In this exclusive extract from Dispute Avoidance: A non-confrontational approach to the management of construction contracts by D. Bryan Morgan, we introduce the typical stages in a construction-related dispute.

Latent and emerging

A latent dispute can arise at the start of a contractual relationship or at any time during its currency. It occurs when one of the parties recognises that it has issues that bother it but which are not significant enough at the time to cause the party to raise them officially with the other party.

A latent dispute becomes an emerging dispute when a trigger event occurs or when the effects of differential power, resource problems or differing interests make it incumbent upon one party to raise the issue of concern to the other. Up until that time the party recognising the latent dispute will have been content to carry on with its work in the hope that either the potential dispute can be overcome or that circumstances will develop such that there is no need to pursue it further.

The dominant party is very often unaware of the existence of a latent dispute issue or of tensions between the parties, although the less dominant party may well have been aware of it for some time.

If no trigger event occurs, and if the less dominant party feels that overall it is not disadvantaged by the contract, then the latent dispute might never develop further. The less dominant party may be able, by the use of well-designed strategies, to overcome the latent dispute before it emerges into a full-blown dispute. This is the optimum situation and should be encouraged where possible.

Trigger events may result in expectations being revised or threats being perceived. These in turn change the status of longstanding but latent grievances, causing them to become a full-blown dispute. If these trigger events are recognised before they occur it should be possible to defuse potential dispute situations before they come into being. This must be the objective of all parties to a contract if they are to prevent escalation of the dispute and the inevitable costs that its resolution will entail.

Escalation/ institutionalisation

As a dispute develops and extends over a period of time, so the chance of its escalation increases. Escalation is the increase in intensity of a dispute, often where substantive debate is overtaken by personal impressions, interests, distrust and confrontation. Escalation can change a tractable dispute into one that is virtually impossible for the parties to resolve without outside assistance.

There are five changes that occur when a dispute escalates:

  • Parties move from light tactics, such as persuasion, promises and compromise efforts, to heavy tactics such as threats and power play
  • The number of issues in dispute increases
  • Issues move from specific to general, and relationships between the parties deteriorate
  • The parties to the dispute grow in number as other players get drawn in
  • The goals change from reaching a mutually acceptable compromise to winning at all costs.

Escalation can lead to the end of negotiations and the adoption of alternative means of resolving the dispute. There is a general worldwide trend, particularly noticeable within the UK and the US, to institutionalise these forms of Alternative Dispute Resolution (ADR). This has the effect of taking the dispute out of the hands of the parties and placing it within the institutionalised mechanisms, to be resolved under the rules and procedures established by the particular institution concerned. Such institutionalised provisions for dispute resolution have developed largely because of the reluctance of individual parties to opt for ADR voluntarily. Institutionalised ADR helps the parties overcome barriers which they would otherwise have been reluctant to cross, and contributes significantly to the settlement of disputes that have escalated beyond the inter-party negotiation stage. It is hoped that as this institutionalisation of ADR spreads throughout the EU, some degree of rationalisation of the laws, processes and procedures to be adopted will take place, so that there will be a uniform approach at least throughout all EU member states.


Negotiation of a dispute is the process of bargaining that takes place between the parties. At this stage discussions are held concerning the issues in dispute, aimed at achieving conciliatory give-and-take agreements that are mutually acceptable to each party.

The four primary stages in negotiations are:

  • Preliminary introduction of parties to negotiation
  • Agreement on objectives of negotiation
  • Negotiation process proper
  • Review and finalisation of agreements reached.

Negotiation is as much about tactics as it is about being convinced of the strength of one’s own case or about being totally familiar with all the commercial and technical aspects of the subject matter of the negotiations. It can be undertaken in an atmosphere of relative cooperation, as when all parties are seeking a solution that is mutually acceptable and beneficial (a win–win situation), or can be confrontational, where one or more parties intend to prevail over the others (win–lose situation).

The secret of successful negotiations lies in comprehensive and effective planning. Before the start of negotiations each party should consider the following points:

  • Goals – what does it want to get out of the negotiations and what does it understand the other party wants?
  • Trades – what does it have that it can trade and how comfortable would it be in trading it? Also what does the other party have to trade and would this trade be acceptable?
  • Alternatives – what is its BATNA? Is this good or bad and how likely are the parties to proceed with this alternative?
  • Relationships – what is the history of the relationship between the parties? Could this influence the negotiations, will there be any hidden agendas, and how can these be managed?
  • Expected outcomes – what are the minimum acceptable results that each party would be likely to accept (bottom line)? What are the expectations of higher management and can these be accommodated or modified?
  • Consequences – what are the consequences for each party of winning or losing?
  • Power – who is the dominant party in the relationship? Who controls resources, including finances? Who stands to lose the most if agreement is not reached? What power does one party have to actually deliver the results the other party hopes to achieve from the negotiations?
  • Possible compromise solutions – based on all the considerations, what possible compromises might be forthcoming from either party?

If the negotiations are only approached after first fully exploring these points, then each party should be more aware of its objectives, the methods it can employ in achieving them and the extent to which it can continue the negotiations before reaching the stage where it is clear that further negotiations would not be viable.

‘Loop back’

There is little chance of negotiations being successful if one party believes that it will gain more by pursuing an alternative approach, such as using one of the recognised ADR procedures, than it would by continuing the negotiation. Very often, however, the alternative procedure does not run the full course and the parties agree to ‘loop back’ to negotiation. This would tend to happen after the parties have held several preliminary ‘alternative approach’ hearings and each has established the other’s strengths and weaknesses to a greater extent than was possible during the original negotiations. The parties are then placed in a better position to work out a mutually acceptable negotiated settlement.

