Building Disputes
Orchiston Architects Ltd  An architecture firm with specific expertise in building disputes

Useful Stuff


On this page:

  • Sources of Dispute in Construction Projects: if you know them, you can plan to minimise them
  • Steps towards resolving a dispute:  the first things to think about when a dispute looks likely
  • Dispute Resolution Processes:  the options for resolution will depend on the circumstances
  • Appointing an arbitrator/mediator/adjudicator:  how to go about it
  • Preparing for Construction Disputes:  information required & information management; using it in mediation


Sources of Dispute in Construction Projects: 

The type of contract agreement will fundamentally affect the allocation of risks between the principal and the contractor.  Disputes will arise where those risks are manifested, and a party is seeking to offset the consequences.

Project risk categories include physical, environmental, design, logistical, financial, legal, political, implementation and operational risks.  A second way of classifying types of risks is by their source.  What people, organisations or activities are the sources of risks that arise?  These may include owners, regulatory agencies, funding bodies, project managers, designers, constructors, suppliers, the labour force, or the general public.

The traditional form of tendering for a Lump Sum Contract tends to spread the risks fairly evenly between the principal and the contractor.  In the Construction Management model, where the principal effectively enters into a separate contract with a multitude of trades and suppliers, the majority of the risk is borne by the principal.  In the Guaranteed Maximum Price model the risk is predominantly borne by the contractor, and in a Design Build project the contractor takes almost all the risk.  However, in each case, the contractor's risk is able to be spread across a range of subcontractors, and they will in turn spread it to suppliers where they can.  
Allowance for the principal's risk is usually provided for by including a Contingency Sum in the contract documents.  The amount is assessed according to the potential incidence and consequences of risk, there is an agreed procedure for the expenditure of the sum, and the unexpended amount is returned to the principal on completion.  It would only be realistic for the contractor's price to allow in addition for the possibility of unrecoverable expenditure.
Frequently, risks are created at interfaces:             

  • Physical Interfaces:  tolerances;  pipes versus structure;  junctions of building elements 
  • Contractual Interfaces:  main contract terms versus supply contracts;  specific conditions versus standards;  notice requirements; delineation of scope of work or responsibilities and performance requirements. 
  • Participant Interfaces:  financing requirements versus timing;  lessee requirements versus overall project objectives;  design consultants versus construction personnel;  conflicts within contracting organisations;  users versus suppliers. 
  • Craft Interfaces:  "Builders work";  items of work requiring attendance by more than one trade. 
  • Communication Interfaces:  ambiguity, conflict or omission when the various consultants drawings, specifications, schedules and contract documents are taken collectively;  failure of instructions at the main contractor level to be accurately passed down the line;  client requirements not explicitly expressed to the design team; misunderstood obligations and responsibilities between parties.

Common causes of disputes: 

Technical or Performance Failure: 

  • inadequate or ambiguous site information
  • inadequate or ambiguous design documentation
  • inadequate or ambiguous specifications and/or quantity schedules
  • uncertain contract terms
  • workmanship/material defects
  • failure to meet performance requirements (time, quality, technical)
  • inadequate checking, supervision, or follow-up procedures
  • estimating errors and cost over-runs

Procedural Causes: 

  • changes made during progress of the works
  • inadequate or ambiguous design requirements
  • inaccurate, poor, or misunderstood communications
  • non-compliance with Acts or regulations
  • insolvency, slow payment or with-held payments
  • exaggerated claims 

Miscellaneous Causes: 

  • litigious or difficult contract parties
  • change in client circumstances
  • macro-economic or political changes
  • unusual environmental changes or site conditions
  • the doctrine of "joint and several liability"
  • allegiances to organisation in conflict with project allegiance


Steps towards resolving a dispute     


Does the dispute arise out of a contract or other agreement?  If so, then that agreement should have provisions for dispute resolution that must be followed.  If those provisions include for procedures to appoint someone to issue a formal decision, or to arbitrate, adjudicate or mediate, then follow those procedures.

 Is the contract or agreement “informal”?  If the drawings and/or specifications and/or contract terms are not clear, or have been varied without adequate documentation, then it becomes more difficult to sort things out.  It is likely that you will need persons with both legal and technical experience to advise you, and/or to resolve the dispute.  The Construction Contracts Act sets out minimum mandatory conditions of contract which are deemed to apply in the absence of any (or inadequate) contract terms.

Is it a construction contract?  The provisions of the Construction Contracts Act cover 
the resolution of disputes, apply to all NZ construction contracts (ie building and design), and cannot be contracted out of.   Note however, that if a particular construction contract does have dispute resolution provisions, you can also follow the adjudication procedures in the Construction Contracts Act, instead of, or in parallel with them.

