An Evaluation into the Use of Arbitration as a Dispute Resolution Method in Supplier-Buyer Relationship

Abstract

Nowadays, the creation and the management of effective supplier relationship is considered a sine-qua-non for the continued survival of business organisations. However, the benefits of effective supplier relationships could be overshadowed with the eruption of dispute in the supply chain. This study evaluates the usefulness of arbitration in resolving commercial disputes in supplier-buyer relationship of the Nigerian upstream oil and gas industry supply chain. Online questionnaires were sent to a sample of 49 oil and gas exploration and production companies. Forty-one completed questionnaires were received and analysed using descriptive statistics and content analysis technique. Analyses of the responses revealed that delays in performance of duty, payment related issues and complexities in the contract terms and conditions as the main causes of disputes between majors and contractors in the industry. Part of the analyses also shows that most contractual relationships in the industry contain arbitration clauses at the signing up of the contract agreements thereby limiting the number cases that go through the formal arbitration process. Additional analysis further shows the benefits of arbitration in resolving commercial disputes to include, among other benefits, timeliness, privacy and the expertise of the arbitrator in the field of the dispute. These are not quite different from the list of benefits cited by other literature on arbitration. Nevertheless, majors and suppliers may encounter challenges of choosing the appropriate law and the appropriate arbitrator when deciding to use arbitration in resolving their disputes. One interesting outcome of this study is that the adoption of arbitration as a method of resolving contractual disputes in the Nigerian oil and gas industry does not result in ending contractual relationships between majors and contractors/suppliers and for this the author concludes that arbitration could be an effective means of resolving commercial disputes in the upstream oil and gas industry supply chain.