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Poor payment in construction needs to be dealt a blow – local and UK experts

20 September 2016

Construction industry legal experts from both South Africa and the UK warned that payment security legislation is necessary if the issue of poor payment in the construction industry is to change.

Speaking at the recent MDA Collective Wisdom lecture in Johannesburg, they also underscored the importance of adequate training for adjudicators and shared examples of ways to resolve delay and disruption of major infrastructure projects.

Euan Massey, MDA director, said that only 42% of contractors are paid on time (within 30 days) and this has been declining for the past two years. “But this is not limited to government clients. In the private sector, only 41% paid contractors on time, according to the Construction Industry Development Board’s (cidb) industry statistics published in 2015,” he said.

Justice Robert Nugent, a former Supreme Court of Appeals judge and arbitrator, outlined the benefits of arbitration and adjudication as dispute resolution mechanisms. “Principles are easy to express but their difficulty comes in their application. Natural law is really about common sense but make no mistake, the decision about how to apply the rules will always require judgment,” he said, underscoring the importance of decisiveness for arbitrators.

In adjudication, there are very few cases where legal representation is required. “This is because you are dealing with factual issues, not legal issues. Perhaps the greatest test of the application rules is transparency,” he stated.

Dr John Fletcher, group director for the Royal Institution of Chartered Surveyors (RICS), referred to a unique scheme developed and run by the four major project delivery partners on the London Underground extension and Crossrail projects. The scheme involved dispute boards and various bespoke methods and was aimed expressly at dispute avoidance.

“We have been running this mechanism for 14 months now and disputes run through the system are already at about £615 million. To date, we have resolved 18 matters which has avoided them going into arbitration. It is altogether likely that the amount of disputes being kept out of the system through the mechanism is over £2.5 billion. The cost of disputes should not only be measured in monetary value, but also in delays and immeasurable harm to relationships and brands,” he said.

UK-based international expert Andrew Burr considered principles in international construction law for managing delays and disruptions on major infrastructure development projects. “Sometimes it boils down to understanding that judgment is often made on deficiencies and sufficiency, rather than the technical details or merits of the case,” he advised. “Ensure that you have prepared your witnesses, comply with timing requirements and do your utmost to keep records throughout the contractual period.”

A panel discussion at the end of the Collective Wisdom lecture touched on various issues, including the delay in gazetting the cidb Prompt Payment Regulations. They were tabled and released for public comment in May this year by the Construction Industry Development Board (cidb). Until they are formally adopted, Burr advised SA practitioners to incorporate the provisions contractually.

The importance of mediation was highlighted by the panel, as was the importance of a solid skill foundation, regardless of whether the representatives were legal or technical experts.

For interviews, photographs or further information, please contact Despina Harito at Turquoise PR & Marketing Communications on despina@turquoisepr.co.za or 011 452 1840 / 084 453 1755.