plotted in a maturity model, using descriptorstypically encountered on project sites. The descriptors or each o the ve decisions are shown below. Project sponsorsoperating in the business as usual or red zone will elicit responses rom designers and contractors that are dierent tothose produced by behaviour in the green zone.

12

The Property Council study showed that the top 10% o projects (withclients making green decisions) produce on average 30% more wealth/value than the average wealth/value created by theother 90% o projects. The study adopted a broad denition o wealth:

13

10

Diekmann, J and Girard, M (1995) Are contract disputes predictable?Journal o Construction Engineering and Management ASCE 121(4): 355-363.11Crow TW (2004) Strategies or achieving excellence in project outcomes Doctoral thesis, Deakin University.

12

Crow, TW and Barda, P (2004) Project strategic planning A prerequisite to lean construction, International Group or Lean Construction 12, Copenhagen.13

Crow, TW and Barda, P (2001) Projects as Wealth Creators Property Council o Australia p. 7.

.. wealth is measured not only by the creation o new physical assets but by such actors as return on

investment, extra value rom capital, supplier margins, quality o lie actors (including health), extra services

provided to end-users, improved operator morale, and lower maintenance and operating costs.

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18

Project sponsor strategic decision 1: Level o trust

A red decision by project sponsors, showing a lack o trust, will be demonstrated in contract conditions that are risk averseand seek to place all construction risk on the designers and contractors. The typical response rom contractors is to seek toprotect their commercial positions by ollowing the letter o the contract, without any give or take.

Project sponsor strategic decision 2: Client risk tolerance

Red risk tolerance on the part o project sponsors exposes head contractors to some risks over which they have little orno control. Contractors typically understand that some risks have been inappropriately allocated, but continue to participate,albeit reluctantly. Examples o the consequences o a red approach are inadequate scoping o the project, and incompletedocumentation available at the time the project is tendered.

When aced with imposed or inappropriately allocated risks, head contractors back these risks down onto theirsubcontractors, some o whom may have no idea o the consequences.

Conversely, a green or blue decision will involve inormed project sponsors who do not have unrealistic expectations andwho do not try and ofoad all the construction risk to the builder. Thorough risk assessment involving the project sponsors,the head contractor, and key subcontractors, leads to a collaborative approach, and incentives or all parties to manage theproject to mitigate the consequences o a risk event.

Project sponsor strategic decision 3: Financial management

BUSINESS AS USUAL TOWARDS EXCELLENCE EXCELLENCE BEYOND EXCELLENCE

Most team members are

assumed to be untrustworthy

by the client and each other.

Client and team members

would like to trust each other.

Trustworthiness is earned

through demonstration and by

creating relationships.

Mutual trust and good relation-

ships are cornerstones to a

project environment conducive

to wealth creation.


All risks are contracted out

(risk averse).

Price negotiations consider

risk allocation responsibility.

Risk allocated to supplier only

i able to control it.

Risk management shared

by all project team members

regardless o contracted

responsibility.


Client saves on interest by

paying team as late as possible

and project brie under-unded.

Client understands that team

members provide better service

i paid regularly and on time.

Functional brie is ully unded

with adequate contingencies or

risk management.

Client understands that

advancing payments saves

more than it costs.

Contingencies determined

with team.

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Project sponsor strategic decision 4: Selection o delivery strategy

Red decisions involve selecting a delivery strategy and accompanying risk prole that seeks to avoid as much constructionrisk as possible. These strategies invite contractors to take the risk o a range o matters including less than perect knowledgeo site conditions, delays rom causes beyond the control o the contractor, and delays in receiving approvals rom thirdparties (including government agencies).

Project sponsor strategic decision 5: Client project directors brie

The manner in which the role and responsibilities o the clients most senior representative on a project are implemented willdetermine in large measure the quality o working relationships on the project. At the red end o the spectrum the projectdirector is concerned only with protecting the clients contractual rights, whereas i empowered to behave in the greenzone the entire project team can be motivated to improve the project easibility or business case.

The three principal categories o causes o dispute identied in the Construction Innovation research are oten thedownstream consequences o decisions made by a project sponsor during project initiation. For example:

1. a nanciers or other project sponsors reusal to allow adequate contingency or time or cost over-runs isrefected in attempts to shit construction risk to head contractors, and then subcontractors

2. ailure to consider how well head contractors personnel will work as a team with designers personnel, andthe project sponsors team, militates against collaborative problem solving

3. inadequate time and ees or design lead to inadequate design documentation, in turn leading to wastedeort and disputes.

