Effectiveness of Arbitration in Construction Projects

Abstract

Purpose: It is impossible to specify remedies against every possible situation that may be encountered in construction projects. Any dispute can be settled timely either by negotiation, mediation, adjudication, arbitration, or litigation. This study was based on the context of Road construction contracts selected from the Dispute Resolution Unit of the Department of Roads (DoR, Nepal. The emphasis of this particular research work was to evaluate the effectiveness of arbitration.

Design/Methodology/Approach: The sixteen case studies were the major basis as a quantitative study for the assessment of the effectiveness of dispute adjudication by assessing the success rate of arbitration. Also, the familiarities of the parties about the provision and procedure of arbitration and its spirit/strength to resolve the disputes and responses of parties regarding the arbitration award were assessed based on the qualitative study. The content analysis in terms of percentage was the main tool for data analysis.

Findings/Result: The arbitration award was not accepted in about 78.57% of disputed issues of these sixteen cases and referred to litigation, 42.86% issues were referred by the Employers, 25.00% issues were referred by the Contractors and 3.57% issues were referred by both the Employers and the Contractors. 100% of Employers and 100% of Contractors agreed that they know the procedure and provision of arbitration for the resolution of disputes. The majority of the Employers did not accept the arbitration award and referred to the cases to litigation while mostly were accepted by the Contractors except in a few cases. The majority of the Employers had the perception that the arbitration award was favorable to the contractors while most of the Contractors argued that the decisions were fair to both parties. The majority of the Employers said that it is comfortable to accept the litigation award concerning the arbitration award. It is a prompt, cost-effective, efficient, and easy way of resolving construction disputes. The rejection of the arbitration award has negative consequences for the efficiency of public spending and which is associated with the extensive delay in the project completion and the delay is associated with a cost overrun. While acceptance of arbitration award is associated with timely delivery of the project. The enforcement of arbitration awards is critical to the success of arbitration. In those countries where the arbitration is backed up by statute by acts and enforceable by law, it is found to be more successful and effective. 

Originality/Value: This study helps the DoR, Contractors, and other agencies such as the Public Procurement Monitoring Office (PPMO), Nepal council of Arbitration (NEPCA), and different Auditors and arbitrators of Nepal as it gives the perception of the contracting parties towards the arbitration process to familiarize the spirit of arbitration in the Nepalese construction industry.

Paper Type: Policy Research