The importance of mediation, adjudication 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 by its very nature is a highly specialized industry and has over time developed a number of standard construction agreement formats that parties apply to their construction projects. Such agreements such as the JBCC, GCC, NEC and FIDIC suites of contract all contain arbitration provisions. 

These arbitration provisions may include formal mediation as an option, although some agreements merely require that the parties take reasonable measures to between themselves and/or their respective representatives resolve any disputes amicably before referring such a dispute to adjudication or arbitration.

A far more popular method than mediation, which is used as an initial dispute resolution mechanism, is a provision that the dispute must first be referred to adjudication. Adjudication is a shorter, less formal and less expensive procedure by which the parties to a dispute make written submissions to an adjudicator who then gives a ruling, normally purely based on the written submissions of the parties.

If either party is dissatisfied with the ruling of the adjudicator, that party may then (usually) within a set period of time give notice of their dissatisfaction and refer the matter to arbitration, which generally is a more formal and potentially lengthy method of dispute resolution.

The reason for the use of alternative dispute resolution procedures (including mediation, adjudication and arbitration) in construction projects, again relates to the specialized nature of the construction industry. Having a construction specialist act as adjudicator or arbitrator is to the benefit of all parties. And when one considers that the parties to such contracts are generally free to agree on who to appoint as adjudicator, mediator or arbitrator, it enables the parties to appoint someone who themselves is a specialist to consider the dispute. For example, a construction law specialist, engineer, quantity surveyor or any number of other individuals agreed to by the parties to act as the adjudicator, mediator or arbitrator.

A further benefit that many parties to construction contracts value is the fact 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 in the industry.

An additional benefit arising from the use of the alternative dispute resolution route, is the expediency with which such proceedings can be finalized. In matters where delays potentially carry immense cost implications for all parties, reaching an outcome quickly and efficiently is essential. South African Courts are severely congested, causing immense delays in finalising disputes. In addition to this, the time frames associated with traditional court-based litigation are often not feasible or sensible for parties to construction disputes, as such lengthy timeframes could lead to significant delays and losses for all parties.

In conclusion, the inclusion of alternative dispute resolution measures, rather than making use of the courts has accordingly 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 caters to the needs of the 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 for any reason whatsoever and no action should be taken on the basis thereof unless its application and accuracy has been confirmed by a legal advisor. The firm and author(s) cannot be held liable for any prejudice or damage resulting from action taken on the basis of this content without further written confirmation by the author(s). 

October 20, 2022

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