Other actors contributing to disputes and sub-optimal project outcomes are the products o the experience, skills andattitude o dierent members o the project team clients, designers, and contractors alike.

In other words, everyone engaged on a construction project has a role to play in minimising potential causes o disputes.The ability o designers and contractors to do so however, is largely determined by the commercial ramework o riskallocation and contract conditions imposed by project sponsors.


Provide inequitable

leadership and ruthlessly

administer contract.

Contract limits relationship

development.

Provide equitable leadership to

achieve project business case.

Inspire visionary achievements

by project team to achieve an

enhanced project business

case.


Legal advice and selected

contract determine strategy.

Delivery strategy considered

as one criterion or contract

selection.

Delivery strategy determined

with stakeholder involvement.

Delivery strategy designed

with stakeholders to optimally

achieve end-user needs.

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20

C. Avoiding disputes the role o

project sponsorsClear and strong client leadership is essential i the risk o disputes occurring is to be minimised. That leadership, and thetrust that results rom it, are key drivers o successul projects. Strategic decisions made early in the lie o a project by theclient and other project sponsors can either limit or promote the likelihood that the project will avoid signicant disputes.Setting a constructive delivery environment or the project at the outset is vital. Understanding the degree and nature ochanging circumstances likely to be experienced during the delivery o a project is critical to the projects success. Thesurest way to avoid disputes is to seek to develop and implement strategies that are in the green zone.

The client has the opportunity, beore contract documents are nalised, to determine how it will create that environment,and refect it in the terms o tender documents, the brie it gives to its senior project personnel, and in its approach to riskidentication and management. There are opportunities during tender negotiations or the project participants to jointlyidentiy and report on risks and mitigation strategies, and incorporate them in contract documents.

The objective at this stage is to optimise prospects o a successul project (obviously one without signicant disputes) byputting in place unequivocal risk allocation, quality documentation, and a ully dened project scope.

These elements are substantially captured in three key processes initially controlled by project sponsors that have asignicant impact on the eciency o the project and, by denition, on the likelihood o avoiding disputes and minimisingwasted eort:

1. project denition and brieng2. ensuring contractor and specialist contractor input to design3. selecting the head contractor and specialist contractors.

C1. Project defnition and briefngThe Australian Procurement and Construction Council and the Australian Construction Industry Forum describe a thoroughseries o actions to be undertaken on all projects in the Guide to Project Initiation. The steps involved in Leading PracticeProject Initiation described in the Guide are summarised in Figure 2.

14

I refected in thorough preparation o brieng documentsor designers and contractors, they greatly limit the scope or disputes, and or wasted eort in design documentation.

The nal deliverable rom the project initiation phase is the delivery brie, which consolidates and documents all o the projectanalysis, description and planning, which has been approved by the client, into a brie or the implementation o the project.The delivery brie should contain:

project sponsors strategic objectives or the projectthe unctional objectives or the project what it must do

a rst drat o any required sustainability rating tool outcome or the projectthe nancial constraints and objectivesa summary o the conclusions rom easibility and risk analysisdetails o planning approvalsthe project implementation plan, actions and schedulesa procurement plana cost planthe project concept design, description and illustrative denition.

These outcomes provide a clear project scope, and a solid platorm or quality design documentation.

14

Construction Industry Development Agency (1994) Construction Industry Project Initiation Guide p. 11.

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Some parts o the construction industry in the United Kingdom and Australia have developed early contractor involvement(ECI) strategies as strategies to gain the benets o contractor input to design, optimise constructability/buildability, andminimise the likelihood o disputes. Those strategies emerged rom a 1998 report o the United Kingdom Construction TaskForce

15

, chaired by Sir John Egan, which identied integrated processes and teams as a key driver o enhanced productivity

and teamwork, in turn minimising the causes o disputes. These strategies allow the advice o contractors, engaged and paidor as consultants, to be refected in early design, without compromising clients and other project sponsors ability to later usehard dollar contracting strategies i they wish to.

The use o ECI strategies is also growing in the United States, driven by the growing adoption o integrated digital modellingand the need to ormalise the earlier involvement o head contractors and subcontractors in the design process.

