Being a Paper Presented at the Interactive Session Between the Engineering, Construction and Real Estate Interest Group of CIARB Abuja Chapter and Federal Ministry of Water Resources on Wednesday, 10th August 2022 By Roseline Obiageli Nwosu (Mrs) LLB (Hons) BL, FCIArb(UK), FSCIArb, FICMC, CEDR Accredited Mediator, Notary Public.
NATURE OF CONSTRUCTION CONTRACTS & PROJECT
Construction projects are usually long transactions with high uncertainty and complexity. It is therefore impossible to resolve every detail or foresee every contingency at the outset. It involves many human and non-human factors and variables. It also involves interactions of wide range of professionals such as engineers, architects, quantity surveyors and others, including clients, contractors, subcontractors and consultants with their diverse interests and ideas of how things should be done. With this competitive environment in which parties with different views, talents and levels of knowledge work together, the industry is susceptible to disputes which may occur before, during or after the projects. Construction contracts are peculiar hence you hear words like provisional sums, prime cost, variations, fluctuations and additional costs. Each project is unique and has many risks borne by various players.
Disputes can exist at all levels of the construction chain such as between client/consultant, client/contractors, consultant/contractors and client/sub-contractors.
MAIN CAUSES OF DISPUTES IN CONSTRUCTION INDUSTRY
- Delays in provision of documents/ payments
- Design deficiency
- Sight conditions
- Project complexity and lack of coordination between the professionals
- Poor workmanship/Professional negligence
- Fluctuations and additional works
- Variations in contract prices
- Unrealistic expectations
- Claims for extension of time by contractor to complete the project
- Misunderstanding due to poor communication
- Engineer exercising uneven hand in deciding differences in favour of the client
INTRODUCTION TO DISPUTE RESOLUTION PROCESSES IN THE CONSTRUCTION INDUSTRY
Litigation is the traditional dispute resolution process in construction industry. Court processes, however, are long, very costly, & stressful with uncertain outcomes. As a result of these drawbacks which have far reaching negative impact on construction projects, alternative dispute resolution processes have sprung up.
Such processes which can be categorised into consensual and adjudicative processes include Negotiation, Mediation, Conciliation, Mediative-Conciliation, Adjudication, Arbitration, Med-Arb, Expert determination, Mini trial /Executive trial and Dispute Resolution Boards. The benefits of these processes include speedy trials, privacy and confidentiality, benefit of expertise of the neutral, flexibility, cheaper costs, preservation of business relationships and most importantly, continuation of the project pending the final resolution of the dispute.
Before going into the different processes, suffice it to note that different types of construction contracts commonly used in the construction industry in Nigeria have provisions for dispute resolution. Some of the most commonly used which have been found to be convenient, timesaving and cost effective are: Joint Contracts Tribunal (JCT) standard form of contract (Without Quantities) 2009 edition: Clause 9 provides for Mediation, Adjudication and Arbitration.
PROVISIONS FOR DISPUTE RESOLUTION IN CONSTRUCTION
- The Standard Form of Building Contract in Nigeria (SFBCN) edition 1990: Clause 35 provides for arbitration.
- Federal Ministry of Works and Housing lump sum contract for use in Bill of Quantities: Clause 34 contains Arbitration clause.
- General Conditions of Contract for Procurement of works (GCC) 2011: Clause 82 provides for Amicable settlement, Adjudication and Arbitration.
- The International Federation of Consulting Engineers Contract (FIDIC) otherwise known as “The FIDIC Conditions of Contract for Construction of Building and Engineering Works’’ 2017 Ed: Clause 21 provides for Amicable settlement, Adjudication and Arbitration.
NEGOTIATION & MEDIATION
Negotiation: A dialogue between 2 or more parties with the intention of reaching a compromise that will be mutually beneficial. It is flexible and parties give and take to and from each .
Mediation: A neutral 3rd party uses his skill to facilitate communication between both parties with the objective of achieving settlement. He has no decision-making power and parties have control of the outcome which is binding and enforceable when put in a form of settlement agreement signed by both parties.
Mediative-Conciliation: This is a new vista in ADR through an amalgam of 2 methods that are common in ADR, i.e., mediation and conciliation which has been propounded by Tim Anago Esq. Here, parties are encouraged to reach a settlement via mediation in the 1st instance but in case of failure to reach a settlement, the Mediative-Conciliator is required to issue a binding decision. It has many benefits such as minimised paper work which saves time, the expertise of the Mediative-Conciliator ensures that that he understands the particular needs of the parties. This enables him to get the trust of the parties and ensures more openness by them with the facts. Most importantly, it allows for considerable amount of certainty and assurance of final resolution at the 1st instance. So far, this new concept has achieved 100% compliance by parties and success rate in settling construction disputes.
