Construction Claims and Payment Disputes Analysis: Alternative Dispute Resolution to Litigation

Abstract

This study highlights construction claims and payment disputes between the project owner and the contractor in one of Nepal’s physical infrastructure development projects to address and emphasize the importance of following binding alternative dispute resolution (ADR). In this project, the contractor submitted four claims, of which the adjudicator and the arbitrator favored three to the contractor, but the project owner disagreed and proceeded with the litigation. The court decided in favor of the contractor, ordering the project owner to bear all the litigation fees and interest charges accrued during litigation. The findings show that the project owner went to court (a full judicial process) believing that obeying the court order would prevent them from being questioned later by a third party during an external audit for bribery or wrongdoing. This study presents why the project owner thought appealing to litigation was necessary. The lessons learned and findings presented in this study could help contractors and owners prevent unnecessary misunderstanding and mistrust among parties and encourage contracting parties to be more cautious when adopting the ADR strategy in resolving disputes. This paper also presents how two parties are affected by additional costs incurred throughout the litigation process and presents lessons learned that could benefit owners, contractors, and project managers in resolving disputes through ADR.