Seek expert advice – early:  I often see disputes which have festered to the point that resolution becomes unnecessarily difficult.  A
n early intervention by an expert or mediator may avoid an impending dispute altogether. It is far cheaper to get the right advice at the outset, and then to communicate your concerns to the other party in a factual way.  Sometimes just finding out “where the other side is at”, and discussing how their actions impact on you in ways which they may not have appreciated, is enough to deal with the issue.  Regrettably, dispute resolution is too-often seen as the end of the line after much expense in preparation. 

Consider the dispute resolution process:  If a dispute has arisen despite proactive attempts to avoid it, then the usual resolution options are negotiation, mediation, adjudication, arbitration, litigation.  For descriptions, see below.

Serve notice of a dispute:  That will normally be a requirement under the contract:  if so, follow the provisions carefully.  If not, then it is obviously sensible anyway!  A dispute about whether there is a dispute, is, of course, a dispute!

Are you a builder?  If you are in dispute over non-payment of an invoice, then the provisions of the Construction Contracts Act require you to have served your Payment Claim in a specific way – or at least to set out specific information.  In the case of a residential project, that includes serving a copy of “Form 1” of the Act.  If you haven’t met those requirements, then go back and start again:  re-issue the invoice properly, and then use the provisions of the Act to pursue recovery after the (new) time for payment has passed. 

Are you a house owner/occupier?  If so, the arbitration provisions of the contract (if any) need not apply unless - after the dispute was notified - you signed a specific agreement agree to arbitration.  My view is that the arbitration provisions in a contract are a sound fair and effective way of resolving disputes, but (particularly for simple or smaller disputes) adjudication under the Construction Contracts Act is likely to be quicker, simpler and cheaper.  You cannot avoid being involved in adjudication if served with a notice of adjudication which complies with S28 of the Construction Contracts Act.


Dispute Resolution Processes

Most contracts provide for negotiation and/or mediation in the first instance, which escalates to arbitration if the issues are still unresolved. For those contracts, and for the contracts that do not have such provisions, the Construction Contracts Act provides for adjudication.

Negotiation:  The simplest way to sort problems out is to discuss them.  This may or may not settle or resolve the dispute, but it should certainly be the first step.  

Mediation:  Mediation is essentially an “assisted negotiation”.  
The process is voluntary - the parties can withdraw at any time - and the outcome is determined by the parties, not the mediator.  The intended outcome is an agreement that will contractually bind the parties to a particular course of action.

There are many different techniques and processes which are variations on the theme of a third-party neutral (the mediator) intervening to assist the disputing parties to reach a mutually agreeable outcome by exploring non-adversarial problem solving techniques.

The mediator acts as a conduit for information between the parties, as a chairman of meetings, a counsellor, sage, peacekeeper, as may be required.  If the process is to succeed, the mediator must gain the confidence of the parties that total integrity, impartiality and confidentiality will be shown throughout.

Adjudication Under the Construction Contracts Act:  Every NZ construction contract (ie building or design) has adjudication as the default dispute resolution process, and it is not able to be contracted out of.  Adjudication is a confidential, binding, and enforceable dispute resolution by an independent person.  

Whilst similar to arbitration, the outcome is binding but it may not be final – the determination must be acted upon even if it is later reviewed by the District Court or by dispute resolution provisions (eg arbitration) provided for in the contract.  

If a dispute arises and the contract also provides for mediation, or arbitration, or some other process, the party initiating the process will need to consider the particular circumstances before deciding whether to use the mandatory adjudication, or to use the process set out in the contract terms. 

Arbitration:  An arbitrator is an impartial and independent person (usually with expertise in the subject area of the dispute) who is appointed by the parties to determine the dispute between them.  The outcome is final and binding.  Usually, as in litigation, the arbitrated outcome is “win - or - lose”, but it can provide for an apportionment to suit the circumstances. Since the Construction Contract Act has required adjudication as the mandatory dispute resolution process, the use of arbitration has reduced.

Litigation:  This is the Court-based process where a judge makes a decision based on representations made by legal counsel on behalf of their clients.  The process is “adversary” i.e. “us versus them”, and the decision is made solely upon the evidence presented, without consideration of the needs interests or circumstances of the parties.  Often the outcome is a clear-cut “win or lose”, and this presents a risk which must be assessed before proceeding.

Expert Appraisal:  This differs from arbitration because the “Expert” is specifically instructed to investigate and use his or her own expertise - with or without submissions by the parties - to determine the issue.  The parties generally agree to either use the appraisal as the basis of settlement negotiations, or to be contractually bound by the Expert’s opinion.