Conciliation is contained in the Arbitration and Conciliation Act Cap A18 Laws of the Federation of Nigeria 2004. The Conciliator assists the parties in an independent and an impartial manner in their attempt to reach an amicable settlement of their dispute. Unlike the Mediator, a Conciliator acts as both a facilitator and an evaluator. He provides advice and guidance on the issues at hand and makes suggestions as to potential solutions to the parties so as to resolve the issue.
Adjudication: This is a common and extensively used process for resolving disputes in the construction industry. It is quick and an efficient process, its main objective being to protect cash flow during construction projects. It is mostly used to resolve issues related to interim payments, delay and disruption of the works, extension of time for completion of works and defects in the works. In Nigeria, we do not yet have a statutory framework for Adjudication unlike in the UK where it has statutory backing in the Housing Grants Construction and Regeneration Act 1996 and other Western Countries. This means that reference here is to contractual adjudication agreed upon by parties in their contract which parties are bound by. In adjudication, a neutral adjudicator may be required by contract or statute to make summary decisions which are normally binding until and unless reversed in an arbitration or litigation. This enables the project to continue pending final determination as provided in standard form contracts of FIDIC. In the International scene, the Dispute Avoidance/Adjudication Board (DAAB) was used to replace the DAB in FIDIC 2017 Ed while some others use the Dispute Review Boards.
Arbitration: In Nigeria, virtually every construction and commercial contract contains an arbitration clause. Arbitration is party driven and the agreement to arbitrate must be in writing. A neutral 3rd party acting alone or in a tribunal privately chosen listens to facts and evidence of the parties and renders an award which is final and binding. The Arbitration and Conciliation Cap A18, Laws of the Federation of Nigeria 2004 regulates arbitration practice in Nigeria. A new bill, an updated version of the present law, the Arbitration and Mediation Act 2022 is currently awaiting the President’s consent. Also, Nigeria has adopted the United Nations Commission on International Trade Law (UNCITRAL) on Arbitration of 1985 (amended in 2006) known as UN Model Law and the UNCITRAL Arbitration rules of 1976 revised in 2010 and has also ratified the New York Convention on the Recognition and Enforcement of Arbitral Awards (New York Convention) 1958.
Also known as Executive Tribunal. Here, Counsel to the parties present their cases to a panel of parties and the neutral who helps to clarify the issues and evaluate the merits. He makes no binding decisions, but the process helps parties know the strength of their cases and may make them more susceptible to settlement.
MED-ARB & EXPERT DETERMINATION
Med-Arb: In this process, a neutral acts as a mediator and if parties don’t reach a settlement, the mediator becomes an arbitrator to make a binding determination. In some versions of this process, a different person arbitrates in the second phase.
Expert Determination: Parties may appoint an expert to consider issues relating to the dispute and make a binding decision. The procedure adopted is usually in accordance with the agreement of the parties.
INSTITUTE OF CONSTRUCTION INDUSTRY ARBITRATORS’ MODEL ARBITRATION CLAUSE
“Any dispute or claim arising out of or relating to this agreement, including any question regarding its existence, interpretation, validity, breach or termination thereof, shall be referred to and settled by arbitration. The arbitrator or arbitrators shall be appointed by the Institute of Construction Industry Arbitrators. The arbitration shall be governed by the Arbitration and Conciliation Act, Laws of the Federation of Nigeria 2004.”
The dispute resolution process most commonly used in construction disputes in Nigeria is Arbitration while that used in the more developed economies is adjudication through the use of Dispute Review Boards and District Avoidance/Adjudication Boards.
The peculiarity of this industry and the ineffectiveness of the litigation process with its long delays has made the use of ADR very necessary. This will ensure quick resolution of disputes and the achievement of the main objective of such contracts which is the successful and timely completion of construction projects. The importance of properly drafted construction agreements cannot be over emphasised. This is because parties need to specify the dispute resolution process to be applied in their contracts.
Parties also have the option of adopting any preferred standard form of contract which will suit their purpose and peculiar circumstance.
It is hoped that the new trend in the industry which is dispute avoidance will become reality in the near future.