2022 Regional Findings

Our research revealed that despite a well-defined dispute resolution infrastructure, construction disputes across Pakistan follow the global pattern.

Although the resolution of disputes through ADR is taking place in Pakistan, the lack of appropriate laws supporting ADR, and other means of dispute resolution, are still lacking.

The stakeholders in the construction industry have little or no knowledge about dispute avoidance mechanisms and collaborative working methods, and party-to-party negotiations are the most reliable method of dispute resolution, especially within the public sector.

• The most common disputes found in Pakistan’s construction industry are ‘payment delay’, ‘extension of time’ and ‘behaviour and competency of people’.
• The majority of disputes take under one year to resolve; however few disputes take up to four years for resolution.

We have found that the International Chamber of Commerce (ICC) also sees cases arising from a wide range of industry sectors, with the construction/engineering and energy sectors usually generating the largest numbers of disputes. Together, these two sectors accounted for approximately 38% of all the ICC’s cases in 2020. Other sectors which include health/pharmaceutical, general trade and distribution, industrial equipment and services, and financing and insurance represent 5-7% of the cases.

Guest commentary by

Dr. Javed Uppal President,

Institution of Engineers Pakistan (IEP)

The Institution of Engineers Pakistan is a premier body of engineers with members spread across the country with local centres in all major cities and headquarters in Lahore. It is a non-profit, non-commercial independent organization serving the purpose of procuring the latest know-how, disbursing this to its engineers, and preparing them to meet the challenges that the country faces today. The Institution has agreements with several world renowned parallel bodies for this purpose.

Construction dispute resolution, ways of conciliation and arbitration are established professional practice these days, especially, when international collaboration is available.

After Pakistan’s First Construction Dispute Report, we recently conducted three dispute resolution workshops which were participated by many engineers from around the country: senior and middle management levels, young professionals and students, with international experts from MKC, Currie & Brown, and the Chartered Institute of Arbitrators.

The brainstorming that arose from these workshops has given weight to this Guest Commentary and its findings, namely: our experiences on dispute resolution methods in Pakistan are glaringly mishandled causing a huge loss of public funds. Although in theory, the relevant clauses of many contracts are mainly derived from the Pakistan Engineering Council’s Rules of Conciliation and Arbitration, in practice, detailed SOPs are not present in many departments or are not given due attention to draw a clear line of action.

The work that is presently being done in dispute avoidance and risk management is inadequate and active pursuance through joint efforts among institutions such as the Institution of Engineers Pakistan and CIArb is needed to accelerate the matter. In addition to this, we consider that the construction industry is inadequately equipped with ADR tools and the awareness of ADR requires greater attention. This is also confirmed by the report. The report also shows ADR success in Pakistan is only 49%, whereas the global norms are over 90%. A leapfrog jump is possible through training, certification, and monitoring by a centralized authority.

The report shows that only 3% of survey respondents said that their projects did not lead to a dispute, while 97% of projects had one or more disputes. This situation can be reversed by working on wartime footings, assembling, and utilizing adequate resources, large proportions of which are already being lost at public departments and contractors.

The legislature’s support towards ADR mechanisms is divided and we believe, that currently, enough work is not being done to bridge such division which can create the legal basis for reliance on ADR processes.

Federally Administered Territory (ICT) Islamabad

Islamabad sees a variety of ADR methods being adopted in its dispute resolution. While negotiations with the other party and arbitration are the most widely used methods, mediation, litigation, expert evaluation, dispute adjudication and conciliation are all observed in the capital territory. This is perhaps why it has an 84% success rate of ADR processes outcomes, the highest recorded in the country. In Islamabad, the most common issue of dispute is access to the site:

Guest commentary by

Mr. Kamal Nasir Khan

Chairman, Constructors Association of Pakistan (CAP)

It is to be appreciated that the execution of mega projects in our country is rare as the majority of public sector projects range between 50 million to 5000 million and are executed through one-sided contract agreements heavily in favor of the employer. For such projects, especially those under provincial governments, major powers of ‘the engineer’ rest with the Executive Engineer of the department without any justified mechanism exercised for impartial dispute resolution. This is largely due to a lack of funds required to establish a body for dispute resolution, hence, no mechanism is established.

