Faculty of Engineering, Built Environment and Information Technology
School for the Built Environment
Department of Construction Economics
Selected Highlights from Research Findings
The standard guideline for accounting for construction firms is AC109/IAS11: Construction Contracts, which recognises that contract start and end dates usually fall into different accounting periods. This creates the problem that forms the primary focus of this study: the allocation of contract revenue and costs to the accounting periods in which construction work is performed. Critical to the above allocation is the ability to determine percentage of completion of contract and cost to completion at the balance sheet date (reporting date). The important activities in this regard are to “measure” and “estimate” reliably. AC109/IAS11 contains detailed guidelines on what is to be done with regard to the above. Questions then arise as to who must do what is required, and how it must be done. It seemed apparent that the guidelines used for determining the stage of completion should correspond with the guidelines for on site cost control. South African literature on the subject is limited to textbooks with detailed guidelines to assist accounting students and qualified accountants. In this study an attempt was made to obtain clarification on key aspects from the experts on the subject, namely the registered auditors and accountants of contractors. The results of a survey indicated that they interpret AC109/IAS11 to require no other skills than general accounting abilities. It also showed that certain important terms and activities described in AC109/IAS11 were interpreted in a way that differed from how built environment professionals would interpret the same terms and use them in “on site cost control”. It appears from the study therefore, that problems in construction accounting could arise due to the fact that certain guidelines and terms in AC109/IAS11 are not consistently interpreted by all involved.
Contact person: Mr F le Roux.
Ajudication of disputes in the South African construction industry
When two elephants tussle, it is the grass that gets hurt. In the sometimes heated world of dispute resolution, such proverbs strike a chord with those who have been regularly involved in such matters and those who have been negatively affected by the often protracted processes and unsatisfactory outcomes of the procedures. Construction disputes are well served by mechanisms that are:
speedy
cost effective
conducted by an independent third party
capable of becoming final and enforceable
binding
undertaken by a person (or group of people) chosen by the parties
undertaken by a person (or group of people) who has the required legal/technical knowledge or is able to acquire it, and that
can hear any matter, and
will not interfere with the progress of the works.
Until recently, mediation and arbitration were the main alternatives for settling construction disputes in South Africa. However, since the introduction in the early 1990s of the adjudication process in international construction contracts, contractual adjudication is slowly being introduced into the South African construction industry. Adjudication as an alternative dispute resolution process (ADR) happens where a third party intermediary (adjudicator) is appointed to resolve a dispute between the disputants. The decision of the adjudicator is binding and is final unless and until later reviewed by either arbitration or court proceedings. It is intended that adjudication is a condition precedent to either arbitration or litigation. Prof Maritz has studied the development of adjudication as an ADR process in South Africa and its effectiveness in solving disputes in the local construction. Data were collected from a selected target population made up of individuals who regularly deal with construction contracts and dispute resolution matters. The results of the study indicate that despite the fact that adjudication has been incorporated into the local construction agreements in South Africa as the preferred or default ADR process the level of knowledge and use of the process remain low (see Figure 1). Experience in other countries that have introduced adjudication has shown that adjudication without statutory force is not likely to be effective. Enforcement of the adjudicator’s decision is critical to the success of adjudication. Until South Africa introduces legislation similar to the Housing Grants, Construction and Regeneration Act 1996 (UK), the Construction Contracts Act 2002 (NZ) or the Building and Construction Industry Security of Payment Act 2004 (Singapore), adjudication will remain largely ineffective and, therefore, underutilised in the South African context.
Contact person: Prof MJ Maritz.
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