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Resolving disputes in the construction industry

Conflict is an inherent aspect of human relationships, and as wisely stated by Mahatma Gandhi, peace is not the absence of conflict but the ability to cope with it. In a bid to provide a coping mechanism for disputes, various laws have emerged and evolved, and the law governing construction in Nigeria has not been exempt from this evolution. This segment of Nigerian law is riddled with a lot of claims, ranging from extensions of time to retention payments, delays in performance of payment, defective or product quality issues, termination, and valuation or professional negligence. This paper aims to delve into an analysis of the governing legal framework for construction in Nigeria, available dispute resolution mechanisms in construction law and the trends that have been adopted in the resolution of disputes emerging from Construction in Nigeria.

Why adjudication?

Generally, disputes may be resolved by litigation, arbitration and other means of alternative dispute resolution (ADR). However, in construction, the past decade has seen a fast rise in the adoption of alternative dispute resolution in judicial processes. This has largely been the result of a series of factors, ranging from the technical nature of construction disputes to complexity, and multi-party nature of contract, and the delay in judicial processes.

Adjudication in construction is considered a quick formal, private process where an adjudicator resolves construction-related disputes by issuing an interim binding decision until the dispute is finally determined by litigation, arbitration or in some cases, a mutually negotiated settlement.
Adjudication is a method of resolving construction disputes without involving a prolonged legal process. Instead, both parties meet with an adjudicator who acts as a judge in the case. Once both sides have laid out their side of the dispute, the adjudicator helps them reach an agreement. Oftentimes, such an agreement is final.

In construction and infrastructure development, stakeholders often strive hard to ensure they do not run into issues that will necessitate dispute resolution processes. However, if need be, statistics show that they would prefer to go through adjudication.

Dispute resolution mechanisms available in construction law

i) Litigation: Construction disputes being civil matters arising from contracts fall within the jurisdiction of the High Court of the state where the property or project is located. If a party is grieved by such a decision, it can be appealed to the Court of Appeal. A final appeal can then go to the Supreme Court, Nigeria’s apex court.

Where the dispute concerns any of the matters within the exclusive jurisdiction of the Federal High Court — section 251 of the 1999 Constitution Of the Federal Republic of Nigeria, such as mining, mines and minerals, or cases in which the Nigerian government or any of its agencies is a party, the Federal High Court will have exclusive jurisdiction.

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ii) Statutory adjudication: There is no statutory framework for adjudication under Nigerian law. As such, parties intending to resolve their dispute by adjudication must incorporate it in the dispute resolution clause. As there is no statutory framework for adjudication, there is always the question of enforcement of the adjudicator’s decision. The solution to this is to sue on the decision under the common law.

iii) Mediation: Mediation is an ADR process whereby a neutral third party facilitates the resolution of disputes in line with the parties’ agreement. It is not uncommon to have mediation or conciliation as a preliminary step to arbitration in domestic construction contracts. Usually, the contract will require the process to be administered by the relevant multi-door courthouse and under the rules developed by that institution. If the parties are unable to agree on the Terms of Settlement (TOS), the mediator cannot make binding decisions.

iii) Expert Determination: Due to the complexity of skill and the technical know-how that is required in construction disputes, it is not uncommon to have an expert determination in construction contracts with a significant engineering element. That is, experts are brought in to give a formal opinion on the dispute. These types of projects are typical in the oil and gas and energy sectors, where the issues in dispute are often technical in nature.

Laws governing construction in Nigeria

The legislative framework for construction in Nigeria primarily comprises urban and regional planning laws and a codified national standard for construction – the National Building Code 2018. The National Building Code ‘applies to and controls all matters concerning the design and specification, costing, construction, alteration, addition to, moving, demolition, location, repair and use of any building, structure, or proposed building works in Nigeria’.

