Litigation Proneness of Dispute Resolution Clauses in Construction Contracts

Abstract

Disputes are a common occurrence between parties to construction contracts all over the world. Disputes affect project progress and strains relationship among parties to a contract. Dispute resolution (DR) clauses are drafted to facilitate amicable settlement instead of confrontational litigation, thereby helping to preserve the working relationship. However, there are instances in which DR clauses contain provisions contrary to this objective, resulting in disputes ending up in courts. Legal battles are often drawn out and expensive, adding no value to the project objectives. While researchers have explored dispute proneness of construction contracts, a focused research to understand the disposition of DR clauses in construction contracts toward litigation seems lacking. For this reason, the authors analyzed the DR clause provisions of 14 different forms used predominantly in India, the United States, and Europe. A list of five major factors (covering 13 subfactors) that affect the litigation proneness of construction contracts was first developed from the analysis of contract forms. In order to test the significance of the identified factors, a questionnaire was distributed to a cross section of respondents from different parts of the world but predominantly from India. Two subfactors, “provisions that exempt certain clauses from arbitration” and “time bar provisions,” among the 13 identified, were significant in predicting the litigation proneness of DR clauses. With these insights, the study is expected to guide parties to draft construction contracts that can minimize the instances of litigation through use of provisions that support alternate dispute resolution (ADR) options instead of litigation.

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