Introduction

As a cornerstone of Kenya’s economy, the construction industry is characterised by complex and multi-phased contractual processes involving numerous sectoral players and significant sums of money. Inevitably, disputes in the construction industry arise and perennial issues such as payment disputes, cash flow bottlenecks, project delays and protracted litigation plague the industry. Persistent inefficiencies in payment systems underscore the urgent need for dispute resolution mechanisms that are fast, cost-effective, and readily enforceable.

Article 159(2)(c) of the Constitution of Kenya, 2010, provides for the use of Alternative Dispute Resolution (ADR) mechanisms, such as reconciliation, mediation, arbitration, and traditional dispute resolution mechanisms.

Although adjudication is not expressly mentioned as an ADR mechanism, it is still contemplated under Article 159(2)(c) of the Constitution. Therefore, it can be argued that Kenyan courts are called upon to promote all ADR mechanisms, including adjudication.

The Adjudication Rules of the Chartered Institute of Arbitrators (Kenya Branch) define adjudication as “a dispute resolution procedure based on the decision-making power of an impartial, third party neutral natural person known as an adjudicator to reach a fair, rapid and inexpensive decision upon a dispute arising under a construction contract.”

The Construction Payments Adjudication Bill (the “Bill”), introduced through Sessional Paper No. 4 of 2024, on the National Alternative Dispute Resolution Policy, seeks to officially recognise adjudication as a dispute resolution mechanism in Kenya, for payment disputes in construction projects. The Bill was recently subjected to public participation, as required under Article 10 of the Constitution.

This article examines the resolution of payment disputes both historically and prospectively, with regard to the Bill.

A Walk Down Memory Lane

Payment disputes in construction projects often involve clients, contractors, subcontractors, manufacturers, and/or suppliers, among other stakeholders. Such disputes typically arise from delays in works, time extensions, cash flow shortages, cost overruns, tendering and quality of works, among others. If left unresolved, these disputes can derail the progress of the project and strain the relationship between the parties.

Such disputes have for a long time been subjected to arbitration, as the main ADR method in the construction contracts. This has been undertaken pursuant to the provisions of the Arbitration Act (Cap. 49) Laws of Kenya.

In rare instances where parties have sought to undertake adjudication, they have relied on standard form contracts, such as the International Federation of Consulting Engineers (FIDIC), with the necessary amendments to suit their individual needs.

Such clauses have included the use of Dispute Boards in construction projects as envisaged under FIDIC. Specifically, in its 2017 Red Book, FIDIC allows the use of Dispute Avoidance and Adjudication Boards (DAAB) in managing and avoiding disputes arising from construction projects. In this regard, parties have adopted ad hoc dispute adjudication boards or appointed the boards within timelines stipulated in the contract.

Ad hoc boards are set up at the onset of the project and remain in place throughout its duration, to assist the parties in resolving disputes arising in the course of the project. The DAABs further assist parties to avoid disputes by facilitating and improving communication, thereby encouraging resolution of contentious issues before their escalation into full-blown disputes (conflict avoidance). While DAAB decisions are binding, they remain subject to review in arbitration if challenged.

A New Legal Dispensation

The Bill seeks to promote timely payments and equitable remedies for disputes in Kenya’s construction sector by strengthening the adjudication practice with greater efficiency and accountability. It introduces statutory adjudication as a fast, cost-effective mechanism for resolving payment disputes. Statutory adjudication enables cash flow continuity in ongoing projects while preserving the parties’ rights to later pursue arbitration or litigation. If implemented effectively, the Bill has the potential to transform dispute resolution in the construction industry.

