Construction Disputes – The Achilles Heel of a Developing Sector

The rule of law is the foundation stone of a society as it ensures order and just conduct whereas its absence leads to chaos. It can only be preserved if the equality of access to the law is maintained. If this access is beyond a citizen’s reach, it only reflects that the rule of law has been compromised. The Right Honourable Lord Woolf, in his report, Access to Justice, aptly summarised this concept in the following words:

Access to justice is a fundamental right and an efficient and cost-effective justice system is of vital importance to the financial, commercial, and industrial life of our country.

The lack of rule of law severely hampers the development of any sector, but its absence particularly impacts a sui generis industry like construction.  The growth of the Pakistani construction sector is stunted because it has to thrive in an environment where laws are not consistently enforced while corruption and bureaucratic inefficiencies flourish, which eventually leads to increased costs and delays.

Projects often suffer from poor quality and delays due to a lack of accountability while safety standards may be neglected, resulting in hazardous working conditions and substandard structures. This instability deters both local and foreign investors and undermines confidence in the sector, stalling potential growth and innovation. Ultimately, the absence of rule of law stifles sustainable development, erodes public trust and hinders economic progress within the construction industry.

This article explores the major reasons behind construction disputes in Pakistan and discusses a potential solution.

  1. Contractual Issues

One of the primary sources of disputes in any construction industry pertains to contractual issues. These can arise from ambiguous contract terms, poorly drafted agreements and misunderstandings about the scope of the contract scope. The Contract Act of 1872 in Pakistan is severely outdated and fails to address modern complexities, particularly within the construction and engineering sectors. Its archaic provisions, such as ‘pay-when-paid’ clauses, unfairly burden contractors, stifling progress and innovation. Such clauses perpetuate a cycle of payment delays, undermining project timelines and quality (CIArb, 2022). The Act’s inability to adapt to contemporary needs not only hampers industry growth but also fosters an environment ripe for exploitation and legal disputes (Chaudhry and Hamid, 2024). Urgent reform is imperative to ensure fairness, efficiency and competitiveness within Pakistan’s construction and engineering landscape.

  1. Payment Delays

Payment delays are another significant cause of disputes. Contractors often face delays in receiving payments from clients, which can disrupt the entire construction process. This issue is particularly prevalent in public sector projects. In cases where payment does not take place, the stakeholders of a project could face serious cash flow issues. The Pakistan Construction Dispute Report (2022) published by the Chartered Institute of Arbitrators (CIArb) Pakistan Branch (the CIArb Report) has indicated payment delays as one of the major causes of disputes in the construction sector, which is in agreement with the findings of Khahro and Ali (2014).

  1. Scope Changes

Changes in project scope (also known as ‘scope creep’) through variations, change orders, etc. are common causes of disputes. These changes can result from design alterations, additional work requirements, or unforeseen site conditions (Farooqui et al., 2014).

  1. Quality of Work

Disputes related to the quality of work often arise when the finished product does not meet the specified standards or client expectations. Various reasons can lead to this, including, but not limited to, the use of materials not meeting specific standards, workmanship not of required quality, or lack of supervision. The works that are poorly executed lead to reworks and increased maintenance costs which almost always lead to disputes (Zubair et al. 2017).

  1. Project Delays

Delays in project completion are a frequent source of disputes. These delays can result from a variety of factors, including weather conditions, labour strikes and logistical challenges. Heeb et al. (2017) have found that a majority of projects in Pakistan face delays. Projects in Pakistan often encounter delays due to a myriad of reasons, including bureaucratic red tape, corruption, insufficient funding, political instability, security concerns and inadequate infrastructure. Additionally, frequent changes in government policies, lack of skilled workforce and socio-economic challenges further contribute to the sluggish pace, thus hindering completion on time (Khadim and Jaffar, 2021).

  1. Communication Gaps

Effective communication is critical to the successful execution of construction projects. Miscommunication or lack of communication between stakeholders can lead to misunderstandings and disputes. The CIArb Report has mentioned this to be one of the top reasons for construction disputes in Pakistan and appears to refer to it as “Behaviour and Competency of People” which confirms the conclusions of Rashid (2020).

