Managing Construction Disputes In Nigeria: A Strategic Guide

Introduction

The construction industry in Nigeria is one of the fastest-growing sectors. According to the National Bureau of Statistics, it contributed to approximately 9.38% of Nigeria's GDP in 2022.¹ This sector encompasses a wide range of activities, including residential and commercial buildings, infrastructure development (such as roads, bridges, railways, et al.), and industrial construction. The industry has significantly impacted Nigeria's economy through employment generation, infrastructure development, and investment attraction.

Construction projects are often long-term, large-scale, and complex; thus, disputes frequently occur. Construction disputes are essentially disagreements that occur between parties involved in construction projects. These disputes are due to many factors including poorly drafted contract documents, ambiguity in project scope, ill-interpretated quality benchmarks, improper risk allocation matrix, et al. These disputes arise among employers, contractors, subcontractors, and other stakeholders. Hence, the ability of parties to effectively manage and resolve disputes that arise during or after the implementation of any given project is important to the overall success of the project.

To preserve the project, parties are enjoined to select in their construction contracts a dispute resolution mechanism that is crucial to, not only resolving potential disputes, but minimizing costs, expenses, and delays. Selecting an appropriate dispute resolution mechanism in a construction contract requires careful consideration of factors such as the nature of the project, the parties involved, the desired level of confidentiality, the complexity and technical nature of potential disputes, geographical considerations, cost and time constraints, and the need for urgent interim reliefs.

This paper focuses on the various dispute resolution mechanisms available in the construction industry. We conclude that the appropriate dispute resolution choice depends on the peculiar circumstance of any given project.

Dispute Resolution Methods

There are various dispute resolution mechanisms adopted in the construction industry depending on the parties and jurisdiction of the project. These include: (i) expert determination; (ii) mediation; (iii) adjudication; (iv) arbitration; and (v) litigation.

EXPERT DETERMINATION

Meaning and nature

Expert Determination refers to an informal method of resolving disputes where an independent expert, with specialised knowledge and expertise relevant to the dispute, is appointed to make a binding decision. It is common in construction disputes because it offers a potentially relatively fast and affordable approach towards resolving disputes of a technical nature. This method is adopted where some form of valuation is required or where an expert scientific or professional opinion is needed to resolve the dispute. However, it is less suited for resolving matters likely to involve extensive factual disputes requiring the review of documentary and oral witness evidence.

For expert determination to apply to a dispute, it must be provided for in the construction or other contracts and the reason for appointing the expert must be stated, otherwise the expert's determination may be challenged for lack of jurisdiction. In Empyreal Energy Ltd. v Daylighting Power Ltd.² a contract which permitted disputes regarding construction defects to be resolved by way of an adjustment to the contract price and/or referral for expert determination was invalidated on the ground that the reason given for referring the dispute to the expert was different from the reason agreed in the contract.

The expert determination clause should provide for the manner and timing of the appointment of the expert. In some cases, the identity of the expert may be pre-agreed upon by the parties. In the alternative, the expert determination clause may provide that the parties are to agree upon an expert within a specified time, and where the parties cannot agree upon the expert to be appointed within such time, a specified body may be designated to appoint a suitable candidate upon either party's application (this is usually a professional association commonly referred to as the 'appointing authority'). An example of such appointing authority is the International Chamber of Commerce International Centre for Expertise.

Why Expert Determination?

The following are some of the merits of expert determination:

1. everaging the expertise of a professional to resolve complex technical disputes can speed up the dispute resolution process;
2. it is often faster, more affordable, and less formal than other conventional dispute resolution mechanisms;
3. the expert is likely to be mindful of his professional reputation, and therefore uses a high standard of care in the decision-making process; and
4. it is binding on the disputing parties.

Why Not?

Below are some of the demerits of expert determination:

1. there are no regulatory frameworks governing the expert determination process. Hence, the expert's powers are not clearly circumscribed;
2. although the decisions of the expert are binding, enforcement may require further legal action; and
3. it is not always suitable for core legal disputes as the expert may be unfamiliar with legal terminologies and procedures.

MEDIATION

Meaning and nature

Mediation involves a collaborative approach to conflict resolution. It arises by mutual agreement to participate in a flexible, voluntary, and confidential form of alternative dispute resolution which is significantly different from traditional legal proceedings. The mediator facilitates discussions and helps the disputing parties work towards a negotiated settlement. The settlement agreement resulting from mediation and signed by the parties is binding on the parties and enforceable in court as a contract, consent judgment or consent award.³

Mediation is one of the ways of resolving disputes in the construction industry. In certain instances, the project manager or engineer may act as a mediator between the disputing parties if they are impartial and have strong mediation skills. Unlike litigation or arbitration where a judge or arbitrator makes the final decision, in mediation, parties are in full control and decide on whether to settle and on what terms. This approach often results in a more satisfactory and lasting resolution. The mediator can also assist the parties in drawing up the settlement agreement⁴.

