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To litigate, arbitrate or mediate, a point of view by Dr. Mohana Raje

​This article discusses Mediation in Construction contracts. All big and small construction industry projects are highly technical, sensitive and people oriented. This article introduces mediation as a dispute resolution method in the industry. This article will cover in brief about mediation and its relevance and importance to the construction industry.
alternative dispute resolution, construction contracts administration, Contracts Management, dispute resolution, litigation, mediation, time and cost overruns
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The Civil Engineering Industry

The civil engineering industry is a specialized one, with its own practices, techniques and processes. The construction process itself (even for a small project) involves many skills, material handling, and literally, hundreds of different operations. Each construction project is a new and different experience with the combination of different site conditions and the creation of a new constructed premises.[i] The total development of a project normally consists of several stages and phases, with each requiring a wide range of specialized services. Inputs from diverse areas such as financial organisations, governmental agencies, engineers, architects, lawyers, insurance and surety companies, contractors, material manufacturers and suppliers, and building tradesmen are required while progressing from the initial planning phase to project completion.[ii]

The main parties in the industry are the clients (owners of the project) at one end and consultants, contractors and sub-contractors at the other. One feature common to most construction activities is contracting. There is generally one main contract between the clients and the contractor and there are other contracts between the contractor and sub-contractors, client and the consultant or if the consultant is appointed by the contactor, then between the contractor and the consultant.

There may be only one contract, if the work is small in scale. Such a project results in a number of horizontal contracts. Otherwise, there may be several contracts, where the project is of a large magnitude. A large project is typically complex and there may be a hierarchy of contractors, involving one or more sub-contractors with complex responsibility structures. These are vertical contracts. Any contract, whether for a small or a large project, should be consensual and should have defined legal consequences whatever the nature and magnitude of the contracts involved.[iii]

Several parties and organizations have to work in harmony and accord planning and execution of a construction project. The smallest of the deviations affects numerous parties causing amongst other things, cost overruns and delays possibly leading to disputes, resulting in acrimonious legal contests.

Disputes in the Civil Engineering industry and its resolution

Civil engineering involves a wide range of stakeholders having links with other activities such as manufacturing and the use of materials, energy, finance, labour and equipment. About 250 ancillary industries such as cement, steel, brick, timber and building material are dependent on the construction industry because of the chain of backward and forward linkages that the sector has with other sectors of the economy.

Due to the very nature of the industry being marred with uncertainties, with so many parties involved as elaborated above, the existence of contracts defining the obligations and remedies, disputes are inevitable. Such disputes in the construction industry are generally resolved amicably but frequently, these reach the dispute resolution path. The dispute resolution mechanism in the Civil engineering industry in India is the same as for resolution of all other disputes in India, viz. litigation and alternative methods of dispute resolution. There are no special or different provisions or methods available for the industry. The applicable laws are the same, those which are applicable to all contracts in India.

The conventional path to dispute resolution has been through litigation. However, with the advent of the Arbitration and Conciliation Act, 1996, it has become common to resolve disputes using Alternate Dispute Resolution or ADR.

ADR means Arbitration, Mediation or Conciliation.

Arbitration under the Arbitration and Conciliation Act, 1996 is an alternative to litigation in courts and is advantageous as it provides flexibility and confidentiality. According to Black Law Dictionary, it means a method of resolving disputes which includes two parties and a neutral third party whose decision is binding on both parties.

There are two principal enactments that deal with mediation in India is a voluntary, binding process in which an impartial and neutral mediator facilitates disputing parties in reaching a settlement without going through a trial – the Civil Procedure Code (CPC) and the Arbitration and the Conciliation Act (ACA), 1996. Section 89 of the CPC and the rules framed by various high courts under that section deal with court-annexed mediation whereas Part III of the ACA deals with private mediation. Part II of the Civil Procedure Alternate Dispute Resolution and Mediation Rules (the Mediation Rules) also provides for various rules relating to mediation.

Other legislation that covers mediation is the Commercial Courts Act 2015, whereby it is mandatory for parties to exhaust the remedy of pre-institution mediation under the Act before instituting a suit. The Commercial Courts (Pre-Institution Mediation and Settlement) Rules 2018 (the PIMS Rules) have been framed by the government under the Act. These laws are not based on the UNCITRAL Model Law on International Commercial Conciliation.

Research conducted Dispute Resolution with respect to Civil Engineering contracts in India with Civil engineers, Arbitrators and Lawyers as respondents for factors related to the basic feature for the successful completion of the project – time and costs :

  • The timely resolution of disputes is very important for the image of the industry, and for
  • The parties, when a lot of money is at stake.

Through a questionnaire, the researcher has tried to get the perception of the appropriate form/method like litigation or Alternative Dispute Resolution process affecting the timely and successful completion of the project and the protection of the rights of the parties. The Researcher carried out Statistical Multivariate Analysis using Factor Analysis.

This study was useful for the researcher to understand whether changing trends in the mechanisms of dispute resolution in the international scenario has any influence on the trends in ADR in the civil engineering industry in India.

In this study it was found out that amongst all methods for dispute resolution ‘Mediation’ is arguably the most satisfying of dispute resolution methods.[iv] To avoid or minimize disputes and the financial and time costs arising from litigation and arbitration, mediation has been found to be a very effective process for the resolution of these disputes.

  1. Construction Project Management, Richard H. Clough, Glenn A. Sears, S. Keoki Sears, John Wiley & Sons, 20000471324388, 9780471324386
  2. A Critical Review of Construction as a Project-based Industry: Identifying Paths Towards a Project independent Approach to Construction, R. Vrijhoef, available at: http://www.irbnet.de/daten/iconda/CIB6804.pdf
  3. Construction Contracts: Some Legal Aspects, P.M.BAKSHI, Available at: https://www.scribd.com/document/456865346/ICA-Contract-Law
  4. Ph.D research by Dr. Mohana Raje, 2018

We shall go into details of mediation in the second part of this article.

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