The Following are Key Highlights of the Bill:

a) The Bill applies to all construction contracts that either expressly provide for adjudication or where the parties, with mutual consent, submit disputes for adjudication. Conversely, the Bill shall not apply where the construction contracts prescribe a different procedure for the resolution of payment disputes or does provide for adjudication but under a different framework.

b) Construction contracts must contain an agreement in writing to adjudicate payment disputes. The agreement shall be deemed to be in writing if the parties sign a contract to this effect or have an exchange of correspondence between themselves in relation to the works being undertaken and adjudication as the payment disputes resolution mechanism.

c) Once enacted, the Bill shall apply to construction contracts regardless of whether the works are undertaken wholly or partly within Kenya, thereby extending its scope to cross-border projects.

d) The Bill covers a wide range of construction works, including building and engineering works, procurement, surveying, design, landscaping, and material supply, thereby ensuring comprehensive inclusion of all stakeholders.

e) The adjudication process involves:

• Issuance of a payment claim by the contractor;
• Issuance of either a payment schedule or a schedule to pay less by the employer (this schedule must contain reasons and alternative amounts if contesting the claims);
• Issuance of a notice of reference to adjudication by an aggrieved party;
• Filing of a reference to the adjudication body, which then appoints the adjudicator. The adjudicators will be appointed from a panel maintained by a designated adjudication authority. Provisions on their appointment, independence, remuneration and code of conduct aim to uphold professionalism and impartiality. The National Dispute Resolution Council has the mandate of accrediting adjudication bodies, issuing codes of practice, and regulating the sectoral standards. Parties will be jointly and severally liable for adjudicator fees and expenses. The adjudicators will be entitled to lien over the decision until payment is made.
• Adjudicators must render decisions within fourteen (14) days after the date when the adjudicator receives the response to the reference or the date when a responding party should have submitted a response to the reference (extendable with consent). The adjudicators can use flexible procedures, including calling conferences, written submissions, and site visits. The process excludes strict application of the Evidence Act, allowing informality and speed.
• Decisions of adjudicators are binding and enforceable on an interim basis unless set aside in an arbitral or litigation process. The decision must outline the amount payable, interest, and due date and be accompanied by an adjudication certificate.
• Adjudication decisions/certificates can be adopted in the High Court and enforced as judgements for debts. The Application to set aside the decision must be filed within seven (7) days on the following limited grounds: statutory non-compliance, fraud/corruption, or excess of jurisdiction. However, the Applicant must deposit the adjudicated sum as security for costs.
• The binding nature of the decision ensures immediate enforcement (if not challenged), safeguarding project cash flow and maintaining project progress. Adjudicated amounts must be paid within seven (7) days from the date of the certificate, or as may be prescribed by the adjudicators.

The Bill seeks to promote timely payments and equitable remedies for disputes in Kenya’s construction sector by strengthening the adjudication practice with greater efficiency and accountability. It introduces statutory adjudication as a fast, cost-effective mechanism for resolving payment disputes. Statutory adjudication enables cash flow continuity in ongoing projects while preserving the parties’ rights to later pursue arbitration or litigation. If implemented effectively, the Bill has the potential to transform dispute

Conclusion

For Kenya’s construction sector to achieve timely and effective project delivery, it is essential to adopt flexible and fast-track dispute resolution mechanisms such as adjudication. As extensively discussed above, this mechanism makes it both costly and risky for the parties to stall payments, thereby curbing project delays and avoiding potential claims for liquidated damages.

If enacted, implementation of the statute will require widespread training and accreditation of adjudicators, as well as sensitisation of industry stakeholders. Contracts previously negotiated that lack adjudication clauses, may require transitioning through amendments, to facilitate the use of this mechanism. This is owing to the fact that adjudication under the Bill is not a matter of right but must be agreed upon in writing. In any event, jurisdictional issues as preliminary points when challenging an adjudication decision, may arise where the dispute is not covered by an adjudication agreement.

By contrast, in the United Kingdom, parties to a construction contract have an automatic right to adjudicate at any time, even if the contract does not expressly include the mechanism. This right to adjudicate cannot be taken away contractually.

Nevertheless, the effectiveness of the adjudication process will demand a multi-sectoral approach. Specifically, swift enforcement of the adjudication decision by the High Court will be critical, requiring a strong buy-in from the judiciary.

Therefore, the proposed Bill is a step in the right direction, as it provides a governing legal framework that secures statutory access to adjudication, while defining its procedural and substantive elements. Such legislation will strengthen the viability of adjudication as an efficient tool for safeguarding cash flow, preserving business relationships, and ensuring project completion within agreed timelines.