Category: Uncategorized

Availability of credit and at competitive prices are major factors that promote the growth of businesses. Two of the main problems that face Ghana’s small and medium-scale enterprises arethe unavailability of credit and the cost of credit. A critical look at this problem reveals that it is not primarily unavailability but rather, the conditions for accessing available credit that most entities are unable to meet. In particular, the requirements for businesses to provide comfort to financial institutions on their ability to repay the loan and acceptable collateral as a fallback measure in the event that they are unable to repay.

We will take a look at the issues relating particularly to collateral arrangements from both the perspective of borrowers and lenders.

 

Funding of Businesses

Businesses require capital for their operations to generate income. Capital is provided in two main ways – through the resources of the business owner or by borrowing from relatives, friends, business associates or financial institutions. Financial institutions lend money to make money. Two factors primarily determine the ability of businesses to obtain credit from financial institutions – first, the legal capacity of the entity and second, its creditworthiness.

For a business to be credit-worthy, it must demonstrate its ability to repay the loan given. It can do this by showing that there are potential future receivables that will be available to repay the loan. A business must demonstrate that:

Lenders will look at the whole business cycle of the entity to conclude on the above factors. Assessing the operations of the business including its potential income is, therefore, key to the ability of the business to secure credit. This will also include looking at the borrower’s previous financial statements to determine the past financial performance of the business. In spite of the borrower’s ability to meet the above conditions, there are events that could happen in the future which may affect the above factors. Lenders, therefore, want a fallback measure to recover loanswhere such future events occur. This introduces the issue of collateral. Typically, if lenders are assured of the above position, the issue of collateral may not arise.

Collateral

Collateral generally covers fallback guarantees and securities available to a lender in the event the borrower defaults in repaying the loan as agreed under the loan agreement. Collateral or security interest may generally cover:

Collateral is a fallback measure. Lenders do not grant a loan primarily with a view to enforce the fallback measure (collateral). Lenders must, therefore, require and obtain any of the above collateral only after assessing that there are potential risks to the operations of the business which may affect the future receivables that will be used for the repayment of the loan.

Over-collateralization

Imagine you have a house valued at Ghc150,000. You have applied to the bank for a loan of GHc10,000 for your company and the bank has requested the house as collateral. In addition, the bank has asked that you provide a personal guarantee in the event the company is unable to pay. Then, for good measure, the bank has asked that you pledge your shares in the company as collateral. This situation is the over-collateralization situation. Another example may be where on an application for a personal car loan, the financial institution requires a guarantee from your employer, your salary to be passed through the financial institution with charge over the account, a charge over the car, assigning proceeds from comprehensive insurance over the car, and taking life insurance with proceeds assigned to the financial institution. This is after the usual requirement for the borrower to pay upfront 10 – 25% of the cost of the car. The situation can be compared to intending to kill a fly with a sledge-hammer. From the borrower’s perspective, that is problematic. The issue of over-collateralization has been one of the silent factors discouraging businesses from accessing credit.

Whilst financial institutions may see it as fully underwriting all possible risk, this adds to the cost of credit particularly since the security documents must be stamped and perfected. The cost of stamping is 0.5% of the secured amount for the principal security, and 0.25% of the secured amount for each additional security. It does not matter if all the security are included in the same document. This must be a problem for the financial institution itself as it makes the institution less competitive. Such cost, together with the interest charged, processing and other applicable fees make the cost of obtaining a loan prohibitive for businesses. This feeds into the narrative of high cost of lending. In order to be competitive, financial institutions must be mindful of the type of security and number of securities to take as a fallback position in the event of default of the borrower. A number of ways are suggested below for consideration by financial institutions.

Avoiding over-collateralization

Any of the suggestions below must be implemented within the context of assessing the potential risks that the collateral is to cover. In order to avoid over-collateralization, the following can be implemented:

The suggestions above are not exhaustive and must be implemented within the specific context of the risk exposure the financial institution intends to cover.

Conclusion

It is important for businesses, especially small and medium–scale enterprises, to always assess the cost of borrowing prior to entering into any financial transaction. A business must check its financial health and ensure that repayment of loans will not have the potential to cripple the business. Where security is required, the business must ensure that the security provided is commensurate with the loan amount plus interest. As much as possible, businesses should attempt to negotiate fair collateral packages rather than settling for over-collateralized loans out of desperation for a loan. Financial institutions should have policies on requirements for collateral and nature of security to take. This will feed into the competitiveness of financial institutions.

Many businesses require financing for growth and financial institutions also need to provide these credit facilities in order to grow. Although lending and borrowing may seem like an everyday transaction and fairly straightforward, it is particularly important for lenders to aim at reducing credit cost while providing financing to businesses. This will make loans more accessible for all types of businesses and will ultimately contribute to business and financial growth for both lenders and borrowers. A win-win for all.

Replacing traditional sources of energy completely with renewable energy is going to be a challenging task. However, by adding renewable energy to the grid and gradually increasing its contribution, we can realistically expect a future that is powered completely by green energy -Tulsi Tanti.[founder of Suzlon Energy]

Ghana’s renewable energy sector again took centre stage at the 2022 COP27 where the President of Ghana assured world leaders of Ghana’s commitment to increase renewable energy in its energy mix as part of the nation’s framework on energy transition. In 2010, Ghana set a target to increase the proportion of renewable energy (solar, wind, mini-hydro, and waste to energy) in its energy mix by 10% by 2020 under the Energy Sector Strategy and Development Plan.  This led to the passing of the Renewable Energy Act (Act 832) in 2011 to provide the legal and regulatory framework for renewable energy activities in the power sector. However, according to the 2020 Energy Outlook for Ghana, by the end of 2020, Ghana had attained less than 2% renewable energy in its energy mix. The 10% target has now been pushed to 2030 under the Strategic National Energy Plan (2019). Achieving this target is heavily dependent on private sector participation in power generation. This article highlights the current state of private sector participation in the renewable energy sector and some challenges that make the sector unattractive for private investment. Some suggestions on what can be done to improve the sector are also discussed in the article.

Status of Ghana’s renewable energy sector

Ghana is endowed with abundant renewable energy potential such as solar, wind, biomass, wave, and tidal energy. Act 832 defines “renewable energy sources” as renewable non-fossil energy sources like wind, solar, geothermal, wave, tidal, hydropower, biomass, and landfill gas. Hydro was also defined as water-based energy systems with a generating capacity not exceeding 100MW (i.e. small-scale hydro). Among these, solar energy has been the most popular due to environmental and social factors.  The Energy Commission, which is the regulator of the sector, has since 2011 issued over 140 licenses for the development of grid-connected solar, wind, biomass, waste-to-energy, and small-scale hydro-renewable projects which demonstrates interest in the sector. However, only eight (8) projects have been developed so far. This is one of the reasons the Energy Commission has since 2017 placed a moratorium on the issuance of wholesale supply licenses for the renewable energy sector.  There are seven (7) solar plants, four of which are owned by state-owned power producers (i.e. Volta River Authority and the Bui Power Authority) and two owned by independent power producers (IPPs); one small-scale hydro plant owned by Bui Power Authority and one biomass power plant owned by an IPP. The installed capacity of these seven projects is 112.1MW which constitutes 2.1% of the total installed energy capacity of 5,449.1MW.

With the amendment of Act 832 in 2020, the definition of “hydro” has been amended to remove the capacity restriction and so, all hydro plants regardless of capacity are considered renewable resources. This brings the Akosombo, Kpong, and Bui hydro plants (which together constitute about 28% of the installed capacity) into the renewable energy mix.

Attempts to attract private sector investment

Generally, the cost of renewable energy projects is known to be high in comparison to non-renewable projects due to factors such as the cost of the technologies, difficulty in obtaining equipment and spare parts, and difficulty in finding the expertise for development, operation, and maintenance. However, project costs have been reduced over the years due to increased investment (public and private) in projects, technologies, and the capacity of the developers. One of the major attempts by states to promote renewable energy is to create an enabling investment climate for renewable energy through its legal and regulatory framework.

Ghana’s Renewable Energy Act has attempted to promote investment in the sector by introducing many incentives. These include:

1. a mandatory connection policy where transmission and distribution system operators are obliged to provide connection services for electricity from renewable energy;
2. a renewable energy purchase obligation where distribution companies and bulk consumers are required to procure a percentage of their total purchase of electricity from renewable energy sources;
3. a feed-in-tariff system comprising of a tariff rate determined by the Public Utilities Regulatory Commission (PURC) which was substantially higher than tariffs for power from other sources and was guaranteed for a ten (10) year period; and
4. the development of the Renewable Energy Fund to provide financial support for the promotion, development, and utilization of renewable energy.

However, with the amendment of the Act in 2020, the purchase obligation is now limited to only bulk consumers. Also, the feed-in-tariff system has been replaced with a competitive procurement system for the purchase of power from renewable energy suppliers. The scrapping of the feed-in-tariff rates may be a result of the reduction in the price of renewable energy systems and the resultant reduced cost of power generation.

Challenges

Considering the number of privately developed renewable energy projects in Ghana, it is clear that the sector has not seen as much private sector investment as expected. Some challenges identified are discussed below.

