SUPERVISING THE CONSTRUCTION INDUSTRYS MARKET TURMOIL AND PRICE ESCALATION: METHODS FOR EFFECTIVE DISPUTE RESOLUTION AND RISK MITIGATION BY - ADITI PODDAR & MANSI RATHI
SUPERVISING THE
CONSTRUCTION INDUSTRY'S MARKET TURMOIL AND PRICE ESCALATION: METHODS FOR
EFFECTIVE DISPUTE RESOLUTION AND RISK MITIGATION
AUTHORED BY -
ADITI PODDAR
5th
Year B.COM .LLB (Hons.) Law student at St. Xavier’s University, Kolkata
CO-AUTHOR-
MANSI RATHI
3rd Year LL.B student at SNDT
Women’s University -LAW SCHOOL, MUMBAI
ABSTRACT:
This article mainly portrays about the market
turmoil in construction projects which can lead to price swings, volatility,
and investor apprehension. Therefore, to address these issues, organizations
should implement long-term contracts, alternative suppliers, and technology to
increase worker productivity. Furthermore, price escalation is a serious
problem, with disagreements frequently resulting from poor design, broken
contracts, delays, and unanticipated events. It is also evident that
alternative dispute resolution procedures, such as arbitration and mediation,
can assist in resolving conflicts.
A time of notable volatility and unpredictability
in the financial markets is referred to as "market turmoil." Abrupt
and severe price swings, elevated volatility, and heightened investor
apprehension distinguish it. While market volatility may be a challenging and
scary time for investors, those who can manage it well can take advantage of
unique opportunities. Investors can create methods to take advantage of the
current market conditions and make substantial gains by comprehending the
causes and consequences of market upheaval.[1]
Before being able to propose new remedial measures
to stop the escalation, it is crucial to learn about and comprehend the many
ideas and factors associated with cost escalation. Construction projects
sometimes involve cost overruns and cost escalation.[2]
A construction project usually involves many
individuals with various backgrounds and interests, as well as the coordination
of numerous unrelated but linked tasks. More than any other economic activity,
construction projects are prone to cost inflation due to their complexity.
STAIR-STEP MODEL OF DISPUTE RESOLUTION:
Project managers should exercise caution when
selecting the best alternative dispute resolution (ADR) technique, even if
there are many variables to consider. However, the selected alternative dispute
resolution (ADR) strategy needs to minimize the costs associated with
litigation and guard against project cost overruns (Kirimi & Wanjohi,
2019).
O'Reilly
and Mawdesley's (1994) Stair-Step Model of Dispute Resolution shows various ADR
approaches and their correlation with hostility and costs.[3]
According to the Stair-Step Model of Dispute
Resolution, choosing negotiation as the preferred ADR method leads to cheap
expenses.
Alternative Dispute Resolution provides a variety
of methods for preventing, managing, and resolving conflicts. To handle
different possible conflicts in any relationship or at any point in the
development or escalation of an issue, new strategies are continuously being
created. Four stages— The
parties frequently integrate these strategies—Prevention and Cooperation,
Dispute De-Escalation, Control and "Real Time" Resolution,
Facilitated Resolution, and Binding Resolution—into a system or flow of events.
A Chart of disagreement Resolution Stages and Steps illustrates the increasing
levels of animosity, expenses, and resolution time that characterize an
unresolved disagreement.
DIFFERENT TECHNIQUES FOR RESOLVING
CONSTRUCTION DISPUTES:
·
A popular method
of resolving disputes is negotiation, in which the parties involved, or their
representatives attempt to settle the conflict without the assistance of an
impartial third party. As agreed, upon by both parties, it is a private,
confidential, voluntary, and unstructured process.[4]
Avoiding adopting strongly held positions in the dispute and instead focusing
on finding solutions that meet the requirements and interests of both parties
is one of the traits of direct negotiation that contributes to its
effectiveness. The success of the negotiation will depend on how well the
parties can communicate with one another during the whole process. When a
disagreement arises, negotiation should be the initial course of action and
should settle the issue at this point. [5]
·
It may be
significant to remember that arbitration, like litigation, centers on the
parties' respective legal rights. Sometimes an arbitration process is like a
court case; however, confidentiality is protected in arbitration, and others
cannot attend the hearing unless both the parties and the arbitrator have given
their implicit consent. The primary disadvantages of arbitrations are
frequently attributed to issues around the jurisdiction and level of expertise
of the arbitrator.[6]
·
In the process of
trying to reach a mutually agreeable resolution to their disagreement, the
disputing parties enlist the aid of an unbiased third party, the mediator,
through the facilitative process known as mediation. It follows that utilizing
mediation to settle conflicts is a voluntary process; the mediator serves as a
facilitator in what is effectively a form of "brokered negotiation"
or facilitated negotiation between the opposing parties. Unlike in arbitration
or litigation, where the arbitrator or the court will declare the parties'
legal rights in the form of an award or a judgment, a mediator does not make
decisions on behalf of the parties[7]
·
Board of Dispute
Review Using Dispute Review Boards, also known as Dispute Resolution Boards, to
settle disagreements is another type of alternative dispute resolution. Around
the world, "preventive law" is becoming more and more popular to cut
expenses for projects, legal bills, and time. The board's procedures are
specified in advance in the contract, and the contractor chooses one member,
the owner chooses another (both must approve the other's choice), and a third
is chosen.[8]
CASE LAW
In the context of arbitration, the case of Hindustan Construction Company Ltd. v.
