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Updated 23 Jun 2018

Effectively managing dispute resolution under construction contracts

Let’s be honest, the majority of disputes arise because parties are in disagreement amount monies owed. But, are you sure you can afford the dispute resolution options available to you based on your actual contracts? 

Natalie Reyneke, 15 February 2017  Share  0 comments  Print

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Many construction contractors are backed into a corner because they agree to resolve disputes before three arbitrators, according to the ICC Rules and in Paris (or something along those lines). If you thought a senior counsel was expensive, try having to pay for three arbitrators, in Euros.

Disputes tend to conjure up images of advocates and court room dramas, but in reality, going to court (litigation) is generally not how disputes are settled in construction contracts. There is a wide spectrum of dispute resolution procedures available to those involved in commercial dealings. 

Related: How to settle disputes the humane way

How you can deal with disputes 

Traditional forms of dispute resolution include litigation; arbitration; and adjudication. At the other end of the spectrum we have dispute resolution processes where the outcome of the process is that the parties reach an agreement between themselves – quite different from the idea that one party wins and the other party loses upon the decision of a third party.

These alternative forms of dispute resolution include mediation; conciliation; and dispute review boards. Players in the construction industry favour adjudication, a procedure which gives a third-party individual (the adjudicator) summary interim decision-making power on disputes arising under the contract. The adjudicator is usually not involved in the day-to-day performance or administration of the contract. 

It differs from mediation and conciliation in that the outcome is binding on the parties, which means that it is not dependent upon an agreement being reached between them. Unlike arbitration, the process is summary (it takes place over a relatively short period of time) and inquisitorial.

The decision is typically an interim one, with the ability to become binding. Adjudication follows the procedures of contract administration – one of its primary functions is to resolve disputes quickly to facilitate payment under the contract.

Sentiment in the construction sector

Office -construction

The construction industry has lost its enthusiasm for litigation and arbitration, largely because of the slow pace and high costs that are associated with it. Most disputes in the industry are not large enough in financial terms to warrant the expense involved in referring to arbitration or court.

Some of the benefits of mediation and adjudication include the maintenance of ongoing relationships, efficiency, confidentiality and flexibility and control. Luckily both of the South African standard form contracts (GCC and JBCC) make provision for adjudication. But these contracts can be changed by employers, who may remove the contractor’s right to refer the matter to adjudication.

Related: Discipline & termination procedure

If you are entering into a contract, pay close attention to the dispute resolution clause. You need to make sure that the process you agree to is within financial reach of your business and that it’s a process that you will be happy to follow in the event of a dispute.

In my experience, I often come across contractors who shy away from using the dispute resolution process for fear of upsetting the employer. My response is that the employer is the one that provided you with that particular contract, including the process to be followed. Don’t be scared to use it.

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About the author

Natalie Reyneke

Natalie Reyneke was admitted as an Attorney in 2004. She is Senior Associate at MDA Consulting, a specialist commercial advisory practice in the construction environment. Natalie specialises in construction and engineering claims, contracts and dispute resolution. Her experience covers a broad range of both contentious and non-contentious issues in the construction and engineering industries. Her areas of expertise include all aspects of claims, contract and documentation drafting, all major forms of dispute resolution as well as legal advice and forensic audits of construction contracts.

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