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State of the Industry and its Impact on Adjudication

The Master Builders Association has recently engaged with government and other Employer Organisations due to the current and tragic state of the Construction Industry in South Africa.
The MBSA and SAFCEC has gone to great lengths, even going as far as writing the nation’s President. Issues such as Business Forums/Construction Mafia and late/non-payment by government entities made the headlines of their desperate plea for action.

The National Treasury had committed in 2018 to address the issue of late/non-payment by summoning the guilty party. They had even established a hotline for contractors to submit a complaint; unfortunately, this has not given any relief to the contractors that have been waiting 180 days or more for payment. The issue of late/non-payment does not only sit in the public sector; it has become prevalent in the private sector as well.

Additional matters that are being addressed by the MBSA in the private sector is the issue of the client’s appointed professional teams issuing the JBCC© Principle Building Agreement with a large amount of amendments and/or still issuing outdated versions of the contract suite. The amendments and use of outdated contracts have ultimately put the main contractor at a contractual disadvantage. JBCC© had incorporated a warning to users of the document of the possible negative results of modifying the clauses in all documents since their early editions; however, this practice remains an industry issue.

Another looming issue in the private sector is the holding of retentions by not only the Employer but also the Main Contractor on their Nominated, Selected and Domestic Subcontractors. In the last year, the industry saw many well-known Main Contractors falling victim to insolvency and filing for business rescue and/or liquidation. Many of the sub-contractors employed by these Main Contractors had to ultimately write off their outstanding payment advices and retentions withheld, amounting to millions of Rands per subcontractor. This situation impacted hundreds of subcontractors; ultimately impacting their cashflow and ability to keep their own doors open.

With the addition of Contractors tendering at very low margins to get the work on the books and the cash flowing; there is no room for error, and someone must be held accountable. The previous method of agreement based on a “gentleman’s” hand shake agreement is no longer worth anything and relationships that have span over decades have come to an abrupt end.

Due to all the challenges experienced in the Construction Industry, there has been a definite increase of disputes and applications through the DAB’s for the appointment of Adjudicators. Regardless of the value of the dispute, they are becoming more and more complex.

Adjudication was intended to deal with disputes timeously and without delay in a cost-effective manner to ensure the dispute did not have an impact on the continuation and progress of the project. However, many of the disputes I am currently reviewing span across a large duration of the contract period, left to the final account to be declared and dealt with.

A common cause for a dispute is the unexpected application of penalties and contra-charges on interim/practical completion of the project. This type of dispute can become extremely cumbersome; as the Adjudicator may need to piece together the critical path of a project over several months or possibly even years. Considering that time is money, Adjudication in cases such as these are by no means faster or more cost effective than Arbitration.

With the changing landscape, all contractors would benefit from educating themselves on the contract they have agreed to, in order to mitigate their risk. Additionally, the introduction of dispute management processes and even an Adjudicator from the onset of the project would be beneficial to all involved. It would assist in dealing with disputes individually and when they occur; to avoid the bundling of issues to be dealt with at the end.