8/6/2019 Adjudication of Disputes in the Construction Industry

1/2

I N N O V A T E n o . 3 2 0 0 978E S S A Y S

Until recently, the processes of

mediation and arbitration were

the main alternatives for settling

construction disputes in South Africa.

However, since the introduction in

the early 1990s of the adjudication

process in international construction

contracts, contractual adjudication

is slowly being introduced into the

construction industry.

This article provides an overview othe development o adjudicationas an alternative dispute resolutionprocess (ADR) in South Arica and itseectiveness in solving disputes inthe local construction industry. It alsoindicates to what extent adjudicationhas been used since its introduction intothe construction agreements currently inuse in South Arica.

Construction disputes are well servedby mechanisms that are speedy, cost-eective and binding. Such mechanisms

should be conducted by an independentthird party and should be undertakenby a person (or group o people) chosenby the parties and with the requiredlegal/technical knowledge or who areable to acquire them. Such mechanismsshould be able to hear any matter,should be capable o becoming nal andenorceable, and should not intererewith the progress o the works.

The White Paper on Creating anEnvironment or Reconstruction

Growth and Development in theConstruction Industry (1999) arguesthat the conventional mechanisms andprocedures or nal dispute resolution(normally arbitration or litigation) areboth costly and time-consuming. Iturther states that small and emergingcontractors are disadvantaged evenimperilled in the event o a majordispute. The paper advocates the useo ADR mechanisms on contracts andrecommends that the report o SirMichael Latham, Constructing the team,be used as the point o departure in this

regard (CIDB, 2003).

Following the Latham report, the UKGovernment was persuaded that primarylegislation was required to give all partiesto construction contracts a statutory

right to have disputes resolved, in therst instance, by adjudication, which wasto be a rapid and relatively inexpensiveprocess in all cases. This legislation,the Housing Grants, Construction andRegeneration Act, 1996, is now in orcein the UK and parties to constructioncontracts are allowed to reer a disputeor adjudication at any time.

Similar legislation has been adoptedin parts o Australia, New Zealand,Singapore and Hong Kong. The WorldBank is also advocating that such

procedures be used on projects it unds.

The Construction Industry DevelopmentBoard (CIDB) took the lead to ociallyintroduce adjudication on constructioncontracts in South Arica and publisheda Procurement Practice Guide in 2003.This document dealt, inter alia, with theimplementation o adjudication andadvocated that adjudication should beapplied to all categories o constructioncontracts, namely engineering andconstruction works, services and supplies,

at both prime and subcontract level, andshould be a mandatory requirement orthe settlement o disputes prior to thecompletion o the contract.

Adjudication has now ound its wayinto most o the major constructionagreements in South Arica. There aredierences between the ways in whichthe process is applied in the UK and inSouth Arica. In the UK, adjudication isa creature o legislation. It is thereore asubstantially similar process, regardlesso whichever o the many available

construction agreements is applicable. InSouth Arica, it is adopted by agreementbetween the parties, and its naturemay vary depending on the applicableagreement.

Adjudication is but one o a numbero recognised ADR methods used inresolving disputes in the constructionindustry. Others methods includemediation, conciliation, early neutralevaluation, mini trial, expertdetermination and arbitration.

This article limits its discussionand comparison to only three othe aorementioned ADR methods:adjudication, mediation and arbitration.

Adjudication of disputes in the construction industry

by Marthinus J Maritz

Pro Marthinus Maritz and colleagues

8/6/2019 Adjudication of Disputes in the Construction Industry

2/2

I N N O V A T E n o . 3 2 0 0 979E S S A Y S

Description of terms

The adjudicatoris a third-partyintermediary appointed to resolve adispute between the disputants. Thedecision o the adjudicator is bindingand nal, unless it is later reviewed byeither arbitration or court proceedings,whichever the parties selected atthe time o ormalising the contract.Adjudication is intended to be acondition precedent to either arbitrationor litigation.

The mediatorassists the disputantsto generate options and oster anunderstanding o their respectivepositions and to manage emotions.Although the mediator controls theprocess, he/she does not impose anyresolution or opinion on the merits othe case, promoting a win/win situation,leaving the disputants themselves tocontrol the outcome. The process isfexible, private and condential with thelegal rights o the parties protected whenno agreement has been reached.

The arbitratorhas the widest discretionand powers allowed by law to ensurethe just, expeditious, economical andnal determination o disputes raised inthe proceedings including the matter ocosts. All powers and unctions exercisedby the arbitrator shall be in accordancewith the provisions o the Arbitration Acto 1965. The decision o the arbitrator islegally binding with the outcome beingone o a win/ lose situation and there isoten no provision or appeal to a courto law.

