September 19, 2017

Prompt Payments regulations will assist the industry to grow

Construction industry prompt payment regulations: SA advised – no exemptions for state-owned companies 

   Datuk Professor Sundra Rajoo, guest presenter at the second annual MDA Collective Wisdom lecture in Johannesburg, advised that, “The development of alternative dispute resolution for the construction industry has important potential to help the industry to grow, but the proposed regulations should not allow many exemptions, particularly from state-owned companies.”

Prof Rajoo is an expert on the Malaysian equivalent of the cidb Prompt Payment Regulations, the Construction Industry Payment and Adjudication Act (CIPAA) which was adopted in 2012 and implemented just over a year ago. The proposed guidelines have been under development in South Africa since 2013. They were tabled by the Construction Industry Development Board (cidb) and released for public comment in May this year.  The regulations are likely to be implemented by year end.

“If you have too many exemptions to the regulations, it simply won’t work,” warned Prof Rajoo. “Malaysia’s experience was that the state initially wanted to be exempted from the Act, but this would not have made any sense, given that a large percentage of projects in the construction industry are undertaken by state-owned companies (SOCs) and it is an important driver of the economy. Government argued that SOCs are too large to adhere to the principles of the Act, but luckily the counter-argument prevailed: that no entity – SOC or otherwise – should enter into a contract if they can’t manage it.”

In just over a year since the implementation of CIPAA in Malaysia, the number of matters registered has more than tripled. Of these, most were settled in considerably less time. The majority of claimants were contractors and subcontractors, while respondents are mostly main contractors and employers. The most common types of adjudication disputes involve final accounts, interim payments and payment of professional fees.

Vaughan Hattingh, director and adjudication practitioner with MDA Consulting, says there are many lessons from Malaysia as well as the UK, Singapore and Hong Kong, that can be applied in South Africa. “The SA regulations are well crafted and the development of alternative dispute resolution will assist the construction industry to grow by providing binding guiding principles accepted by individuals, corporations and state owned entities,” he said.

Prof Rajoo advised South Africa to focus on the competence of adjudicators and ensure that strict timelines provided in the regulations are adhered to. “Adjudication is quick and rough justice. Ideally you need construction professionals heavily represented on the panel of adjudicators, not just legal practitioners,” he said.

According to Hattingh, the local construction industry has questioned whether there are sufficiently qualified and competent adjudicators and whether adjudicators’ decisions will be enforceable. “We are in a good position, as South Africa’s courts have been robust in enforcing adjudication decisions. While training in construction adjudication will likely receive greater focus, existing training programmes have helped to improve dispute resolution skills in the construction sector.”

Hattingh was involved in the development of the course and course material for a certificate programme in Construction Adjudication at the Centre for Continuing Education at the University of Pretoria.

Industry, legal practitioners and especially contractors and subcontractors have welcomed adjudication as an effective means of resolving payment disputes in Malaysia. “The aggrieved parties have embraced the flow of money in the construction industry and this is expected to increase as awareness of this new right to recourse grows,” commented Prof Rajoo.

While Malaysia’s experience bodes well for better cash flow in South Africa’s construction industry, Prof Rajoo says there is still a long road ahead. “It was an arduous journey from the conception of the CIPAA in Malaysia, to getting it gazetted and eventually implemented. The process is ongoing – as new scenarios appear, additions and amendments follow to ensure the Act’s effectiveness.”

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