1. Access to long-term affordable local funding to minimize capital costs is a major challenge faced by players in the sector. Although the Renewable Energy Fund has been set up by the Act, a cursory glance at the government budget over the years does not indicate any specific allocations to the Fund although budgetary allocations are made for renewable energy development. Related to this is the high cost of financing for power projects in Ghana due to Ghana’s high-risk profile for power projects stemming from the country’s credit rating, history of legacy debt, and potential political risks from changes in government or government policy decisions. These risks tend to make financing more expensive. Also, since there are limited local sources of funding, most players depend on external sources of funds which are usually priced in foreign currency and expose the player to foreign exchange risks.
2. Another challenge relates to the solicitation process for power projects. Historically, power purchase agreements (PPAs) have been procured through unsolicited proposals from IPPs. This is one of the reasons for the deemed oversupply situation in Ghana which led to the termination and re-negotiation of some PPAs by the Government of Ghana in 2018. In the absence of a transparent, competitive power procurement process that is based on a needs assessment, private players cannot risk such investments. It is worth noting that in 2019, the government issued a policy for the Competitive Procurement of Energy Supply and Service Contracts. However, this policy is yet to be fully implemented.
3. The limited availability of experienced personnel in Ghana to construct, operate, and maintain renewable energy technology is also a challenge for private players in the sector. The absence of local capacity necessitates expensive foreign expertise which increases project costs. The Energy Commission (Local Content and Local Participation) (Electricity Supply Industry) Regulations (L.I. 2354) which was passed in 2017 intends to bridge the local capacity gap by including mandatory training and employment of locals to build local capacity over time, adequate monitoring is required to achieve local content objectives.
4. Land acquisition is also a major challenge for renewable energy projects especially solar and wind which usually require large tracts of land. Land acquisition in Ghana is, however, fraught with a lack of certainty on ownership of land, multiple sales, and encroachment on project sites. These challenges with land acquisition do not attract investment in the sector.
5. Another challenge is the knowledge gaps in the potential of renewable energy. The general perception is that renewable energy is expensive due to the high initial costs and therefore, renewable energy is not regarded as an economical source of power especially for non-residential purposes. However, the costs of renewable energy technologies have reduced significantly over the years making it a cost-effective source of power compared to non-renewable sources. Also, the role of renewable energy in reducing carbon emissions and combating climate change makes it not only economically beneficial but environmentally sustainable.

Recommendations

A lot can be done to make our renewable energy sector more attractive.

• First, the institutional framework must adopt a more “investor-friendly” approach. This may take the form of creating a well-resourced Renewable Energy desk at the Energy Commission which liaises with other regulators particularly, GRIDCo, the Environmental Protection Agency (EPA), Lands Commission, Ghana Investment Promotion Centre (GIPC), Ghana Immigration Service, National Fire Service and local authorities for all the permits, licenses or any other assistance the developer may require from these institutions. Such a one-stop shop for all regulatory matters will simplify the process for market entry and operation.
• Also, incentives can be introduced to promote private-sector participation. This may take the form of discounted prices for license and permit applications from regulators, provision of land or support with land acquisition, and assistance with access to utility and infrastructure. Also, the development of a carbon market for the trading of carbon credits can be explored as an option to incentivize companies to reduce emissions. For example, the development and utilization of renewable energy power projects will generate carbon credits for organizations which can be traded. Certainly, such a market will require some regulation, and the Government of Ghana has indicated that a carbon market policy is being developed. Such incentives will encourage investment in the renewable energy sector.
• Another way of enhancing participation in the sector is to develop and implement a procurement process that is open, transparent, competitive, and based on a needs assessment. Also, all state entities and agencies must be aligned with this policy to ensure uniformity across the sector. This will help to create certainty in the sector which will encourage private sector participation.
• In line with the objective of the Local Content Regulations, there must be emphasis on technical training and capacity building which aligns with the needs of the renewable energy industry. This will require coordinating with the technical and academic institutions to ensure that the training provided by these institutions aligns with the capacity needs of the industry. Moreover, the implementation of the Local Content Regulations must balance the interests of both local and foreign players so as not to discourage foreign participation. To this end, the Energy Commission should develop a pool of qualified domestic players and service providers that foreign players can partner with to meet local content and local participation requirements.
• Admittedly, access to local funding is crucial and Ghana may not be in the position to provide grants from internally generated funds. However, some sources of local funding can be exploited. For example, The 2021 Guidelines on Investment of Tier 2 and 3 Pension Scheme Funds have introduced Green Bonds as part of the products in which pension funds can invest. According to the Guidelines, pension funds can invest up to 5% of the Scheme Asset under Management (AUM) in Green Bonds and this can be used to provide local funding for renewable energy projects. Also, the Ghana Infrastructure Investment Fund (GIIF) and the newly set up Development Bank of Ghana (DBG) can look into creating sustainable financing products or programs designed specifically for the sector. There are numerous external funds that Ghana can take advantage of to enhance its renewable sector. For example, Ghana has benefited from several grants and programs of the African Development Bank such as the Sustainable Energy Fund for Africa (SEFA), Leveraging Energy Access Finance Framework (LEAF), and the Scaling-Up Renewable Energy Program in Low-Income Countries (SREP) for investment in various aspects of the renewable energy sector. These funds must be applied judiciously towards accessible local financing either through direct government funding or incentivizing local commercial banks to finance renewable energy projects.
• Finally, to increase demand for power from renewable sources, effort must be put into creating public awareness of the need to support the sector as a way of combating climate change and its associated effects. With the combined efforts towards environmental sustainability, it can be expected that there will be increased demand for renewable energy power as a way to reduce carbon emissions. This can already be seen in the growing interest in solar systems for homes, green offices, electric vehicles, and solar-powered streetlights, among others.

Conclusion

The opportunities for renewable energy exploitation in Ghana are endless. For developing countries like Ghana, the transition from conventional energy to green energy will be gradual but must be intentional. To see real impact, the investment climate must support private sector participation if Ghana must meet and possibly exceed its 10% renewable energy mix target by 2030.

 “SIGA is a new institution and I expect that you would help develop a new culture… the attitude must be new king, new law; a new authority, a new culture; a culture of accountable governance and of respecting the norms; sensibilities and practice of good corporate governance.”

These were the words of the President of the Republic of Ghana during the launch of the State Interests and Governance Authority (SIGA). SIGA is the new authority established under the State Interests and Governance Authority, Act 2019 (Act 990)  (‘the SIGA Law’) to ensure that companies and other entities in which the government holds shares are efficiently run and adhere to good corporate governance, and ultimately make profit.

Typically, state-owned enterprises are established for the following reasons:

• Addressing market failures by providing public goods and funding for key infrastructure projects.^[1]
• Supporting vulnerable social groups by protecting jobs in so-called sunset industries.^[2]
• Ensuring stability and affordability of public utility prices.^[3]
• Promoting industrialization, particularly by launching new industries with significant start-up costs and long-term investments.^[4]
• Limiting non-state ownership in specific industries such as the arms and network industries (for national security reasons).^[5]

• Serving as vehicles of innovation, knowledge dissemination, and technological spin-offs.^[6]

Entities with state interest

In many of the world’s major economies, state-owned enterprises play an important role^[7] and the case in Ghana has been no different.

In many of the world’s major economies, state-owned enterprises play an important role and the case in Ghana has been no different.

After Ghana attained independence, the government realized the need to develop the economy in certain major areas. The government felt that some services were so fundamental that the companies that provided them had to be controlled by the State and not left completely in private hands.^[8]

Successive governments have therefore owned or held stakes in businesses operating in key sectors of the economy such as agriculture, agro-processing, mining, commodity trading, manufacturing, utility service provision, and hospitality. This deliberate policy led to the establishment of a myriad of entities with varying levels of government ownership and control.

Under the SIGA Law, businesses that are owned in whole or part by the government are classified under four main groups. They are either State-Owned Enterprises, Joint Venture Companies, or Other State Entities.

State-owned Enterprises (SOEs) are entities whose shares are wholly held or controlled by the Government of Ghana. They are usually entities set up for commercial purposes and may take the form of special-purpose vehicles like ESLA Plc. and Ghana Amalgamated Trust (GAT).^[9]

The last published State-Ownership Report by SIGA[10] stated that there are a total of 132 SOEs in Ghana.

Joint Venture Companies (JVCs) are business arrangements in which different persons or entities contribute capital, labor, assets, skill, experience, knowledge, or other resources useful for the business and share the profits and risks associated. Under Ghana’s State Ownership law, JVCs are those entities in which the government holds majority or minority shares.

Other State Entities (OSEs) are entities that, though not wholly or partly owned by the State, are nevertheless brought under the purview of the SIGA. The Minister of Finance, with supervisory authority over the SIGA, has the power to declare an entity as a Specified Entity; thus, bringing it under SIGA‘s ambit. Examples of Other State Entities are regulatory bodies and statutory agencies.

This article is an inquiry into the issues that underlie the poor performance of a significant number of entities with state interest and provides a commentary on whether the challenges are attributable to the legal regimes that have governed state-owned enterprises.

Down memory lane

State Enterprise Secretariat (SES-1965)

The SES-1965 was first set up by the State Enterprise Secretariat (SES), 1965 Legislative Instrument (L.I. 47) to ensure the efficient running of state enterprises and was directly responsible to the President. The SES had four main divisions;

• Planning and Statistics Division
• Accounts and Audit Division
• Inspectorate Division
• Personnel and Training Division

A look at the structure of the SES-1965 reveals that it was set up mainly to supervise and check the operations and financials of the fifteen (15) manufacturing enterprises and six (6) mixed enterprises that were under its jurisdiction.^[11]  The SES-1965 was short-lived as a result of the 1966 coup, but it failed in its short lifespan to achieve its mandate because it did not wield the power to ensure that its efficiency measures were implemented.

Some scholars have attributed the SES-1965’s failure at the time to the blurring of the responsibilities of the President, Ministers, and the SES-1965 itself.^[12]

State Enterprises Commission (SEC-1976)

The SEC-1976 was established by the Supreme Military Council Decree, 1976 (SMCD 10). This was a commission of a maximum of five members and headed by a chairman. The chairman was supposed to be a Ghanaian of distinction with a minimum of ten years of practical experience in an executive position in business or administration

It is interesting to note that to qualify for the chairmanship of SEC-1976, one had to be at least forty years of age. The rather interesting provision restricting the age of the chairperson may be attributed to the tensions that existed at the time between relatively junior officers in government and the senior commanders of the armed forces.^[13] The senior commanders of the armed forces who had just captured power from junior military officers perhaps wanted to keep the younger ranked officers in check by preventing them from holding influential positions.

Its members were to be appointed by the political administration at the time^[14] and the SEC-1976, as a corporate body, was answerable to the Head of State. The SEC-1976 had both advisory and executive powers over the operations of all statutory corporations. It could recommend the revision of the objectives of any statutory corporation, perform a management audit of officers of statutory corporations, review operations, staff strength, and conditions of service, as well as recommend the closure or reclassification of any entity that was ill-conceived or could not make a profit.

