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The parties’ rights and obligations to resolve contractual disputes

By Uwe Pulitz

BACKGROUND

In the typical (employer design/contractor execution) standard-form contract (SfC) the principal contractor’s obligations vis-a-vis the employer and subcontractors are described and likewise the respective rights and obligations between the principal contractor and a subcontractor are described in the standard-form subcontract (SfS). Similar provisions are included in standard professional services contracts (PSC) between the employer and each consultant.

    All current editions of SfC and SfS encourage the parties to avoid disputes by regularly communicating with one another and, if necessary, involving the contract administrator to clarify technical terminology, industry procedures, or construction contract law principles. If the consultation process is not successful the parties may give notice of a dispute to be referred to ‘adjudication’ (of essentially technical issues) or to ‘arbitration’ (for interpretation of contractual rights and obligations). The parties may agree to involve a mediator at any time during adjudication or arbitration or to guide a disagreement process:

    The Department of Justice in South Africa issued a directive on 03 May 2013 where the employer is an Organ of State that dispute resolution procedures in a SfC must be used in preference to litigation – a complex, time consuming and very expensive option with no guarantee to ‘win in court’.

    When a dispute is referred to litigation the parties can obviously choose their respective legal represenatives but have no say in the appointment of a judge when their matter is heard in court. Any court decission must be in terms of the law – but it may take a little more court time (and expense) to explain unique construction related matters!

    • Neither party shall be entitled to legal representation, unless otherwise agreed;
    • A subcontractor may ‘join’ with the contractor ‘against’ the employer and vice versa.
    • The parties must continue to perform their respective contractual obligations regardless of a disagreement or dispute.

    ADJUDICATION

    Adjudication seeks to find a speedy, workable resolution of mainly technical problems or payment issues when they arise:

    • Cost effective
    • Conducted by an independent third party;
    • Can hear any matter;
    • Capable of becoming final and enforceable;
    • Binding on the parties;
    • Undertaken by a person with the required legal / technical knowledge chosen by the parties;
    • Will not interfere with the progress of the works;
    • Adjudication is by agreement of the parties.

    The Adjudicator:

    • Is a person chosen and appointed by agreement between the parties to act in accordance with the chosen rules for adjudication;
    • Must understand and apply the principles of natural justice and have the technical skills to analyse a problem to make an appropriate technical and financial determination;
    • Is generally active in the building/construction industry with knowledge and experience of dispute resolution procedures;
    • Is required to act with professional skill, diligence and care … and may be held liable by a party for damages suffered;
    • Is not eligible for a subsequent appointment as arbitrator.

    The process:

    • The adjudication process is defined by ‘rules’ to define the authority, procedures and the period in which the adjudicator must make a determination – or forfeit his appointment.

    The Adjudicator’s determination:

    • Is immediately binding – but may be overturned in a subsequent arbitration;
    • May be based only on written submissions of each party. The adjudicator is not obliged to conduct a hearing;

    Time allowed

    • Depending on the chosen ‘rules’ within twenty (20) business days of the date of referral.

    Role of the ‘contract administrator’:

    • No direct involvement.

    ARBITRATION

    The Arbitrator:

    • Is a person chosen and appointed by agreement between the parties to act in accordance with the chosen rules for arbitration;
    • Must understand and apply the principles of natural justice and have the technical and legal skills to analyse a problem and make an appropriate award;
    • With knowledge and experience of dispute resolution procedures who may have a legal qualification;
    • Has judicial immunity and is not liable to the parties for any lack of skill, diligence, etc.

    The Arbitration process:

    • Is not a review of an adjudication, but
    • Is a process for the arbitrator to deal with complex issues or matters of interpretation;
    • Starts anew, the arbitrator may
    • Review any document, decision or certificate pertaining to the project and/or summons any person as a witness;
    • Is strictly regulated and largely follows court procedures that are much longer in duration to deal with issues in depth.

    The Arbitrator’s award:

    • Is final and binding, and
    • Can only be overturned by a court order;
    • May be based only on written submissions of each party;
    • The arbitrator is not obliged to conduct a hearing

    Time allowed:

    • Depending on the ‘rules’.

    Role of the ‘contract administrator’:

    No direct involvement.

    MEDIATION

    The parties may choose to involve an outsider to ‘mediate’ the matter under dispute.

    The Mediator:

    • Is a person chosen and appointed by agreement between the parties to act in accordance with the chosen rules for mediation;
    • Must understand and apply the principles of natural justice and have the technical and negotiation skills to guide the parties to find a solution an acceptable solution;

    Is generally active in the building/construction industry with knowledge and experience of dispute resolution procedures.

    The Mediation process:

    • Seeks to resolve a stalemate between the parties by facilitating discussion to identify issues, clarifying priorities, exploring areas of compromise or alternative solutions in an attempt to reach an acceptable settlement;
    • Is a speedy process;
    • Is not governed by legislation;
    • Requires that the parties have the authority to negotiate and the agree a settlement at the mediation;
    • Requires the costs are shared equally by the parties.

    Time allowed:

    • At any time during a contract;
    • Agreed between the parties… within ‘days’.

    Role of the ‘contract administrator’:

    • No direct involvement.

    Expert determination

    This is a variation to the ‘mediation’ process where the parties are talking to one another but have not managed to agree a solution – and request the mediator, who has been privy to all relevant information, to suggest a (non-binding) solution to the parties.

    DISPUTE AVOIDANCE

    Internationally published SfC provide for the appointment of a one or three person Dispute Adjudication/Avoidance Board (DAAB) to ‘monitor’ a project from the inception until the end of the defects liability period to timeously identify possible problems and to resolve them before they become expensive and complex claims – for a regular retainer fee – only applicable to ‘large’ projects.