What is adjudication really?

The Procurement Practice Guide o theCIDB denes adjudication as anaccelerated and cost-eective orm odispute resolution that, unlike othermeans o resolving disputes that involvea third party intermediary, results in anoutcome that is a decision by a thirdparty, which is binding on the parties inthe dispute.

However, adjudication is otendened by reerence to what it isnot. Adjudication is not arbitration orlitigation, nor is adjudication a decisionby the engineer/project manager.

The adjudicator is completelyindependent and is paid by both parties.In South Arica, adjudication is a creatureo contract.

Claims for money?

Opinion varies as to whetheradjudication should be limited to a claimor payment only and should excludeany dispute arising under the contract(see, or example, Kennedy-Grant,2005, Lloyd, 2005 and Bayley, 2005).Certain legislation, in particular that o

New South Wales (NSW) in Australia,is quite narrow in its application oadjudication and is limited only tomatters concerning payment. The UKlegislation, on the other hand, providesor all matters in a dispute to be reerredto adjudication and has been used inmany non-payment issues, as it does notexclude disputes regarding matters suchas interpretation o contract, quality owork or extension o time being resolvedbeore they become payment disputes.

Maritz (2007), in his investigation intothe utilisation o adjudication in theSouth Arican construction industry,posed the question to a selected targetpopulation made up o individualswho regularly deal with constructioncontracts and dispute resolution matters.The respondents were divided in theiropinion, as is illustrated by the ollowingcomment by one o the respondents:Adjudication is not a process thatwill be eective on most contractualdisputes in South Arica. This processis only suitable or larger projects

with sophisticated contractors andsubcontractors.

Adjudication as the mandatory mode

of dispute resolution

Construction contracts must be specicas to whether adjudication should bethe mandatory mode or the deaultprovision or resolving disagreements.One can argue, however, that theproper time to decide whether a disputeshould be reerred to adjudication or to

arbitration or to any other ADR processis at the time that the dispute has arisen.The proper person to make this decisionis the person who declares the dispute,because he is seeking relie and he

should know which process would be thebetter option.

During the course o the contract, thedispute will probably be about paymentand the contractor will probably optor adjudication, but at the end o thecontract, where the dispute may beabout the nal account, he will preernality over speed and rather opt orarbitration.

Conclusion

Despite adjudication being in placein the locally developed constructionagreements in South Arica or thepast our years, the level o knowledgeand use o the process remain low.Experience in other countries that haveintroduced adjudication has shown thatadjudication without the statutory orceis not likely to be eective. Enorcemento the adjudicators decision is critical tothe success o adjudication. Beore SouthArica introduces an act similar to actsin the UK, New Zealand and Singapore,

adjudication will remain largelyineective and, thereore, underutilisedlocally.

Prof Marthinus J Maritz, Head:Department o Construction Economics,and Chairperson o the School or theBuilt Environment in the Faculty oEngineering, Built Environment andInormation Technology, University oPretoria (tinus.maritz@up.ac.za)

Reerences

Bayley, G, 2005, Constructing the Act: The New ZealandConstruction Contracts Act 2002 rom conceptionto delivery, International Forum: Construction Industry

Payment Act and Adjudication ICW 2005, KualaLumpur, Malaysia

Construction Industry Development Board (CIDB), 2003,Procurement Practice Guide #C3: Adjudication, Pretoria,South Arica

Construction Industry Development Board (CIDB),2004, CIDB Adjudication Procedure frst edition o CIDBdocument 1014, Pretoria, South Arica

Kennedy, P and Milligan, JL, Mission drit in statutoryadjudication, RICS COBRA Congress, September 2007,Atlanta GA, USA

Kennedy-Grant, T, 2005, A review o the existing legislativemodels or a Construction Industry Payment andAdjudication Act, International Forum: ConstructionIndustry Payment Act and Adjudication ICW 2005,Kuala Lumpur, Malaysia

Lloyd, H, 2005, Adjudicators decisions when they may beinvalid and other matters, International Forum:Construction Industry Payment Act and Adjudication ICW 2005, Kuala Lumpur, Malaysia

Maritz, MJ, An investigation into the adjudication o

disputes in the South Arican construction industry, RICSCOBRA Congress, September 2007, Atlanta GA, USA

The Department o Public Works (DPW), 1999, The WhitePaper on Creating an Environment or ReconstructionGrowth and Development in the Construction Industry,prepared or the Minister o Public Works, GovernmentPrinting Works, Pretoria, South Arica