Mediation has gained traction in the construction industry, as it is frequently employed to address the intricacies of construction-related conflicts. The mediator's role creates an environment where parties can effectively communicate their positions and interests to each other. This approach encourages parties to persuade one another rather than relying on a third party's judgment. This often leads to more creative and practical compromise solutions, whereby parties can work together on voluntarily fixing unresolved issues as between themselves.

Parties are statutorily required to attend and participate in the mediation proceedings in good faith⁵. Mediation clauses usually specify the (a) procedure for conducting the mediation, (b) procedure for selecting the mediator and (c) manner of payment and quantum of the mediator's fees. Where the agreement does not specify the manner of conducting the mediation, the mediator may conduct the mediation in such a manner as the mediator deems appropriate, considering (1) the circumstances of the case, (2) any wish that the parties may jointly express, and (3) the need for a speedy settlement of the dispute.⁶

Why Mediation?

The following are some of the merits of mediation:

1. it minimizes delays as disputes can be settled within a short period;
2. it is cost-effective as disputes can be resolved quickly without causing delay to the project;
3. its informal nature allows the parties to speak freely without damaging their position;
4. although regulated by law, parties can contractually agree to vary the procedure dictated by law;⁷ and
5. a settlement agreement resulting from the mediation is binding on the parties and enforceable in court as a contract, consent judgment, or consent award.⁸

Why Not?

Below are some of the demerits of mediation:

1. there is no guarantee that an agreement will be reached, as either party can withdraw at any time; and
2. the mediator has limited powers and cannot order the parties to do or refrain from doing anything in relation to the construction project.

ADJUDICATION

Meaning and nature

Adjudication is a specialized form of dispute resolution tailored for the construction industry. It involves a private process where an appointed adjudicator makes a binding interim decision on a dispute arising from a construction contract. During adjudication, the parties are required to submit detailed documentation, including comprehensive submissions, witness statements, and expert reports. Despite this complexity and absence of regulation, adjudication remains a preferred method for resolving construction disputes, particularly when the goal is to provide an interim cash-flow solution while the construction continues. Under most adjudication rules, unless the parties agree to accept the adjudicator's decision as final, these decisions are interim and binding only until the dispute is conclusively resolved by arbitration or litigation. The members of an adjudication panel are usually professionals who are experienced in the type of construction work being performed and with the interpretation of the contractual documents.

The primary objective of adjudication is to ensure project continuity and avoid the prolonged and expensive proceedings typically associated with litigation or arbitration. This approach is especially valuable in maintaining cash flow and preventing project delays due to unresolved disputes. Adjudication is particularly suitable for addressing various construction-related claims, including interim payments, delay and disruption of works, extensions of time for project completion, defects in the works, and final account disputes.

In Nigeria, adjudication is purely contractual, as there is currently no statutory legislation governing the process. It is commonly used in international construction contracts for projects in Nigeria, often modelled on Federation Internationale Des Ingenieurs Conseils (FIDIC) standard forms. Many FIDIC contracts incorporate a Dispute Adjudication Board ("DAB")⁹ or Dispute Avoidance Adjudication Board ("DAAB")¹⁰, which may consist of one or three adjudicators, depending on the agreed contract terms. The 2017 FIDIC Red and Yellow Books and subsequent reprints and amendments specifically require a Standing DAAB¹¹. For state-funded projects in Nigeria, the General Conditions of Contract for the Procurement of Works (2011) and the Standard Bidding Document for the Procurement of Works, both prepared by the Nigerian Federal Bureau of Public Procurement, include provisions for adjudication.¹²

Why Adjudication?

The following are some of the merits of adjudication:

1. the construction works can be continued while the dispute is being resolved¹³;
2. the parties are bound to comply with the decision of the DAB or DAAB until it is set aside in a subsequent arbitration, litigation or other dispute resolution method;
3. the dispute is heard by a technically qualified and skilled person(s);
4. there is no need for legal representation; and
5. it is usually less expensive than litigation or arbitration.

Why not?

Below are some of the demerits of adjudication:

1. adjudication is not very suitable for core legal disputes as the expert is typically largely unfamiliar with the legal terminologies and procedures;
2. it has a limited lifeline as it can be potentially set aside through arbitration or litigation; and
3. it is only enforceable as a matter of contract and not as a court's judgment.

ARBITRATION

Meaning and nature

Arbitration is a private and consensual dispute resolution mechanism, where parties voluntarily, and usually in advance, agree to submit their disputes to one or more impartial third-party arbitrator(s) whose decision is final and binding.¹⁴ The principal legislation governing arbitration in Nigeria is the AMA which applies to both domestic and international arbitration, and the procedural rules made pursuant thereto. The AMA substantially incorporates the revised provisions of the United Nations Commission on International Trade Law ("UNCITRAL") Model Law on International Commercial Arbitration 2006.

