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Early Intervention - The key to successful dispute resolution.

Early Intervention - The key to successful dispute resolution.

Disputes are rife in the construction industry. Every contract has the potential to generate a dispute that may lead to expensive arbitration or litigation.

In this article, Chris Binnington, Managing Director of Binnington, Copeland & Associates (Pty) Ltd and Chairman of the Association of Arbitrators of Southern Africa, will discuss the merits of early intervention techniques.

Our standard forms of contract entrench dispute resolution procedures which, save for the introduction of Mediation, have remained little changed for the last 40 years.

Typically claims raised by main contractors are submitted to the principal agent, engineer or architect, who adjudicates the claim in terms of the relevant claims clause. To the extent that the agent rejects the claim the contractor is left with a right to proceed to dispute using the dispute resolution clause.

Usually the first step in the dispute resolution clause is to obtain a "decision" from the principal agent. The dispute is then referred to the self same entity who has already rejected the contractor's claim!.

Strangely, this anomaly has remained unquestioned. How can a contractor expect a different result from a decision of the same person, a person who generally will be employed as the agent of the employer and who must inevitably lean towards the employer where any "grey" areas are included in the contractor's claim. Neither is the agent expected to be a quasi-arbitrator (Kollberg-v-Cape Town Municipality 1967(3) SA 472A; Schuldes-v-Compressor Valves 1980(4) SA 576W)) or required to adhere to the principles of natural justice.

Frequently, also, the decision of the agent in terms of the dispute clause cannot be challenged until the work is completed. This leads not only to ongoing conflict during the remaining period of the contract but also results in the contractor financing the cost of the claim until final resolution.

There can be no doubt that this procedure is detrimental to both employer and contractor. The probability that the decision of the agent will lead to formal dispute resolution is very high as is the probability that the relationship between the parties will be adversely affected leading to further conflict.

The introduction of early intervention techniques is the answer. A procedure must be developed which, immediately a disagreement between agent and contractor arises, provides a mechanism for the introduction of an outside party. This party, sometimes referred to as an Adjudicator, should be totally independent of both parties but his fees should be paid equally by each party. He should be required to receive submissions from both parties and should be entitled to meet with both parties either individually or jointly. His decisions should be available within a relatively short time, 3 to 4 weeks after the final submissions are made.

The Adjudicator's decision should be binding on the parties for the duration of the contract and enforceable as a contractual provision. It should however be capable of being finally reviewed by arbitration or litigation.

Of the standard forms of contract available in South Africa, only the New Engineering Suite of contracts entrenches this procedure.

The new JBCC 2000 Building Contract has entrenched the traditional approach and in doing so has not only missed a huge opportunity to move the building industry towards a more effective method of dispute resolution procedure, but has done a grave disservice to the user of this document in providing a system which will continue to promote conflict and dispute.

NEC experience world wide indicates that no single dispute has advanced to formal dispute procedures following the intervention of the Adjudicator.

Whilst the adjudication process is normally a reactive process i.e. the process is triggered once a dispute arises, it may also be pro-active with regular site visits and perhaps a review of the minutes of meetings to keep the adjudicator apprised of the general situation and thus in a position to grasp the dispute quickly when it arises.

Binnington Copeland & Associates (Pty) Ltd have developed a series of standard dispute resolution clauses to replace existing out-dated clauses and to provide for early intervention procedures. These clauses are available free of charge from Binnington Copeland & Associates (Pty) Ltd