Partnering:  A process put in place at the project commencement to minimise disputes.  Partnering focuses on creating communication links between project participants with the intention of directing them to a common goal - the project outcome - ahead of their own self-interest.  At the beginning of the project, at periodic intervals, or when the nature of the project work or participants changes, all participants get together to discuss their concerns and get to know the viewpoints of the others involved, and to identify potential areas of conflict with a view to avoiding their actual occurrence.

An agreed strategy for the resolution of disputes is formulated, generally requiring notification of disputes as soon as they are apparent, and a mechanism for resolving them at the lowest possible level before they escalate. 

Disputes Review Board:  This may comprise one or several persons, who are not consultants directly involved in the project, but are engaged to maintain a "watching brief" to identify and attend upon disputes as they arise.  Usually there is a procedure in place which provides for the DRB to make an "on the spot" decision or mediated agreement before a formal dispute is notified so that the project work can proceed, and that may be followed by various rights of review at increasingly higher levels until (if necessary) the dispute is finally settled by arbitration.  The Disputes Review Board may be an adjunct to the partnering procedures.

Multi-party disputes:  If the disputes involve interests (rather than obligations) as in a community dispute, then mediation, or even facilitation, would be appropriate.  There is provision in the both the Arbitration Act and the Construction Contracts Act to aggregate several disputes, as would typically be the case in a construction project.  This would require either the agreement of all concerned or that the contractual agreements between the parties all provided for arbitration.  


Appointing an arbitrator/mediator/adjudicator

The New Zealand Court system (or government) does not provide a specialist court for construction cases, nor does it provide arbitrators/adjudicators/mediators for that purpose.  They are all private persons or companies.

If the terms of the contract provide an appointment procedure, follow it.

If not, then it is usually helpful to agree an appointment with the other party if that is possible:  a sensible course would be to provide the other party with a list of three names which you are happy with, and ask them to choose one within a specific timeframe.  

AMINZ (Arbitrators and Mediators Institute of NZ) is the professional body for dispute resolution practitioners. Its website has lists of them, and helpful advice on managing disputes, the appointment of an arbitrator/mediator/adjudicator, and the standard protocols for appointment and for the conduct of disputes.  

The appointments section of the AMINZ website can be found HERE.

If you cannot agree on a person to assist in resolving your dispute, you might at least agree to appoint someone else (e.g. the president of AMINZ or of NZIA or some other appropriate body) to make the appointment. 
For a dispute under the Construction Contracts Act, you can ask AMINZ to appoint an adjudicator, for which they will charge a fee.  The Arbitration Act also sets out the default procedures for the appointment of an arbitrator. 

If you ring a prospective arbitrator/adjudicator, be aware that they will not want to discuss the issues in dispute any more than is necessary for them to understand whether they can accept an appointment for the dispute or not.  They will also be unlikely to be able to give an indication of their costs except on a daily or hourly rate.  It is usual for them to seek some security for their fees before accepting an appointment, and for an arbitration/adjudication decision to be released only on settlement of their fees.


Preparing for Construction Disputes

Pre-Dispute Actions 
Sources of Dispute 
Signals of Impending Dispute 
Responses to Dispute 
Moving to Resolution 
Situation Analysis 
Agents of Change 
Organising Information 
The Resolution Process 
Summary: Key Concept
Preparation for disputes starts before a contract is entered, and continues until all disputes are settled.  

Before a contract commences, the preparation is directed at reducing the risks of, and the potential for disputes. 
During the contract, the preparation is directed at anticipating emerging difficulties, and minimising their impact. 
If a dispute arises, the preparation is focussed on generating and organising the knowledge required to navigate through the resolution process. 
During the resolution process, the preparation is cumulatively developed with a view to reaching an acceptable outcome.

This article is a checklist of questions and issues to guide such preparation.  Whilst the sections are arranged in chronological order, no priority is intended by the order of items within each section, and more or fewer issues may be relevant to a particular dispute.

The final section is a summary of key words:  an aide-memoire reviewing the intentions of the more detailed information.
Pre-Dispute Actions


  • Agree dispute resolution process


  • Assess the risks

Project type
Technically challenging
Client type
  Liquidated Damages
Quality expectations
Contract type
  Lump sum
  Cost up
Consequences of failure
Legal environment
Physical environment
Check Contract Docs
Maintain ongoing documentation
Know thine enemy!
Sources of Dispute

Cost over-runs
Time over-runs
Poor quality
Poor communication
Poor documentation
Mismatch of expectations
Difficult personalities
Misjudged risks
Unclear responsibilities

Signals of Impending Dispute

Damaged Pride
Longer lead times
Reduced productivity
Lax management
Slow payment
Inflated progress claims
Increased formality
Reduced communications
Increased communications 
Outside “experts”

Responses to Dispute 

  • Gather information

  Can the problem be defined
Confirm what happened
  Why did it happen
  Who was involved
  What did they do
  What did they not do
What were the contract requirements?
  Confirm intentions of the contract
  Confirm instructions and context

  • Assess the information

  Is it a dispute, or a contract issue
What are the direct consequences
  To you
  For the performance of the contract
  To others
What are the flow-on consequences?
Is the information reliable?
  Measurement of quantities
  Quality benchmarks
  Realistic costings
  Biased reporting

  • What further information is required?