During a parliamentary debate on May 27, 1981, the following reasons were given as to why the SEC-1976 was unable to live up to expectations.

• The range of functions and responsibilities assigned to SEC-1976 was too enormous for its size and capacity.
• It never had its full complement of members over the entire period of its existence.
• It did not have the staff strength and competence to effectively supervise and control the operations of the corporations.
• It had no say in the appointments of the chief executives and directors on the Board.
• There was an overlap in the mandate of some of the ministries and the state-owned enterprises, resulting in unnecessary political interference. This was worsened by the fact that the ministries themselves did not have the time or expertise to supervise or coordinate the corporations.
• Notwithstanding the challenges associated with ministries, the corporations tended to gravitate toward their parent ministries in dealing with their operational challenges rather than SEC-1976.
• The government did not provide the needed capital and financial support.

State Enterprises Commission (SEC-1981)

The SEC-1981 was established by the government of the Third Republic of Ghana after a period of military rule. The enactment of the State Enterprises Commission Act, 1981 (Act 433) replaced the State Enterprises Commission (SEC-1976). One of the key features of SEC-1981 was that it had no executive powers and its functions were mainly advisory.

While the totality of SOEs made a loss during the year in review,

SOEs with minority government interests made a profit.

The State Enterprises Commission Act, 1981 (Act 433) separated the commercial corporations from non-commercial ones. The functions of the SEC-1981 were limited to the industries that were intended by the government to act as purely commercial entities and operate on commercial lines. This change was a reaction to the lack of capacity of the SEC-1976 to adequately supervise all the covered entities.

State Enterprises Commission (SEC-1987)

This was set up by the State Enterprises Commission Law, 1987 (P.N.D.C.L. 170) which repealed the SEC-1981.  It had thirteen objectives, many of which were a repetition of the objectives of its predecessors. Some of the new objectives were the examination of investment proposals of the entities, ensuring the payment of appropriate dividends to the government, recommending government guarantees, credit, and financing, provision of consultancy services at an agreed fee to be paid into the Consolidated Fund, and the possibility of engaging the services of a consultant where it requires such services.

Entities with state interest^[15] were required to submit annual reports and any documents required to the SEC-1987. PNDCL 170 proscribed any expansions or modifications without the approval of a feasibility report by the SEC-1987. The SEC-1987 was answerable to the President through the Minister. The SEC-1987 also had disciplinary powers in the form of recommending the dismissal, suspension, or forfeiture of an officer who contravened the provisions of the State Enterprises Commission Law, 1987 (P.N.D.C.L. 170).

State Interests and Governance Authority (SIGA)

SIGA was established by the enactment of the State Interests and Governance Authority (SIGA) Act 2019 (Act 990) after the findings of a joint Government of Ghana and World Bank study^[16] recommended that the management of SOEs be streamlined and centralized under the government’s oversight to strengthen corporate governance, transparency, and accountability.

Under Act 990, SIGA has five objectives, which are to:

(a) Promote within the framework of government policy, the efficient or where applicable, profitable operations of specified entities;

(b) Ensure that specified entities adhere to good corporate governance practices;

(c) Acquire, receive, hold, and administer or dispose of shares of the State in state-owned enterprises and joint venture companies;

(d) Oversee and administer the interests of the State in specified entities; and

(e) Ensure that:

(i)  State-owned enterprises and joint venture companies introduce effective measures that promote the socio-economic growth of the country including, in particular, agriculture, industry, and services per their core mandates; and

(ii) Other State entities introduce measures for efficient regulation and higher standards of excellence.

It, however, has as many as thirteen functions as opposed to the two of its immediate predecessor. Notable among these functions are the development of a Code of Corporate Governance, assessing the borrowing levels of SOEs by the Public Financial Management Act^[17], advising the government on the removal of chief executive officers and board members of SOEs, coordinating the sale and acquisition of entities with state interests, ensuring adherence to annual performance contracts signed by entities with state interest and advising the minister with oversight over the authority.

Having gone back in time to scan the legal regime governing entities with state interest, it is clear that most of the predecessors of SIGA had the power to punish, or at least, recommend the removal of officers who failed to perform their corporate governance duties.

The current law, Act 990 specifically in sections 4 (i) and (j), empowers SIGA to:

(i) Advise the sector minister on policy matters for effective corporate governance of specified entities;

(j) Advise government on the appointment and removal of chief executive officers or members of the boards or other governing bodies of specified entities;

These wide powers notwithstanding, SIGA, in its latest State Ownership Report[18], only lamented the failure of entities with state interest “to honor their reporting obligations”, and noted that it is “a flagrant violation of the Public Financial Management (PFM) Act, 2016 (Act 921)” and condemned the practice as “a most unfortunate development that needs to be remedied’’.

The paradox of performance

From the foregoing, it can be concluded that the inability of entities with state interest to be efficient and profitable is not caused by a poor legal regime, but by poor implementation of the legal regime. It appears that the less interest the government has in a commercial venture, the more likely it is that the entity will be run efficiently and profitably.

In 2020, SOEs (wholly government-owned) recorded an aggregate loss of GH¢2.61billion while JVCs (with 10-50 percent government ownership) recorded an aggregate profit of GH¢11.81million. Entities in which the government holds an interest of not more than 10 percent^[19] made an aggregate profit of GH¢11.25billion.

Although these figures ought to be considered within the context of the impact of the COVID-19 pandemic, the trend is quite conspicuous. While the totality of SOEs made a loss during the year in review, SOEs with minority government interests made a profit.

While the totality of SOEs made a loss during the year in review,

SOEs with minority government interests made a profit.

SOEs and JVCs have been reporting net losses and net profits, respectively for quite some time now. Net loss for SOEs in 2017 stood at GH¢1,289million compared to net losses of GH¢2,115million and GH¢30,144million for 2016 and 2015 respectively. JVCs made net profits of GH¢711million in 2016 and GH¢800million in 2017.^[20]

Appointments of key personnel to SOEs are usually spoils of war to the lieutenants who fought alongside the king in the trenches during the election campaign. This practice, which was identified as far back as the days of the State Enterprise Secretariat in 1965, must be changed, or at least, balanced with a mechanism that compels the rewarded lieutenants to comply with the corporate governance principles enshrined in the law.

If these are not done, irrespective of the number of times the king changes the law, or the institution implementing the law, the words of Jean-Baptiste Alphonse Karr will still hold truth.

“Plus ça change, plus c’est la même chose”, to wit:  the more things change, the more they stay the same.

“Turbulent changes do not affect reality on a deeper level other than to cement the status quo. A change of heart must accompany experience before lasting change occurs.”

References

[1] Vickers, John, and George Yarrow. 1991. “Economic Perspectives on Privatization.” Journal of Economic Perspectives, 5 (2): 111-132.

[2] H. Christiansen Balancing Commercial and Non-commercial Priorities of State-Owned Enterprises. OECD Corporate Governance Working Papers no.6 OECD Publishing, Paris (2013)

[3] P. Matuszak, B. Kabaciński Non-commercial goals and financial performance of state-owned enterprises – some evidence from the electricity sector in the EU countries J. Comparative Econ. (2021), 10.1016/j.jce.2021.03.002

[4] A. Musacchio, S.G. Lazzarini Reinventing State Capitalism: Leviathan in Business, Brazil and Beyond (first ed.), Harvard University Press (2014)

[5] Robinett Held by the Visible Hand: the Challenge of State-Owned Enterprise Corporate Governance for Emerging Markets World Bank, Washington, DC (2006)[5]

[6] P. Castelnovo, M. Florio Mission-oriented public organizations for knowledge creation L. Bernier, M. Florio, P. Bance (Eds.), The Routledge Handbook of State-Owned Enterprises, Routledge, London & New York (2020)

[7] Maciej Bałtowski, Grzegorz Kwiatkowski, State-Owned Enterprises in the Global Economy June 2, 2022, by Routledge

[8] Mr. K.Addai-Mensah, Member of Parliament for Bantama during the Second Reading of the State Enterprises Commission Bill May 22, 1981

[9] State Ownership Report 2020 – Ministry of Finance of the Republic of Ghana

[10] State Ownership Report 2020 – Ministry of Finance of the Republic of Ghana

[11] Public Corporations in Ghana (Gold Coast) during the Nkrumah Period – Dr. Dennis K Greenstreet

[12]   Public Corporations in Ghana (Gold Coast) during the Nkrumah Period – Dr. Dennis K Greenstreet

[13] Singh, Naunihal (26 August 2014). Seizing power: the strategic logic of military coups. Baltimore, Maryland: Johns Hopkins University Press. pp. 89 & 139. ISBN 978-1421413365.

[14] The Supreme Military Council

[15] With the exemption of 79 entities stated in the Schedule to P.N.D.C.L. 170

[16] On the corporate governance framework of the various SOEs from the year 2013 to the year 2015.

[17] Public Financial Management (PFM) Act, 2016 (Act 921)

[18] 2020 State Ownership Report

[19] Mostly mining companies

[20] 2017 State Ownership Report

Imagine having to spend a great deal of time, effort, and resources to resolve an otherwise avoidable project-related dispute that arises from a contractor’s inability to complete your project within schedule and budget. What’s more, consider having to expend money to resolve a misunderstanding on the parties’ obligations simply because you failed to monitor and ensure that your project objectives were met. The expense, both financially and time, for the resolution of such avoidable disputes especially concerning construction contracts can lead to financial loss, project cost overruns, and delays with attendant opportunity costs. This and many other reasons are why it is vital that upon the execution of a contract for any project or work, steps are taken to manage and monitor the performance of the contractual obligations of the parties.

The construction sector is one of the most active sectors in Ghana with activities cutting across all forms of infrastructure. The construction sector is ranked as one of the highest contributors to Ghana’s GDP and ranked as one of the fastest-growing sectors of the economy. The sector witnessed a positive growth of 14.2% in the first quarter of 2021 according to figures from the Ghana Statistical Services. As a capital-intensive activity, the costs usually associated with the construction of any infrastructure should warrant that its execution must be without disputes or minimal disputes. A major factor in avoiding (or at least minimizing) such disputes and attendant implications is effective contract administration. The focus of this article is to discuss the importance and requirements of administering contracts. It makes a case for the need for prudent contract management or administration and provides a guide for entities and individuals already implementing projects to improve their contract administration practices to achieve excellent results.