Moreover, for small to medium-sized projects, an independent departmental body with participation from the employer, the private sector and CAP with on-hand experience of COC and dispute resolution should be established which can address 15 to 20 projects at one time, reducing the funding requirements.

The referred measures will be helpful in the reduction of disputes and enhancing the confidence of the parties ensuring justice. This will, in turn, add to the timely completion of projects, saving the precious resources of the country.

Guest commentary by

Dr. Khurram Iqbal Ahmad Khan

Assistant Professor/Head of Department, NUST

Pakistan is the fifth most populous country with a population of 220 million. It is considered the ninth largest labour force in the world and there is currently an increase in the pace of work on the China-Pakistan Economic Corridor (CPEC). The above-mentioned factors have increased construction-related activities across the country.

The construction industry of Pakistan is fragmented, adversarial and complex and is faced with issues such as corruption, bureaucracy and health and safety concerns. Nonetheless, it offers significant potential in terms of employment for the local people of the country and accommodates a huge labour force, which is mostly unskilled.

The construction industry of Pakistan is fragmented, adversarial and complex and is faced with issues such as corruption, bureaucracy and health and safety concerns. Nonetheless, it offers significant potential in terms of employment for the local people of the country and accommodates a huge labour force, which is mostly unskilled.

The survey indicates that ADR methods have been used, however, the construction industry needs to build capacity in terms of the settlement of disputes through ADR techniques.

The situation is less favourable in terms of the adoption and practice of ADR techniques as there is generally a lack of awareness and understanding of ADR mechanisms within the construction industry. Moreover, they are not being practiced in a proper manner. There is, therefore, a need for formal training in ADR techniques provided to the construction industry professionals.

The construction industry in Pakistan is huge and holds great promise. However, to compete on a national and international level, particularly in the wake of international investments such as the China-Pakistan Economic Corridor (CPEC), it needs to adopt and properly implement systems and procedures being practiced in the developed world.

Punjab

Much like Islamabad, Punjab also relies heavily on negotiations as a form of alternative dispute resolution. Arbitration is only used in 10% of all disputes, with the remainder being referred to mediation, litigation, expert evaluation, dispute adjudication and conciliation.

While all other methods are not heavily relied on, they are still practiced in Punjab unlike many other areas in the country, showing how ADR methods are relatively more developed in Punjab compared to the rest of the country.

While all other methods are not heavily relied on, they are still practiced in Punjab unlike many other areas in the country, showing how ADR methods are relatively more developed in Punjab compared to the rest of the country.

Guest commentary by

Professor Dr. Habib Ur Rehman

Dean Faculty of Civil Engineering, University of Engineering & Technology Lahore

Construction is a mutual interaction between three major parties: client, contractor, and consultant. The construction industry is extremely fragmented with complex processes that require the coordinated efforts of diverse groups, each having different goals and requirements, and each expected to enlarge its profits. One of the problems arising from these contradictory intentions is construction disputes. During the execution of a project, there are several stages at which a dispute can occur leading to challenges that include: overrun in project time and cost, loss of quality and productivity, dissatisfaction among project stakeholders, loss of profit and reputation, and damage in business relationships.

Disputes in business are unavoidable and the construction industry is no exception. Delay in payment, contractual claims, public interruption, poor communication, differing site conditions, lack of funds, and unclear risk allocation are the main causes leading to disputes. Special attention should, therefore, be given to these factors during the life cycle of the construction project. It is difficult, if not impracticable, to completely prevent construction disputes from arising, however, minimising their effect carries numerous returns, such as reducing contractual complications, educating and guiding construction workers to increase their competence to avoid and/or resolve them and form alternative dispute resolution systems.

Sindh

Sindh and Punjab’s results are quite similar in terms of the variety of ADR methods being adopted in each province. However, Sindh has the second-highest reliance on negotiations with the other party after Balochistan. While it relies on negotiations for 61% of its disputes, it relies on mediation for 12% and arbitration for 10% of its disputes. Unlike Punjab, in Sindh, 58% of disputes being referred to ADR processes result in successful outcomes.