16

Australiangovernment agencies (notably the Queensland Government and the Australian Government Department o Deence) havesuccessully used two stage contract approaches to gain the same benets as those delivered by ECI strategies

17

.

Figure 2: The project initiation process

15

United Kingdom Construction Task Force (1998) Rethinking Construction.16Young, N, Jones, S and Bernstein, H (2008) Building Inormation Modelling, Transorming Design and Construction to Achieve Greater Industry Productivity, McGraw

Hill Construction.17

Quick R (2007) Queenslands ECI Contract, International Construction Law Review.

METHODS

OUTCOMES

PROJECT IDEA

SOURCES

IDEA

CONCEPT

DEVELOPMENT

EVALUATION

BRIEF

EVALUATION

DEFINITION

BRIEF

DEFINITION

DELIVERY

BRIEF

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22

C2. Contractor input to designThe hierarchical structure o the industry almost always excludes specialist subcontractors and manuacturers romcontributing to the optimal way o satisying a projects unctional objectives, and is a substantial cause o wasted eort.Deciencies or errors in design documentation contribute to disputes and are a source o considerable wasted eort.

Few design consultants have manuacturing or direct construction experience to optimise design, manuacturing andconstruction experience is essential, particularly when structural and mechanical elements are concerned. The specialistsubcontractors involved in manuacture typically represent between 20% and 40% o capital cost o major buildings andprocess plants, and have the capacity to contribute signicantly to reduce whole-o-lie cost.

Similarly, construction eciency or constructability o any design is o major signicance in optimising construction costs.The solution lies in increasing integration o the key specialist subcontractors, the head contractor and design consultants.Ideally this should happen beore the design is rozen.

The higher the level o integration o team members at the early design stages, the greater the opportunities to getmaximum benet rom the use o computer aided drating and in particular its most recent exemplar, integrated digital

modelling. Integrated digital modelling promotes clearer, more accurate, up-to-date communication by consolidatingcurrently disparate project inormation allowing all team members to contribute to the establishment and population othe databases underpinning the planning, design, construction and operation o the asset.

18

Ideally, an integrated project team including design consultants and cost planners, head contractor and key specialistsubcontractors, will be involved in developing the design, cost plan and move on to design development. As a result,project sponsors can expect much more clarity about cost, schedule and quality ar earlier in the process. The abilityo key people rom dierent organisations to work well together to solve problems, avoid wasted eort and eliminatedisputes is tested beore construction commences.

The project team members are able to work collaboratively together, and with project sponsors, and establish ideal projectmanagement and people management protocols. This goes a long way towards ensuring problems are solved and do notbecome issues requiring ormal dispute resolution.

The United Kingdom House o Commons Construction matters report points to the benets o greater integration in design.19

18

Fischer, M and Drogemuller, R (2009) Virtual design and construction, in Newton P, Hampson K and Drogemuller R, Technology, Design and Process Innovation in theBuilt Environment, Spon Press, London.

19

United Kingdom House o Commons Business and Enterprise Committee (2008) Construction matters p. 46.

Traditionally, construction projects have ollowed a sequential process o design, specifcation, and procurement.

However, this approach tends to preclude manuacturers and specialist contractors rom oering expert advice

at an early stage. Integrated working, which involves the supply chain early on in projects, generates efciencies

in both the design and construction stages. The whole team is able to inuence the planning o the project, its

design, and the management o risks and costs. Issues which might have arisen urther down the line, leading to

costly re-working o the initial design, can be addressed at the outset. In so doing, early engagement promotes a

more realistic costing and bidding process.

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C3. Selecting the head contractor and specialist subcontractorsHead and specialist sub contractors are generally selected on the basis o capacity and price. However experienced clientsunderstand that low prices may mask a lack o understanding o what is required to realise a design and deliver requiredunctionality, and will test the capability o low bidders and their understanding o the project beore accepting a low price.

What is not so well understood is the nature o the project process itsel, creating a temporary enterprise made up osometimes a multitude o organisations which are relative strangers to each other, or a single project. Little attentionis paid to matching the attitudes o key team members. Less is paid to whether they will work well as a team. Careulattention should be paid to putting in place appropriate and ecient communication protocols as the potential ordisputes to arise rom poor communication protocols is considerable.