The scope and practice of contract administration

In our day-to-day activities, the administration of contracts is evident in one way or the other, when we strive to ensure we get what we pay for from service providers. From the customer who requests the carpenter to produce an item or the one who commissions another professional to build a physical infrastructure. The constant monitoring of project delivery to ensure that one is satisfied with the product or services being obtained under a contract is administering the contract. This is done to ensure that we obtain an end product that is of the requisite quality, on time, and within budget. The failure to monitor the progress of one’s “order” from a service provider can result in having to deal with all manner of misunderstandings.

From the above, contract administration simply refers to the effective management of contracts between an employer or client and a contractor to ensure the successful realization of the contract objectives. The administration of any contract is not limited to any identifiable group of professionals or specialized practice or industry. If one monitors the progress of “personal projects”, then it is undeniable that for major construction projects in which huge resources are invested, the omission of a diligent and professional administration of the contract would come with unfavorable outcomes.

Thus, it is important that project sponsors or financiers, contractors, and in some cases, regulators ensure that prudent administration of contracts is made a part of any project to help the parties effectively measure the performance of contractors. Instituting this as part of any project also helps to achieve a clear understanding of the contract requirements to maximize contractual benefits and avoid all manner of challenges. Even if challenges should exist, the contract being administered will ensure early detection and resolution of challenges thereby reducing bigger or complex problems in the future.

The initiation or commencement of any project or work will require that the parties (client and the supplier) agree on the scope of the required services, the obligations of each party, the reporting requirements and agreements on how potential disputes will be resolved, and other matters. These details will usually be outlined in a written contract after negotiation of the key terms. An important aspect of the entire contract execution cycle is the contract administration process. The process is all-inclusive and often begins from when the contract is awarded through to when:

• The works/project is completed and accepted by the owner or;
• When the contract is terminated per the contract terms;
• Payment has been made;
• All defects have been rectified; or
• Where disputes have been completely resolved.

The administration of any contract may vary from project to project depending on the project type and size. However, the management or administration of the contract requires the contract administrator to possess a high level of accountability and responsibility. The individual must have the knowledge and skill to understand the relevant contractual provisions, obligations, and rights of the parties, understand the nature of each contractual party’s objectives, and ensure that the agreed terms are complied with to ensure those objectives are met. The individual appointed to undertake this role could be an employee or representative of the project owner whose responsibility is to monitor the contract implementation.

Technically, the role of the administrator will commence when the contract is in place, although practically, the responsibilities will have commenced before the contract comes into existence. It is therefore important to ensure that, a contract administrator is involved at each stage of the contract process until finalization. At the early stages of the contractual cycle for a typical construction project, some of the contract administrator’s roles would generally include, advice on the appropriate procurement method to deploy, the selection of the contractor, and the appropriate contract form to use for the project, etc.

In managing the day-to-day activities of any project, the contract administrator must keep a keen eye on any potential issues that may give rise to future disputes and ensure these are addressed at an early stage. To successfully administer the contract, the contract administrator will have to put in place the relevant steps to be adopted to achieve specific outcomes. The steps should identify the specific tasks to be undertaken, break down the tasks into activities, indicate the timelines for performing each activity, and the precise steps involved with carrying out each activity.

The Process of Contract Administration

To have an efficient administration process, it is recommended to set out in a practical manner activities to be undertaken at each stage of the project. That is at the contract preparation stage, the implementation and completion stages.

The following activities or actions are recommended at each stage:

1. Preparation of a Contract Administration Matrix

It is crucial to develop a schedule that outlines or breaks down all the key deliverables or work structures. It must also incorporate dates or milestones in the contract for achieving specific phases or outputs of the work. The matrix or schedule must have the following:

• A breakdown of obligations – the obligations of each party to the contract (including subcontract) must be identified with a list of the specific people who will perform each task.
• Timelines with inbuilt buffer or lead time for performance – the timelines for the performance of each obligation identified must also be noted. The schedule must ensure adequate lead times to avoid delays.
• Risks or dangers – issues that may lead to project delays, cost overruns inability of service providers to perform, etc. must be flagged in the matrix and steps must be taken to address them.
• Risk prevention or mitigation measures – having identified those potential issues that may pose a risk in one way or the other, the specific actions that must be undertaken to address or reduce the impact of the risks should be outlined.

1. Implementation

• Checklist – it is key to develop a list of all the actions that must be undertaken as part of implementation. Specific documents such as permits, licenses, guarantees that must be submitted, notices to be issued, reports to be submitted, etc. must be included in the checklist as appropriate.
• Alerts – reminders for required activities and reports including the formats of the reports and the mode of delivery must be included in the schedule.
• Notices – ensure that a good communication process is established to help both parties achieve a clear understanding of issues. For example, setting up a project-specific email for all persons involved with different aspects of the project implementation is essential for regular updates.
• Meetings – periodical meetings (including site meetings) must be held between all the stakeholders to help facilitate better communication and manage the project successfully. Records of such meetings must be properly kept.
• Use of payment-tied deliverables – adopting a system where payments are tied to the successful execution of various aspects of the project (which are measurable) will aid in effective administration.
• Proactive engagement – it is important to plan, be in control, and manage all the stakeholders and aspects of the project for timely execution.
• Fallback mechanism – to help counter risks that have a higher impact, the development of a contingency measure is necessary for managing risks so that alternative options can be readily deployed where necessary.

1. Completion

• Testing and handover – clearly identify the persons who will engage in quality control and testing and also establish clear criteria or protocols to be followed for testing, inspection, and handover of the project.
• Defect period monitoring – there should be a periodic review of the completion of all defects and any outstanding works. A final inspection with all relevant parties must be carried out ahead of the expiration of the defect period.

Conclusion

An effective contract administration is beneficial to all parties involved in any contract in one way or the other. The need for project sponsors or owners, contractors, and financiers to ensure that the project in which resources are invested is executed within budget and time cannot be overemphasized. Project sponsors will find that an efficient contract administration will allow them to make some real-time decisions, and review and understand all relevant details of the project during implementation. The opportunity to monitor costs, promote transparency in project cost variations as well as enhanced engagement with relevant stakeholders are some of the numerous advantages that come with contract administration.

It is not, therefore, enough to simply execute a contract and hope that the contractor and all other professionals involved will deliver a good project. Attaining quality services that meet the specifications of the contract, timely completion of projects within budget and problem-free close-outs do not happen by chance. It requires thorough management and supervision by a professional who is dedicated to ensuring that your objectives are met. So the next time a project is being developed, remember to put in place an efficient administration process.

In this competitive global economy, where competition is no longer limited by geography or industry, formidable new competitors can arise seemingly overnight. To succeed in the business environment, organizations must be able to inspire all levels of employees to be innovative or risk being overtaken by creative competitors. In such an environment, one of the surest ways for an organization to fail is its inability to innovate.  A major factor that kills innovation is workplace bullying. Bullies not only stifle productivity and innovation throughout the organization, but they most often target an organization’s best employees, because it is precisely those employees that bullies see as a threat. As a result, enterprises are robbed of their human capital in today’s competitive business environment. For organizations to survive, they must root out workplace bullying before it crushes their employees’ creativity and productivity, or even drives out their best employees, fatally impacting an organization’s ability to compete.

This article discusses bullying in the workplace, looking at its various forms and implications. It also discusses cyberbullying in the light of remote working occasioned by the spread of Covid-19. The article will look at Ghana’s regulatory framework on the subject and propose some measures that workers can adopt when bullied. It then concludes with suggestions on the way forward.

Workplace Bullying

Workplace bullying consists of “acts or verbal comments that could psychologically or ‘mentally’ hurt or isolate a person in the workplace. Bullying usually involves repeated incidents or a pattern of behavior that is intended to intimidate, offend, degrade, or humiliate a particular person or group of people. It has also been described as the assertion of power through aggression”[1]. Bullying, therefore, takes the form of verbal, physical, social, or psychological abuse. Concerning workplace bullying, there is usually evidence of interpersonal hostility in the workplace through aggressive behaviors which happen frequently over a long time. Further, it happens where there is an imbalance of power.

Forms of Workplace Bullying

Workplace bullying may take various forms. The verbal or physical abuse may be obvious. However, other less obvious forms include:

1. Requesting an employee to undertake new tasks or tasks that fall outside the employee’s typical duties or skill set without training.
2. Stalling applications for training, leave, or promotion without valid reasons.
3. Removing areas of responsibility without cause.
4. Giving unreasonable deadlines that will set up the individual to fail.
5. Constant or frequent unwarranted supervision by the employee’s supervisor or manager.
6. Persistently ridiculing an employee with the explanation that the employee cannot handle his/her work and thus requires further training though the specific shortfalls are not discussed with the employee.

These incidents may initially seem random. However, they may become continuous and cause the employee to worry that such incidents are a result of his/her actions and cause the employee to fear that he/she is likely to be fired or demoted.  Consequently, thinking about work, even during time off and leave days may cause anxiety, fear, and stress affecting the employee’s physical, emotional, and mental health which may indirectly impact their work output. There are instances where workplace bullying has led to the death of employees by suicide as happened in the Brodie Panlock case in Victoria, Australia where a 19-year-old took her own life after being relentlessly bullied at work leading to the passage of the Brodies Law.[2]

Remote Working and Cyber Bullying

Workplace bullying is not only confined to the physical workplace where the employees meet as a group. The COVID-19 pandemic brought about an increase in remote working, that is, working from home or places other than the physical workplace designated by the employer. As companies shift to remote work, workplace bullying has shifted into cyber bullying which is on the rise[3]. Workplace cyberbullying typically occurs through email, social media, internal communication platforms, voice calls, or text messages. Workplace cyberbullying is generally defined to cover “frequent interruptions during virtual meetings, unkind emails and repeated and excessive emails from managers. Some employees may “hide behind their screens” and not uphold the usual standards expected of them”. With this work arrangement, bullies can reach their victims at all times of the day due to the increased use of and reliance on technology to communicate. Natalia D’Souza, of Massey University in New Zealand, stated that “workplace cyberbullying can extend into targets’ home lives and act as a constant stressor, preventing them from unwinding and replenishing their coping resources.” Cyberbullying has the same effect on employees as in-person workplace bullying. The emotional turmoil to the victim and the risk to the organization remain the same.

