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Procurement Perspectives: Two questions drive most construction disputes

Stephen Bauld
Procurement Perspectives: Two questions drive most construction disputes

Alternative Dispute Resolution is a common way to deal with construction issues on contracts that have come off the rails for any number of reasons. Most disputes relate to two questions: what caused the loss and what is the quantification of the damage flowing from that loss.

Generally, there is no need to refer a dispute of this nature to the courts. This issue between the parties is primarily factual, rather than a dispute as to the scope and existence of legal rights of obligations. Unfortunately, it has proven challenging to develop effective alternative dispute resolution procedures that work well in the procurement context.

However, a number of schemes have developed in recent years which show considerable promise. The following information affords a brief overview of some of the principal methods that are currently being employed in commercial contracting.

Independent payment certifiers (or Independent Certifier) are an innovation pioneered in the construction industry. Initially, they were used to determine whether a contractor is entitled to be paid a progress draw under a construction contract. When the Construction Lien Act was enacted in the early 1980s, they were given a number of dispute resolution functions under that legislation, as for instance with respect to certification of substantial performance of a contract (so as to trigger the termination of a holdback period) and the completion of a subcontract. More recently, they have been called upon to play a wider range of roles, under the authority of the contract entered into between the owner of a property and the construction contractor.

I am aware that changes have been made to the Construction Lien Act and I am waiting to see what impact these changes will have on the industry, I guess time will tell.

The adjudication remedy is also an option in Ontario, but is extensively employed in other countries. Adjudication grows out of a U.K. government report into the construction industry (the Latham Report) which was published in 1994. The Report identified a need for an expeditious means of resolving construction disputes quickly and cheaply, as an alternative to traditional arbitration and adjudication. The procedure was introduced into U.K law under the Housing Grants, Construction and Regeneration Act, 1996. This imposed a mandatory requirement for adjudication in almost every type of construction contract, including architectural service contracts.

This last inclusion has proven to be particularly problematic, because the summary procedure adopted was not at all suited for the resolution of architect related disputes.

From the beginning, it has always been clearer what adjudication is not rather than what it actually is. Specifically, it is not intended to be a truncated form of arbitration or litigation. In principal, the advantage of adjudication over arbitration is that it can be carried out during the performance of the contract so that the balance of performance (including payment) can proceed with minimal disruption. For this reason, strict time limits are laid down for the adjudication process. It also provides interim relief: effectively a formally determined right to withhold payment, or to receive payment, pending any further proceeding in which the decision of the adjudicator is overturned.

Since there is a statutory mandate, U.K. courts have been quite willing to interpret creatively adjudication disputes, so as to give effect to the apparent Parliamentary intent. It is unclear whether this approach would apply in Canada, because any contractual arrangement in favor of adjudication does not enjoy the statutory underpinning that applies in England.

Although in its early days, adjudication in the U.K. was problematic, in Ontario and elsewhere in Canada, adjudication has been used successfully in a number of Alternative Finance and Procurement (or P3) contracts.

When considering dispute resolution from a purely legal perspective there is a tendency to exaggerate weaknesses and disregard benefits.

Stephen Bauld is a government procurement expert and can be reached at swbauld@purchasingci.com.

Some of his columns may contain excerpts from The Municipal Procurement Handbook published by Butterworths.

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