BE 4605 Claims Management

Project Work 02

ADR Methods Amicable Settlement

Alternative Dispute Resolution Methods

Amicable Settlement 1.0 Introduction Construction industry is a business sector, where monetary transactions with high values happen to exchange. This can cause conflicts to occur. Therefore there are many conflict management techniques and dispute resolution methods being used. This report is a study about one of these conflict management methods; Amicable settlement. 2.0 Background Construction industry is a highly complex industry since many different parties need to be involved in order to complete a single project. To have a control upon this complexity Construction Contracts have been introduced. These Contracts describe the rights and obligations of each party. However it must be noticed that, different parties have different perspectives and goals which are different from each other. This differentiation causes parties to have incompatibilities between each others interests; yet causing a conflict. A conflict can be solved in the easy way or the hard way. If the parties can agree to compromise themselves to some extent without considering the hard bound rules of the contract, a conflict can be easily solved. However, attempting to find solutions with in the boundaries of the contract can lead to painful and costly dispute resolution methods. 3.0 Amicable Settlement Amicable settlement is a type of negotiation method that involves parties to the conflict settle the conflict on their own. An expert negotiator or a third party as a settler is not involved in this process. Only the exact parties to the conflict will be involved. The word Amicable means; exhibiting friendliness and goodwill in a peaceful manner. Therefore this involves parties to discuss about the problem in open and friendly grounds, which certainly involves compromising each partys interests, for the good of the other.

Department of Building Economics

BE 4605 Claims Management

Project Work 02

ADR Methods Amicable Settlement

The success of amicable settlement purely lies on the manner the parties see the problem. The principle of amicable settlement is to, look in to the matter in a rational way. Parties engaging in amicable settlement should be willing to give in themselves up to some extent. The decisions taken should not be purely based on what is right or wrong or what is contractually correct. The fundamental idea behind the process should be settling the difference of interest by extending friendliness so that their will not be a dispute that will harm the goodwill between parties. Therefore the final outcome will have to be developing a win-win situation while maintaining the professional friendship. Compromising ones interest under amicable settlement would be monetary or non monetary. Client compromising himself by granting the contractor some extra time without going through contractual means (time extension claims) or letting contractor use client owned machinery for some time period and contractor compromising himself by agreeing to undertake a variation work for no extra cost, could be seen as examples. Any conflict can be easily settled by extending friendliness by simply giving in some interests. 4.0 Amicable Settlement under FIDIC Conditions of Contract FIDIC Conditions of Contract, New Red book (1999) has mandated the use of amicable settlement. According to FIDIC, the reason for having such a Sub-Clause is to encourage parties to settle disputes in amicable means, without going with arbitration. It contains a Sub-Clause especially for amicable settlement. The sub-clause 20.5 [Amicable Settlement] states that; Where notice of dissatisfaction has been given under Sub-Clause 20.4 above, both Parties shall attempt to settle the dispute amicable before the commencement of arbitration. However, unless both Parties agree otherwise, arbitration may be commenced on or after the fifty-sixth day after the day on which notice of dissatisfaction was given, even if no attempt at amicable settlement has been made. Furthermore, Sub-Clause 20.4 specially states that a Party who is not satisfied with the DAB decision can issue a notice of dissatisfaction, and engage in Amicable settlement for a period of 56 Days after the notice been given, before engaging in any arbitration activity. FIDIC Conditions of Contract, Red Book-1987, 4th edition, also state that an attempt for amicable settlement should be done within a period of 56 days, after the notice of intention for arbitration has been given.
Department of Building Economics 2

BE 4605 Claims Management

Project Work 02

ADR Methods Amicable Settlement

According to Dr. Chandana Jayalth, having such a Sub-Clause and a time period of 56 Days, can lead the parties to have a different view on fair resolution of disputes. He further states that the time period and the stereo type process will make the parties feel fed up and can actually influence them to come to amicable grounds. 5.0 Advantages and Disadvantages

Advantages Quick settlement method

Disadvantages Decisions are not legally binding

The difference of interest can be resolved within Decision taken during the process has no legal a short period of time. Any other ADR method value. Therefore if one party doesnt respect the will require a third party to interfere, yet making decision, there will be another conflict. the process time consuming. Methods such as Litigation can involve court proceedings which are formal and very lengthy which takes more time for resolution. Very less costs involvement Inability to express personal views

This method is the least costly method. If fact In processes such as mediation and negotiation one can argue that this process doesnt involve the parties can express their personal views to any costs since it is just a friendly discussion the third party without having the risk of other between the parties. Mainly, there is no involvement of a third party, yet saving their professional fee. party knowing the views. Also in other ADR methods such as arbitration, adjudication and finally in litigation, the processes are right based, therefore parties can express their views openly. However, amicable settlement doesnt involve a third party, therefore the parties must be caution when having discussions, not to express harsh views that have the potential to harm the good relationship between parties.

Department of Building Economics

BE 4605 Claims Management

Project Work 02

ADR Methods Amicable Settlement

Absolute Secrecy

Non-cooperativeness

The process happens between the parties to the There will be some situation where members of conflict only. Therefore no other third party or one party try to act as rivals although the other the society will not be aware of the problem. party wants to go through amicable settlement. In such a case, the process cannot be used to have a good decision. All the parties must cooperate to have a win-win situation. Help maintain the relationship between parties Infrequent use

ADR methods generally and including amicable Amicable settlement is based on the intention of both parties resolving their dispute in a cooperative manner and ensure the continuity of the project to the benefit of the Employer acting as much as that of the Contractor. From this point of view the amicable settlement allows the Immediate reaction to go straight to arbitration, preservation of the good relations between the lack of awareness, understanding, familiarity two parties. and the lack of education of construction professionals regard to the concepts and benefits of amicable settlement are the main reasons for the ignorance an infrequent use. Absolute control over the process Need of time and effort settlement are infrequently used in the

construction industry. This is mainly due to ignorance of these methods by the construction businesses.

Non participation of a third party in the process Even though there is a minimum cost involved ensures that the parties to the conflict have the in this method there is a cost which is indirect in absolute control over the process. In addition, nature which is the management and

considering the fact that the solution is towards professional time and effort spend on the the direction of ensuring the benefit of both the resolution of these disputes. These individuals parties, the parties have the freedom of would have more important aspects to look in to examining the entire spectrum of potential rather than a dispute and this can cause solutions. disruptions to the project progress.

Department of Building Economics