There are a number of local regulations governing designs and building construction works in Nigeria. These regulations specify the designs and building standards which the owners/developers, architects and building contractors must comply with when undertaking construction works.
Construction contracts must not contravene the provisions of the relevant laws contained in the Urban and Regional Planning and Development (Amendment) Laws, 2019, Lagos State Physical Permit Regulations 2019, Lagos State Building Control Agency Regulations 2019, National Environmental Standards and Regulations Enforcement Agency Act 2018 (as amended), Environmental Impact Assessment Act 1992, Public Procurement Act 2007, and such other Federal and State legislations regulating the professionals engaged in the Construction Industry such as the Builders Registration Act Cap B13 LFN 2004, Engineers Registration Act 2019, Quantity Surveyors Act Cap Q1 LFN 2004 and Architects Registration Act Cap A19 LFN 2004

The Nigerian Urban and Regional Planning Act, CAP 138 LFN 2004 is aimed at introducing a sustainable utilisation of the country’s land mass for the insurance and preservation of physical development of every part of Nigeria.

It is also noteworthy that the Nigeria Oil and Gas Industry Content Development Act 2010 provides minimum local content requirements for the Nigerian oil and gas industry, including construction contracts and projects in the industry.

Legislations also constitute the greatest source of construction law in the country with such prime sources being the 1999 Constitution (as amended), the Land Use Act, Cap L5, LFN, 2004, the Infrastructure Concession Regulatory Commission (Establishment) Act, 2005 etc.

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The General Conditions of Contract for the Procurement of Works, 2011 (the “GCC”) prepared by the Nigerian Bureau of Public Procurement also provides for adjudication as a means of resolving construction disputes but only for those arising from state-funded projects. Essentially, the GCC provides that a party who is dissatisfied with a decision made by the Engineer shall refer such decision to the Adjudicator within 14 days of the notification of the Engineer’s decision. The Adjudicator who is to be jointly appointed by the parties or the designated appointing authority shall give an interim written decision within 28 days of notification of a dispute. Furthermore, the decision shall become final and binding except the adjudicator’s decision is referred to arbitration within 28 days of the decision.

Similarly, the Adjudication Rules created by the Lagos Chamber of Commerce International Arbitration Centre (9 December 2020) provide a framework for resolving disputes arising from construction contracts.

Current trends adopted in resolving disputes emerging from construction

The construction industry in Nigeria has seen significant growth in recent years. Data from the country’s National Bureau of Statistics revealed that the sector contributed 12.9 trillion Naira (approximately US$28 billion) in the first three quarters of 2022; contributing about 9.5% to nominal GDP. Therefore, the increase in the likelihood of disputes is not far-fetched. In Nigeria, the trend has progressed from litigation and arbitration to adjudication.

The year 2020 saw the resolution of a significant construction dispute in which the Federal government of Nigeria agreed to pay US$200 million to Sunrise Power and Transmission Company Limited (Sunrise Power) in the final settlement of a dispute over a US$4.8 billion hydroelectric project, which is expected to become Africa’s second largest hydropower plant. The resolution of this dispute removed the major impediment to the construction of the proposed power plant, the output of which is estimated to be equivalent to a quarter of Nigeria’s currently installed capacity.

Studies also revealed that the preferred resolution methods in descending order were agent resolution, mediation, conciliation, adjudication and arbitration. The research recommended that contracting parties should adopt dispute prevention strategies rather than settlement and that when a dispute arises, they should exercise teamwork, build trust among each other and select agent resolution or mediation in managing such dispute.

International standard forms of construction contracts, such as International Federation of Consulting Engineers (known as FIDIC) contracts, Joint Contracts Tribunal (or JCT) contracts and, in rare cases, the New Engineering Contract, are the procurement forms used for private projects. For public projects, the 2011 General Conditions of Contract (GCC), prepared by the Bureau of Public Procurement (BPP) for the procurement of works, is used. Other government agencies at both the federal and state levels have developed bespoke construction contract forms for procuring construction works.

Conclusion

Disputes are common in the construction industry and as the industry enlarges, more efficient means of settling disputes are needed. With the right policies and initiatives, the construction industry could be one of Nigeria’s key sectors experiencing growth which could mirror the entertainment and technology sectors in the near future.

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