Guest commentary by

Dr. Rizwan Farooqui

Professor and Chair, Department of Civil Engineering NED University of Engineering & Technology, Karachi

 With all the benefits the construction industry brings to the country’s economy, there have always been key challenges throughout the various life cycle phases of construction projects which frequently lead to unavoidable situations, particularly in the form of conflicts and disputes. Unfortunately, our industry faces serious issues in coping with such situations and needs, not only clear and correct intent from the stakeholders but also appropriate knowledge, skills, and strategies on both technical and techno-legal matters۔

This PCDR no doubt reflects the true situation of our industry performance in terms of key disputes and their current state of avoidance/management. The findings are not surprising since smooth cash flow is always a major concern in developing countries and I further believe that the major cause of payment delay is not only a matter of financial cash flow but is also related to irresponsible behaviour and incompetency at various levels.

Regarding ADR methods, “party-to-party negotiation” is the industry norm, whereas more structured ADR methods such as arbitration and mediation, common in the global arena, have begun to find their place in Pakistan’s construction industry. ADR success of only 49% reflects a clear shortcoming in terms of the preparedness of our industry towards presenting and defending a case, It is time, therefore, to create awareness and skills among concerned stakeholders in our industry regarding better approaches to using ADR methods.

Over 95% of projects are facing disputes regardless of their sector or size. This is not a striking finding since a key contributor towards a larger number of disputes is the lack of structured contract management. From a sectoral perspective, disputes largely arise from the building and infrastructure sectors, together representing 72% of the coverage. Irrespective of project value, almost every sector holds a significant proportion of disputes, both from public and private sectors, which again reflects issues related to level of commitment and attitude of stakeholders.

One of the most surprising and serious findings is the duration of dispute; almost 42% of disputes lasted for more than a year, which is indicative of the slow-paced resolution methods adopted in our industry. From the point of view of dispute avoidance, the approach is focused on either risk management or relationship management, almost 87% of the time, instead of finding technical solutions to the identified problems, which is also a reflection of industry norms۔

Second Guest Commentary for Sindh by

Dr. Sadaqat Ullah Khan

Professor and Chairperson, Department of Civil Engineering, Thar Institute of Engineering Sciences and Technology (TIEST) NED University of Engineering & Technology, Karachi

The PCDR is the first of its kind to collate data from across Pakistan, broken down by region. There is a need for such research as no data on disputes and how they are resolved in Pakistan’s construction industry has been produced, to date. The findings in this report would aid in the timely completion of large projects by avoiding unnecessary delays, which will pave the way for the drafting of relevant construction laws in Pakistan.

Payment delays, contractual claims, public disruption, poor communication, and site conditions are the main sources of conflict in Sindh, which can harm projects and influence project stakeholders’ performance. The data shows that in Sindh, dialogue with the other side has been proven to be a more reliable strategy for resolving disputes than in other parts of the country, with access to the site being the most common source of contention.

The ADR approach in Sindh has a success rate of 58%, which is greater than Punjab and KPK, but lower than Islamabad. This is owing to a lack of trust in the legal system and delays in decision-making in most construction disputes, which drives up project costs and timelines. As a result, the most common method of resolving disagreements is to negotiate with the opposing side rather than going to court. The data analysis also reveals that Pakistan’s construction industry is unfamiliar with typical ADR approaches for resolving conflicts. Arbitration clauses that may easily send a dispute to ADR are not given enough weight in contracts and most construction projects are still unfamiliar with the concept and practices of dispute avoidance.

 Khyber Pakhtunkhwa (KPK)

KPK relies the most on negotiations as an alternate dispute resolution process. However, relative to other provinces’ reliance, it also has the highest rate of arbitration as a dispute resolution method, reaching 21% of all disputes.

KPK and Sindh both have the same success rate in ADR outcomes, namely: 58% successful and 4% not successful.

Guest commentary by

Professor Dr. Qaiser Ali

Meritorious Professor and Pro Vice Chancellor,
Dean Faculty of Civil, Agricultural & Mining Engineering, University of Engineering & Technology, Peshawar

Construction projects, considered to be the backbone of the development of any country, can face different challenges during execution. Unfortunately, there exists no proper mechanism within the legal system to address the issues that might arise during the execution of these projects, therefore, Pakistan’s construction sector is ineffective in resolving disputes, as evidenced by the survey’s findings.

