Mediation and arbitration in construction disputes
“Parties to construction projects easily get nervous when they see provisions in the agreement that demand that disputes be referred to mediation and/or arbitration. Why have these provisions, and do they water down the enforcement of their rights?”
In this article, we unpack why clauses such as these have become the norm in the construction industry and should be welcomed.
The construction industry is highly specialised and has developed some standard construction agreement formats for construction projects.
Suites of contract such as the JBCC, GCC, NEC and FIDIC all contain arbitration provisions. They may include formal mediation as an option, although some agreements merely require that the parties take reasonable measures to resolve any disputes amicably before referring them for adjudication or arbitration.
A more popular method than mediation as an initial dispute resolution mechanism is a provision that the dispute first be referred to adjudication.
Adjudication is a shorter, less formal and less expensive procedure by which the parties make written submissions to an adjudicator who then gives a ruling, normally based on the submissions.
If either party is dissatisfied with the ruling, they may within a deadline give notice of it and refer the matter to arbitration, generally is a more formal and potentially lengthy process.
The reason for the use of alternative dispute resolution procedures (including mediation, adjudication and arbitration) in construction projects, is the specialised nature of the construction industry. Having a construction specialist act as adjudicator or arbitrator is to the benefit of all parties.
Because the parties are generally free to agree on the adjudicator, mediator or arbitrator, they can appoint a specialist.
A further benefit is that such proceedings are usually confidential, in contrast to the courts, where the records of proceedings are generally public. The nature of disputes in the construction industry, whether relating to allegations of poor work quality or considering the enormous amounts that may be in dispute may cause irreparable reputational harm if they become public knowledge.
Keeping such disputes private is, therefore, not merely beneficial but essential for some participants.
An additional benefit of the alternative dispute resolution route is the expediency with which such proceedings can be finalised. In matters where delays can carry immense cost implications, a quick and efficient outcome is essential, and SA courts are severely congested.
In conclusion, alternative dispute resolution measures, rather than making use of the courts has become the norm in the construction industry. But, care should be taken, whether using a standard agreement format or a bespoke drafted agreement, that the provisions included for solving disputes are understood and cater to the needs of all parties. Be sure to contact a commercial or construction specialist to help you avoid these pitfalls.
Disclaimer: This article is the personal opinion/view of the author(s) and is not necessarily that of the firm. The content is provided for information only and should not be seen as an exact or complete exposition of the law. Accordingly, no reliance should be placed on the content and no action should be taken on the basis thereof. The firm and author(s) cannot be held liable for any damage resulting from action taken based on this content without further written confirmation by the author.