Implications of Bullying

Workplace bullying (including cyberbullying) exists in organizations often between a superior and a subordinate and in less varying degrees between or amongst co-workers. Bullying can have serious effects on the physical, emotional, and mental health of an individual leading to anxiety, depression, and low self-worth. Bullying in the workplace is a systemic problem related to the actions and reactions of an organization. It also affects the individuals involved, as well as all those who witness the behavior. Whilst witnesses may be willing to actively help and support the employee being bullied, it is often very difficult for them to stand up against the bully. Often, they fear retaliation from the bully, as they fear losing their job or may believe that they do not have the authority to intervene. Additionally, persons who witness such bullying may either ignore the bullying or frame it as “normal behavior”, especially when it is recurrent within the organization without consequences or without the perpetrator being held accountable. These behaviours affect the productivity of the individual and since the achievement of the organization is dependent on the collective efforts of all its staff, poor performance of individual staff has a snowball adverse effect on the organization. Specifically, workplace bullying will result in poor work performance, valuable employees leaving the organization, and a hostile work environment.

In a survey conducted by the International Bar Association’s Legal Policy and Research Unit, which examined the nature, prevalence, and impact of bullying at the workplace, the responses showed that the failure to combat bullying has very serious consequences, including employees leaving the workplace. The ultimate effect of this is that it is likely to lead to a detrimental impact on the brand and reputation of the organization. Where there is no accountability for bullying in an organization, it can quickly become an entrenched problem. When this happens, there are implications not only for the employees but the organization too, as unhappy staff are not productive staff.

Regulatory Framework in Ghana

Ghanaian law provides that every worker has the right to work in a safe and healthy environment. Consequently, all employers have a responsibility to ensure that their employees work under satisfactory, safe, conducive, and healthy conditions by developing and implementing workplace practices that address inappropriate workplace behavior and respond to complaints effectively. The Constitution of the Republic of Ghana, 1992, (“Constitution”) and the Labour Act, 2003 (Act 651) both provide for the need for an employee to work in a safe, healthy, and conducive environment. Too often, however, the focus has been on physical safety in the work environment and not the behaviors of colleagues employees, or superiors that affect the mental health of workers. Whilst it can be argued that bullying detracts from the requirement of a safe working environment, it is overlooked and not expressly mentioned in the regulatory framework. The Constitution and Article 1 of the Universal Declaration of Human Rights (UDHR) also prohibit discrimination based on gender, race, color, sex, religion, political opinion, national extraction, economic status, or social origin. If such factors form the basis of bullying at the workplace, such acts will be in breach of the statutory provisions against discrimination.

What Employees Can Do When Bullied

Unfortunately, there is not a one-size-fits-all approach. In a publication titled “Dealing with Workplace Bullying- A Practical Guide for Employees” published by the Government of South Australia under an Interagency Roundtable on Workplace Bullying discussion, the following can be considered as remedial and coping mechanisms:

1. Employees who feel bullied must try to respond instead of reacting. Responding means being prepared for the outcome in advance and assessing the outcomes. Approach the bully and make it clear to the bully as soon as possible that the behavior is unacceptable.
2. Employees must familiarize themselves with their rights and know their workplace bullying policy and the reporting procedure and follow it if needed. These procedures are often in an Employee Manual or the Employment Contract.
3. Use more formal procedures to resolve the issue. By this approach, a formal investigation may be required if the informal procedures are not successful, or the situation is more serious.

If the situation cannot be resolved, consider the option of leaving the organization, as it is difficult to change a bully. Real behavior change is difficult, and it takes time. A bullied person would not have control over the bully’s willingness to accept that they have a problem and to work on it. Thus, the option available is to manage the situation. In the worst-case scenario, an employee who is bullied may decide to leave the job or be prepared for a long hard fight with the bully.

What Employers Can Do in Bullying Matters

Employers must take steps to maintain a work environment that is devoid of bullying. There must be active steps and measures to discourage bullying and to effectively deal with it quickly if it happens. Specifically, employers must:

1. Ensure current policies and procedures address issues related to employees respecting one another in the workplace (physical or remote).
2. Provide easy access to communication channels and support systems
3. Process complaints fairly by implementing a standard investigation process to evaluate reported incidents.

Just as employers have preventative measures to deal with employees’ physical health, there must be systems to deal with bullying which affects the mental health of employees.

Recommendations and Conclusions

Bullying is not acceptable under any circumstance as it has, in extreme cases, caused the deaths of bullied employees by suicide (as in the Brodie Panlock Case). Bullying, therefore, has no place in an organization that seeks to be successful. Consequently, workplace bullying requires greater focus and priority due to its adverse effect on the employee. For organizations to compete, the organization needs to adopt internal measures that allow for complaints and investigation of bullying behavior without victimization. Additionally, the organization must train human resource personnel and managers to spot red flags such as when a superior refuses to assign tasks to particular employees, consistently undermines the employee’s work, or socially excludes particular employees and addresses them effectively. Stricter punishment must apply to bullies, especially in cases of serious bullying such as persistent criticism. Having a workplace policy on bullying that does not allow interference with any investigation is a step to prevent workplace bullying and is likely to benefit organizations and the health of their employees. This will ultimately boost staff retention and more especially retain top talent of the organization.

There should be a national dialogue to have a robust regulatory framework that adequately caters to persons bullied at the workplace and makes the penalty punitive enough to serve as a deterrent to others, especially in instances where the bully intends their victim to experience “mental harm” which encompasses suicidal thoughts and self-harm.

Above all this, workers must always remember to take care of their own emotional and physical health first!

[1] Definition by the Canadian Centre for Occupational Health and Safety

[2] Crimes Act, 1958 (Act Number 6231/1958) Version 294, and (Section 21A (8), Amendment to the Victorian Crimes Act, 1958

[3] Gwen Moran, Why Remote Work Hasn’t Cut Down on Workplace Harassment, /www.fastcompany.com/90694967/why-remote-work-hasn’t-cut-down-on-workplace-harassment

Former United Nations Secretary-General Kofi Annan once famously said —” It is my aspiration that health finally will be seen not as a blessing to be wished for, but as a human right to be fought for.”  The right to health is now universally recognized as an integral part of human rights. In Kenya, the right to health has been categorized as a socioeconomic right that has its footing in Article 43 of the Constitution which provides that: “Every person has the right to the highest attainable standard of health, which includes the right to health care services…”

Health and medical care are intrinsically linked; although one never needs medical care when one is healthy, good health, once lost, is restored through good medical care. In what way therefore does the right to medical care play out in the employment context? Do employers have the duty to guarantee their employees the right to health as enshrined in the Constitution? Does the Employment Act cast any obligation upon employers to ensure (or try their best to ensure) the good health of their employees?

The Employment Act on the Right to Health

Part V of the Employment Act lists all the duties of employers concerning contracts of employment. Of particular note in the context of health is the employer’s duty to provide medical attention, prescribed under section 34 of the Employment Act. The duties are set out as follows:

(1) An employer shall ensure the provision sufficient and of proper medicine for his employees during illness and if possible, medical attendance during serious illness.

(2) An employer shall take all reasonable steps to ensure that he is notified of the illness of an employee as soon as reasonably practicable after the first occurrence of the illness.

(3) It shall be a defense to a prosecution for an offense under subsection (1) if the employer shows that he did not know that the employee was ill and that he took all reasonable steps to ensure that the illness was brought to his notice or that it would have been unreasonable, in all the circumstances of the case, to have required him to know that the employee was ill.

The Court’s interpretation of section 34 of the Employment Act

The Employment and Labour Relations Court is a specialist Court set up under Article 162 of the Constitution to hear and determine matters on employment and labor relations. While Parliament must enact and pass legislation, the duty of interpreting the law is vested in the Courts.

The Employment and Labour Relations Court was recently called upon to interpret section 34 of the Act in the case of Eddie Mutegi Njora v Mega Microfinance Co. Ltd [2015] eKLR.

Brief facts of the case

On 26th July 2008 the Claimant was employed as an Administrative Officer with the Respondent but a written contract of employment was only issued to him on 22nd February 2011 and was backdated to 26th July 2008. The Claimant was also simultaneously engaged with Mega Initiative Welfare Society which was a sister entity to the Respondent company. The terms of the Claimant’s contract were that he would be paid Kshs. 40,000.00 per month as his salary; be entitled to 30 days leave per year; and an in-patient medical cover. The contract of employment was not issued immediately as is required by law and as a result, the Claimant did not know his terms and conditions of work. On 27th June 2011 the respondent issued the Claimant with a letter notifying him that his contract of service would end on 31st July 2011. Upon termination of the contract, the Respondent filed suit seeking:-

1. a) Accrued leave;
2. b) 3 years’ service pay
3. c) Unpaid medical cover; and
4. e) Compensation for not being issued with an employment contract

Decision of the Court

Upon hearing the case, the Court pronounced itself as follows concerning the employer’s duty under section 34 of the Act:-Where an employer provides a medical cover, such a cover is to ensure the employer has taken a progressive step to ensure all employees are covered in terms of medical care and attention at all times. Where an employer has not provided such a medical cover, once an employee is unwell, such information should be brought to the attention of the employer as soon as it is reasonably practical.

The employer then has to address the matter as appropriate where such sickness has been brought to their attention. The evidence by the Claimant is that he remained without medical cover from March to July 2011 and therefore should be compensated for the lack of such medical cover.

The Claimant however failed to submit any evidence of sickness and need for medical attention that was brought to the attention of the Respondent and that the Respondent failed to address such a  situation or that the Claimant was forced to incur medical bills and the Respondent failed to reimburse. The respondent here has to ensure the provision sufficient and of proper medicine for his employees during illness and if possible, medical attendance during serious illness as under section 34(1) of the Employment Act.