Whilst the industry seems to be able to make superb technical construction and engineering skills available to its clients inthis way, it has not spent enough time or eort in making sure the necessary level o management and human resource skillsare available to manage each new temporary enterprise as it is created.

Collaborative delivery strategies such as alliances embody processes that demand that project team leaders work well

together and draw on each others strengths towards achieving common project objectives, as well as cost and capabilityconsiderations. There is no reason why similar approaches cannot be used in other delivery strategies, using ocusedtask-driven events to test how people work together e.g. developing shared objectives, preparing risk/reward equations,preparing programs, and so on.

Research identied in the course o the Construction Innovation project points to the benets o collaborative orms oprocurement, and the need or such orms o procurement to be based on the development o relationships between thevarious parties. The research makes the point that this requires an iterative and evolutionary learning process with threeimportant characteristics commitment, trust and cooperation.

20

Collaborative procurement can take many orms. Partnering and alliances are examples, with alignment o objectives towardsa common business objects as a common thread. Collaborative procurement, virtually by denition, requires an approachthat includes clear articulation o project scope, shared values and objectives, and open and transparent risk sharing.

21

As discussed earlier, the growing use o ECI strategies is another example o new thinking that ocuses on collaboration toimprove results and decrease the risk o disputes.

20

Davis, PR (2004) Relationship development in construction partner selection COBRA 2004 International Construction Research Conerence o the Royal Institution oChartered Surveyors, 7-8 September, Leeds Metropolitan University, Leeds, United Kingdom.

21

Walker, DHT and Hampson, KD (2003) Developing cross team relationships in Procurement strategies: a relationship based approach by DHT Walker and KD

Hampson, Blackwell Science, Oxord, United Kingdom, p. 297.

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24

D. Avoiding disputes the role o

contractors and designersD1. Contractors response strategiesThe way in which problems are addressed by contractors and designers is substantially dependent on the way head contractconditions are drated and interpreted, the way in which they are refected in sub-contracts, and the skills and experience okey project team leaders and their problem solving capability. In other words, both process and people issues are at play.

Project sponsors may seek to limit exposure to construction risk, and avoid disputes, by using risk averse procurementstrategies and matching contract conditions. These strategies are known to experienced contractors and trade contractors,who have developed strategies o their own in response:

where market conditions permit, head contractors and subcontractors attempt to include time and costcontingencies in their contract conditions, to protect their commercial positions

the extent to which they are successul in doing so infuences their approach to problem solving. I they havesucient time and cost protection, they are more likely to accept a solution to a problem that involves givingup cost or time, than would be the case i they are under time and/or cost pressurewhere they are unable to gain the comort o contingencies, the project leaders appointed to manage theinterests o either the head contractor or subcontractors, may be selected on the basis o their capacity toexploit technical and commercial loopholes as well as their ability to deliver the project.

The consequence or the client is likely to be that either that too much may be paid, or that the cost and aggravationassociated with loophole engineering and possibly disputes are endured.

D2. Management o changeWithin the envelope o project environment decisions made by project sponsors, the project team and its decision makersmust manage the triggers which cause disputes. These can be described generically as change events. The response to achange event may be centred around three infuences:

behavioural and situational leadershipcausal and actual driverscontractual and process drivers.

The change outcome depends on the infuences these three aspects bring to the change event.

Figure 3: Change model22

22

Barry, A (2008) Change Events and Meta Processes, Dispute Avoidance and Resolution discussion paper.

CHANGE

EVENT

Situation

Behavioural Environment

Leadership

Contract &

Risk

Allocation

Factual

Causal

Factors &

Interventions

Change

Outcome

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Each o these aspects in simple terms, imposed on a change event, can bring about dierent change outcomes. In buildingon the model described above in Figure 3, we can look at these infuences and outcomes and provide descriptors which lookat the range o inputs, impacts and outputs involved. A typical set o descriptors are set out in Figure 4.

Figure 4: Descriptors23

A dispute can arise when one or more o these infuences on a change event is not managed or led eectively. As observedearlier in this report, managing changing circumstances is an essential element o any project delivery process. It is hard toconceive o a project where changing circumstances do not arise.

Particularly in large projects, clients, designers and contractors are simply unable to achieve a successul project outcomewithout eectively managing the changing circumstances inevitably encountered as the project progresses.

