Kluwer Construction Blog

In the complex world of construction projects, having regard to the plethora of contractors and ensuring that construction is completed on time, construction disputes must be resolved by appropriate dispute resolution mechanisms which are not only cost-effective and speedy but are also final and binding. In an ideal world, what is required is an impartial third party, equipped with the necessary legal and technical knowledge, and who is capable of making binding decisions which will not delay progress of the project or final close-out of the project and all claims the parties may have.

Mediation and arbitration have become well established means of resolving construction disputes without following expensive and time-consuming court ligation.

Mediation is a process in which an independent third-party assists in resolving a dispute between two or more other parties. It is a non-adversarial approach to dispute resolution in that the role of the mediator is merely to facilitate the process by assisting the parties to deliberate on the real issues of the dispute and generate options that meet the interests of all relevant parties, thereby promoting a win-win situation. Mediation is not in itself a binding process, but once consensus is reached, a contract is drawn which keeps the parties to their agreement. This process is effective when the parties involved need to preserve their relationship due to ongoing interests. However, it is not always a viable means of resolving disputes where the dispute has severe monetary implications.

On the other hand, arbitration involves a more formal process having to adhere to strict arbitration rules of the relevant arbitration bodies. The arbitrator’s decision is contractually binding and will, on application, be enforced by the courts of law. Unless parties agree, the decision of an arbitrator is not appealable but the decision of the arbitrator may be reviewed. Although, South African courts are reluctant to find fault with the manner in which the arbitration was conducted.

Traditionally, arbitration was seen as a cost effective and speedy means of resolving construction disputes. In recent practice, though, it has proved to be just as costly and time consuming as ordinary litigation (in part, due to the backlog of matters being heard at court). Although both parties agree on the appointment of the arbitrator, it is often the well established contractors who have leverage as to the appointment at the onset of the contract. Appointing an arbitrator who is both conversant in the construction industry and who has a legal knowledge is often limited to practicing advocates or attorneys and can become costly. The unsatisfactory result is that small and emerging contractors with limited financial reserves are often left destitute.

Although adjudication has found its way into construction contracts in recent times, the process of adjudication has not been legislated and is, therefore, largely governed by agreement between the parties.

The Construction Industry Development Board has set out a procedure for adjudication in the South African construction industry in its procurement Practice Guide (March 2004). In terms of this guide, adjudication is a rapid and inexpensive determination of a dispute arising under the contract in terms of which the adjudicator’s decision shall be binding until the dispute is finally determined by legal proceedings or by arbitration (as agreed by the parties) and the parties must implement the adjudicator’s decision without delay whether or not the dispute is to be referred to legal proceedings or arbitration. The proceedings in arbitration may hear the dispute anew; hardly helpful if the aim is a speedy resolution.

In terms of this procedure, adjudication commences by way of a written notice to the other party, within 28 days of becoming aware of the action. The adjudicator is either named in the contract or agreed between the parties prior to the issue of the notice of adjudication or selected by the parties within 4 days of the date of issue of the notice of adjudication. If parties are unable to agree the Chief Executive Officer of the Construction Industry Development Board has a further 5 days in which to appoint the adjudicator. It may be to the parties’ benefit to appoint an adjudicator at the time of the contract to avoid any delays in trying to agree on one at a later stage.

Once agreement as to the identity of the adjudicator has been reached, each party has 14 days in which to submit its statement of the case. The adjudicator then has 28 days, which may be extended by up to 14 days with the consent of the referring party in which to reach a decision.

This process appears to be most effective in preventing delays in construction projects. However, unlike an arbitration decision, which may be enforced by a court, the referring party will have to rely on the good faith of the other to implement the decision of the adjudicator. Without any statutory force, adjudication remains largely ineffective. It is necessary for South Africa to keep up with the international development and implement legislation to govern adjudication procedures. In the interim, it may be a solution for adjudication awards to be subject to an appeal, which appeal is governed by a recognised arbitration forum under the Arbitration Act such that an award by an appeal panel can be enforced without the matter being heard anew.