Construction projects, considered to be the backbone of the development of any country, can face different challenges during execution. Unfortunately, there exists no proper mechanism within the legal system to address the issues that might arise during the execution of these projects, therefore, Pakistan’s construction sector is ineffective in resolving disputes, as evidenced by the survey’s findings.

Construction projects, considered to be the backbone of the development of any country, can face different challenges during execution. Unfortunately, there exists no proper mechanism within the legal system to address the issues that might arise during the execution of these projects, therefore, Pakistan’s construction sector is ineffective in resolving disputes, as evidenced by the survey’s findings.

Although the Pakistan construction sector does have ADR mechanisms, the complicated procedural formalities involved in addition to the level of acquaintance of the personnel with the procedures mostly make these mechanisms ineffective. More awareness and training are required to make the system and tools fast and effective.

Developing ADR tools is not enough; proper training of professionals is also required to increase the success rate of ADR as the efficiency of such tools directly depends on the competency of the people. Without adequate training or awareness, there will be no efficiency. Professionals should be given awareness and training on the importance of contractual clauses and how ambiguity can become a reason for dispute, affecting the pace and budget of the project. The importance of having everything well documented for dispute avoidance and later for dispute settlement should also be raised.

Both, development of efficient ADR tools and training of professionals is important to have a smooth system of dispute resolution.

Balochistan

Balochistan relies mostly on negotiations, referring 71% of its disputes for resolution in this way. It relies on arbitration the least compared to all other provinces, handling only 4% of all its disputes via this method. Its two main methods of dispute resolution, namely negotiations and mediation prove the reliance on parties’ involvement for solving disputes. This could indicate the lack of development of other more formal alternative dispute resolution processes۔

Guest commentary by

Dr. Saeedullah Jan Mandokhail

Chairman, Civil Engineering Department, Balochistan University of Information Technology, Engineering and Management Sciences (BUITEMS), Quetta, Pakistan

ADR is the most effective method of resolving disputes, however, this has been practiced less when compared internationally due to a lack of understanding or awareness about ADR.

As most disputes arise in small to middle range projects, contractors, particularly in this range, need to be given proper training on computing the adequate cost and time required to complete the project. Contractors should be able to do a risk analysis, with such risks being priced into the total estimate of the project. In many cases, the contractor includes the risk of project delay but does not include the additional cost for overtime work during this delay, which leads to a dispute.

Due to the effectiveness of ADR, it should be incorporated into the contract as a method of dealing with disputes. The contractors and other responsible people involved in the construction industry should also be given enough awareness about ADR through frequent workshops and seminars. Moreover, the schedule rates must be frequently revised to avoid disputes.

Gilgit Baltistan

Gilgit Baltistan is the only region in Pakistan that relies equally on negotiations and arbitration as dispute resolution mechanisms since every other region relies mainly on the former. While Gilgit Baltistan remains largely undeveloped in terms of its urban landscape, its development of ADR methods is commendable as every process of dispute resolution was observed in the region, albeit with a different rate of reliance on each.

Guest commentary by

Dr. Attaullah Shah

Professor and Vice-Chancellor at Karakoram International University, Gilgit Pakistan

The Construction Industry of Pakistan is in many ways still in its embryonic stage, as its contribution to the National GDP is one of the lowest in the world. It is dominated by major public sector construction projects in education, health, infrastructure development, hydropower, etc. The construction industry in the private sector of Pakistan is now evolving and it is expected that the construction industry of Pakistan will improve with time.

Contracts are executed under FIDIC, yet its implementation in true spirits is lacking. The main causes of disputes in the construction industry include non-adherence to contract clauses, misinterpretation of the clauses by the contractor and employer, delay in possession of the construction sites, political interference, delays in releasing of funds, irrational cost estimation, poor programming of the projects, lack of human resources, design errors, delay in processing the contractors’ payments and frequent changes in the scope and design parameters. One of the major reasons for construction disputes is the vague role of the Engineer in the public sector department. In most cases, the Engineer is representing the employer which is not consistent with the spirit of FIDIC.

