There is generally no provision for estimating costs of litigation to be added during bidding stage for any contract, as the project cost estimates will make the bid uncompetitive or highly priced. Even then there is no formula or a scale to estimate what will be the cost, if, and only if, there is a dispute at the end or during the project execution stage.
It is immaterial to get estimates but the fundamental truth is that disputes will be financed by the potential profits and or reserves of the company. This certainly doesn’t give an appealing proposition to read the article. You must read on if you don’t want your company to get into such unpleasant and unhealthy financial situations.
What some scholars say about disputes:
‘‘Risk and uncertainty is inherent in all construction projects.’’
‘‘Uncertainty in a construction project leads to conflict.’’
‘‘Conflict is . . . any divergence of interests, objectives or priorities between individuals, groups, or organizations; or non-conformance to requirements of a task, activity or process . . . ’’
‘‘. . . conflict is pandemic; it exists where there is an incompatibility of interest.’’
‘‘. . . conflict can be managed, possibly to the point of preventing it from leading to dispute.’’
Categories of Costs of Conflicts and Disputes
- Corporate Management time
- Man-hours of Project management team
- Legal cost of the parties, which makes up 80 to 85% of the total cost of any litigation or arbitration
- Court Fees, Arbitrator’s Fees and administrative expenses
- Witnesses, experts and consultants cost
Factors influencing rising costs of litigation and arbitration
The most expensive component of total costs is the party’s own costs and the legal counsels’ costs, which can be controlled if it is well recognized and understood from the start. With complexities of contracts and choices of dispute resolution forums, the flexibilities are often exploited at the expense of the disputants. Various studies conducted by arbitral institutions like ICC, legal services providers and author have found common influencing factors for increasing costs, such as:
- Searching for law firm or counsels with experience and at reasonable cost
- Silence after commencing litigation
- Choice of forum limited to courts or litigation
- Failing to try ADR forums like mediation, expert determination, conciliation etcetera
- Increased volume of correspondences between counsels of the parties before filing a statement of claim
- Seeking extensions and change of filing dates
- One or more of the parties start raising objections, seeking interim applications and other tactics available under the procedural laws
- Number of witnesses and experts
- Broad list of issues at dispute without filtering out easily negotiable matters
- Multiple meetings and bifurcated hearings
In terms of arbitration case management and cost control techniques, some of the guidelines and further details as references may also be obtained from ICC or other arbitral institutions. It is common practice for reputed international arbitral institutions to provide cost effective schemes like expedited procedures and small claims arbitration rules.
Controlling Costs of Dispute Resolution through International Arbitration
- Use internal resources for managing case documents and compiling all records.
- Do explore the possibility of negotiated settlement.
- Explore mediation as a start or anytime during the proceedings.
- Appoint sole arbitrator.
- Select counsel with experience in arbitration and case cost management.
- Agree on timings during the initial conferences for case management.
- Minimize witnesses, and engage expert witness only if absolutely essential to win the claim and not the argument.
- Keep track of time-line, remember the longer an arbitration process the more expensive it will become.
The readers are welcome to send an email enquiry for further details or consultancy services and dispute resolutions case management, from Tiberias MC, your innovative management consultancy services providers.