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With dispute resolution procedures more often than not turning out to be anything but speedy, parties to construction contracts are reaching their breaking points. Is it time for a new approach altogether? How about finding ways to avoid disputes completely?
By Kelly Stannard, Associate, MDA Construction & Technology Attorneys
It is widely accepted, no matter which jurisdiction you practice in, that litigation is a long and expensive process where disputes are only finally resolved months or years after arising. This simply does not work for construction disputes where issues need to be resolved quickly to keep the works going.
For years, arbitration was the go-to dispute resolution mechanism as an alternative to litigation as it was considered to be more efficient and cost effective. However, arbitration rapidly demonstrated that it was actually just as costly and slow as litigation. Accepting that arbitration was a no go for the much-needed on-the-job resolution of disputes, efforts were then made to develop a quicker means of resolving disputes in the construction industry and so adjudication was born. Adjudication has made some headway; however, it still hasn’t achieved the desired result and disputes are still running for long periods of time, jeopardising the success of projects and financially crippling contractors and subcontractors.
Is it finally time to explore an entirely different avenue altogether? Instead of focusing on coming up with means to resolve disputes quickly, what if we tried to develop means to avoid disputes in the first place? We believe that the time has come for action to be taken in the industry to, at the very least, avoid trivial disputes that tend to arise on every project.
Over the years, many academics and professionals have recognised the need for dispute avoidance to prevent damage to construction parties’ finances and relationships. Some of the main ideas doing the rounds include ensuring that projects are properly planned and all risks are accounted for, ensuring that contracts are drafted precisely and fairly, limiting the number of amendments that are made to the standard forms of contract, making the contract administrator independent from the employer so as to ensure that his/her decisions are truly impartial, contracting a dispute avoidance board for the entire lifecycle of the project or building a partnership-type relationship prior to the commencement of the project through various workshops and meetings facilitated by a professional advisor.
While some of these ideas seem like they could have the potential to assist, will they work in the South African context? These methods will require a lot of changes in the current construction contracting environment.
The first change necessary is to the attitude of contracting parties, particularly employers towards their contractors and contractors towards their subcontractors. Currently, parties don’t tend to see each other as team members both seeking to achieve a successful project. Parties are more preoccupied with avoiding as many risks and as much liability as possible. For example, standard form contracts, which have been drafted to serve both parties fairly, are being significantly amended to remove contractors’ and subcontractors’ entitlements. This results in unfair consequences, which ultimately leads to disputes. It is unlikely that parties in the position of power, who get to dictate the terms of the contract, are going to voluntarily opt for a contract that equally allocates entitlements, risks and liabilities to both parties.
Beyond a shift in attitude, legislative reform is required to break the habits of construction parties that are leading to disputes, such as legislation that makes certain terms of contracts compulsory or invalid. In South Africa, we witnessed an attempt at this with the Construction Industry Development Board’s Prompt Payment Regulations that were put out for public comment in 2015. These regulations were going to deal with the ritual of contractors including a “paid when paid” clause in their contracts with subcontractors, a clause which is crippling subcontractors. However, to date, these regulations have not come into effect. Unfortunately, in the South African context, this kind of delay is not rare and in this case it is making it rather difficult to implement means of achieving dispute avoidance.
On 21 June 2018, MDA Attorneys will be hosting a Collective Wisdom lecture where both local and international professionals will be discussing means of avoiding disputes, including those that have been tested on projects in the United Kingdom, the ways in which the latest FIDIC and NEC contracts are seeking to promote dispute avoidance as well as dispute avoidance in the South Africa context. Should you wish to attend or dial into the debate via video conference, please follow the link.