  Site examinations
  Opening up
  Solvency investigations
  Expert input
     Dispute Resolution
  Personal observations/accounts
     Willing sources
     Unwilling sources

  • What is the likely attitude of the other parties


  • What is the competency of the other parties

  Widely experienced
  Narrowly focussed
  Not familiar with the industry
  Not attuned to logical argument
Will personalities get in the way of the problem

Moving to Resolution

  • Solve at the lowest level

Who can solve it
Who needs to solve it
When can it be solved

  • Who else is involved

Do they know
  Should they know
Will they co-operate
  Shared interests
  Shared positions
  Shared information
  Other relationships
Can they contribute
Might they contribute
  Are they solvent
  Willing to come back to the job
  As the lesser of other evils


  • Act as soon as preparation permits

Can a simple fix be effected
Could changed circumstances reduce the impact

  • Positions taken by the parties

Offset against other matters
Alteration to contract requirements
  Timing issues
  Budget issues
What are the consequences of
  Delaying resolution
  Failure of resolution

Situation Analysis

  • What are your POSITIONS*

Contract interpretation
     What would change them
     What would change the priority

  • What are your INTERESTS*

Marketing advantage
     What would change them
     What would change the priority

Agents of Change 

  • Who else has INTERESTS
  • Who else has POSITIONS

Do you know those interests and positions
How can you find out
What are they
  How do they differ from yours
How can they be brought closer to yours
  If you were them
     How would they see your positions
     How would they see your interests
Do they need you
Does a resolution establish a precedence
  How would that affect your future Interests

  • What are the power issues

  How can you influence them
     The Golden Rule*
     Authority by position
     Authority by knowledge
     Authority by size/muscle
     Existing and future relationships

  • Resolution process options

  Ignore the problem 
  Set by the contract terms
     Formal opinion
  Adjudication under the CCA*
  Parallel processes
Should you initiate the process

Organising Information

  • Create a recognisable structure

Lay the “ground bait”
Bring out the facts
Explain the involvement of others
Provide proof, validation, and references
Establish the relevance of the information
Repeat the key issues
Summary and conclusion

  • Or (put another way) – the Journey

Where we are going
How we get there
These are the markers along the way
Almost there – how far it is to go
We are there (you can tell because…..)

  • Deal with the easy stuff first
  • Use objective tests and benchmarks
  • Compare with understood criteria
  • Apply logical extensions

If this…..    then…..
Because of…..    then…..
What if…..    then…..

  • Don’t personalise


  • This is not MY problem:  It’s OUR problem

Lets face it together
Lets solve it together

The Resolution Process 

  • You have to give a little to gain a little

Not often is there gain without pain
What do 
     You know that they know
     How does their view differ from yours
     You know that they don’t know
     You think they think you know
     You think they might know, that you don’t

  • Prepare to move

Signal ahead
Create the room for movement
Recognise common interests
Emphasise the positives

  • When to move

If other side recognises the signals
If they provide room for movement
If they acknowledge commonalities
If they acknowledge the positives

  • Why move

If they move
If they can’t move because you won’t
If there is a shift from POSITIONS to INTERESTS
To deflect a potentially damaging blow
New adverse facts
Unwinnable argument
The application of adverse power
New directions you haven’t prepared for
Movement to issues you want to avoid

  • How far to move

Not too far too soon
Are your interests still intact
Consider your BATNA
Consider your WATNA
If they were you, but knowing what they know
     What is the best they could do now
     What is the worst they could do now
     How far would they move now
     How will they react to 
     The worst you can do now
     The best you can do now
Consider their BATNA
Consider their WATNA
Compare to what they think you could do

  • Confirm and celebrate movement as objective progress

What other openings are thus presented
How has it affected the dynamics of the process
Move from holding positions to meeting interests

Summary:  Key Concepts


  • Before the contract

What if

  • During the contract


  • Potential contract disputes


  • Dispute resolution



DRB – Disputes review board
GMP – Guaranteed maximum price
POSITIONS & INTERESTS – Your “position” might be that your kids must be in bed by 9pm, your “interest” is that they are up bright and breezy for school.
BATNA – Best alternative to a negotiated agreement
WATNA – Worst alternative to a negotiated agreement
The Golden Rule – “Them what got the gold make the rules!”
CCA – Construction Contracts Act