Dispute prone contract clauses-a basis for operational flexibility in contract administration

Contract terms and conditions play a dominant role in preventing and resolving disputes in construction contracts. However, in most construction contracts, a few clauses are regarded as dispute-prone. This paper presents a methodology for systematic identification of dispute-prone clauses in construction contracts using three multivariate statistical analysis techniques, viz. factor analysis, two group discriminant analysis, and multiple regression. The paper also tries to identify possible remedy for a reduction in the frequency of occurrence of disputes. A preliminary questionnaire survey of 72 clauses featuring in Indian Government construction contracts led to the identification 17 potential dispute prone-clauses. A more detailed questionnaire survey was then conducted for studying the 17 clauses. A total of 150 professionals (106 owner representatives and 44 contractors) responded to the questionnaire. The study revealed that dispute-prone clauses can be grouped in one of the four factor dimensions: owners’ powers, contractors’ defaults, payment to contractors, and deviations and discrepancies. Clauses grouped in owners’ powers were found to be the most dispute-prone from both owners and contractors points of view. Owner’s decisions, governed by the power vested on him through these clauses and his fear of audit observations and objections, tend to be blind and rigid. If the owner’s auditor had understood the operational difficulties of the project and been flexible in his attitude while raising the observations, the owner too would have the flexibility to mend his decision. This attitude can motivate contractors too to be reasonable in submitting the claim and this would, in turn, pave path of mutual confidence between them.