Some of the main approaches adopted in dispute resolution include referring the matter to the employer and ‘The Engineer’, however in the majority of cases, such disputes are referred to arbitration and later to litigation. In most cases, reconciliation and arbitration do not lead to mutually acceptable solutions.

ADR methods are rarely practiced as the current version of FIDIC in vogue in Pakistan does not provide for such methods. The Pakistan Engineering Council needs to, therefore, revisit these documents by including ADR approaches as practiced in the subsequent versions of FIDIC. The results of the survey have also reflected this fact as the national success rate of ADR in Pakistan is 49% as compared to the global success rate of 90%.

In the present contract regime, the frequency of disputes reported or initiated is very small due to limited capacity of the contractor and operators in the implementation of the contracts. The dispute resolution process is time-consuming as in some cases the mediation, reconciliation, arbitration, and litigation process takes years making contractual dispute resolution a challenging task. These disputes are more prevalent in the hydropower and infrastructure development mega projects of Pakistan contributing significantly to cost increases and project delays.

To deal with construction disputes, ADR approaches need to be incorporated into the contract document. To this effect, it is recommended that the latest version of the FIDIC Red Book incorporating ADR may be adopted as the existing version of FIDIC does not contain such provisions.

Azad Jammu Kashmir

Azad Jammu and Kashmir is likely the only region in the country that only practices three ADR methods: negotiations, arbitration, and conciliation. However, like all other regions, reliance on negotiations is most prominent. The fact that no other ADR method is used in Jammu and Kashmir shows their under development in the region. Encouragingly, half of all disputes referred to existing ADR methods result in a successful outcome.

Guest commentary by

Dr. Tariq Mahmood

FCIArb Barrister, 33 Bedford Row

The lack of understanding of contractual obligations and familiarity with the latest FIDIC contracts raise concerns about the legal orientation of businesses involved in the construction industry. This requires proactive action from the stakeholders, namely business associations and regional chambers of commerce, to build up the capacity of the concerned stakeholders in Pakistan.

The preferred choice of forum paints a bleak picture of Pakistan’s dispute resolution frameworks that requires immediate legislative and administrative attention. The report states that in cases of a dispute, most parties’ preferred course of action is negotiation, followed by arbitration and mediation, respectively. The data further reports litigation as one of the less preferred choices of forum.

The use of arbitration in construction disputes is universally accepted as a time-effective and cost-efficient dispute
resolution mechanism. However, the findings of its acceptability within the Pakistani dispute resolution landscape
suggest otherwise. One of the reasons for this may be due to issues regarding the enforcement of arbitral awards.

The official data about the construction activities in Azad Jammu Kashmir (AJK) is very limited. The available information suggests minimal construction activity, unlike real estate development and construction activity through private investments in Punjab and Sindh. Due to substantial overseas remittances from the United Kingdom, the construction industry is thriving in the regions of Mirpur and Kotli, where there are no big housing developers the likes of ‘Defence Housing Authority’ and ‘Bahria Housing Authority’. Individuals would be willing to bring further investment in real estate development provided that a robust dispute resolution framework exists to safeguard those investments.

The PCDR report suggests that construction disputes in (AJK) are usually triggered by delays in payment, the extension of time and the competency of people. Like the national trend, negotiations also appear to be the favoured course of action in case of construction disputes. However, these trends suggest a similar underlying set of problems. The legal and administrative framework for arbitration principles and their enforcement mechanisms are covered under the arbitration law in Pakistan yet these frameworks are not free of procedural complexities and jurisprudential uncertainty regarding arbitration enforcement procedure

PCDR provides an in-depth analysis of data on the nature of construction disputes in Pakistan and such findings would assist the policymakers and stakeholders in devising an apt strategy. This strategy may also emphasise a legal regime for construction law and clearly defined arbitration award enforcement mechanisms to deal with these sectoral issues. Any serious efforts to resolve construction disputes must include proactive engagement with all the stakeholders for capacity-building regarding construction contracts and expeditious and efficacious arbitration rules for construction disputes. The report serves to identify the significant construction dispute causes, and it would be a valuable tool for taking the necessary measures.