 Conclusion

The Court, in its application of section 34 of the Employment Act, adopted a literal approach and did not cast any greater burden upon employers to provide medical care for employees than what the Act expressly provides for.

There was no suggestion by the Court that an employer must obtain medical cover or insurance for employees but the Court did acknowledge that an employer that elects to do so (provide medical cover) is taking progressive steps towards ensuring its employees have the necessary medical care and attention at all times.

The Court however did confirm that the employer must provide proper medicine to its employees during illness, and medical attention during serious illness. Whilst the Court found that the employer has to know of any illness affecting an employee, there is an equal duty owed by employees to inform the employer of the same.

Background When an employment contract is terminated, it is common practice for employers to issue their employees with a clearance form that contains a clause that purports to discharge the employer “from all further or future claims whatsoever” upon payment of final terminal dues to the employee. Such clauses constitute what is referred to as a discharge agreement.

The discharge agreement is essentially a contract between an employer and an employee that crystalizes the rights of each party at the date of the termination of employment. Discharge agreements ordinarily contain an undertaking by the employer to make payment in full and final settlement of all salary and benefits payable to the disengaged employee in consideration of the employee discharging the employer from any further liability arising from the employment relationship.

 

The question that has innumerably arisen in ensuing litigation is whether discharge agreements are effectively binding on the parties, and whether the Courts are therefore obliged to uphold them. Put differently, whether the discharge agreements have the effect of barring further claims from being made by either of the parties.

The Employment and Labour Relations Court (ELRC) has laid down a general presumption that there is no equality of bargaining power in an employment relationship, with the employer holding the upper hand. Consequently, the ELRC has tended to water down the binding nature of discharge agreements. This general presumption flows from the fact that an employee, at the time of termination, would be desperate to receive payment of his terminal dues and would therefore sign the discharge forms with an element of economic duress at play, and without giving much thought to the implications of the discharge agreement.

Consequently, the ELRC’s general position has been that discharge clauses contained in termination clearance forms do not discharge the parties from further claims or statutory obligations. This article discusses and highlights the apparent paradigm shift from this erstwhile position held by the ELRC by considering emerging case law emanating from the Court of Appeal and a recent landmark decision by the ELRC that sets out the principles to consider when dealing with the legal effect of discharge agreements.

 

Paradigm Shift

In the case of Thomas De La Rue (K) Ltd. v David Opondo Omutelema (2013) eKLR, the Respondent (an employee) had signed a clearance form which was duly witnessed, in which he confirmed having received from the Appellant (the employer) “in full and final settlement of all salary and benefits payable towards my redundancy package and all other claims arising from my employment with the company except for provident fund.” The Court of Appeal, whilst observing that the ELRC gave the discharge agreement short shrift, agreed with the ELRC that a discharge agreement cannot absolve an employer from statutory obligations, and that it cannot preclude the ELRC from enquiring into the fairness of a termination.

However, the Court of Appeal emphasized that each case turns on its own peculiar facts and that the trial Court should make a determination whether the discharge agreement was freely and willingly executed when the employee was seized of all the relevant information and knowledge.

The Court of Appeal further found that the suggestion that the Courts should treat all cases involving discharge agreements in the same way was erroneous, and clarified that the ELRC should not adopt a general presumption and apply it rigidly in each and every case without considering whether the presumption has been rebutted or not i.e., whether evidence had been led to support or disprove the validity of a discharge agreement in the circumstances of the case.

It therefore follows that the answer to the question as to whether discharge agreements should be a bar to further claims turns on the facts of each case. In the case of Coastal Bottlers Ltd. v Kimathi Mithika (2018) eKLR, the Court of Appeal was once again called upon to consider the validity of a settlement agreement which read in part:

“I,…certify having received the sum of Kenya Shillings One Million Five Hundred Sixteen Thousand, Two Hundred and Eighty-One (Kshs. 1,516,281) being my full and final payment due to me from Coastal Bottlers Limited as follows…I confirm that, I have no further claim against the Company whatsoever.” The Court of Appeal held that the parties had agreed that payment of the amount stated in the settlement agreement would not only absolve the employer from any further claims under the contract of employment, but also in relation to the employee’s termination. Consequently, the agreement was a binding contract between the parties as the employee neither denied signing the same nor was there any evidence of misrepresentation, duress or incapacity on the employee’s part at the time of executing the settlement agreement. In upholding the binding nature of the discharge agreement in the Coastal Bottlers Ltd. case, the Court of Appeal upheld the finding in Trinity Prime Investment Ltd. v Lion of Kenya Insurance Company (2015) eKLR, that the execution of a discharge voucher constituted a complete and binding contract. Accordingly, all the ELRC is required to do is to give effect to the intention of the parties as discerned from the discharge agreement, upholding the notion that the function of the Court is to enforce and give effect to the intention of the parties as expressed in their agreement as enunciated by Sir Charles Newbold P., in Damondar Jihabhai & Co Ltd. & Anor v Eustace Sisal Estates Ltd. (1967) EA 153

Guidelines What then should one look out for when entering into a discharge agreement upon termination of an employment relationship? In the recently decided case of Pauline Waigumo v Diamond Trust Bank Ltd. (2021) eKLR, the ELRC, in declining to reopen the question of monetary compensation between parties who had signed a discharge agreement, laid out general guidelines in dealing with the effect of discharge agreements on further claims by concerned parties through future litigation, as follows:

• As a general principle, a pre-trial settlement operates as a contract between the parties
• It is to be considered as generally binding on the parties unless it is assailed on the usual grounds that will vitiate a contract
• Such settlements may, albeit not always, constitute a full settlement of the issues under consideration with the consequence that parties to them may not pursue further claims on the same subject either in Court or otherwise
• There is no general principle that such settlements will inevitably discharge an employer from his/her statutory obligations under the contract of service
• In order to determine whether the settlement operates as a bar to further claims by the parties to it, a trial Court or other arbiter must consider: the import of the settlement; whether the parties executed the agreement freely; and whether they had relevant information and knowledge regarding the settlement
• The mere existence of a pretrial settlement should not be construed as taking away the Court’s jurisdiction to inquire into the lawfulness of a termination of a contract of service

Consequently, a Court faced with a question on the validity of a discharge agreement ought to address its mind firstly, to the import of such an agreement and secondly, to whether the same was freely and voluntarily executed by the parties.

 Upshot

Discharge agreements are intended to determine with finality the rights of the parties at the time of termination of employment. The common grain flowing from the foregoing analysis is that discharge agreements are binding on parties if they are entered into freely and willingly, and in the absence of any of the conditions that would warrant the setting aside of a contract such as coercion, fraud, mistake, misrepresentation, or incapacity. It cannot be gainsaid that there is an apparent shift by the Courts in dealing with the effect of discharge agreements on further claims by the affected parties through litigation. Whereas it can be said that Courts have breathed life into discharge agreements, it must be noted that these agreements do not negate an employee’s right to institute a claim for unfair or unlawful termination – with each case turning on its own facts, including the validity (or lack thereof) of the discharge agreement. Ultimately, employers are still duty-bound to ensure strict compliance with the provisions of the Employment Act, 2007 during termination of employment.

There has been a rise in mergers and acquisitions transactions (M&A Transactions) in Kenya even as business entities grapple with tough economic times and the ability to stay afloat in the evolving business market. The recent acquisition of National Bank of Kenya Limited by KCB Bank PLC, the merger of NIC Group PLC and Commercial Bank of Africa Limited, the acquisition of Quick Mart and Tumaini Self Service Supermarkets by Sokoni Retail Kenya to form a single retail operation and the proposed acquisition of one hundred percent (100%) of the issued share capital of De La Rue Kenya Limited (a subsidiary of De La Rue PLC) by American firm HID Corporation Limited are some of the notable M&A Transactions that have taken place in Kenya in 2019. All these recent M&A Transactions have brought to the fore, among other issues, the fate of employees in the merging entities. In most instances, a high number of employees are declared redundant and thereafter, have to wait for fresh advertisements of positions by the merged or acquiring entity and apply to be recruited.

Employment and labour law considerations feature highly during M&A Transactions. More often than not, such transactions lead to loss of employment due to the restructuring of the target company, or the change in character and identity of the transferring entity. Unlike other contracts involving assets and liabilities of the transferor, contracts of employment are currently not assignable to the acquiring entity under Kenyan law.

 

Other than setting out the basic conditions of employment and addressing the legal requirements for engagement and termination of employees, both the Employment Act, 2007 and the Labor Relations Act, 2007 are silent on the effect of M&A Transactions on employees. In practice, the contracts of employment are terminated on account of redundancy subject to compliance with the conditions as set out under section 40 of the Employment Act.

 

In some instances, the Competition Authority of Kenya (the Authority) established under the Competition Act, 2010 undertakes a public interest assessment to ascertain the extent to which the M&A Transaction will cause a substantial loss of employment and impose conditions to mitigate such as has been in case of the acquisition of National Bank of Kenya Limited by KCB Bank PLC where the Authority approved the merger on condition that KCB Bank PLC retains ninety percent (90%) of the employees from National Bank of Kenya Limited for at least eighteen (18) months. This was also seen in the merger between NIC Group PLC and Commercial Bank of Africa Limited where the Authority approved the merger on condition that both entities retain all the employees for at least one (1) year.

 

Proposed Law

The Kenya Law Reform Commission, a statutory body established under the Kenya Law Reform Commission Act, 2013 with the mandate to review all the laws of Kenya to ensure that they are modernized, relevant and harmonized with the Constitution of Kenya, 2010, recently prepared a draft Employment (Amendment) Bill, 2019 (the Bill) which amongst other provisions, proposes to amend the principal Act (being the Employment Act, 2007) by introducing a new section 15A which provides for the transfer of employees during M&A Transactions.

 

The proposed section 15A provides that such transfer of employees shall not operate to terminate or alter the terms and conditions of service as stipulated in the original contracts of the employees. It also creates an obligation on the transferor to notify and consult with the affected employees or their representatives regarding the anticipated transfer, the implications of such transfer and the measures that the transferor envisages will be taken to mitigate such implications. Further, the Bill provides that any dismissal taking place prior or subsequent to the transfer shall amount to summary dismissal if such dismissal is premised on the transfer.