Union of India (2019)[9]
is one related to enforcing arbitral awards. In most instances, the arbitral
awards were challenged by the government department under the Arbitration and
Conciliation Act, 1996**, Section 34 that puts an automatic stay on the
arbitral awards. This would often cause delays for HCC.
HCC argued that this stay mechanism was unequal
because it "prevents the filing of a timely recovery application,
notwithstanding the winning of an arbitration." The NITI Aayog Scheme
permitted partial recovery-75% of the award-and was still cumbersome and
demanding; it also required big bank guarantees, an additional 10% compounded
guarantee annually. HCC assailed it as arbitrary because it goes against the
purpose and efficiency of arbitration.
The case underlines the tension between the rules
placed upon arbitration by the government and the best principles of dispute
resolution in arbitration. The trend of the court ruling is in emphasis on
ensuring that arbitration remains an efficient means for the resolution of
construction disputes while ensuring fairness in requirements to enforce
arbitral awards.
CONCLUSION:
Navigating market turmoil and price escalation in
the construction industry requires a multifaceted approach. Techniques for
Alternative Dispute Resolution that are frequently employed in the construction
sector, along with the benefits and drawbacks of each approach and the
variables that influence selecting a suitable ADR plan when construction
conflicts arise. This study emphasizes how important it is to have effective
and efficient processes in place to deal with disagreements that arise
inevitably in construction projects because of their dynamic and intricate
character. ADR techniques like mediation, arbitration, negotiation, expert
determination, Dispute Review Boards, and adjudication are gradually replacing
traditional litigation due to its time-consuming and expensive nature.
The main risk management techniques that will help
the stakeholders in the construction sector address unintended risk failures
are highlighted in this study. The development of alternative dispute
resolution mechanisms has given people a new avenue for conflict settlement.
Conflicts can also result in monetary losses,
project delays, and damaged relationships, all of which can contribute to the
failure of a construction project. As a result, ADR becomes an essential
remedy. Project managers must decide which alternative dispute resolution (ADR)
method to use to resolve conflicts and successfully complete their projects
within the original timeframes.
[1]
Navigating Market Turmoil (last seen on
15.06.2024)- https://fastercapital.com/topics/navigating-market-turmoil.html
[2] S. Kanchana, Anumol Sukumaran, ‘A Critical Study on Cost Escalation in Construction Industry’, Kanchana
et. al., Vol.5 (Iss.2): February
2018 (last seen on 15.06.2024) – https://doi.org/10.29121/ijetmr.v5.i2.2018.163
[3]
Amila N.K.K. Gamage, Suresh Kumar, 'Review of Alternative Dispute Resolution
Methods in Construction
Projects',13.02.2024 (last seen on
16.06.2024)- https://saudijournals.com/media/articles/SJEAT_92_75-87.pdf
[4]
Sujal Patel, Anand Patel,' DISPUTE RESOLUTION IN CONSTRUCTION INDUSTRY
‘, April 2017,
Volume 4, Issue 04, (last seen on 04.07.2024)- https://www.jetir.org/papers/JETIR1704084.pdf
[5]
Sujal Patel, Anand Patel,' DISPUTE RESOLUTION IN CONSTRUCTION INDUSTRY
‘, April 2017,
Volume 4, Issue 04, (last seen on 04.07.2024)- https://www.jetir.org/papers/JETIR1704084.pdf
[6]
Sujal Patel, Anand Patel,' DISPUTE RESOLUTION IN CONSTRUCTION INDUSTRY
‘, April 2017,
Volume 4, Issue 04, (last seen on 04.07.2024)- https://www.jetir.org/papers/JETIR1704084.pdf
[7]
Sujal Patel, Anand Patel,' DISPUTE RESOLUTION IN CONSTRUCTION INDUSTRY
‘, April 2017,
Volume 4, Issue 04, (last seen on 04.07.2024)- https://www.jetir.org/papers/JETIR1704084.pdf
[8]
Sujal Patel, Anand Patel,' DISPUTE RESOLUTION IN CONSTRUCTION INDUSTRY
‘, April 2017,
Volume 4, Issue 04, (last seen on 04.07.2024)- https://www.jetir.org/papers/JETIR1704084.pdf