Case Study: The Orange Line Metro Train Project

A notable example of a construction dispute in Pakistan is the Orange Line Metro Train Project in Lahore. This project faced numerous disputes related to contractual terms, payment delays and regulatory compliance. The project, initially estimated to be completed in 2018, was delayed by almost 2 years due to these issues. The delays and associated cost overruns significantly impacted the project’s overall budget, highlighting the critical need for effective dispute resolution mechanisms (Waheed, 2022).

Dispute Resolution Mechanisms

The construction industry in Pakistan employs various dispute resolution mechanisms, including negotiation, mediation, arbitration and litigation. The Pakistan Engineering Council (PEC) advocates for the use of alternative dispute resolution (ADR) methods to handle disputes efficiently and cost-effectively.

  • Negotiation

Party-to-party negotiation is usually the first option that parties consider when it comes to dispute resolution in the construction sector. It usually starts with an exchange of emails between the parties and eventually involves direct discussions to reach a mutually acceptable solution. According to the CIArb Report, approximately 50% of construction disputes are resolved through negotiation in Pakistan (CIArb, 2022).

  • Mediation

Mediation involves a neutral third party which facilitates discussions between disputing parties to help them reach a settlement. As per the CIArb Report, mediation in Pakistan successfully resolves around 12-14% of construction disputes (CIArb, 2022).

  • Arbitration

Arbitration is the preferred method globally for resolving disputes where parties hold entirely opposing positions, as it offers efficiency compared to litigation, especially for complex cases. The decision made by the arbitrator is generally binding on both parties but its enforcement is subject to domestic laws of the country/jurisdiction. The CIArb Report indicates that almost 31% of construction disputes in the Pakistani construction sector are resolved through arbitration (CIArb, 2022).

  • Litigation

Litigation is often considered a last resort due to its time-consuming and expensive nature. However, it remains a necessary option for disputes which cannot be resolved through other means. According to the CIArb Report, around 6-7% of construction disputes in Pakistan end up in litigation (CIArb, 2022).

Apart from the methods mentioned above, various other dispute resolution methods are in practice in Pakistan including, but not limited to:

  • conciliation;
  • dispute adjudication boards; and
  • expert evaluation.

Ineffectiveness of Present Dispute Resolution Methods

The issue here is that the present dispute resolution methods, such as mediation, arbitration and litigation, seem to be ineffective for medium or small-scale contractors due to various reasons but mainly because of inherent power disparity. Arbitration is too costly and even if one gets an award in domestic arbitration, its enforcement under the current Arbitration Act of 1940 is another hurdle to cross. Furthermore, litigation is not a viable option as there are already around 2.1 million cases pending, so it takes too long, which severely impacts the contractor’s cash flow. The financially stronger party knows that the financially weaker party has no other option and eventually has to bend the knee, so the party-to-party negotiation, mediation and conciliation, more often than not, does not end in a win-win situation and the weaker party generally suffers the loss by accepting an unfavourable deal (Qadir et al., 2022).

A Way Forward – Statutory Adjudication

One could say that the United Kingdom faced a similar situation before statutory adjudication had been introduced in 1996. The main principle of statutory adjudication can be defined as “pay now, argue later”, with an aim to protect cash flow in a construction project as cash flow is king. Statutory adjudication assists in maintaining cash flow by providing a dispute resolution method that is construction-specific, cost-effective, speedy and gives a decision that is temporarily binding on the parties. If the parties are unhappy with the decision, they can take it to arbitration or the courts, but that is usually not the case, so in practice an adjudication award is very often the final resolution of a dispute (Pickavance, 2021). The following are a few important things to note about statutory adjudication as a process:

  • Time Constraints: The adjudicator, the one who decides the dispute, has to make the final decision in 28 days or 42 days.
  • Statutory Right: Statutory adjudication is the statutory right of a party involved in a construction project i.e. it does not have to be included in a contract.

Since the adoption of statutory adjudication in the United Kingdom, the concept has spread around the globe, particularly to the Commonwealth nations. The table below shows the respective countries which have adopted statutory adjudication, the year in which they adopted it and the statute through which they adopted it. The authors are of the view that it is high time for Pakistan to think about such a construction-specific dispute resolution method as well.