‘Loop back’ may not work the first time around, and it may take several attempts before a settlement can finally be reached. The advantage of taking the dispute out of the more formal procedure and back to the negotiating table is that by doing so the parties regain control of the settlement agreement, and so will not have one imposed upon them by the independent person or body authorised or empowered to do so under the ADR procedure.


Negotiations cannot always be successful and some will inevitably reach a stalemate situation. This need not automatically lead to a complete cessation of discussions and the instigation by one party of the next stage in dispute resolution required under the contract.

The first breakdown in negotiations, and maybe one or two subsequent breakdowns, can be classified as the ‘hurting stalemate stage’, where neither side can win but neither side wants to back down and accept a loss. Despite the parties’ understanding that they have reached a stalemate in their negotiations they often find it difficult to transform their attitudes towards the dispute in the hope of reaching a settlement. Their views have become polarised and they are reluctant to compromise their opinions even though they are aware that this is probably the most sensible and cost-effective approach to take.

Leaders fear suffering a loss of face should they concede any of the points they have been propounding so strongly during the negotiations. They lose track of the most basic intention of the negotiations, which is to try to reach a settlement acceptable to all the parties to the dispute.

This is the optimum time for the parties to call a temporary cease to negotiations. They should withdraw and reconsider their attitudes towards the dispute, their tactics (both those which they have employed in the past and those which they need to consider using in the future), and the personnel who have been leading the negotiations to date. This is the time to decide upon the changes which have to be made to allow the negotiations to reconvene in a meaningful manner.


After the negotiations have been called to a halt following the acceptance by the parties that a stalemate situation has been reached, the parties should spend time reflecting on what they have achieved so far and what they should be doing to build on this to achieve a settlement.

The negotiating team that has represented a party up to this point may have gone as far as it can go and either the team itself or higher management might consider this to be the time for de-escalation measures to be introduced, possibly including changing some or all of the team members in order to bring new life to the negotiations. This need not necessarily mean a total change of the party’s strategy, but should include a modification of its attitudes and objectives so that the other party gains a positive perception of its continuing intentions to negotiate to a settlement. Negotiations could then be resumed, with the new team offering the other party a chance of compromise which was not previously apparent.

If the reconvened negotiations fail, a decision has to be made on whether it is worth trying again or whether the time has come to call on the services of outside bodies to assist in resolving the dispute. The contract will in all probability contain specific requirements as to whether the dispute should immediately be referred to arbitration or whether there should be an intermediate stage adopting some other form of ADR, such as mediation or third-party adjudication.

Irrespective of what the next stage is, the parties should take time to prepare their cases with care and precision. It is hoped that this would have been done before the dispute negotiations started; however, it is far from unusual for parties to enter into a dispute negotiation scenario without adequate preparation. This is a deplorable situation and should be avoided at all costs. Even if such pre-preparation has been undertaken properly, each party should still take time to review its material, taking due consideration of both the impression it has gained of the other party’s case and the supporting detail the other party put forward during the negotiation stage. The negotiations might have been held ‘without prejudice’, which would restrict the extent to which a party could introduce statements made and documents presented to the negotiation table in its subsequent representations.

ADR/ arbitration

Various methods of ADR are available to the parties, and if the contract does not specify which method has to be invoked following a breakdown in negotiations, the parties are at liberty to agree on which method to adopt.

The ADR methods most frequently adopted in construction contract disputes are mediation and third-party adjudication. Arbitration, which is not generally viewed as an ADR method, is often a preferred option to litigation, albeit a potentially expensive one. It is not the intention of this book to explain in detail the application of these various methods of ADR as there are many books in the marketplace dedicated to this subject. It is worth mentioning, however, the benefits of adopting one of these should negotiations fail.

The most relevant benefits of these methods are:

  • Disputes are dealt with quickly and are controlled to a large extent by the parties
  • Overall they are less costly than litigation
  • They encourage ‘business’ people to develop and adopt ‘business’ solutions to ‘business’ problems (i.e. the results are more likely to be based on commercial and business sense rather than on purely legalistic reasoning, although the latter cannot and must not be ignored in reaching the commercial decision)
  • They allow for more creative remedies and outcomes compared with litigation
  • They provide a self-regulatory approach to dealing with disputes if managed effectively
  • They reduce the risk of bad publicity flowing from disputes and the concomitant lowering of morale
  • They offer greater confidentiality than does litigation
  • They reduce stress to all parties, with concomitant health benefits.

Whichever method is adopted, the parties must ensure that disclosure is full, clear and complete. Many disputes escalate due to misleading or incomplete information being disclosed or information not being fully understood by one party.


Disputes are generally disagreements that involve negotiable interests. As explained above, the issues in dispute can generally be settled through negotiation, mediation, adjudication or arbitration. Disputes in the construction industry are generally relatively short term since they will relate to a project which has a defined contract period and they usually lend themselves to the development of mutually acceptable solutions. Dispute settlement is aimed at concluding the dispute and need not necessarily deal with its fundamental causes. However, unless the fundamental cause is eliminated a similar dispute could arise at some time in the future. Therefore, when reaching a settlement every effort should be made to ensure that the fundamental cause is identified and measures taken to eliminate it, or at the very least to prevent further disputes of a similar nature.

The final stage in a dispute will be settlement. This might be achieved by negotiation, in which case the parties should each be satisfied that they have achieved the best possible solution for them, or by ADR or arbitration, in which case one party might not be quite so content with the outcome. The main thing is that the dispute has been resolved and the parties can put the whole episode behind them and carry on with the execution of the project in which they are involved.

About this article

Extract from Dispute Avoidance: A non-confrontational approach to the management of  construction contracts  by D. Bryan Morgan.

Copyright RIBA Publishing August 2008.