 

Essentially, the Bill seeks to eliminate the difficulties occasioned during M&A Transactions by ensuring that the employees are not left out in the cold when their employer is bought out. It also creates an obligation for the transferor to inform and consult with the employees who shall be affected in an M&A Transaction. This has been the practice in other jurisdictions such as the United Kingdom and even closer home, in neighbouring Uganda.

 

The Bill borrows heavily from the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE Regulations) as amended by the Collective Redundancies and Transfer of Undertakings (Protection of Employment) (Amendment) Regulations 2014 applicable in England and Wales. TUPE Regulations are aimed at protecting the rights of employees in M&A Transactions in England and Wales by imposing obligations on employers to inform and, in other cases, consult with representatives of affected employees. Failure to comply with these obligations attracts penalties and sanctions to the employer.

 

Critique

While the proposed law could be seen as a relief for employees who are mostly losers in M&A Transactions, it brings with it several challenges and may potentially make M&A Transactions even more complex and strenuous, particularly on the part of the transferee.

 

Firstly, all the transferor’s rights, powers, duties and liabilities in connection with any employment contract shall be transferred to the transferee. Further, the transferee shall be liable for all the employees’ dues dating back to the commencement of the employment contract. This also means that the transferee shall shoulder all the liabilities that arose from the transferor’s engagements with its employees, including but not limited to cases initiated by and against the transferor.

 

Secondly, the proposed amendment as currently drafted may subject the parties in M&A Transactions to unnecessary costs and restrictions. It may not be practical to place the transferee under an obligation to automatically retain all the employees of the transferor without any loss of benefits or contractual dues. Such a provision shall defeat the purpose of M&A Transactions, as most of them are geared towards restructuring the business for purposes of reducing operational costs.

 

With respect to the dismissal of employees immediately prior or subsequent to an M&A Transaction, the proposed amendment as currently framed might open a pandora’s box as it may operate as a blanket protection to all employees including those whose contracts may be terminated for valid reasons during the transition period. The proposed amendment as drafted protects employees against redundancy processes while creating a higher standard of proof against the transacting parties with regards to any termination disputes arising in the course of an M&A Transaction.

 

Further, the proposed amendment fails to appreciate the contractual rights and obligations of parties with respect to employment and M&A Transactions. There should be provision to allow the transferee to freely negotiate alternative arrangements and contractual obligations with the transferor’s employees and maybe set the standards that should guide this process. By doing so, the parties would have a better chance to make agreements that are favourable to all.

 

Conclusion

While the issue of how to deal with employees and employment contracts remains a challenge in M&A Transactions in Kenya, the proposed amendments to the Employment Act will no doubt come as a sigh of relief for many employees who have long viewed themselves as collateral damage in M&A Transactions. However, the proposed amendment is likely to increase the cost of undertaking M&A Transactions in Kenya which may well end up being counterproductive as regards the rationale for which the M&A Transaction was carried out in the first place.

The early 1990s saw a transformation in the Kenyan labour market with the marked rise in part-time and casual workers. This was brought about by efforts to cut labour costs since casual and part-time workers were thought to be ineligible to employment benefits as compared to full-time employees. The trend continues to date, more so in the wake of the Covid-19 pandemic which has wreaked havoc on the global and national economy and is set to continue doing so. It is therefore an appropriate time to consider the nature and meaning of part-time employment; the advantages and disadvantages it offers to both employers and employees alike; and the prevailing law on part-time employment.

What is Part-time Employment?

The International Labour Organization Part-Time Work Convention, 1994 (the Convention) defines a part-time worker as an employed person whose normal hours of work are less than those of comparable full-time workers. Locally, the term “normal” working hours is not defined in the Employment Act, 2007 (the Act) making it difficult to define a part-time worker. The Act confers power on employers to regulate employees’ working hours in line with their contract of service but does not expressly state the maximum working hours of an employee.

Rule 5 of the Regulation of Wages (General) Order which constitute the regulations under the Labour Institutions Act, 2007 provides that the normal working week shall constitute a maximum of fifty-two (52) hours spread out over six (6) days of a calendar week. It further provides that the normal working week of a person doing night work should be not more than sixty (60) hours per work week. While this rule provides the law on maximum working hours, nothing is stated about normal working hours or the threshold from which part-time work begins. This is despite part-time workers constituting a significant number of the workforce in Kenya. Foreign legislations are known to provide a threshold under which an employee is considered to be working part time, which should stand as a challenge to the Kenyan Parliament to define normal working hours as well as to provide clarity in matters concerning part-time employees.

Pros and Cons of Part-time Work to Employees

Whilst most employees would opt to be employed on a full-time basis, some are forced to take the part-time work route for diverse reasons. However, it is important to note that part-time work offers certain advantages to employees. First, it can be a suitable learning process for a young person hoping to gain clarity as to which field they should pursue a career in. It also allows people with other pressing commitments to take up work in a flexible manner. This proves to be a viable option for students who ordinarily attend classes as well as primary care givers who have to take care of their loved ones at home.

Part-time work also has its disadvantages considering that it is perceived to be a cost cutting measure for employers meaning that such employees often do not enjoy the employment benefits that full-time employees do. These include health benefits, provision of food, water and housing, paid leave and set out procedure during termination and dismissal. Further, part-time workers often do not get the full protection of the Act as accorded to full-time employees, hence providing a platform for employers to exert greater control over them. This is more so because such employees are not unionisable given the temporary nature of their work. For these reasons, most employees tend to seek full time employment as the employment benefits, legislative protection and ability to join a union contribute towards greater stability and security at work.

Pros and Cons of Part-time Work to Employers

Offering part-time employment is an attractive option to employers because of the cost cutting opportunities it presents owing to the fact that part-time workers are considered to be ineligible for employee benefits. Furthermore, employers can exert greater control over the labour force since the employees are not unionisable. In addition to the above, hiring and dismissing part-time workers does not require the procedural rigmarole that is envisaged under the Act.

From the employers’ perspective, more so those that require less skilled labour, there are no pitfalls in hiring part-time employees. For those that require highly skilled employees such as universities when hiring lecturers, there is need to consider the cost of high employee turnover especially where the employees find better terms elsewhere. Suffice to state, recruitment and training processes for highly skilled employees, whether employed on a part time of full-time basis tend to be costly.

Rights of Part-time Employees under the Convention

From the above exposition, Kenyan labour legislation does not provide for part-time employees. Therefore, Kenyan Courts tend to look to the Convention to determine the meaning of part-time work and the rights of such workers. This is the practice despite the fact that Kenya has not ratified the Convention.

The Convention largely treats part-time employees the same way it does full-time employees. It engenders the view that the only difference between part-time and full-time employees should be in the pay they receive. To this end, the Convention states that part-time workers have the right to unionize and are entitled to the conditions that full-time employees are entitled to. This includes maternity/paternity leave, sick leave, paid annual leave and public holidays, and procedural fairness when it comes to termination of employment. The Convention also proffers voluntary transition from full-time to part-time work arrangements on the part of employees. This is to prevent such employees from being relegated to part-time status against their will. Taking the approach of the Convention, part-time employees ought to be treated as full-time employees and be entitled to the full benefits that come with such status. If the hours worked is all that separates full-time and part-time employees, then it is only just to accord them the same rights and benefits.

Kenyan Jurisprudence

The Act defines an employee as a person employed for wages or a salary and includes an apprentice and indentured learner. It does not go on to differentiate between full-time and part-time employees but makes reference to the type of work employees undertake using the terms “piece-work” and “task.” Piece-work is defined as any work that an employee does and is paid according to the amount of work performed irrespective of the time occupied in its performance. On the other hand, a task is defined as such amount of work as can, in the opinion of an authorised officer, be performed by an employee in an ordinary working day.

These definitions are only used to define how an employee is to be paid. For a task, they are to be paid on a quantum meruit basis, i.e. for the portion of the task that has been done as at the time their pay is due. For piece-work, employees are to be paid in proportion to the amount of work they have done that month or when they complete the work, whichever is earlier. Notably, in both cases the worker is identified as an employee, and not a casual worker. This means that they are entitled to the full benefits and conditions of work that employees are entitled to.

In Valentine Ataka v Karatina University (2019) eKLR, the claimant, a lecturer employed on a part-time basis, sought to be paid his dues as per the oral contract of employment he had entered with the respondent. The Court found that he was indeed a part-time employee at the university as per the contract and performed work that was in the nature of piece work even though the employer defined the periods within which he was to do his work. The Court considered the provisions of the Convention in making a finding that the employee was indeed a part-time employee but did not consider the rights of such employees as the issue did not arise. The Court ordered the respondent to pay the claimant his dues for the work he had done.

In Peterson Guto Ondieki v Kisii University (2020) eKLR, the claimant, who was a lecturer, sought among other prayers, that the Court compel the respondent to engage him on a full-time basis as a permanent employee as he was being treated differently compared to his colleagues. His claim for discrimination was met with the defence that he was a part-time lecturer and therefore could not expect to be treated the same way as full-time lecturers. Further, the Court cited the freedom of contract that allowed employers and employees to agree on the terms and conditions of employment. The position of a part-time worker in Kenya was not explored nor the attendant rights. However, the Court cited the Act’s protections and provisions without distinguishing the position of the employee as a part-time worker.

Lastly, in Simon Ndungu Kabau v Hillock Country Club (2014) eKLR, the Court considered a claim alleging unlawful termination seeking terminal dues and certificate of service, among others. One of the issues that the Court considered is whether the claimant was a part-time employee as the respondent had claimed. The Court considered the hours that the employee worked to determine this issue. On finding that it was common ground that the employee worked forty (40) hours a week, the Court held that the claimant was a full-time employee and proceeded to apply the protections outlined in the Act for employees.

From the jurisprudence above, Kenyan legislation remains unclear as to the definition and the rights of part-time employee. It could therefore be argued that since the Act does not differentiate employees on this basis, part-time employees should be treated the same as full-time employees, with the difference between them being the salary paid. In addition to the above, the maximum working hours as stated in the foregoing, is fifty-two (52) hours in a six (6) days’ work week, presents the need for Parliament to clearly set out the working hours that constitute part-time work.