However, being task ocused and outcome driven, the practices used in the industry to manage this change process aretypically less than sophisticated when it comes to motivating people to succeed together. That is, the processes used bythe industry to deliver the projects and by the organisations involved in the projects do not always achieve the agilityrequired to deliver change eectively.

In considering the infuences on change events described earlier, there are three elements o change management which

are vital to success. In conceptual terms these are:

the what changethe how change process and communicationthe who the people and the organisations involved.

The industry is very competent at managing the what. It is that very strength in quickly identiying a solution outcome, anddriving to achieve that outcome, that oten creates a circumstance where:

there is absence o or inadequate processthe change is not well communicated to the organisations and people involvedthe impact on the organisations and people involved is not adequately considered.

23

Barry, A (2008) Change Events and Meta Processes, Dispute Avoidance and Resolution discussion paper.

CHANGE

EVENT

Situation Behavioural Environment Leadership

FactualCausalFac

tors&

Interventions

Change

Outcome

Contract & Risk Allocation

Agreed

BalancedClear

Accepted

Unclear

Misaligned

Contrived

Destructive

Aggressive

Oppositional

Controlling

Supportive

Achieving

Constructive

Castastrophe

Unexpected

Unanticipated

NonconformMistake

Development

Planned

Gain

Learning

Solution

ResolutionNegotiation

Disputation

Litigation

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This may range rom a simple ailure to communicate, through to assumptions about the impacts on people and organisationoutcomes, and the adoption o a solution which in act is damaging to one o the participants. In other cases, people areconstrained in their ability to change or manage change by external circumstances, or lack o authority rom within theirown organisations. Regrettably there are still occasions when people on site are not given authority to act rationally.

Ideally the project team will implement communication protocols, starting with induction o every person starting work on theproject, that ensure everyone is ully aware o:

the context in which they are workingproject objectivesparticipants objectiveskey success actorsthe interactions between the roles and responsibilities o dierent team members.

D3. Project management processesThere is a set o project management processes that sit above other project processes and are designed to manage theinfuences on project activities. For example, project control, design and various other types o project meetings ollow anagenda and involve participants adopting protocols which are usually agreed and relatively straight orward. These are otentermed meta processes. The meetings meta-process looks at the behaviours o the participants and what remains unsaidbetween the parties, and considers the behavioural responses and the project team culture to the extent it is infuenced bythe way meetings are conducted.

The meta-process management concept is concerned with the how rather than the what, o team relationships anddecision making. With apologies to the author o an old proverb, it encourages people to be as comortable with eachother as i they had been the best o riends or a very long time, but as courteous as i they had just met.

Here is an example. A participant in a project meeting makes commitment which on a regular basis is reviewed by hissenior manager back in the oce. Then however, an alternative position is put, but outside the meeting ramework, requiringrework and continual change. The causes why such behaviours are adopted may range rom unhelpul manipulation tomicromanagement, or genuinely trying to be helpul. Nonetheless, this conduct is disruptive to the project team, damagingto condence and can cause participants to be continually revisiting decisions and redoing work undertaken as a resulto the agreed outcomes o the meeting. This kind o conduct can lead to rustration and discontent, and sometimes moreserious dysunctional behaviours among project team participants.

The meta-process would be used here or early identication and management o poor behaviours and poor processimplementation. Examples o meta-process being used in our industry include alliance contracting methods, and the useo dispute resolution boards (DRBs). Partnering was another attempt to create a meta-process concept.

One o the key eatures o the alliance model is the creation o an alliance leadership team, which is ocused on best-or-project outcomes and with providing the alliance management team with appropriate oversight and shared governance.

By doing so, many o the infuences on change are eectively managed and aligned with the perormance outcomes.

It is open to project teams ormed under other delivery strategies, to borrow rom the alliance model, and provide or aleadership team, made up o people not directly involved in the day-to-day management o the project, to ocus on thequality o relationships and the playing out o roles and responsibilities with a best-or-project ocus. An alternativeapproach is to appoint a project coach, whose role is to monitor the behaviour o the project team, and that o theclient, at regular intervals, to fag possible problems and encourage open communication to address them.

Another approach is to appoint, at the outset, a DRB to deal with issues that cannot quickly be solved at project site level.The DRB may be one or more people, charged with inormally advising parties on issues as they arise. The experience o theindustry in Australia with DRBs is that i appointed early in the lie o the project, the parties are oten motivated, as a mattero proessional pride, to resolve issues promptly rather than be seen to require the services o the DRB.

