Is Mandatory Alternative Dispute Resolution a Panacea to Attain Effective Payment Dispute Resolution?

Abstract

Alternative dispute resolution (ADR) techniques like mediation, adjudication, and conciliation often appear as a voluntary option in construction contracts (Cheung 2006; Chau 2007). Essentially, a neutral third party who has relevant experience is invited to give professional advice or decision based upon the evidence and pleadings provided from the disputants (Jones 2006). However, researchers pinpointed that nonbinding decision made by the neutral third party as the major shortfall of applying ADR techniques in resolving construction payment disputes (Kennedy 2006, 2008; Tanielian 2013). In construction contracts, ADR is usually set out as a method that should firstly be adopted before disputants are empowered to proceed to arbitration or litigation. Nevertheless, contract provisions in many building contracts did not restrict main contractors and employers from overriding dissatisfactory decisions made by the neutral third party (Gaitskell 2007). Because mediation, adjudication, and conciliation are not legally binding, there is minimal enforcement to protect and ensure periodic cash flow of the contractors and the subcontractors. With this background, the Housing Grants, Construction and Regeneration Act (HGCRA) was enacted in the United Kingdom in the late 1990s. Kennedy (2006) points out that the HGCRA improved the efficiency and productivity of resolving payment disputes by way of: 1. Providing a statutory right to refer disputes to adjudication, 2. Providing the right for periodic, interim or stage payment, 3. Providing a system to determine means of valuing payments, 4. Providing the establishment of the date for payment periods, 5. Prohibiting unfair terms including pay-when-paid clauses in the contract, 6. Providing limited rights to withhold payments, and 7. Providing the right of suspending performance without penalties. Many countries have followed suit and passed their own legislation to impose a statutory use of adjudication to resolve paymentrelated disputes. Australia adopted a similar piece of legislation to tackle the growing frustration and discontent of resolving payment disputes by using arbitration and litigation (Jones 2006). The Building and Construction Industry Security of Payment Act was enacted in the State of New South Wales in 1999. Other states and territories introduced similar acts during early 2000s. During the same period of time, mandatory adjudication was also introduced into countries like New Zealand and Singapore (Cheung et al. 2010). Research efforts have attempted to investigate the effect of mandatory ADR on resolving payment disputes (Gaitskell 2007; Doncaster 2008). Diverse views were obtained from these studies. Indeed, countries that do not have mandatory ADR have been undergoing different pathways to tackle the problems arising from payment disputes. In the United States, the use of ADR has been confined at the contractual level. If either of the contracting parties refuses, ADR can be bypassed. A recent study also indicated that the practitioners used to rely on sophisticated process like arbitration and litigation to resolve payment disputes (Jaffe and McHugh 2010). In Hong Kong, voluntary mediation has been introduced in the standard forms of construction contracts for public projects since the early 1990s (Cheung 2006). In 2005, the private sector followed the government’s footsteps, and voluntary mediation was for the first time included in the Joint Contract Working Committee’s Standard Form of Building Contract (Cheung et al. 2010). As such, ADR is not mandatory for resolving payment disputes. The fact that different approaches are used to tackle payment disputes makes it interesting to study the underlying reasons. Studies from jurisdictions with statutory ADR suggested diverse views of mandatory use of ADR in construction dispute settlements (Jones 2006; Ndekugri and Russell 2005; Chau 2007). Case studies conducted in Australia indicate that the time limits for responding to claims through adjudication are too restrictive (Jones 2006). Similar findings were reported in a case study conducted in the United Kingdom (Ndekugri and Russell 2005). The findings indicate that some clients defied their subcontractors’ right to adjudicate. Furthermore, the adjudicator’s decisions may not be enforceable (Ndekugri and Russell 2005). Although agreeing that statutory ADR is a practical and equitable solution for resolving construction disputes, Chan (2006) asserted that the legislation inevitably violated the doctrine of freedom of contract in Singapore. As such, is mandatory adjudication a panacea for attaining effective payment dispute resolution? This special issue is aimed at publishing a collection of papers representing current research in payment dispute resolution. It focuses on the practices of payment dispute resolutions; analysis of payment in disputed cases; studying the practicability of the Security of Payment Acts and the like in various jurisdictions; the roles of adjudicators in resolving payment disputes; and the design and application of a decision support model/system in resolving payment disputes. Hopefully the articles published in this special issue can help to gain insights and shape future research direction in resolving payment-related disputes in construction projects.