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Conditions leading to the decision to litigate contractual disputes in construction

Conditions leading to the decision to litigate contractual disputes in construction

Murali Jagannathan, Venkata Santosh Kumar Delhi

Construction operations, considering their capital and stakeholder intensive, unique, and project-based nature, is an exclusive research domain. Conflicts and disputes, followed by long drawn adversarial dispute resolution processes are an integral part of a majority of construction operations. Dispute resolution is, therefore, a topic of research interest since many decades. Various dispute resolution mechanisms have evolved over years focussing on both time and cost-effective dispute resolution and sustenance of working relationship between parties. However, disputes continue to plague construction projects even to this day (Zhang, Fenn and Fu, 2019), with certain disputes getting escalated as legal battles in the court of law (Sinha and Jha, 2020). While the number of instances that escalate into litigation may be small (Tazelaar and Snijders, 2010), the value (of claim or dispute) associated with those few instances are too large to ignore. Some facts that can help visualizing the litigation climate in India are

  • In the six-lane project of Panipat-Jalandhar section of National Highway 1, due to the stay order by the High Court regarding a dispute (which was later reversed by the Supreme Court), there was a cost escalation of INR 1054 Crore (till February 2018) (PMI&KPMG, 2019).
  • Recently, an article was published in the newspaper revealed that as on March 2018, out of 426 projects of worth INR 1.2 lakh crores that were carried out by road developers, 740 arbitration claims worth INR 1.7 lakh crores were raised by the developers and further INR 37200 crore counterclaims were lodged by the employer NHAI (Dash, 2019).
  • A study on the balance sheets of selected construction infrastructure organizations over the last ten years, indicate growing expenses towards legal charges as shown in figure 1 (financial data sourced from the database of Prowess IQ).

It is a well-documented fact that courts in India are grappling with the problem of huge backlog of pending cases that are leading to delays in dispute resolution. When construction disputes are litigated, such delays set off a vicious cycle breeding further instances of litigation (Chemin, 2010) as shown in figure 2.

Existing research in this direction largely focuses on the conditions leading to the choice a particular dispute resolution method (Chan, Suen and Chan, 2006; Haugen and Singh, 2015).  The difference between disputes and litigated disputes are often ignored by researchers leading gaps in understanding the reasons that motivate parties to litigate (Jagannathan and Delhi, 2020). The focus of this research, therefore, will be on finding out the conditions that can escalate a construction dispute to the litigation, notwithstanding efforts to resolve such disputes amicably through alternate dispute resolution methods.

Research Question, methods, and progress

Figure 3 presents the five major research questions in the study and the methods being followed to answer these questions and the progress so far. The five-step methodology consists of quantitative, qualitative and Artificial Intelligence/Machine Learning (AI/ML) based research methods.