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D4. Project start upIn their 2001 study or the Property Council o Australia, Crow and Barda

24

ound that about 10% o projects are excellentprojects in terms o wealth/value created. Wealth/value refects matters such as project outturn cost, timely completion,quality and unctionality, ongoing operating and maintenance costs, return on investment, and ongoing business and

personal relationships.

The excellent projects analysed by Crow and Barda used a mix o procurement strategies. The common eature o theexcellent projects is that they avoided the underlying causes o disputes, with a strong ocus on inormed client leadershipcreating project environments within which all parties were able to ocus on common project objectives i.e. achieving time,cost and quality targets, whilst enjoying working together.

The 10% o projects that are excellent projects created an average o about 30% more wealth/value than the averagewealth/value created by the other 90% o business as usual and risk averse projects. One conclusion rom that work isthat the causes o wasted eort embedded in business as usual processes, are also possible causes o disputes.

All projects require the development and implementation o particular project management elements including

communications protocols, programs, risk management registers, design coordination protocols, quality managementprocesses, and value management studies. I these are undertaken collaboratively and involve key designers and specialistsubcontractors, the very act o involvement is likely to create ownership o the outcomes, and an environment thatencourages proactive issue resolution.

Each o these project management tasks generates an output and, i undertaken collaboratively, the outcome is a positiveproject culture, based on open and transparent working relationships.

This kind o collaborative work is able to take place regardless o the project delivery strategy put in place by projectsponsors, provided the head contractors site management team is suciently experienced and prepared to undertake it.One o the contractors interviewed or the Construction Innovation research makes the point pithily and well:

25

24

Crow, TW and Barda, P (2001) Projects as Wealth Creators Property Council o Australia.25

Love, P, Davis, P et al (2008) Causal Ascription o Disputes in Construction Projects.

but actually you can have, as long as you are careul in your selection o the contractor and youre vigorous

about how you deal with risk within the contract price a great relationship on a fxed price contract. But at

the end o the day it comes down to personalities, not the procurement strategy.

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E. Managing disputesWhilst the primary ocus o the Construction Innovation project has been on strategies or the avoidance o disputes, it is

recognised that i an issue cannot be readily resolved at site level, there should be a ramework or resolution o issues.

The objective is to deliver a commercial ramework within which project sta are able to behave positively, and whichencourages collaborative issue resolution. As mentioned in the previous section, a number o project management tasksmay be used to give the leaders o head and trade contractors project teams the opportunity to work together and buildpositive working relationships, based on open and ecient relationships and communication protocols.

These will include a ramework or ormal issue resolution, ocused on rapid identication o issues, and escalation oissues that cannot be resolved by agreement at site level, to the lowest possible level o o-site negotiation and resolution.Formal resolution may be aided by the use o processes involving independent monitoring o project issues, and coachingto assist in their resolution.

All proactive issue resolution processes have a common philosophical basis, namely: optimising the management andresolution o issues that may arise during perormance o construction contracts and minimising the likelihood o resolutionextending beyond the project team.

A primary dierence between situations that avoid disputes on a project and those that do not is that disputes areavoidedwhen the participating organisations and the project team working together have the ability to develop an opencommunication strategy regarding issues o concern to a participant to and are committed to resolving issues in aproactive, cooperative, and timely manner as they arise.

Eective issue resolution should be understood or viewed in the context these two elements: ability and commitment.

Abilityincludes enabling elements such as:

a contract and organisational policy ramework which supports and promotes proactive issue resolutioncommunicating with all parties eectivelyidentiying a solutionnancial capacity to bear the outcomeauthority to resolve an issuebeing personally able to accept the consequences and move orwardrelationships that will support resolutioninterpersonal skills to negotiate an outcome.

Commitment includes enabling elements such as:

wanting resolution and an ongoing healthy relationship

time and opportunity to communicate with the right peoplepersevering to nd a solution which is acceptable to all partiesthe preparedness to accept the nancial outcometaking responsibility or the outcomeaccepting the consequences or the outcomecommitment to an ongoing healthy relationship beyond resolution.