Conclusion

Construction disputes in Pakistan pose a significant challenge, impacting project timelines, costs and overall industry efficiency. The major reasons for these disputes include contractual issues, payment delays, scope changes, quality of work, project delays, regulatory and compliance issues, communication gaps and labour issues. Addressing these root causes through clear contracts, timely payments, effective communication and adherence to regulations can mitigate the incidence of disputes. Moreover, employing effective dispute resolution mechanisms such as negotiation, mediation and arbitration can help resolve conflicts more efficiently and maintain the progress and integrity of construction projects. Furthermore, in the opinion of the authors, it may be prudent to introduce a dispute resolution method which is fast, cost-effective and construction-specific, like statutory adjudication.


For a more detailed overview of the potential of statutory adjudication in Pakistan, the author’s published research paper may be accessed in the Institute of Civil Engineer’s Management, Procurement and Law Journal.

References

Chaudhary, S. and Hamid, S., 2024. What’s Wrong With Contract Law In Pakistan? Friday Times.
Farooqui, R. U., Umer, M.and Azhar, S. (2014). Key Causes of Disputes in the Pakistani Construction Industry–Assessment of Trends from the Viewpoint of Contractors. NED University of engineering and technology Karachi, Pakistan.
Haseeb, M., Bibi, X.L.A. and Rabbani, W., 2011. Causes and effects of delays in large construction projects of Pakistan. Arabian Journal of Business and Management Review (Kuwait Chapter)1(4), pp.18-42.
Khadim, N. and Jaffar, S.T.A., 2021. Effects of corruption on public infrastructure projects in developing countries: The case of Pakistan. Jordan Journal of Civil Engineering15(4).
Khahro, S. H. & Ali, T. H. 2014. Causes Leading To Conflicts in Construction Projects: A Viewpoint of Pakistani Construction Industry. Proccedings: Challenges in IT, Engineering and Technology (ICCIET’2014): Phuket Thailand.
Pakistan Construction Disputes Report, 2022, Chartered Institute of Arbitrators Pakistan Branch.
Pickavance, J., 2021. Statutory adjudication in the United Kingdom: Recent developments. Construction Arbitration and Alternative Dispute Resolution, pp.195-216.
Qadir, N., Brooks, T. and Quigg, E., 2023. Potential for construction statutory adjudication in Pakistan: taking lessons from the UK. Proceedings of the Institution of Civil Engineers-Management, Procurement and Law40(XXXX), pp.1-12.
Rashid, Y., 2020. Analysis of delay factors and their effects on construction projects. Management Science Letters10(6), pp.1197-1204.
Waheed, Z., 2022. Managing sensitive contractual disputes in construction: the Orange Line Metro Train Lahore project. Emerald Emerging Markets Case Studies12(3), pp.1-33.
Zubair, M.U., Gabriel, H.F. and Thaheem, M.J., 2017. Comparison between causes of disputes in the published literature and the construction industry of Pakistan. Int J Manag Org Stud6(1), pp.20-27.

Co-authored by:

Nouman Qadir: a qualified civil engineer, chartered construction manager and certified dispute resolution professional, currently working for Quigg Golden, leading specialist solicitors in construction and procurement law in the UK and Ireland. His areas of practice include delay and disruption claims, adjudication, arbitration and reviewing and drafting construction contracts. He holds qualifications including BSc and MSc and certifications including PMP, Prince 2 Practitioner, BREAAM Associate, LEEDS Green Associate and MCIOB.

Robert Burns: a construction solicitor with an experience in construction dispute resolution spanning over 14 years and having represented some of the UK’s most high-profile public and private companies. He has been one of the leading players in getting the ICE Law and Contracts course implemented in Northern Ireland and one of its key lecturers. He has represented clients in litigation and all forms of dispute resolution, encompassing a range of engineering and construction issues.


The views expressed in this article are those of the authors and do not necessarily represent the views of CourtingTheLaw.com or any other organization with which they might be associated.

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