When parties decide to resort to arbitration, they may either choose to include an arbitration clause in their contracts or enter into separate arbitration agreements.¹⁵ The principle of severability applies to arbitration clauses, as they are not affected by the illegality or determination of the substantive contract.¹⁶

Arbitration proceedings by their nature enjoy party autonomy, neutrality, and finality and bindingness of the awards. They are typically confidential and conducted behind closed doors. Arbitration can be institutional or ad hoc and can also be either domestic or international.

Institutional arbitration is administered under the rules of established arbitral institutions. In Nigeria, the major arbitral institutions commonly used by parties for domestic arbitration are the Regional Centre for International Commercial Arbitration, Lagos, Nigeria; the Lagos Court of Arbitration; and the Chartered Institute of Arbitrators UK, Nigeria branch. Examples of arbitral institutions used for international arbitration are the International Chamber of Commerce, the International Court of Arbitration, and the London Court of International Arbitration.

For ad hoc arbitration, parties oversee the formulation of their own arbitration rules and procedures, including the selection of arbitrator(s), without relying on any arbitral institution. While domestic arbitration takes place between parties within the same jurisdiction, international arbitration involves parties from different countries or disputes with a cross-border element, such as multinational projects. International arbitration is often conducted under the auspices of international arbitration rules and conventions, aligning with frameworks like the UNCITRAL Model Law on International Commercial Arbitration.

Arbitration clauses should typically contain (a) the scope of disputes subject to arbitration, (b) the governing arbitration rules, (c) the number of arbitrators and the method of appointment, (d) the seat of arbitration, (e) the venue for the arbitration, and (f) the language of the arbitration proceedings. Where the arbitration is institutional, the appropriate arbitral institution should be stated.

Why arbitration?

The following are some of the merits of arbitration:

1. arbitration affords parties a high degree of privacy and confidentiality, which can be beneficial for parties anxious not to reveal sensitive business, commercial and financial information or trade secrets to the public;
2. parties have significant autonomy and control over the arbitration process, including selecting the arbitrator(s) of their choice, drafting the procedural rules, and deciding the applicable laws;
3. arbitration offers flexibility, for instance, hearings can be scheduled to accommodate parties' availability and convenience;
4. arbitration minimizes delay, for instance, arbitrators are bound by a predetermined timeline set by the parties to give an award; and
5. parties can appoint arbitrators with expertise relevant to the dispute.¹⁷

Why not?

Below are some of the demerits of arbitration:

1. arbitration is expensive. In some jurisdictions including Nigeria, the expenses associated with arbitration, including the arbitrators' fees may, in the long run, surpass those of traditional court systems;
2. since arbitration proceedings and awards are generally confidential, there are not many established binding legal precedents. This may result in inconsistency in decisions on similar issues as arbitrators are not bound by prior arbitral awards; and
3. arbitration awards could sometimes be difficult to enforce. For instance, the losing party may institute an action in court to challenge the award on permitted grounds. This may get protracted in court and may take several years to obtain a final judgment.¹⁸

Footnotes

1 National Bureau of Statistics inReports | National Bureau of Statistics (Accessed December 11, 2024).

2 [2020] EWHC 1971 (TCC).

3 Arbitration and Mediation Act, 2023 ("AMA"), s.82.

4 AMA, s. 82(1).

5 AMA, s. 73(1).

6 AMA, s. 73(2).

7 AMA, s. 69.

8 AMA, s. 82(2).

9 FIDIC Red Book, 1999, Clause 20.

10 FIDIC Red Book, 2017, Clause 21.

11 Standing DAAB is an adjudication panel that remains in place for the duration of the entire project; Cl. 1.1.22.

12 General Conditions of Contract for the Procurement of Works, Clause 25.

13 Cl. 21.4.2 of the 2017 FIDIC Red Book provides that "unless the contract has already been abandoned or terminated, the parties shall continue to perform their obligations in accordance with the contract".

14 Oturu G.G., "Some Aspects of the Law and Practice of Commercial Arbitration in Nigeria" Journal of Law and Conflict Resolution (2014) Vol. 6 (4), pp 67-77.

15 AMA, s.2. In practice, it is common for parties to include an arbitration clause in their contracts, and this will normally suffice as an arbitration agreement.

16 UBA Plc v Triedent Consulting Limited (2023) LPELR-60643 (SC).

17 In City Engineering Nigeria Ltd. v Federal Housing Authority (1997) 9 NWLR (Pt. 520) 224, for instance, the arbitration submitted to by the parties was presided over by an architect in a dispute involving a contract to build a number of housing units at Festac Town, Badagry Road, Lagos State.

18 In Nigerian National Petroleum Corporation v Lutin Investments Ltd et al [2006] NGSC 9, the appellant challenged the appointment of the arbitrator, and the dispute lingered in Nigerian courts for over ten years.

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