For the most part, these enablers are put in place by the participants and their advisers through their organisations policiesand practices. The ability and commitment o the project team to resolve issues that arise on their project will enhance theireectiveness in delivering a successul project outcome.

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However, without these enablers the project team is constrained in delivering a successul project outcome. The eectivenesso the project team is constrained by the extent to which the enablers are out o alignment with or where incompatibilitiesexist between:

success and the project objectives and scopeparticipant organisations and their policies and practicesmembers o the project organisationthe roles o the participants and the contracts including the terms and the scopethe behaviours adopted by the project team.

Eective issue resolution will seek to resolve issues as they arise and beore an issue results in a dispute over, say additionaltime, additional cost and poor quality. That is, it seeks to avoid claims as well as disputes.

There is a general dissatisaction across the construction industry with respect to reactive dispute resolution processesbecause o, or example:

the excessive time and cost o the dispute resolution processesthe slow, cumbersome and negative nature o many dispute resolution processesthe adversarial behaviour and blame gamethe breakdown o cooperative and trusting relationshipsthe protracted and uncertain outcome o the reactive dispute resolution processes.

Several processes have been developed to assist project participants in working together to gain the benets o alternativeissue resolution, including:

issue resolution managed directly by the project participantsdispute resolution boardsproject mediation (not to be conused with alternative dispute resolution).

The issue resolution strategy adopted or any particular project should refect the nature o the project and the preerenceso the client and the other project participants.

In this regard, or example, or larger projects (say greater than $30 million in contract value) and increasingly on smallercontracts, the use o DRBs on contracts is seen as an eective strategy to avoid disputes. The approach is proveninternationally, is readily adapted to most contract types, typical contract clauses are readily available and there is anincreasingly experienced pool o DRB practitioners available in Australia.

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F. Project defnition and briefngF1. The project initiation processApart rom being complex and unique in nature, as a system, construction projects are dynamic, passing through severaldiscrete phases o initiation, documentation and delivery. In addition, most projects are suciently unique to have many othe characteristics o a prototype.

This one-o nature o the construction industry increases the importance o careul initiation.

Although each construction project may be unique, thorough project initiation is generic in nature and can be applied toany project, through key steps:

1. project denition and brieng2. ensuring contractor and specialist contractor input to design3. selecting the head contractor and specialist contractors.

The relationship between these is shown in the project initiation process in Figure 2.

Selecting the project initiation teamAt the outset, clients should employ (or appoint) a person with the skil ls and authority necessary to exercise the clientsobligations. These include overseeing careul and thorough project initiation, making decisions and taking responsibilityon behal o the client during design, construction, and issue and dispute resolution.

Many o the organisations appointed at this early stage will be likely to be involved in the project as it progresses pastinitiation, to detail design, documentation and procurement. The ability o designers in particular to work collaborativelywith a head contractor and its subcontractors is an important actor in determining the initial selection o designers.

There are considerable benets in having the early involvement o contractors in design. They bring experience oconstruction processes, in many cases also have signicant knowledge and skill to oer in design, and are able tosuggest options during strategic value management.

It is hard to overstate the importance o the client selecting a team that includes contractors and that will work well togetherat this early stage, in reducing the scope or later misunderstandings and disputes. Those who have played a meaningulrole in determining strategic design options, and considered buildability/constructability issues, are ar more likely to havetheir objectives or the project aligned with those o the client. The benets o early involvement o contractors are exploredin greater detail in Section C.

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Key outcomes rom a careul project initiation process will include achievement o theollowing elements o the dispute avoidance checklist.

1. Identiy needThe need being addressed by undung a construction project should be clearly identied and

articulated. The project may deliver an asset that satises a business need (creating wealth measured

in dollars) or a social need (improving services to a community rom a new school, hospital road or

other acility). Designers and other advisers should have a clear understanding o the need to be

able to suggest design options and develop concept designs.

2. Project team selectionDesigners and other advisers are selected based on their ability to work well together as a team,

as well as their technical skills and track record. Particularly with more complex projects, greater

certainty o cost and constructability is achieved when the client engages a head contractor and

key subcontractors to work with engineers, architects and other advisers on option development

and early design and planning work.

3. Scope o workThe scope o the work and the unctionality or perormance characteristics to be delivered by the

asset should be clearly documented. This should include the time within which the asset is required,

and take into account the characteristicsa o the site on which it is to be constructed, including

Documents

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