Daily Dispatch

Mediation and arbitratio­n in constructi­on disputes

- Terry Mathie

“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.

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