Parting Shot

Part-time employees are only differentiated from full-time employees in that the former work for comparatively lesser hours. Kenya has neither defined the work-hour threshold that differentiates the two nor the rights of such employees. Part-time work offers advantages and disadvantages for both employees and employers, which both should consider carefully before entering into an employment contract. Whilst the Convention treats full-time and part-time employees the same with a difference in salary, the Act is silent on their position, leaving the labour market to treat them largely as casual workers. Notably, Courts have also not offered express guidance on the rights of part-time employees as against full-time employees. The ball is therefore in the Kenyan Parliament’s court; to adopt the Convention and provide clarity as to the status of part-time work and the rights of such workers.

Arbitration as a preferred method of dispute resolution has gained popularity in the recent past because it is considered to be flexible, allows for party autonomy and confidentiality, and more importantly, saves time and money in comparison to litigation. There is, however, increased concern and discussion around the costs of international commercial arbitrations and the length of time within which disputes are resolved.

It has been particularly noted that arbitral proceedings are increasingly exhibiting the negative aspects associated with litigation such as high costs, delay and inefficiency. The question of cost-effectiveness and efficiency in international commercial arbitration is one that cannot be over emphasised.

Parkinson’s law states that work expands to fill the time available for its completion. This adage is especially true where the person executing the task is remunerated on an hourly basis as is customary in most if not all international arbitrations. In the context of an international arbitration, this means that the lengthier the proceedings, the higher the costs.

Fortunately, arbitration as a dispute resolution mechanism is designed to allow parties to control the costs and the procedure or process within which this can be done. Party autonomy in arbitration means that parties are the masters of the arbitration process, and they can determine and agree on virtually all the steps taken from the commencement to the conclusion of the arbitral proceedings. If utilised effectively, party autonomy can be a powerful tool for controlling the costs and avoiding delays in arbitral proceedings.

In this article, we discuss various factors that parties to arbitral proceedings must consider if they wish to have the dispute resolved in a cost effective, expeditious and efficient way.

The general costs associated with international arbitration mainly include the arbitrators’ fees and expenses, legal or other costs of the parties such as witness expenses, investigation fees, expert witnesses and the fees and expenses of the arbitral institution concerned. Interestingly an analysis of the breakdown of general arbitration costs done by Louis Flannery of Stephenson Harwood reveals that administrative costs (fees of the administering institution) amount to two percent (2%) of the total cost, the arbitrator’s fees and expenses amount to sixteen percent (16%) of the total cost, while legal counsels’ costs for legal representation amount to eighty-two percent (82%) of the total cost.

What this data shows is that greater focus should be on bringing down the costs for legal representation. In this article, we identify various stages of an arbitration at which costs may be controlled.

a) Administering Bodies and Institutional Rules

From the outset, the parties should decide between an institutional (or administered) arbitration versus an ad hoc (non-administered) arbitration. There are numerous institutions that provide assistance in running the arbitration in exchange for a fee. These institutions assist in the administrative aspects of the arbitration such as organising hearings, handling communication between the parties and the arbitrators, and handling payments. However, they do not decide on the merits of the dispute – this is left entirely to the arbitral tribunal. An ad hoc arbitration on the other hand, places the burden of running the proceedings on the parties and the arbitrators. However, parties may choose a set of arbitration rules designed to aid in ad hoc arbitrations such as those developed by the United Nations Commission on International Trade Law (UNCITRAL).

An institutional arbitration may particularly be beneficial to parties without arbitration experience as it will provide guidance and avoid time consuming discussions between the parties on preliminary issues that are incidental to the main dispute.

Examples of leading international arbitration institutions include; the International Chamber of Commerce (ICC), London Court of International Arbitration (LCIA), the American Arbitration Association (AAA), the International Centre for Settlement of Investment Disputes (ICSID), China International Economic and Trade Arbitration Commission (CIETAC), and the World Intellectual Property Organisation (WIPO). However, some of these institutions are specific to certain types of disputes, for example, ICSID only caters to legal disputes arising out of an investment between a state party to the ICSID convention and a national of another state party to the ICSID convention.

It should be noted however, that fee structures differ depending on the institution, with some institutions charging on the basis of the amount in dispute and others charging on a flat hourly rate basis. The decision to use or not to use an administering body and institutional rules or institutional rules will have an impact on the costs of the arbitrations and parties are encouraged to compare costs of the various institutions beforehand.

b) Drafting the Arbitration Agreement

A well drafted arbitration agreement or clause will avoid preliminary arguments such as whether the dispute is subject to arbitration. Disputes as to the meaning or scope of the arbitration agreement clause are ordinarily determined first and tend to substantially add to the length and cost of the arbitration. Parties should as far as possible, avoid attempting to limit the scope of disputes that are subject to the arbitration unless special circumstances require it. This is because, even when drafted carefully, exclusions may provide an opportunity for preliminary arguments to be raised regarding the jurisdiction of the arbitral tribunal to hear and determine the dispute.

A good arbitration agreement or clause should be clear and should specify the number of arbitrators, the arbitration institution and rules if any, the seat of the arbitration, having regard to practical considerations such as neutrality, availability of hearing facilities, proximity to witnesses and evidence. While the seat of the arbitration does not determine the governing law of the contract and the merits, it determines the law that governs certain procedural aspects of the arbitration. Where parties choose institutional arbitration, ideally, the rules adopted should coincide with the institutional rules. It is also advisable that the parties use the model clause recommended by the institution as a starting point for drafting the arbitration agreement as this would have been tried and tested.

c) Choice of Counsel

Given the significant costs and expenses of international arbitrations, it would be foolhardy for a party to declare a dispute and initiate arbitration proceedings without first carrying out a cost benefit analysis. A lawyer with experience in international arbitration and is familiar with the fee structure and workings of the various administering bodies would be in a position to provide a legal opinion on the merits of the dispute which can then assist a party to take a commercial view on the matter.

Ultimately, the parties should set a realistic budget for the arbitration at the initiation of the arbitration and cross-check with their legal counsel on whether the funds set aside will suffice. Parties may also require that their counsel seek their approval before exceeding a set limit.

The choice of legal counsel is therefore vital if a party is to keep the costs and length of the arbitration down. Parties are encouraged to select lawyers with a reputation for efficiency and availability. Selected lawyers should also have specific arbitration expertise as opposed to litigation. In fact, there is nothing to prevent a party from interviewing or pre-screening potential legal counsels and requiring that they confirm their “availability for an efficient and reasonably expeditious schedule.”

d) Terms of Reference and Case Conferences

The terms of reference and case management conferences have been hailed as the kernel of cost-effectiveness in international arbitration. Both are very useful tools for managing arbitrations in order to ensure the fast and efficient progress of arbitral proceedings as they set out framework of the arbitration from the beginning to the end.

The terms of reference are drawn and signed by mutual consent of the parties and include information relating to the parties and arbitrators, a summary of the pleas and defences of the parties, the claims, the dispute in question, and the procedural provisions which shall be applied. More importantly it may be used to compel the parties to provide case summaries in order to narrow down the issues and empowers the arbitral tribunal to decide procedural issues while dispensing with physical meetings as much as possible and using conference calls.

At this stage, parties may also consider whether it is necessary to join other parties or consolidate disputes with a view to avoiding a multiplicity of suits thereby cutting down costs and enhancing efficiency.

e) Evidence Production, the Hearing and the Award

The production of numerous unnecessary documents that are not material to the matters in dispute can spike the costs of arbitration and cause significant delays in the expeditious resolution of the dispute. It is therefore imperative that parties produce only those documents that are material to the dispute rather than all documents that are relevant to the dispute. For example, there is no need to produce documents in respect of non-controversial facts. Parties should also agree on an organised system of producing and identifying the documents and as far as possible avoid duplication and adopt a coherent system of numbering. As a general ruleall documents should be submitted in electronic form and should be considered authentic unless their authenticity is challenged. As a preliminary matter, parties should consider whether it is entirely necessary to have an oral hearing, and whether the dispute can be determined on the basis of the documents produced by the parties. This can significantly cut down the on the costs of witnesses, accommodation, travel expenses, hiring a venue among others. It also greatly reduces the length of the arbitration.

The existence of a hearing agenda, a fixed timetable and time keeper as well as regular “housekeeping” sessions throughout the hearing aid in saving time. Other considerations include, whether the location of the hearing is convenient for all parties, whether the number of witnesses may be limited, whether consecutive hearing dates can be scheduled to avoid back and forth travel and minimise travel costs and conducting a pre-hearing conference in order to discuss logistics of the hearing; At the end of the hearing, parties should seriously consider whether closing submissions are necessary, and if they are, they should elect to have either oral or written submissions but not both. It will also save time and costs for the arbitral tribunal to specify the questions that they wish to be addressed in the closing submissions.

The arbitral tribunal must use its best efforts to submit the draft award to the administering institution as quickly as possible and within the timeline set by the administering institution if any and must ensure that time has been reserved in their diaries after the hearing for deliberation on the dispute. It may be prudent to select an administering institution that scrutinizes and reviews the award before it is issued as it avoids further litigation that may be initiated in local courts as grounds for setting aside the award.

Conclusion

Whereas there is a wide range of tools and devices that are available in arbitrations to ensure that the arbitration is conducted cost-effectively and efficiently, the ultimate decision depends on the various stakeholders involved in international arbitration that are key in monitoring and determining the ultimate cost and length of the arbitration. These are, the parties to the arbitration (or in-house counsel), external counsel, and the administering institution the arbitral tribunal, all of whom have a role to play in assessing the objectives and merits of the arbitration, drafting the arbitration agreement, engaging in pre-arbitration negotiations, setting a budget for the arbitration, selecting the arbitral tribunal, determining the procedure and procedural rules applicable to the arbitration among other matters. Arbitration may indeed be cheaper than litigation. However, in the realm of international institutional arbitration, the cost-effectiveness of the arbitral process requires conscious effort from the various stakeholders.