Theme: Price Escalation, Currency Fluctuations, and Force Majeure in a Changing World
The Chartered Institute of Arbitrators (CIArb) at 40 Conference brought together industry experts, professionals, and thought leaders to explore the ever-evolving challenges faced in construction dispute resolution. One of the most compelling sessions centered around the theme: Construction Dispute Resolutions: Global Supply Chain Crisis, with a particular focus on price escalation, currency fluctuations, and force majeure.
Moderator and Panellists
- Moderator: Mercy Okiro MCIArb
- Panellists:
- Eng. Daniel Cherono
- Eng. Mian Sheraz Javaid
- Eng. Jane Mutulili
- Architect Stanley Kebathi
- Maryanne Karanja
This session brought to light the significant disruptions construction projects face due to global events such as pandemics, geopolitical conflicts, and climate-induced disasters, and the urgent need for dispute resolution mechanisms that are both proactive and adaptive.
Understanding Global Disruptions in Construction
Eng. Daniel Cherono opened the discussion by sharing a vivid real-world example: a bridge project involving a Chinese contractor that was significantly delayed due to COVID-19. The pandemic caused cost and currency fluctuations that ultimately led to disputes now in arbitration. His case underscored how global events can paralyze supply chains and delay major infrastructure projects.
Eng. Mian Sheraz Javaid echoed this sentiment, attributing many of the economic ripple effects seen during the pandemic to disrupted supply chains and weak management structures. He stressed the importance of fortifying these chains and adopting mitigation strategies against future global shocks.
Eng. Jane Mutulili contributed a regulatory perspective, recalling how the removal of asbestos roofing impacted material supply and contractors’ capabilities. Her story highlighted how regulatory shifts can have supply chain ramifications, especially if such changes are not anticipated during contract drafting.
Maryanne Karanja expanded the scope by listing ongoing global disruptions: the Red Sea Crisis, the Russia-Ukraine War, Nairobi floods, and infrastructure interference in South Africa. She defined supply chain disruptions as any event that obstructs effective service delivery, pointing out how these challenges cascade down to the project level.
Architect Stanley Kebathi used a relatable example of a delayed wedding dress at the airport to describe the ripple effects of supply chain delays. He likened it to construction projects where natural disasters prevent timely material delivery, leading to significant financial consequences.
Inflation and Escalating Costs: Who Pays?
Inflation and currency fluctuations emerged as central concerns. Eng. Daniel Cherono stated that construction contracts must include clauses that account for market volatility. He revealed that in some cases, cost escalations could inflate a project’s budget by as much as 60%. He stressed that employers often pass these extra costs to contractors unless inflation clauses are properly negotiated and embedded in the contract.
Eng. Jane Mutulili shared a pertinent example involving foreign exchange risk. A contractor importing goods experienced severe loss when the Kenyan Shilling depreciated from 135 to 160 against the USD. The contractor’s claim to cover this fluctuation underscored the need to hedge currency risks early in project planning.
Eng. Mian Sheraz Javaid emphasized the importance of force majeure clauses and contingencies for extraordinary events. He warned that if a contractor bears all inflation risks, performance may become impossible — invoking the legal Doctrine of Frustration. He cited Pakistan’s experience, where unresolved inflation-related disputes have led to years of delay.
Maryanne Karanja called for broader organizational strategies, suggesting that resilience and governance improvements are necessary to navigate a world where global disruptions are no longer anomalies but norms.
Disputes and the Future of Construction ADR
Disputes stemming from delays and cost escalations are inevitable in today’s volatile climate. Architect Stanley Kebathi emphasized that the twin challenges of cost and time are at the heart of most construction conflicts. He advocated for ADR (Alternative Dispute Resolution) methods to resolve disputes more efficiently than traditional court litigation.
Eng. Jane Mutulili argued that many disputes arise from a fundamental misunderstanding of the issues involved. She reinforced the growing importance of ADR, not just as an alternative, but as the future of effective dispute resolution in the construction industry.
Maryanne Karanja noted that while negotiation is commonly attempted, there is still limited awareness and use of more formal ADR mechanisms like arbitration.
Eng. Daniel Cherono highlighted poor communication as a key driver of disputes, urging parties to thoroughly discuss potential risks and align expectations before contract signing. He recommended exploring a variety of dispute resolution options to avoid project gridlock.
Eng. Mian Sheraz Javaid made a compelling case for proactive dispute avoidance, suggesting that contracts include dedicated in-house dispute resolution advisors — as done in Hong Kong. He also recommended using arbitrators who understand both the technical and legal aspects of construction to ensure practical, industry-relevant outcomes.
Conclusion: Building Resilience in Construction Dispute Resolution
The CIArb at 40 panel painted a sobering but actionable picture of today’s construction industry. As projects become more global, complex, and exposed to unpredictable shocks, stakeholders must adapt. This means:
- Embedding robust inflation and currency fluctuation clauses in contracts.
- Improving cross-supply chain communication and governance.
- Investing in ADR literacy and infrastructure.
- Prioritizing dispute prevention over resolution.
As the construction industry faces challenges that stretch across continents and economies, one truth remains clear: resilience is no longer a luxury, but a necessity.
